Financial Analysis of Public- Private Partnership (PPP) Projects in Highways

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1 Trasport Forum ad Learig Week 2006 Workshop o HDM-4 Fiacial Aalysis of Public- Private Partership (PPP) Projects i Highways Cesar Queiroz Highway Advisor TUDTR World Bak, 24 March 2006

2 Presetatio Outlie PPIAF - WB Toolkit for PPP i Highways Toolkit modules Mai fiacial idicators of a PPP project Demostratio of the PPP fiacial simulatio model Case studies Discussios

3 Toolkit for PPP i Highways Objective To provide policy makers from developig ecoomies with some guidace i the desig ad implemetatio of a PPP project i the highway sector

5 Toolkit for PPP i Highways The toolkit is structured uder five headigs ad icludes a library ad iteractive fiacial simulatio model Available at the World Bak s s web site:

6 Availability of the Toolkit Free of charge A multimedia product available o a CD ROM Also available at the World Bak s trasport website:

7 The Highway Toolkit Icludes over 5000 pages of referece publicatios ad web liks a 500 word glossary case studies ad fiacial simulatio software

8 Toolkit Modules 1. Overview ad Diagosis 2. Project Characteristics 3. Public Sector Fuctios 4. Laws, Rules ad Cotracts 5. Implemetatio

9 Toolkit Modules 1. Overview ad Diagosis: ratioale for private participatio i the highway sector, alterative cotractual forms, guide to coduct a diagostic of the sector 2. Project Characteristics 3. Public Sector Fuctios 4. Laws, Rules ad Cotracts 5. Implemetatio

10 Toolkit Modules 1. Overview ad Diagosis 2. Project Characteristics: key cosideratios i the desig of a public-private partership, discussios of well-kow PPPs 3. Public Sector Fuctios 4. Laws, Rules ad Cotracts 5. Implemetatio

11 Toolkit Modules 1. Overview ad Diagosis 2. Project Characteristics 3. Public Sector Fuctios: aalyzes the roles of the public sector ad presets the tools at Govermet's disposal for performig such roles 4. Laws, Rules ad Cotracts 5. Implemetatio

12 Toolkit Modules 1. Overview ad Diagosis 2. Project Characteristics 3. Public Sector Fuctios 4. Laws, Rules ad Cotracts: guidace o the desig of legal ad cotractual frameworks for private participatio i highways, with boilerplate provisios 5. Implemetatio

13 Toolkit Modules 1. Overview ad Diagosis 2. Project Characteristics 3. Public Sector Fuctios 4. Laws, Rules ad Cotracts 5. Implemetatio: outlies the key steps i itroducig PSP, brigig elemets from previous modules ad distiguishig by type of private sector cotract

14 1. Overview ad Diagosis Why Embark o PPP? Cotext ad Key Issues Expected Beefits from PPP Why (ad where) is the Private Sector more efficiet tha the Public Sector? Overview of PPP experiece PPI project data base Choosig the right optio Forms of PPP Makig the diagosis PPP policy ad strategy

15 2. Project Characteristics Tailorig appropriate PPP: A cotiuum of alteratives Examples of well-kow PPPs

16 3. Public Sector Fuctios Protect commuity welfare Plaig ad policy makig Provide adequate framework Facilitator Cotract award Regulatio

17 4. Laws, Rules ad Cotracts Legislatio Legislative framework Adjust legal framework Regulatory framework Stadards Cotracts Maiteace cotracts Operatio ad maiteace cocessios BOT type projects

18 5. Implemetatio Actors Mai Steps Maagig the Reform Selectio of Cocessioaires ad Cotract Award

20 Public Private Parterships Works & Services Cotracts Maagemet & Maiteace Cotracts Operatio & Maiteace Cocessios Build Operate Trasfer Cocessios Full Privatizatio Low Extet of private sector participatio High

21 I additio to the five modules, the Toolkit also icludes: Fiacial simulatio tool Graphic simulatio tool Case study CD Map Documetatio Glossary

22 Toolkit for Public-Private Partership i Highways Mai Fiacial Idicators

23 Debt Service Cover Ratio (DSCR) DSCR = 3 ADSCR 1 2 i = 1 (Debt ( = 3 ( CAFDS ) i = 1 CAFDS ) DebtService, Service)i, where i = umber of traches, 1 i 3 = curret year (Debt Service) i, = (Pricipal) i, + (Iterest) i, CAFDS= Cash Available for Debt Service

24 Loa Life Cover Ratio (LLCR) LLCR = Net Preset Value Outstadig Debt maximum maturity of j= the three ed of period traches (CAFDS) = curret year ( CAFDS ) ADSCR = DebtService, i = 1 CAFDS= Cash Available for Debt Service Outstadig debt ed of period The Net Preset Value of the Cash Available for Debt Service from year +1 to the ed of the maturity is discouted at the debt iterest rate The fiacial tool provides the user with the miimum LLCR

25 Retur o Equity (ROE) ed of the cocessio i= 1 (Equity ijected - divideds) i (1 + ROE) = ADSCR = 3 ( CAFDS ) DebtService, where: i = 1 Equity ijected i is the equity provided by the sposors i year i Divideds i are the divideds distributed to shareholders i year i ROE is calculated i real terms through deflated flow (equity - divideds)

