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Appraising PPP Projects

49 Market Sounding

The project team should ensure that the commercial feasibility exercise captures the potential investor’s perspective of the project. The assumptions made, and the base case they generate, will be completely ineffective if the project team fails to understand the private sector’s value drivers and the main financial and operational constraints companies might face during the provision of the infrastructure and services.

For this reason, many governments encourage a series of soft market tests or market soundings during the Appraisal Phase. In essence, their purpose is to test the project viability in the sense of ensuring that it will attract bidders and thus reach satisfactory closure. At the same time, market sounding also helps to communicate the status of the project to the private sector, thus allowing interested companies to start preparing for the future tender.

Also in this process, valuable feedback can be obtained that may have important effects on the financial model, the technical requirements, and the preliminary contract structure.

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