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P3 VALUE 2.0 Webinars
Session 4a: P3 Project Risk Assessment Exercise Review

March 14, 2016
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  • Presentation: PDF  |  HTML
  • Transcript: HTML
  • Exercise Assignment Answers: Word
  • Webinar Recording: Audio


Michael Kay: Great. Good afternoon. On behalf of the Federal Highway Administration's Office of Innovative Program and Delivery, I'd like to welcome everyone to today's webinar on the P3 Value toolkit. And we'll be doing a risk assessment exercise review. My name is Michael Kay. I'm with the U.S. DOT's Volpe Center in Cambridge, Massachusetts. I'll be helping to moderate today's webinar and helping to facilitate any question and answer periods and address any technical problems. Quickly to orient you to the web room, on the top left hand side of the screen, you'll find the audio call in information and the attendee list. Below that is a pdf version for download of today's presentation. And finally, on the bottom left, is a chat box that you can use to ask questions of our presenters throughout. Our presenters are Patrick DeCorla-Souza, the P3 Program Manager in the Innovative Program Delivery office, and Wim Verdouw, Financial Modeler at IMG Rebel. And, with that, I'd like to turn it over to Patrick DeCorla-Souza. Patrick, please go ahead.

Patrick DeCorla-Souza: Thanks, Michael. And just to give you a brief review of where we've been so far, this is a continuation of a series of webinars on P3 Value and the concepts that underlie the P3 Value tool. And we've had several webinars so far, including exercise review webinars. Today we are going to review the exercise on risk assessment that was provided on March 7 at the Risk Assessment Webinar. Just a reminder that there will be two more webinars, one on financial viability assessment. That is scheduled a week from today on March 21, Monday. And the exercise review relating to financial viability will be held on March 28, which is also a Monday. So the purpose of the exercise that was assigned last Monday was to provide a familiarity with the tool and understand how the tool undertakes risk evaluation. And, actually, there is a difference between how risks are evaluated for value for money analysis versus for benefit/cost analysis. So we will be showing you, through this exercise, how the two methodologies defer and another objective of this exercise is to explain how the lifecycle performance risk and revenue uncertainty risk can be affected by financial conditions. Actually, it is the other way about because the financial conditions are a response to perceived risks in a project and investors increase their interest rates or equity rate of return in response to the risks that they see in a project. And that's what we take advantage of, this information on the financial conditions that investors require because they perceive these risks. And we are using those financial conditions to estimate the value of the risks perceived by investors. The exercise is divided into basically three parts, A, B, and C. In the first part, we will talk about risk valuation for BFM analysis. In part B, we will talk about risk valuation for benefit cost analysis. And finally we will, in part C, show how financial conditions may be used to assess lifecycle performance risk and revenue uncertainty risk. So just a brief background, we have been using the same project for all of the other exercises so we will go through this really quickly. As we said, a state DOT has already performed value for money analysis and benefit/cost analysis, and all of the inputs that the state used are in the P3 Value 2.0 spreadsheet that you would've downloaded from our website. Again, very briefly, it is six lane facility that is existing, that is being expanded to five lanes in each direction by adding two managed lanes in each direction. And the costs of the project are $425 million for construction, routine maintenance of $4 million per year. Major maintenance $10 million occurred every eight years and then you have the project start date of 2015, construction start in 2017, and operations start 4 years later in 2021 and continuing for 40 years. And this would be under the conventional delivery option. P3 may introduce efficiencies in the schedule that we will talk about. So the types of risks, as we mentioned in the last webinar on risk assessment, include first base variability or variability in base cost. And, of course, those can be plus or minus, depending on market conditions, depending on how good our estimates of volumes, of different materials, might have been. However, since we want to be sure that we will have sufficient funds should the costs go up, we actually, in P3 Value, use a factor for base cost variability which is always positive. In other words, the base variability is always a plus cost, so it increases the base cost by a certain percentage. And those, we assume, are what the state would have calculated based on its desire for confidence that the cost wouldn't exceed the budgets. And these are usually set at what is called the P70 level. That is a confidence level of 70 percent that the cost will not exceed the 10 percent factor in the case of preconstruction costs. 