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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 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

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  1. 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

  2. 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

  3. 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

  4. The Maysville Turnpike, USA, 1830

  5. U.S. 1 in South Carolina, 1921 A toll house at the approach to a bridge

  6. Backup at Toll Plaza Bay Bridge toll booths, beach-bound traffic August 1999 Source: The Washington Post

  7. 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)

  8. Riverside Freeway, SR 91, CA

  9. SR 91 Express Toll Lanes

  10. SR 91 Express Toll Lanes

  11. SR 91 Express Toll LanesTypical PM Peak

  12. Toll Collection System: overhead antennas and transponder

  13. Windshield-mounted Transponder

  14. Florida Motorway: EPass on the Left, Traditional Toll on the Right

  15. Dulles Toll Road (Both Sides) and Dulles Airport Access Road

  16. Dulles Toll Road: E-ZPass on the Left, Traditional Toll on the Right

  17. 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

  18. 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

  19. 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

  20. 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

  21. 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

  22. 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

  23. 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

  24. 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

  25. 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

  26. 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

  27. Thank you!

  28. 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/

  29. Cesar QueirozRoads and Transport Infrastructure ConsultantTel +1 202-473 8053Email: cqueiroz@worldbank.org

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