# P3 Toolkit

## 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

### 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

• 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
• 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
• Financial Assessment Tool (VfM Analysis only)

### Questions?

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

### Contact Information

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