17 percent in the case of construction costs and, again, 10 percent in the case of O&M costs. These are costs that are budgeted into the cost estimates. Now, we also have what we call pure risks or event risks and these are risks that may or may not occur. So there's some probability that they will occur. The probability may be high or low or medium. And, if the risk does occur, there will be some kind of impact on cost or schedule. And the risk-- the impact may actually have a most likely value but usually you don't know exactly what that value might be. It could be above or below so there is a range of cost impacts. And so that is what we need information on and what the state would do is have some type of a workshop where it would bring in experts on the different subject matters pertaining to each of these risks. And use their best judgment to estimate what the most likely value might be, what the range might be. Whether it might be a uniform distribution or a triangular distribution of the impact and also whether the probability is low, medium or high. So this type of information would be obtained by the state and input into P3 Value to undertake the valuation. The same type of situation would occur with regard to risks in the operation space. And similarly, the types of risks shown here would have a probability of occurring, a most likely impact, a range, should the risk occur and a assumed distribution of impact of that risk. Now, as I said earlier, financing conditions are what we use to try and estimate what the value of risks might be in the long-term. These are risks that are borne by the financiers and these are the lifecycle performance risks and the revenue uncertainty risks. And what you see here is that the cost of equity or the equity rate of return is affected by the amount of risk that the equity investors feel there is in the project, both revenue and lifecycle performance risk. The debt providers also set their interest rates based on the type of risks they see but also by setting what are called gearing ratios, which is the debt to equity ratio. So they will not allow more than 75 percent debt in this case because of the amount of risk they see. In other words, that 25 percent is the cushion they are looking for and that cushion is-- the 25 percent is what would be provided by equity investors. Of course, when you combine the 75 percent with the 6 percent interest rate and the 25 percent with the 12 percent rate of return, you get the weighted average cost of capital. And, since this is a toll project, a toll concession project, that weighted average cost of capital represents a toll concession project. Now, since we want to separately identify the value of revenue uncertainty risk, we need to figure out what portion of that weighted average cost of capital, or the risk included in the weighted average cost of capital, is due to toll revenue risk versus what is due to the lifecycle performance risk. And based on calculations that we have already done or the state has already done, they determined that the weighted average cost of capital based on all of these factors for the toll concession was something like 8.86. And then the availability payment would be the same project but without the tolls going to the private sector. In other words, the tolls would be retained by the public agency, so the risk would be retained by the public agency and that would allow the investors to reduce their weighted average cost of capital and all of these interest rates and equity rates of return. And gearing would be more favorable and the weighted average cost of capital would drop. And what the state has determined is that lower weighted average cost of capital is 1.6 percent lower than the weighted average cost of capital for the toll concession. So this basically represents the proportion of the weighted average cost of capital that is due to revenue uncertainty risk. So now let's look at how we would do a value for money analysis risk valuation. And, as we indicated, there are four types of risks that we are going to evaluate. The base variability, the pure risks, lifecycle performance risk, and revenue uncertainty risk. And we're gonna use the information that we have on the PSC, or conventional delivery, to estimate the impact on the value of these risks if a P3 concessionaire takes over the management of the project. And, again, that would be something that would be obtained either from subject matter experts or by looking at similar projects that have been implemented and what the reduction in risk might have been in those situations. And the share of risks also is important because some of those risks would be retained by the public agency. But the vast majority of risks are transferred to the concessionaires. So that's other information that we would need and we will show you how that is included in P3 value to calculate the risk value. So now Wim Verdouw will show you how this is done in P3 Value. Wim.

