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Ministry of Economy of Poland and World Bank Seminar on Legal, Economic and Implementation Issues in PPP Projects. Screening of PPP Projects for Financial Feasibility. C é sar Queiroz, Ph.D. Road and Transport Infrastructure Consultant Warsaw, Poland, June 17 and 18, 2008.

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screening of ppp projects for financial feasibility
Ministry of Economy of Poland

and World Bank

Seminar on Legal, Economic and Implementation Issues in PPP Projects

Screening of PPP Projectsfor Financial Feasibility

César Queiroz, Ph.D.

Road and Transport Infrastructure Consultant

Warsaw, Poland, June 17 and 18, 2008

presentation outline
Presentation Outline
  • A brief history of PPP…
  • …and some modern examples
  • How do you know whether a PPP project can attract private investors?
  • Forms of private sector participation
  • Demonstration of the WB/PPIAF Toolkit for PPP in Highways
ppps are not new
PPPs are not new!
  • Toll road at Wadesmill in Hertfordshire, UK, established in 1663 by Act of Parliament
  • 19th century concessions: toll roads, bridges, tunnels in US; railways in France; subway in London
  • Suez (1860) and Panama (1880) canals
  • Decline around 1930 (great depression)
  • Resurgence in the 1980s: collapse of the state-owned monopoly paradigm
u s 1 in south carolina 1921
U.S. 1 in South Carolina, 1921

A toll house at the approach to a bridge

slide6
Backup at Toll Plaza

Bay Bridge toll booths, beach-bound traffic

August 1999

Source: The Washington Post

riverside freeway sr 91 ca
Riverside Freeway, SR 91, CA
  • First fully automated toll road (free-flow system), 16-km long, opened on December 27, 1995
  • Serves commuters on Riverside Freeway (SR 91), Orange County, south of Los Angeles
  • Original developer and operator: California Private Transportation Company
  • Achieved cash flow break-even in mid-1998 (can pay operating and debt expenses from revenues)
heavy goods vehicle charging in germany
Heavy Goods VehicleCharging in Germany
  • Since 1th January 2005, all trucks exceeding 12 tons pay for each kilometer of motorway traveled
  • Fee is based on emission classes and number of axles
  • GPS-based “on board unit” (OBU) mounted on a truck

Source: http://www.tollroadsnews.com/cgi-bin/a.cgi/rwXBNl0REdmcEIJ61nsxIA

toolkit for ppp in highways
Toolkit for PPP in Highways

The toolkit is structured under five headings and includes a library and interactive financial simulation model

Available at the World Bank’s web site: www.worldbank.org/highways

how can ppp projects attract private investors
How can PPP projects attract private investors?
  • Risks and profit must be competitive with other investment alternatives
  • Some usual indicators: Project Financial Internal Rate of Return (FIRR), Return on Equity (ROE), Debt Service Cover Ratio (DSCR), Loan Life Cover Ratio (LLCR)
  • The Toolkit Financial Simulation Model (an Excel file) is an excellent tool for scrutinizing PPP projects
debt service cover ratio dscr
Debt Service Cover Ratio (DSCR)

where

i = number of tranches, 1≤ i ≤3

n = current year

(Debt Service) i,n = (Principal) i,n + (Interest) i,n

CAFDS= Cash Available for Debt Service

return on equity roe
Return on Equity (ROE)

where:

Equity injectedi is the equity provided by the sponsors in year i

Dividendsi are the dividends distributed to shareholders in year i

minimum toll rate to attract private investment for a ppp project
Minimum Toll Rate to Attract Private Investment for a PPP Project

$/km

5,000 vpd

10,000 vpd

15,000 vpd

20,000 vpd

Construction cost, $ million/km

slide23
Concession term: 20 yrs

Construction Cost: $1mil/km to $5mil/km

Operation cost: $500,000/km/yr

Equity: 14%

Subsidies: 0

Interest rate: 5%/yr

Grace period: 4 yrs

Repayment period: 14 years

Discount rate: 10%

Initial traffic: 5,000 vpd to 20,000 vpd

Traffic growth: 3%

Inflation: 6%

Tax: 18%

IRR ≥ 12%

ROE ≥ 16%

LLCR ≥ 1.0

DSCR ≥ 1.0

Basic Assumptions Used to Estimate the Minimum Toll Rate to Attract Private Investors for a PPP Project
how can ppp projects attract private investors1
How can PPP projects attract private investors?

The World Bank Toolkit for PPP in Highways Financial Simulation Model (an Excel file) is an excellent tool for scrutinizing PPP projects

slide25
Road Concession Options and the Distribution of Risks

Option Construction Demand Performance

Tolls Private Private Private

Shadow Tolls Private Private Private

Avail. Fees Private Public Private

Hybrid Private Pri/PubPrivate

allocation of risks
Allocation of Risks

High

Traditional Outsourcing

Performance-based Contracts

Availability Payments

Shadow Tolls

RISK

TO

PUBLIC SECTOR

Toll Road BOT

BOO

Decreasing Public Risks, Increasing Private Risks

Low

High

RISK TO PRIVATE SECTOR

wb ppp related sites
WB PPP-related Sites
  • Toll Roads and Concessions http://www.worldbank.org/transport/roads/toll_rds.htm
  • How to Hire Expert Advice on PPP http://rru.worldbank.org/Toolkits/Documents/Advisors/Full_Toolkit.pdf
  • Labor Issues in Infrastructure Reform www.ppiaf.org/Reports/LaborToolkit/toolkit.html
  • Toolkit for PPP in Highways http://rru.worldbank.org/Toolkits/PartnershipsHighways/
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