Instructors

Patrick DeCorla-Souza
P3 Program Manager
Center for Innovative Finance Support

Marcel Ham
Vice President
IMG/Rebel

This is a follow-up to the second of five topical webinars to introduce P3-VALUE

• P3 Evaluation Overview (January 25, 2016)
• Value for Money Analysis (February 8, 2016)
  • Value for Money Exercise Review (today)
• Project Delivery Benefit-Cost Analysis
• Risk Valuation
• Financial Viability Assessment

Exercise Objective

• Learn how to compare the Public Sector Comparator to the P3 option to determine which option delivers greater Value-for-Money (VfM) from the perspective of the procuring Agency.
• Learn how to identify key drivers in the VfM analysis.

Webinar Outline

• Intro Project Background
• Parts A & B Toll Concession
• Part C & D Availability Payment Concession
• Webinar Summary

Introduction: Project Background

Homework Exercise

A study was done previously by a state DOT to estimate Value for Money of P3 delivery for a highway project. The various inputs required for the analysis are included in the P3-VALUE 2.0 spreadsheet model.

Project Information

• 20 miles highway expansion
• From 3 lanes to 5 lanes in each direction
  • 3 General Purpose Lanes (GPL)
  • 2 Managed Lanes (ML)
• Costs (excluding risks and financing):
  • Pre-construction & construction: $425M
  • Routine O&M: $4M per year
  • Major maintenance: $10M (every 8 years)
• Preconstruction start: 2015 (2 years)
• Construction start: 2017 (4 years)
• Operations start: 2021 (40 years)

Questions?

Submit a question using the chat box or hit *6 to ask your question by telephone

Questions from February 8 Webinar

• Kent Olsen: Why don't you consider DBOM as one of the delivery options in your VfM analysis?
• HPTE: How do you define the input benefit as opposed to the P3 Efficiencies inputs?
• Karen Holmes: At what point do variances in project start and completion dates make the data incomparable?

Parts A and B: Toll Concession Analysis

Toll Concession Analysis Steps

• Part A: Use the Value for Money Analysis training module to:
  1. Review the Public Sector Comparator (PSC)
  2. Review the P3 Option
  3. Compare PSC and P3 Option from the perspective of the Agency
• Part B: Use the Value for Money Analysis training module to test impact of a higher discount rate

Part A, Step 1: PSC Inputs

Key project information for the PSC in the input sheets of the model:

• Revenues and their timeline
• Costs and their timeline
  • Build phase: Pre-construction and construction
  • Operations phase: O&M plus periodic major maintenance
• Risks (to be covered in topical Webinar 4)
• Financing fees, which are the upfront costs incurred to arrange public debt
• Competitive neutrality adjustment to correct for taxation effects in the P3 option

Part A, Step 2: P3 Option Inputs

Key P3 Option inputs are:

• Revenues: PSC revenues and timeline, but adjusted to take into consideration assumed P3 differences
• Costs: PSC costs and timeline, but adjusted to take into consideration assumed P3 differences:
  • Build phase: Pre-construction and construction
  • Operations phase: O&M plus periodic major maintenance
• Risks: Will be covered in Webinar 4
• Financing conditions:
  • Equity
  • Debt

Part A, Step 3 and Part B

PSC vs. P3 Comparison:

Key input for the comparison is the discount rate to be applied to future cash flows:

• Discount rate for Part A: State borrowing rate (4%)
• Discount rate for Part B: Higher rate (5%)

Review of Model Inputs

Please stand by as we open the Excel file

PSC - Outputs

Costs and Revenue under Conventional Delivery Units>>	NPV @ 4.00% USD m	Nominal total USD m
Toll revenues	756	2198
Toll revenues uncertainty adjustment	(130)	(377)
Pre-construction & construction costs	(397)	(454)
O&M costs	(129)	(363)
No Build O&M cost savings	250	680
Base variability	(79)	(112)
Pure risks	(69)	(121)
Lifecycle performance risk	(228)	(574)
Financing fees	(3)	(3)
Competitive neutrality adjustment	-	-
Total net revenues / (costs) under Conventional Delivery	(29)	873