Wim Verdouw: Thank you. All right, so as I share my screen with you-- all right, as before, when you open the model you can choose between the model navigator which gives you access to the full model, and you can access the training navigator, which gives you access to the four modules that we have been discussing so far. And today we're doing the risk assessment. Again, as before, under the inputs you can find those various input sheets. In the risk assessments, the most important risk input sheet is the IMP risk as well as the IMPfin that I will get to in a second. Let's start with input risk sheets. Here you find the various inputs that we've used for this example project. And we discussed them in the last webinar so I will not go through them again. And so, first, we start off with the probability level, then we describe the pure risks. So it's in the row 13 to row 39 we are looking at the pure risks, the parameters for the different pure risks and at the base variability from row 45 to 47, and then the lifecycle performance risk and the revenue uncertainty adjustment below here. And then the other parameter that Patrick mentioned earlier was the difference between the work between the availability payment and the toll concession, which is here listed in row 71. So here we are saying that a toll concession, according to this input, is 1.6 percent higher, has 1.6 percent higher WACC than an availability payment. And this reflects, of course, the fact that under toll concession, the concessionaire takes on both all long-term lifecycle projects but also the revenue risk, whereas under an unavailability payment, they would only have to take on the lifecycle performance risk. Based on these inputs, we have the various outputs, which I will show you very briefly and Patrick will show them in more detail. So here are the outputs for the value for money, again, value for money taking the financial perspective of the agency. Three columns: conventional delivery, retained risks under P3, and transferred risks under P3. You see here that we're not talking about the delayed conventional delivery or the delayed PSC because we don't consider that in our analysis. We're assuming that the product is delivered in the same timeframe. Whereas, for the benefit/cost analysis, we take the economic perspective and here we show the three delivery models: the delayed conventional, the conventional delivery, and P3. Patrick, do you want to present the results?

Patrick DeCorla-Souza: Sure. Michel, let's go back to the PowerPoint. All right, so the results are going to be first for the PSC, which we also called conventional delivery and the P3 option. And we will have both the public perspective, that is the risks that are retained by the public agency, and the private sectors or the concessionaire's perspective to estimate what risks and the value of the risks that are retained by the concessionaire. So the first set of results relates to the PSC or conventional delivery and you have actually seen all of these numbers before, if you did the Value for Money exercise that we had done a couple of weeks back. And all of these numbers were in the output table for value for money. So what you have is the nominal values. So these are the current dollars of the particular years all into the future all added up without any discounting. And then you have the discounted dollars which uses a discount rate. In this case, we have used 4 percent because that was the borrowing rate of the public agency. So these numbers are calculated based on the inputs that we provided. And Wim showed you the set of inputs that were used in the input sheet for the risks based on the probability of occurrence based on value of the impact. All of these risks were individually calculated and then summed to come up with the total for pure risks. Then the base variability was simply 10 percent or whatever figure that we might have applied for the various phases: preconstruction, construction, and operations. Now, lifecycle performance risk is the one that is the most difficult to follow because this is not something that is calculated based on inputs provided by subject matter experts. It is actually calculated based on the investors' perception of risk, and as reflected in the rates of return and interest rates and other financing conditions imposed on the project. So what this value and the value in net present value for lifecycle performance risk represents is the portion of the WACC. So the WACC is comprised of really a risk premium and a risk free rate which is similar to the 4 percent borrowing rate of the public agency, which does not have project risk in it. So let's say the WACC was something like 8.86 percent. The difference between 8.86 percent and 4 percent would be the total risk premium that investors are asking for in order to shoulder the project risk. But the project risk is comprised of actually two types of risk: the lifecycle performance risk and the revenue uncertainty risk. And so that 8.86 percent was really divided into two parts: if you'll recall, the 1.6 percent, which was attributable to revenue uncertainty, and the balance. So out of 4.86, 1.6 is attributable to revenue uncertainty and is represented by the $377 million in nominal value of risk uncertainty and a present value of $130. But the balance-- so the 8.86-- so the 4.46 minus the 1.6 would be the balance which is represented by this $574 million for lifecycle performance risk. Now, even though we've shown you these present values, we are using a 4 percent discount rate because this is conventional delivery and we used it in value for money analysis. But, in reality, we are only going to look at nominal values because, as we will show you in the P3 option, we are using the higher discount rate and that doesn't make sense to compare values with two different discount rates. So what this table shows is the results for the P3 option, but from the perspective of the agency. So when the agency transfers all of the risks or most of the risks to the private sector, there aren't very much risks left. So $11 million and $10 million with a present value of $6 and $7. And so we basically have a very small proportion of risks that are retained by the public agency. The concessionaire holds most of the remaining risks and what you can see here are the pure risk, base variability, the lifecycle performance risk, and the revenue uncertainty risk. And it is-- these are numbers that you actually saw on the value for money. These four numbers you saw on the value for money output table. These numbers you did not see in the value. The life cycle performance risk and revenue uncertainty you did not see in the value for money analysis output table because they were buried in the discount rate. So you didn't see these numbers but, so that we can do a comparison of values between the P3 and the conventional delivery, it's essential for us to value in real dollars, in actual dollars, the value of that risk premium. And so we have done that for you and the P3 Value tool does that for you so that you can make a comparison between the risks that are assumed for the PSC versus the risks assumed for the P3 option. So here you have the comparison between the PSC and the P3. And these are simply the numbers you saw before but now they are side by side and you can see that pure risks, there was quite a bit of reduction by transferring those pure risks to the P3. Base variability, likewise. The concessionaire might be better able to manage those risks, and they have been reduced based on the assumptions that we included in the inputs. Now, lifecycle performance risks also you see that there is a drop. And, of course, we used the same WACC, if you'll recall, to calculate this number as well as the number for the conventional delivery. So the question arises, "Why are they different?" Well, they're different because you applied the WACC to the costs in the P3 scenario to calculate this $515 million and for the PSC scenario, you still use the same WACC percentage but you apply it to higher costs in the PSC. The costs are higher because they don't have the efficiencies of the P3. And so, as a result of applying the same percentage to a higher cost base, you get a higher lifecycle performance risk. Now you might ask, "Why doesn't the same principle apply to revenue uncertainty?" You see $377 million versus $382 million. So what has happened here? Why is the P3 risk uncertainty value higher than the value we used for or we had calculated for the PSC? The answer really is that we, in the P3, we have an extra year of operation. So you have an extra year of revenue coming in and so with that extra year of revenue, there's an associated extra risk, which is applied by the tool. And so that five million dollar difference simply is due to the extra year that the P3 is in operation. Recall that we have not assumed any difference in revenues or the ability of the-- at least in this project-- we assumed that the revenues are going to be the same under both the PSC and the P3. So the only difference is that the P3 has one extra year of revenues, and that is what is reflected in the 382 million, the five million dollar extra revenue that comes to the risk related to the extra revenue that comes from that one extra year. So when we go through all of those calculations, we have, as I should have shown you the totals here are higher under the PSC than under the P3. And the difference ends up as 74 million dollars. So that is a positive difference, so it's a lower value. So we are reducing the risk by 74 million dollars by this risk transfer, so that suggests that the P3 would be a good option, at least with respect to risk transfer. So let's stop here and see if there are any questions, and you can input questions in the Chat Box, or you can pick up your phone, just hit *6 and unmute your phone.

