In the process of inputting data to the financial model, several assumptions would have been made, and the model must be sufficiently flexible to reveal the impact on the final cash flows of changes in those assumptions.
All the sensitivity drivers are typically concentrated in a summary sheet that...
The technical requirements will naturally be designed with the aim of defining a feasible PPP project. However, the development of specific technical feasibility criteria can be useful to organize the information properly, increase overall transparency, and promote a stronger base for the...
From the financial perspective, a project or contract is considered to be feasible when the expected revenues (inflows) under a reasonable scenario are considered to be sufficient to cover all expected costs (outflows), that is, all operation and maintenance costs, financial costs (interests),...
The commercial feasibility must be assessed from two different points of view: lenders (the debt providers) and investors (the equity providers).
8.1.1 The Lenders’ Perspective (bankability)
The key aspect of the lenders’ concerns is the capacity of the project company to repay its debt on the...
In user-pays PPPs, the exercise of commercial feasibility examines the capacity of the project to generate enough cash resources to meet its expenses. The exercise might consider several scenarios for the prices charged to users (if this is possible) or a given price that cannot be altered due to...
When government payments are considered in the revenue regime, the commercial feasibility exercise aims to define the amount of government financial support required to meet investors’ and lenders’ needs.
This produces a direct forecast of revenues to feed the financial model and the basic fiscal...
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...
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...
An effective market sounding exercise provides an opportunity for a structured dialogue between the private and the public sectors at early stages of the PPP process. This not only tests the viability of the project’s details, but it also obtains precious feedback on how aspects of the project...
The market sounding exercise’s fundamental output is a general alignment between the government and the private sector during the Appraisal Phase. This can anticipate issues that reduce the market interest in the project, which otherwise would only be explicit during the more formal Procurement...
As has been presented in chapter 3, the Cost-Benefit Analysis (CBA) should have been conducted at the Identification Phase. In this case, it will have relied on preliminary data. As the Appraisal Phase matures, several aspects of the project, relevant for a more precise economic evaluation of the...
As discussed in chapter 2 (section 1.8), many PPP projects produce some sort of long-term fiscal consequences. These can be in the form of direct liabilities (when the project is partially or fully funded by the government) or contingent liabilities (when risks are allocated to the government...
The first step in performing the fiscal feasibility exercise is to identify the liabilities assumed by government, at least on a yearly basis, for the entire duration of the contract.
There are two types of commitments that must be fully acknowledged in this identification: the direct liabilities...
The fiscal feasibility analysis provides two essential outputs.
First, it estimates the fiscal effect of the project in terms of direct and contingent exposures on the public budget. It also projects those effects from different perspectives, providing a comprehensive assessment of governmental...
Chapter 2 (section 1.8.5) presented the rationale for establishing a framework to account for the liabilities and the assets resulting from PPP contracts. In fact, many countries develop specific rules that determine how they should account for and report their financial commitments.
Analyzing the...
IPSAS 32 deals specifically with service concession agreements, focusing on their governmental accounting consequences. The guideline presents a very comprehensive approach that includes most of the contracts defined as PPPs for the purpose of the PPP Guide. In fact, IPSAS 32 describes service...
The European System of Integrated Economic Accounts (ESA 2010) set up the regulations on how the EU member states prepare national accounts and produce comparable and homogeneous fiscal statistical information. ESA 2010 is the most recent version – until recently the standards applied have been...
Despite an international movement toward a standardization of accounting practices in governments around the world, there is still a great deal of divergence regarding accepted principles.
The impact of PPPs on accounting reports can therefore vary greatly. When neither of the two international...
The output of the process of analyzing the impact of the project on the public debt involves the addition of the marginal impact of the project in terms of expenditure with the existing projection of national expenses, plus the marginal related impact in terms of debt in the national accounts.
This...
Infrastructure projects will often have significant environmental impacts arising from construction and operation, which can be both positive and negative. The impacts may also include follow-on effects beyond the immediate project area, as well as beyond the people directly associated with the...
