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Appraising PPP Projects

48.4 Outputs of the Commercial Feasibility Assessment

The commercial feasibility analysis provides a number of outputs.

For user-pays PPPs, it provides the following:

  • An assessment of the capacity of the project to attract investors and lenders, from a financial perspective;
  • An estimate of the government payments (grant financing or supplementary service payments) required if the project is not otherwise feasible;
  • An estimate of the potential payments to the procuring authority if the project is “over-feasible”, or other parameters to take advantage of the “over-feasibility” such as a reduction in the contract term or a reduction in the user charges; and
  • Information that can be used to assess a range of financial structuring matters such as whether potential payments to the procuring authority should be required up-front or deferred;

For government funded PPPs, the feasibility assessment:

  • Indicates the level of financial support, such as service payments and grants, required to obtain a commercially attractive and bankable project; and
  • Provides information that can be used to assess a range of financial structuring matters, such as whether the government payments should be on an availability or volume basis.

All the conclusions reached with the commercial feasibility exercise, however, are inevitably biased by the perspective of the modellers and the limitations of the model’s underlying assumptions for the following reasons:

  • The assessment must be assessed against a range of sensitivities to key assumptions; and
  • Many countries promote a structured dialogue with the private sector at the Appraisal Phase. This market sounding aims at testing the assumptions adopted and the conclusions reached during the Appraisal Phase. Some common practices for consulting the market are discussed in the next section.

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