Patrick DeCarla-Souza: All right, seeing no questions, I guess we can move on to Part B, and I will introduce the exercise again. So we are doing here a Benefit Cost Analysis Perspective for Calculation of Risk. And one of the key things in Benefit Cost Analysis is that revenues are considered to be a transfer. They are a cost to users, but they are a benefit to the agency, or the P3 concessionaire. So from a societal perspective, there is no net benefit. And so we simply ignore revenues. So when we ignore revenues, we can ignore revenue risk, also. So all we're going to worry about in Benefit Cost Analysis is just base variability, pure risk and life cycle performance risk. And we are going to use a standard discount rate of three percent, which is something we use as the social discount rate in Benefit Cost Analysis. Now it's-- everything is-- the numbers, the inputs are exactly the same as in Value for Money Analysis. We're simply using the same inputs that Wim showed you in the risk input sheet. So the only thing that we're not going to do is we're not going to do the revenue uncertainty risk calculation. So Wim, go ahead and demonstrate the BCA.

Wim Verdouw: All right, so this goes back to what I showed earlier where we had the risk outputs for various money, and the risk outputs for BCA. And the important points here to note is that in these-- I'm just going to show various money risk outputs first. But here I wrote 38, you saw that was the risk revenue uncertainty adjustment. On top of course, the base variability, the pure risk and life cycle form risk.

Patrick DeCorla-Souza: They're not seeing the Excel file.

Wim Verdouw: Okay, let me try again.

Wim Verdouw: Are you seeing it now?

Michael Kay: No, it appears to be boxed out on your screen, Wim. Let's-- let me try something else. I'm just gonna pull up a new Share Pod. Just wait a second for me to resize that. Try it again.

Wim Verdouw: I will do that.

Wim Verdouw: Do you see it now?

