One important aspect of the project, which needs to be preliminarily defined during appraisal, is the PPP contract structure, specifically in terms of the:
- Financial structure from the government perspective (revenue regime, contract term, and so on). See box. 4.3.
- Risk allocation structure.
These aspects have complex interplays with several feasibility exercises, including the commercial feasibility assessment (section 8), the Value for Money analysis (section 16), and the affordability evaluation (section 11). Since the conclusions of these exercises depend on a preliminary PPP contract structure to achieve meaningful conclusions, this should be done to a fairly accurate degree.
BOX 4.3: Defining Financial Structure for the Purpose of this PPP Guide
From the perspective of the government, the term financial structure (or contract financial structure) refers to the definition of the means of public compensation or payments to be granted to the private partner in the contract and its conditions (including tenor, timing, indexation, and potential adjustments/deductions).
It also refers to other potential public party participation in the provision of financing (guarantees and other credit enhancement measures, equity, or debt contributions). This includes the resulting profile of government payments in terms of net present value (NPV) and yearly public expenditure, or the profile of payments to be received from the private partner.
The structure of the PPP contract will be further detailed in chapter 5 (for example, the financial structure from the government’s perspective is detailed in section 4.4). At this stage, however, a preliminary definition needs to be done in order to provide adequate input to many appraisal exercises such as the design of the financial model (section 6), the Affordability Assessment (section 11), and the Value for Money analysis (section 16).