Screening of PPP Projects for Financial Feasibility

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Screening of PPP Projectsfor Financial
Feasibility
Ministry of Economy of Poland and World
Bank Seminar on Legal, Economic and
Implementation Issues in PPP Projects

• César Queiroz, Ph.D.
• Road and Transport Infrastructure Consultant
• Warsaw, Poland, June 17 and 18, 2008

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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

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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

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The Maysville Turnpike, USA, 1830
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U.S. 1 in South Carolina, 1921
A toll house at the approach to a bridge
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Backup at Toll Plaza
Bay Bridge toll booths, beach-bound
traffic August 1999 Source The Washington Post
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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)

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Riverside Freeway, SR 91, CA
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SR 91 Express Toll Lanes
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SR 91 Express Toll Lanes
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SR 91 Express Toll LanesTypical PM Peak
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Toll Collection System overhead antennas and
transponder
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Windshield-mounted Transponder
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Florida Motorway EPass on the Left, Traditional
Toll on the Right
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Dulles Toll Road (Both Sides) and Dulles Airport
Access Road
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Dulles Toll Road E-ZPass on the Left,
Traditional Toll on the Right
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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
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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 Banks web site
www.worldbank.org/highways
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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

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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
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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
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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
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Basic Assumptions Used to Estimate the Minimum
Toll Rate to Attract Private Investors for a PPP
Project

• 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

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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

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Road Concession Options and the Distribution of
Risks
Option Construction Demand Performance Toll
s Private Private Private
Shadow Tolls Private Private
Private Avail. Fees Private Public
Private Hybrid Private Pri/Pub
Private
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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
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Thank you!
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WB PPP-related Sites

• Toll Roads and Concessions http//www.worldbank.or
  g/transport/roads/toll_rds.htm
• How to Hire Expert Advice on PPP
  http//rru.worldbank.org/Toolkits/Documents/Adviso
  rs/Full_Toolkit.pdf
• Labor Issues in Infrastructure Reform
  www.ppiaf.org/Reports/LaborToolkit/toolkit.html
• Toolkit for PPP in Highways http//rru.worldbank.o
  rg/Toolkits/PartnershipsHighways/

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Cesar QueirozRoads and Transport Infrastructure
ConsultantTel 1 202-473 8053Email
cqueiroz_at_worldbank.org