Michael Kay: Do us a favor. So, no, we don't see it yet. We see that you're trying to share something, but it's sort of hashed out the way sometimes Microsoft Products appear. Do you mind closing-- I don't know if you have Outlook open, but that might be something to try. I want to make sure-- or even to show us like a web browser. I want to see if there's anything we can see at some point.

Wim Verdouw: Okay, but I'm showing you, but I have selected, of course, one particular screen. I have no Outlook. So that idea is closed.

Michael Kay: Because we can see your cursor, but we can't see your screen.

Wim Verdouw: Now you see the-- okay, why don't I just quickly try to quit Excel, and then--

Michael Kay: Okay, wait, because there it goes. Wait, for some reason now it's showing- now it's showing up. You can cancel. All right, go ahead. We can see it now.

Wim Verdouw: So what I was explaining is that in the risk output for various money, there is total, there is pure risk, there's base variability, there's life cycle form risk, and there's revenue uncertainty adjustment. Now in the BCA, we no long have the revenue uncertainty adjustment, because the tolls their self are transverse and not relevant from a benefit cost perspective. So other than that, the calculations are the same. The difference of course that we are now looking at real cost, or real risk cost discount-- at a real discount rate. Whereas the Value for Money Analysis was using nominal risk costs discounted at a nominal discount rate. And as I mentioned earlier, here we have three delivery options. We've got the delayed PSC, or delayed conventional delivery, the conventional delivery and the P3. And I'm just scrolling down to show you the different risk calibrates. And now I'll hand it back to Patrick so that he can discuss results.

Patrick DeCorla-Souza: Okay. Thanks, Wim. And so let's look at results. We'll look at the delayed conventional delivery, conventional delivery and P3 option. So first we look at the delayed conventional delivery versus the PSC. And what you see here is that the numbers are a lot lower-- and these are all at three percent discount rate, so these are discounted values. But the delayed conventional delivery numbers are all lower than conventional delivery. And the main reason for this is, first, the fact that when you postpone a cost, and then you discount it, the value, the present value of that cost becomes a lot lower than if you had incurred that cost today. And so that's basically what you're seeing here, but in addition, what you also have affecting these risks is the fact that you have more years of operations. Under conventional delivery, you have more years of operation than delayed conventional delivery, and the extra years is related to how many years the project would have been delayed under delayed conventional delivery. So those extra years also have a risk associated with the cost for operations in those years, and so that would tend to increase the value of the risks under conventional delivery. The next comparison is between the PSC, or conventional delivery, and the P3 option. Now we see the same numbers that we saw before in the previous slide, but now we are comparing those numbers for conventional delivery with P3. And as you might expect, there are drops in the risk values in every case. The purest base variability, as well as the life cycle risk premium. And the reason, of course, is the management of the P3 concessionaire, the more efficient management of risks, but that is captured in this case in the life-cycle performance risk is simply captured by using the same WACC, but on a lower cost-base in the case of the P3. So basically, the proportional difference between the conventional delivery and the P3 with regard to life cycle performance risk is proportional to the difference in their costs. Or the relative cost efficiency of the P3 option. So let's stop and see if there are any questions.

Patrick DeCorla-Souza: All right. Let's move on. And now we go to the very interesting scenario of some change in the risk profile of this project, because of some new information that is received by the state DOT with regard to basically first revenue risk. So the new information about the higher revenue uncertainty causes the investors to demand higher rates of return. So first they increase-- they decide to increase the equity rate of return that they would require by two percent, and the debt providers decide to increase their interest rates by two percent. And everything else is kept the same with regard to gearing and other conditions of financing. So here, you see the situation with the revised financing conditions. They're calculated at 10.7 percent as the WACC, the weighted average cost of capital, and if you recall, a prior WACC was calculated as 8.84 percent. And this is something the P3 value model can calculate based on the interest rates, rate of return for equity, and the gearing ratio that you provide. So this is an output of P3 value. This is also an output of P3 value based on the new financing conditions. And the difference is not two percent, but is actually only 1.86 percent. And it's simply a mathematical issue as to why the difference is not two percent. So now that we know the increase in the WACC, we know how much extra the revenue uncertainty risk will-- or how much extra the investors perceive the revenue uncertainty risk as being, and so we can calculate the new value of that risk premium, due to revenue uncertainty. So as we simply-- we previously knew that the revenue uncertainty risk was 1.6 percent, and that was something we had calculated previously based on the difference between the WACC for a total concession and the WACC for availability payment concession. Now we know the WACC has increased to 10.7 percent, which is an increase of 1.86 percent. So we simply add that increase in the total concession WACC to the 1.6 percent, and we now know that the percentage increase in WACC attributable to revenue uncertainty is actually 3.46 percent. So we provide this information to P3 value, and you know, Wim will show you where that information is input. And that will be used by P3 value to calculate the revenue uncertainty risk with the new financing conditions. So Wim, go ahead.

