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Appraising PPP Projects

422 Getting Ready for the Next Phase: Check List

At the end of the Appraisal Phase, a considerable amount of the technical work required for a thorough preparation of a PPP project will have been done. In fact, this work sets the stage for the structuring of the project and, indeed, for several aspects of the procurement process and contract management.

It is therefore paramount to conclude the appraisal exercise having made considerable progress toward the preparation of final project documentation as well as other conditions that are necessary for the procurement. Failure to meet certain standards at the end of the Appraisal Phase might lead to a decision based on insufficient information, or to an inadequate starting point for the structuring exercise. The following points need to be fully addressed at the end of the Appraisal Phase:

  • The technical requirements are described, in terms of infrastructure design and service specification, to the level of detail needed to accurately estimate Capex and Opex;
  • The relevant technical risks, including geo-technical risks, are clearly identified and thoroughly analyzed;
  • The project is considered technically feasible, considering the technological assumptions and any outstanding risks associated with the technical requirements of the projects;
  • A financial model is functional, allowing for sensitivity analysis of the main technical and financial assumptions;
  • A base case is described by the financial model, and the equity free cash flow is clearly estimated;
  • The project is considered commercially feasible, in the sense that it meets the financial criteria of an appropriate project and equity cash flow;
  • A preliminary structure of the project is designed indicating a proposed risk allocation and payment mechanism;
  • The project has been submitted to the relevant market players through a structured sounding exercise, and all the issues identified were dealt with the updated financial data has been put into the Cost-Benefit Analysis, and the project is considered to produce positive net benefits to society;
  • The eventual financial support to be provided by the government is considered affordable (from the perspective of budgetary appropriations and public financial management);
  • The impact of the project on the government balance sheet can be accommodated;
  • No outstanding environmental risk has been identified and/or such risks have been dealt with the final environmental permit is obtained or the process of obtaining it is clearly mapped out;
  • The social impacts of the project are assessed and mitigation strategies are designed and priced;
  • A thorough legal due diligence has identified all the relevant legal issues regarding the project and the requirements of the decision-making process;
  • The Value for Money (VfM) analysis indicates, as far as possible, that the project, procured through a PPP, can be efficiently delivered;
  • All the regulatory directives of the particular country that must be met for a final approval to procure a project have been considered as a part of the investigations and actions of the Appraisal Phase;
  • A comprehensive plan for the next phases of the PPP process is in place, including the procurement method proposed;
  • An appraisal report is finalized containing the conclusions of the appraising exercises;
  • All the approvals, which are mandatory at the Appraisal Phase, have been obtained and others, required for the procurement process, have been identified as well as their main issues; and
  • A multidisciplinary and experienced team is engaged to begin the Structuring Phase.

 

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