April 19, 2013
As with the "Introduction" sheet, users must accept the disclaimer on the "PSC Disclaimer" sheet to access the PSC Tool's output sheets. The PSC Tool is structured to provide an illustration of the net present value results for the assumptions contained in the PSC Tool.
The adjusted NPC Results displayed on the PSC "Output" sheet are based on a discounted cash flow (DCF) analysis of the net project costs. A DCF analysis involves forecasting all revenue and cost cash streams (including capital expenditures) for a project into the future. The stream of free cash flow, or net operating cash flow, is discounted to estimate the value of the project in today's dollars. The discount rate assumption in the PSC Tool is converted into a discount factor for each cash flow period and is applied to the following cash flows throughout the concession period:
The present values of these cash flows are contained in the "NPC Results" table, which provides the total NPC to the agency of delivering the project. Note that the table only includes project-based financing. Funds or financed amounts that are not based on project revenues (e.g., taxes) are not included in the table. The results are presented as a table (see Figure 3) and as a bar graph (see Figure 4). The table of results groups the project costs in the first section of the table to calculate the cash outflows. The first three line items do not have values because all construction phase costs (after subsidies) and risk costs are assumed to be financed and appear as cash outflows in the line items on "Principal Debt Payments" and "Interest & Fee Payments" at the bottom of the list in the first section. The second section of the table includes toll and other revenues. The last line of the table presents the adjusted project NPC based on the difference between the NPV of the cash outflows and cash inflows. This amount represents the "shortfall" or the additional funding that the procuring agency will need to provide in order to make the project financially feasible. The NPC is provided for:
The NPC Results are notional examples provided for educational purposes only. When constructing a PSC for a specific project, the output requirements will reflect the needs of the agency and the project being analyzed.
The value of each cost or revenue in the table is also depicted in a bar graph, as shown in Figure 4. The bar graph presents the cash outflows as a cost to the project and as greater than zero; if the project were to include toll and other revenue, then those, cash inflows would be shown as negative values:
The bar graph can be updated to reflect the values shown in NPC results table by pressing the "Refresh Graph" button to the right of the graph.
A sensitivity analysis is essential for assessing how different values of one assumption can impact the overall NPC of the PSC. The PSC Tool includes a sensitivity analysis to illustrate the sensitivity of the results to changes of 10 percent, 20 percent and 30 percent to key assumptions for costs (construction, operating and maintenance) and toll revenues. To run the sensitivity analysis, users may select the risk percentile from the drop-down menu in column C. Users may also select whether to display the results either as percentage changes or dollar values from the drop-down menu in column D. Once users click the "Run Sensitivity" button in the top-right corner, the results will display. Figure 5 is a sample sensitivity analysis from the PSC Tool.
A scenario analysis enables users to assess the impact that individual assumptions have on the NPC results by changing key assumptions within the "PSC Output" sheet. The scenario analysis displays key project assumptions, their current values based on inputs in the "Assumptions" sheet, and arrows to adjust the value of the current assumption. As users change the key assumptions, they can observe resulting changes in the "NPC Results" table. Under the pre-populated Example Scenario, the lower half of the table should automatically be blacked out, as should the "Toll Inflation" row because the Example Scenario's Project Delivery Structure does not include toll collection. Figure 6 displays the Scenario Analysis table as if toll collection was selected, however, to demonstrate the full functionality of the table.
The outputs of the PSC Tool are key components in the VfM analysis, as the PSC represents the cost of the agency delivering a project. The PSC outputs define the benchmark against which the P3 estimate for a private delivery option is compared to determine which model presents a lower cost or greater value to the agency. The Financial Assessment Tool provided as part of the P3-VALUE suite uses the cash flow and NPC results from the PSC Tool and the Shadow Bid Tool to complete the VfM analysis process.