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P3-VALUE 2.2 User Guide and Concept Guide

January 2019
Table of Contents



AP Availability Payment
BCA Benefit Cost Analysis
BS Balance Sheet
CF Cash Flow
CFADS Cash Flows Available to Debt Service
DSCR Debt Service Coverage Ratio
DSRA Debt Service Reserve Account
GPL General Purpose Lanes
IRI International Roughness Index
IRR Internal Rate of Return
ML/TL Managed Lanes or Tolled Lanes
MMRA Major Maintenance Reserve Account
O&M Operations and Maintenance
PDBCA Project Delivery Benefit-Cost Analysis
P&L Profit & Loss
PSC Public Sector Comparator or Conventional Delivery
P3 Public-Private Partnership
V/C Volume/Capacity Ratio
VDF Volume Delay Function
WACC Weighted Average Cost of Capital

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2 General Model Considerations

This chapter discusses the following general considerations related to the P3-VALUE 2.2 model:

  • Model periodicity
  • Varying perspectives
  • Transaction costs
  • Residual value of facility

2.1 Model Periodicity

A financial model is by definition an abstraction of actual cash flows. For example, a toll road concessionaire receives toll revenues on a daily basis, whereas financial models typically aggregate such revenues on a monthly, quarterly, half yearly or yearly basis. In the original P3-VALUE tool, certain inputs and calculations were annual (e.g., traffic forecasts), whereas other elements of the model were semi-annual.

It is a good practice in financial modeling to keep - to the extent possible - one single periodicity throughout the entire model. That approach, however, does not specify what periodicity should be used: monthly, quarterly, half yearly or yearly.

Although a shorter periodicity allows for more detailed and more precise modeling of, for example, construction schedule and debt service payments, it also increases the number of cells in the model. A quarterly model would require roughly four times the number of cells as a yearly model, which in turn results in a significant increase in the size of the model. Another consideration is that benefit-cost analyses typically use an annual periodicity. Taking into account these different considerations, P3-VALUE 2.2 uses a single annual periodicity throughout the entire model.

2.2 Varying Perspectives

Financial models are typically built for one particular client or group of users. In the case of P3 infrastructure projects, this could be a procuring Agency, a project developer, lenders, or even a federal Agency. P3-VALUE 2.2, however, can be used by different groups of users, each with their own perspective.

P3-VALUE 2.2 can perform both financial and economic efficiency analysis: VfM analysis and PDBCA. VfM analysis typically takes the perspective of the procuring Agency and asks the question: what are the fiscal implications of procuring a project as a P3 compared to a conventionally procured project. In this perspective, federal discretionary grants, and federal loan subsidies (e.g., TIFIA loans) would typically not be considered a cost. However, if a federal Agency were to carry out the same analysis, such subsidies would be considered a cost to the government.

A benefit-cost analysis (BCA) asks the question: what are the economic efficiency impacts of a project? Traditionally, a BCA takes the perspective of society to determine the societal costs and gains. Therefore, it could be argued that the BCA is best carried out from a national perspective, as this captures all of society. As a result, federal subsidies would have to be accounted for as costs. In practice, however, agencies may be more concerned with the economic costs to their state, in which case they may choose to ignore the costs associated with federal subsidies.

It is relatively easy to adjust a project's costs in the BCA to accommodate the preferred perspective. In P3-VALUE 2.2, if the Agency does not want to consider a federal subsidy in the PDBCA, it can simply decide to reduce the costs by the amount of the federal subsidy, or ignore the amount of the subsidy.

On the benefits side however, it is much more challenging to accommodate the preferred perspective, because benefits accrue to all users of the facility and it may not be possible to easily distinguish between in-state and out-of-state users. P3-VALUE 2.2 does not distinguish between benefits accruing to in-state and out-of-state users.

2.3 Transaction Costs

Due to the difference in perspectives between VfM and PDBCA, project costs may be treated somewhat differently by each analysis. Besides the fact that the VfM analysis is carried out in nominal terms and the PDBCA in real terms, there are also some cost items that may be relevant for one but not for the other. More specifically, the PDBCA may consider economic costs such as the bid preparation costs of unsuccessful bidders, which would typically be ignored in a VfM analysis. These transaction costs are true costs to society as the resources required to prepare the unsuccessful bid could have been used elsewhere. Hence the transaction costs are included in the PDBCA, but as they do not directly impact the financial position of the Agency, they are excluded from the VfM analysis.

P3-VALUE 2.2 distinguishes between the following procurement costs:

  • Public procurement costs (including compensation of losing bids)
  • Private procurement costs (costs of winning bidder)
  • Private procurement costs (cost of non-compensated losing bids)

The first two are included in both VfM analysis and PDBCA, whereas the last procurement cost item is only considered in the PDBCA.

2.4 Residual Value of Facility

A comprehensive VfM analysis or PDBCA should not only consider what happens to the facility under different delivery models during the operations period, but also what may happen thereafter. Therefore, the analysis period should at least cover the proposed concession period but should also take into consideration the residual value of the facility at handback. If appropriate handback provisions are included in the P3 agreement, the remaining useful life of the facility under a P3 procurement may be assumed to be the same as under conventional delivery at the end of the concession period.

However, the residual value at the end of a concession period of a facility procured as a P3 could also be different from the anticipated residual value under conventional procurement. As a result, the model should be able to deal with this difference in residual value. It should be noted, though, that the effect of different residual values discounted over the lifetime of the analysis period will most likely be small or even negligible.

To calculate the residual values under different delivery models, a model should ideally use an infinite evaluation horizon, in which future costs and benefits for each alternative are capitalized into a steady-state sum. In practice, however, Excel-based models require a finite timeline so the user will need to estimate the present value impact of the difference in residual values at the end of the concession period.

P3-VALUE 2.2 can accommodate a variation in residual value of the facility under various delivery models. In order to take this variation into consideration, the user must determine the cost associated with bringing the facility back to the specified standards for each delivery model. By including these costs in the VfM analysis and PDBCA, the user can make a fair comparison of the different delivery models while allowing for variations in residual value of the facility.

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