Wim Verdouw: Thank you!

Michael Kay: Just give me a second here, and we'll switch you over.

Wim Verdouw: All right, I'm just confirming you can see the sheet?

Michael Kay: Yes, we can.

Wim Verdouw: Great, okay. So we're going to the Input Fin Sheet. As Patrick explained there's new information that came up that showed that there was significantly more risk than we thought, and the financiers had required two percent higher return equity, and also a two percent higher interest rate. Before we do anything, I will quickly want to show you where, for example, the current WACC can be found in the risk output here on as in so M3, you'll see the current WACC before we've changed any of the financing conditions. So that's the 8.84 percent that Patrick mentioned earlier. And as you see, we don't touch it, we're saying that P3 now has a higher financing conditions, and to do that, we increase the return of equity, new cost of equity by two percent. We also increase the two interest rates that are relevant for the P3. That final thing, that's the long-term interest rate, and the equity bridge loan interest rate. So we assume that they are both two percent higher. The reason why the total WACC did not go up by two percent, as Patrick showed earlier is also because there's other elements that go into the WACC, such as the fees, and we're not touching the fees here, which helps explain why the overall increase was not necessary exactly two percent. The last element that we can update here is based on the information that Patrick just provided us, which was that the ultimate WACC was going to be 10.70 percent. In order to find out the 10.70 percent, I will need to re-optimize and then I will look at the same-- so I look at just now is M3 in the Risk Output for Various Money. And once I've optimized, I will find it is now 10.70 percent. As this takes a few minutes, I'm not going to do it right now. But please try this at home. And instead, I directly increase the difference between the availability revenue WACC and the total condition WACC. Again, the idea here is the risk increase that we have just observed, or the investors have observed, was mainly attributed to the uncertainty in revenues, and therefore that's the part what needs to be increased. So I'm now increasing this from 1.6 to 3.46 to account for that. And I should, of course, enter the "dot" to make sure we're not talking about 346 percent. Patrick, will you want to show the results?

