Case Study - Kicking Horse Canyon Highway

The contract to build and operate the second phase of the Kicking Horse Canyon project was awarded in 2005 by the Province of British Columbia (‘the Client’) to Trans-Park Highway Group, a Special Purpose Vehicle (SPV) led by Bilfinger Berger Project Investments. The project comprised the upgrading of approximately 6km and the operation and maintenance of 26km of highway, through the Canadian Rocky Mountains.

A key element of the project was the spectacular new four-lane Park Bridge, over 400m long and with five piers reaching up as high as 90m. The new road opened to traffic in August 2007, several months ahead of schedule, and was subsequently completed in March 2008. The construction was completed by a joint venture (JV) between Parsons Overseas Company and Flatiron Constructors Canada Limited.

The construction contract passed the responsibility for the design and construction of the new works to the JV for a fixed price with a fixed completion date. A key risk mitigant was that, should the contractor have missed this date, the JV would have had to compensate the SPV via liquidated damages for its lost concession revenues. The concession expires in October 2030.

This project has a contractual revenue stream paid by the Client, consisting predominantly of an availability-based payment, together with a safety payment (dependent on the safety record) and a small element of ‘shadow toll’. Shadow toll refers to a revenue structure whereby the Client pays the SPV based on the volume of traffic using the road, in line with a banded structure. This limited exposure to traffic usage is mitigated by a number of factors:

• the project is the upgrade of an existing highway with detailed traffic history spanning over 15 years;

• the Kicking Horse Canyon is one of only a few roads that allow traffic to cross the Canadian Rockies. This canyon has been the route of choice for over 100 years for both the Trans-Canada Highway and CP Rail, which share the Canyon. The route is not tolled and the only alternative route is a three and a half-hour detour. This is not expected to change for the remainder of the concession; and

• continuing development of recreational resorts (e.g. snow sports) in the Banff National Park, for which this road provides access.

The HICL Infrastructure Company Group purchased a 50% interest in the project in November 2010.