26 Project Fiacial Iteral Rate of Retur (IRR) ed of the i= first year of cocessio 1 2 costructi oi = 1 (OCFBF) = 0 ( CAFDS = 3 (1 ) + IRR) ADSCR i DebtService, i= 1 i i = year OCFBF = Operatig Cash Flow Before Fiacig

27 Project Net Preset Value: Preset Value of Taxes mius Project NPV Subsidies (NPV) edof cocessio = ( CAFDS ) ADSCR = t) i (1 + DebtService, = first year of i = 1 costructi o (OCFBF) i i yearof study where: OCFBF = Operatig Cash Flow Before Fiacig t = weighted average of the three rates o the traches of debt The NPV is calculated for the first year of the costructio period

28 NPV o Subsidies ed of cocessio = (Subsidy) NPV o Subsidies ifl ) 1 2 ( CAFDS ) i= first ADSCR year = of 3 operatio (1 + r + DebtService, i = 1 i i yearof study ifl is the iflatio rate for the year of study r is the rate used to discout subsidies provided for the Project

29 NPV o VAT NPVo VAT = ) 1 2 ifl i edof thecocessio ( CAFDS ) ADSCR = 3 = first year of operatio DebtService (1, + r + i = 1 (VAT) i i yearof study where ifl = iflatio rate for the year of study r = rate used to discout subsidies provided for the Project

30 Fiacial Simulatio Case Study The Govermet of Farlad is cosiderig to build a road betwee the cities of Farport ad Farcapital (located 50 km apart) through a Public Private Partership (PPP) scheme.

31 Fiacial Simulatio Case Study Basic data iclude: Costructio cost: US$150 millio Source of fuds: Subsidies, equity ad credit Real iterest rate: 5% Cocessio duratio: 25 years Iitial traffic: 8,000 vpd Toll rate: US$7.00 (idexed o iflatio) Iflatio rate: 6% per year

32 Fiacial Simulatio Case Study Usig the above iformatio ad other default data i the Graphic Fiacial Simulatio tool of the Toolkit for Public- Private Partership i Highways, please aswer the questios below:

33 Fiacial Simulatio Case Study Questio 1: I the absece of Govermet subsidies, ceteris paribus, what would be the retur o equity (ROE)? What would be the chage i the iteral rate of retur (IRR) of the project?

34 Fiacial Simulatio Case Study Questio 2. While subsidies may be paid by the Govermet durig the costructio period, it recovers some of this paymet through taxes durig the operatio period. What would be the Govermet cotributio to this project that would lead to a fiacial balace for the govermet throughout the cocessio period?

35 Fiacial Simulatio Case Study Questio 3. I the absece of Govermet subsidies, ceteris paribus, what would be the required iitial toll rate to yield a retur o equity (ROE) of 16%?

36 Fiacial Simulatio of a Availability BOT Cocessio Usig the Toolkit default values, please estimate the miimum aual availability fee that the Govermet would have to pay to attract potetial private sector cocessioaires. Please cosider as miimum requiremet a ROE of 15%.

37 Basic Assumptios to Estimate the Miimum Toll Rate to Attract Private Ivestors for a PPP Project Cocessio term: 20 yrs Costructio Cost: $1M/km to $5M/km Operatio cost: $500,000/km/yr Equity: 14% Subsidies: 0 Iterest rate: 5%/yr Grace period: 4 yrs Repaymet period: 14 years Discout rate: 10% Iitial traffic: 5,000 vpd to 20,000 vpd Traffic growth: 3% Iflatio: 6% Tax: 18% IRR 12% ROE 16% LLCR 1.0 DSCR 1.0

38 $/km Estimated Miimum Toll Rate to Attract Private Ivestmet for a PPP Project 0.5 5,000 vpd ,000 vpd 15,000 vpd 20,000 vpd Costructio cost, $ millio/km

40 Thak you!

41 Some Basic Refereces World Bak (2001). World Bak-Fiaced Procuremet Maual [Draft]. Washigto, D.C. Guasch, J. Luis (2004). Gratig ad Reegotiatig Ifrastructure Cocessios Doig It Right. Washigto, D.C.: World Bak _ /Redered/PDF/288160PAPER0Gratig010reegotiatig.pdf World Bak (2004). Guidelies: Procuremet Uder IBRD Loas ad IDA Credits. (May). Washigto, D.C. t-may-2004.pdf Queiroz, Cesar (2005). Lauchig Public Private Parterships for Highways i Trasitio Ecoomies. Trasport Paper TP-9. (September). Washigto, D.C.: World Bak. Kerf ad et al. (1998). Cocessios for Ifrastructure: A Guide to Their Desig ad Award. Techical Paper o World Bak (1998). Biddig for Private Cocessios. The Use of World Bak Guaratees. RMC Discussio Paper Series, o 120. Washigto, D.C.

42 Cesar Queiroz Highway Advisor World Bak, 1818 H Street NW Washigto DC USA Tel Fax cqueiroz@worldbak.org

Subject CT1 Financial Mathematics Core Technical Syllabus

Subject CT1 Financial Mathematics Core Technical Syllabus Subject CT1 Fiacial Mathematics Core Techical Syllabus for the 2018 exams 1 Jue 2017 Subject CT1 Fiacial Mathematics Core Techical Aim The aim of the Fiacial Mathematics subject is to provide a groudig