Patrick DeCorla-Souza: Sure. Okay. So let's go back to the PowerPoint slides, and so everything that I'm going to show you now is for Value for Money, so this is the Financial Analysis, not the Benefit Cost Analysis. And what you see here are the results. And you know, we saw all of these results before, so this was the base case of this column here is with the revised scenario with the higher toll revenue uncertainty risk. And of course, the other, the pure risks aren't going to change because only the revenue risk gets changed. So that is logical. Nothing is changed with the pure risks. Nothing has changed with base variability. Now life cycle performance risk, there's a one million dollar-- this is really a rounding difference, if you'll recall. We are using these percentages and we are rounding them off to two decimal places. And so with such big numbers, we are going to see some minor differences, simply due to rounding error. So the big difference we see is in the revenue uncertainty adjustment, and a huge difference, almost 200 million dollars revenue uncertainty risk difference, just simply due to the higher WACC that we had, and the 3.46 percent revenue uncertainty risk premium versus the prior 1.60 risk premium. Of course, that means that overall with the revised scenario simply due to this higher revenue risk, we have more overall risk in the project. Now, how does that compare with the P3 risks? And again, we are comparing the base case P3, that is with a base financing conditions of the 8.86 WACC, 8.6 WACC versus the 10.70 WACC. And of course, that doesn't change the pure risk, it doesn't change base variability, it does-- it's a minor change in the life cycle performance risk is, again, due to rounding differences. And here we have the revenue, the big revenue uncertainty adjustment difference, again, over 200 million dollars, due to the higher risk premium being charged in the WACC. So overall, we have higher risks, again, due to the revenue, mainly due to the revenue risk uncertainty being higher. So one interesting question, you know, with regard to the WACC is we have used, at least in our input data, and in our financing conditions, we have assumed market based interest rates. But we know that in several P3 projects, practically all P3 projects, there is TIFIA financing, and TIFIA does not charge market interest rates, it charges basically the Treasury rate, which is a AAA Federal Government rate. And that rate does not include any of these risks. It doesn't include life cycle performance risk, and it doesn't include revenue uncertainty risk. So what are we to do? Is this analysis valid? I mean, especially for Value for Money Analysis? Are we underestimating these risks, and is that a problem in our Value for Money Analysis. So that is the question. If you have lower interest rates and you put that into your model as an input in P3 value, that is going to reduce the WACC, and if you reduce the WACC, you're going to get lower risks. So these numbers would be a lot lower, both the life cycle performance risk and the revenue uncertainty risk. So, "Does that invalidate our Value for Money Analysis?" is the question. It so happens that because of the way we are doing this analysis, basically we are taking the same WACC that we calculated for the P3, and applying that WACC to the conventional delivery and you see that here in the PSC. We apply the same WACC, so we are using the same, you can say, erroneous assumption about risk premium. So in other words, the effect of that error in the risk premium is neutralized. So if we have a lower WACC, this revenue uncertainty adjustment and this life cycle performance risk might be, let's say, 100 million dollars lower in each case, but it was the same 100 million dollar reduction would occur in the P3 situation. So since we are only doing a comparison, I mean, the purpose of Value for Money Analysis is simply to compare the two options, it doesn't make a difference. Even though the actual value of the risks might be underestimated, with regard to the difference, the difference between these two numbers here is going to be the same, and so we don't need to worry about this issue, especially if we are using financing conditions to calculate the life cycle performance risk and revenue uncertainty adjustment. So we can make that comparison, and you see that PSC and the P3 difference is still around the same amount. We had about 74 million dollars previously. So not much difference in the results, simply because, you know, you wouldn't expect a lot of difference, because we use the same financing conditions and the same WACC to estimate both the PSC risks, as well as the life-- as well as the P3 life cycle performance and revenue risks. So let's stop here and see if there are any questions.

Patrick DeCorla-Souza: All right, hearing none, let's move on. And here's a summary. Basically, we first showed you the Value for Money Analysis, evaluation of risk. Then we showed you risk evaluation for Benefit Cost Analysis. And this very sort of almost novel approach in the U.S. to calculate life cycle performance risk and revenue uncertainty based on financing conditions. So just to remind you, if you haven't already, the tool, the P3 Value 2.0 Tool is available on our website and can be downloaded at any time. It has an accompanying User Guide, which not only shows how to provide inputs, but also explain the underlying concepts, such as this very complicated life cycle performance risk, and revenue uncertainty risk evaluation process. And in addition we have a number of primers and guide books all downloadable from our website at any time. As I indicated in the beginning, we have one more concept scores on Financial Viability Assessment, which will be a week from today, on Monday. And March 28th, two weeks from today, but at 12:30 p.m. instead of 2:00 p.m., we will have a review of the Financial Viability Assessment exercise, and that will be provided, that exercise will be provided to you on next Monday, to be completed by March 28th. Now, I will ask Michael Kay to upload the answers to last week's exercise that we assigned on P3 Risk Assessment. And Michael, can you upload the answers for us?

Michael Kay: Yes, I will do so. Just give me a moment.

Patrick DeCorla-Souza: And while Michael is doing that, here are the URLs for our website. The first one is our entire office, and the second one is specifically P3 topics. And we still have time if you have any questions, I'll be happy to answer, just pick up the phone, unmute yourself, and we'd be happy to answer any questions.

Michael Kay: And that file should be available now, under the Materials for Download Box at center left of the screen.

Patrick DeCorla-Souza: Yeah, so all the answers, you know, we had several questions pertaining to the outputs, and all of those answers you will see, if I've not already answered them already in the webinar, you will find those answers in these answer sheets. And, of course, if you still have questions, feel free to contact me. My phone number and email address are shown on this slide. And I think that's the last slide, so I want to thank Michael Kay for moderating the webinar, and my colleague, Wim Verdouw, for presenting the P3 Value Tool. And I want to thank you all for your attendance in this webinar. So with that, I will close the webinar, and look forward to seeing you next Monday.

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