P3 Option - Bid Calculation

• Combining all revenues, costs, risks and financing allows the concessionaire to prepare a bid
• Depending on the structure of the transaction, the bid is either a subsidy/concession fee or availability payment

Costs and Revenues to Developer under P3 Units>>	NPV USD m	Nominal total USD m
Toll revenues for private side	298	2224
Pre-construction & construction costs (transferred)	(304)	(390)
O&M costs (transferred)	(43)	(296)
Base variability (transferred)	(54)	(94)
Pure risks (transferred)	(40)	(98)
Net subsidy from Agency to Developer	146	205
Financing fees	(2)	(3)
Taxes	-	-
Total net revenues / (costs) to Developer under P3	0	1548

P3 Option - Agency Revenues/Costs

From the procuring Agency's perspective, the cost of P3 includes the bid as well as any retained costs or risks

P3 Output - Agency Perspective

Costs & revenues to Agency under P3	NPV @ 4.00%	Nominal total
Units >>	USD m	USD m
Toll revenues (for public side)	-	-
Toll revenues uncertainty adjustment (for public side)	-	-
Pre-construction & construction costs (retained)	(39)	(43)
O&M costs (retained)	(12)	(33)
No Build O&M cost savings	259	691
Base variability (retained)	(7)	(10)
Pure risks (retained)	(6)	(11)
Net subsidy from Agency to Developer	(175)	(205)
Total net revenues / (costs) to Agency under P3	19	389

Compare PSC and P3 Option

• Part A (4% discount rate):
  • NPV of net revenues/cost to Agency under PSC $(29) M
  • NPV of net cash flows to Agency under P3 $19 M
  • NPV of difference (= VfM) $48 M
• Part B (5% discount rate):
  • NPV of net revenues/cost to Agency under PSC $(63) M
  • NPV of net cash flows to Agency under P3 $(18) M
  • NPV of difference (= VfM) $45 M

Questions?

Submit a question using the chat box

Parts C and D: Availability Payment Concession

• Part C: Use the Value for Money Analysis training module to:
  1. Review the Public Sector Comparator (PSC)
  2. Review the P3 Option
  3. Compare PSC and P3 Option from the perspective of the Agency
• Part D: Use the Value for Money Analysis training module to test impact of elimination of the assumed P3 cost efficiencies

Part C, Step 1: PSC Inputs

Key project information for the PSC in the input sheets of the model are the same as for the Toll Concession option:

• Revenues and their timeline
• Costs and their timeline
  • Build phase: Pre-construction and construction
  • Operations phase: O&M plus periodic major maintenance
• Risks (to be covered in topical Webinar 4)
• Financing fees, which are the upfront costs incurred to arrange public debt
• Competitive neutrality adjustment to correct for taxation effects in the P3 option

Part C, Step 2: P3 Option Inputs

AP P3 Option inputs that are the same as the Toll Concession are:

• Revenues: PSC revenues and timeline, but adjusted to take into consideration assumed P3 differences
• Costs: PSC costs and timeline, but adjusted to take into consideration assumed P3 differences:
  • Build phase: Pre-construction and construction
  • Operations phase: O&M plus periodic major maintenance

AP P3 Option inputs that are different from the Toll Concession are:

• Financing conditions:
  • Equity
  • Debt

Part C, Step 3 and Part D

Part C: Base case PSC vs. P3 Comparison:

Key input for the comparison is the discount rate to be applied to future cash flows:

• Discount rate (same as for Toll Concession): 4%

Part D: For evaluation of impact of P3 efficiencies on the PSC vs. P3 Comparison:

1. Construction timing -- Eliminate early completion of P3 construction
2. Construction cost -- Eliminate reduction in P3 pre-construction and construction costs
3. Operations cost -- Eliminate reduction in P3 operations phase costs

