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P3 Toolkit

P3-VALUE Webinars

Webinar - Financial Viability and Value for Money Analysis: Homework Assignments Review

Presentation: PDF
Transcript: HTML
Webinar recording: Audio
Q&A: HTML

P3-VALUE Webinar - August 16, 2013

Patrick DeCorla-Souza
P3 Program Manager
Office of Innovative Program Delivery

Co-Instructor: Aaron Jette, Volpe Center

Background

Webinar Outline

Part 1 - Review of assigned homework #3 on Financial Viability Assessment for Project with Tolls

Part 2 - Review of assigned homework #2 on Value for Money Analysis for Project with Tolls

Webinar Objectives

After participating in this "office hours" webinar you should be able to:

  • Explain the financial viability analysis results from runs of the P3-VALUE Financial Assessment Tool
  • Explain the value for money analysis results from runs of the P3-VALUE PSC Tool, Shadow Bid Tool, and Financial Assessment Tool

Part 1 - Financial Viability Analysis for a Toll Project: Homework Assignment 3

Hypothetical Project Cost Data

  • Design-Bid-Build (or Design-Build), with 30-year project life
  • Base design/construction costs of $30M in Year 1 and $70M in year 2 - in nominal dollars
  • $10 million (real dollars) per year O&M costs over 28 years, inflated at 3%
  • Risk cost estimates for design-build phase:
    • 10% probability (P10) that they will be at or below $10 M
    • 70% probability (P70) that they will be at or below $20 M
    • 90% probability (P90) that they will be at or below $30 M
  • Risk cost estimates for operations phase:
    • 10% probability (P10) that they will be at or below $1 M
    • 70% probability (P70) that they will be at or below $2 M
    • 90% probability (P90) that they will be at or below $3 M
  • Other project costs are assumed to be zero for simplicity

Hypothetical Project Revenue Data

  • Inputs for revenue estimation:
    • Average Annual Daily Traffic (AADT) in Year 3 = 21,600 vehicles, no growth over project life (for simplicity)
    • Average toll rate = $2.00 in Year 0 dollars (increases with inflation)
  • Ramp up period (Year 3 and Year 4):
    • Year 3 = 67% reduction
    • Year 4 = 33% reduction
  • Adjustment for revenue leakage = 5% reduction

Homework Assignment 3

  • Run a Financial Viability analysis using the P3-VALUE Financial assessment tool to estimate the public subsidy required for:
    • Base case with $2.00 toll
    • Alternative scenario with $2.50 toll
    • Alternative scenario with $2.00 toll and 35-year project life
  • Use a 5% discount rate

Part 2 - Value for Money Analysis of a Toll Project: Homework Assignment 2

PSC Financing Assumptions

  • Debt financing for 100% of construction costs, at 5% interest and 30-year maturity
  • $2 M in debt issuance costs are financed as part of the debt
  • No grace period
  • Annual debt service coverage ratio of 1.2 (i.e., cash available for debt service must be at least 1.2 times the annual debt service payment)

Hypothetical Project Shadow Bid Costs

  • DBFOM with toll revenues received by concessionaire over a 28-year operations period of a 30-year concession term
  • Changes in assumptions for shadow bid:
    • 10% DB cost reduction relative to PSC
    • 5% O&M cost reduction relative to PSC
    • Risk allocation:
      • 50% of design-build phase risk costs are transferred
      • 100% of operations phase risk costs are transferred
    • Risk management efficiency
      • 25% lower risk costs for all transferred risks

Shadow Bid Financing Assumptions

  • Project funded 80% by debt and 20% by equity
  • Average debt interest rate is 6.0% (vs. 5% for PSC)
  • Required return on equity is 12% ("hurdle" rate)
  • No consideration of taxes paid by concessionaire

Homework Assignment 2

  • Run a Value for Money analysis using the P3-VALUE tools with the hypothetical project data for the toll project:
    • Develop the PSC using the PSC tool
    • Develop the shadow bid using the Shadow Bid tool
    • Compare the PSC and the shadow bid using the Financial Assessment tool
  • Use a 5% discount rate

P3-VALUE Demonstration

  • We will now transition to a P3-VALUE demonstration to discuss the Homework Assignments
  • First , we will view the Financial Assessment tool (Viability Analysis section) and review the inputs and outputs from the three scenarios in Homework #3
  • We will then review the inputs and outputs from the Toll Concession VfM analysis in Homework #2:
    • PSC Tool
    • Shadow Bid Tool
    • Financial Assessment Tool (VfM Analysis only)

Questions?

Submit a question using the chat box
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Dial *1 to call in your question by phone

Contact Information

Patrick DeCorla-Souza
P3 Program Manager
Office of Innovative Program Delivery

Federal Highway Administration
(202) 366-4076
Patrick.DeCorla-Souza@dot.gov

Thay N. Bishop, CPA, CTP
Senior Program Advisor/Capacity Builder
Office of Innovative Program Delivery

Federal Highway Administration
(404) 562-3695
Thay.Bishop@dot.gov

Federal Highway Administration | 1200 New Jersey Avenue, SE | Washington, DC 20590 | 202-366-4000
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