Review of Model Inputs

Please stand by as we open the Excel file

PSC - AP Concession Outputs

Costs and Revenue under Conventional Delivery Units>>	NPV @ 4.00% USD m	Nominal total USD m
Toll revenues	756	2198
Toll revenues uncertainty adjustment	(130)	(377)
Pre-construction & construction costs	(397)	(454)
O&M costs	(129)	(363)
No Build O&M cost savings	250	680
Base variability	(79)	(112)
Pure risks	(69)	(121)
Lifecycle performance risk	(228)	(576)
Financing fees	(3)	(3)
Competitive neutrality adjustment	-	-
Total net revenues / (costs) under Conventional Delivery	(29)	872

AP P3 Option - Bid Calculation

• Combining all revenues (i.e., agency upfront or milestone payments to the concessionaire), costs, risks and financing allows the concessionaire to prepare a bid
• The bid is an availability payment

AP P3 Output - Bid Calculation

Costs and Revenues to Developer under P3 Units>>	NPV @ 7.24% USD m	Nominal total USD m
Toll revenues for private side	-	-
Pre-construction & construction costs (transferred)	(318)	(390)
O&M costs (transferred)	(57)	(296)
Base variability (transferred)	(58)	(94)
Pure risks (transferred)	(44)	(98)
Availability Payment & milestone payment to Developer	479	1,837
Financing fees	(3)	(4)
Taxes	-	-
Total net revenues / (costs) to Developer under P3	0	955

AP P3 Option - Agency Perspective

From the procuring Agency's perspective, the cost of P3 includes the bid as well as any retained costs or risks

Costs and Revenues to Agency under P3 Units>>	NPV @ 4.00% USD m	Nominal total USD m
Toll revenues (for public side)	777	2,224
Toll revenues uncertainty adjustment (for public side)	(133)	(381)
Pre-construction & construction costs (retained)	(39)	(43)
O&M costs (retained)	(12)	(33)
No Build O&M cost savings	259	691
Base variability (retained)	(7)	(10)
Pure risks (retained)	(6)	(11)
Availability Payment & milestone payment to Developer	(794)	(1,837)
Total net revenues / (costs) to Agency under P3	45	600

Compare PSC and P3 Option

Part C (AP concession):

• NPV of net revenues/cost to Agency under PSC $(29) M
• NPV of net cash flows to Agency under P3 $45 M
• NPV of difference (= VfM) $74 M

Part D (AP concession with no early completion):

• NPV of net revenues/cost to Agency under PSC $(32) M
• NPV of net cash flows to Agency under P3 $(22) M
• NPV of difference (= VfM) $54 M

Compare PSC and P3 Option

Part D (AP concession with no early completion and no P3 build phase cost efficiencies):

• NPV of net revenues/cost to Agency under PSC $(32) M
• NPV of net cash flows to Agency under P3 $(39) M
• NPV of difference (= VfM) $(7) M

Part D (AP concession with no early completion and no P3 build and operations phase cost efficiencies):

• NPV of net revenues/cost to Agency under PSC $(32) M
• NPV of net cash flows to Agency under P3 $(52) M
• NPV of difference (= VfM) $(20) M

Questions?

Submit a question using the chat box

Webinar Summary

Webinar Recap

Intro Project Background

Parts A & B Toll Concession

Part C & D Availability Payment Concession

Recap Summary of Webinar

Upcoming P3-VALUE Training

• February 22 Project Delivery Benefit Cost Analysis
• March 7 Risk Valuation
• March 21 Financial Viability Assessment

Tool and References

• P3-VALUE 2.0 Excel Spreadsheet
• User Guide and Concept Guide
• Primers & Guidebooks

Resources

FHWA's Center for Innovative Finance Support Website:
https://www.fhwa.dot.gov/ipd/

P3 Website:
https://www.fhwa.dot.gov/ipd/p3/

Questions?

Submit a question using the chat box

Contact Information

Patrick DeCorla-Souza
P3 Program Manager
Center for Innovative Finance Support
Federal Highway Administration
(202) 366-4076
Patrick.DeCorla-Souza@dot.gov