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P3 Value for Money Assessment Using P3-VALUE 2.1

March 22, 2018
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Jordan Wainer: On behalf of the Federal Highway Administration Center for Innovative Finance Support, I would like to welcome everyone to today's webinar on Public-Private Partnership Value for Money Assessment using P3-VALUE 2.1. This webinar is part of the P3-VALUE 2.1 webinar series. My name is Jordan Wainer, I'm with the USDOT's Volpe Center in Cambridge, Massachusetts and today I will be providing technical assistance and moderating the Q&A. Before we begin, I'd like to point out a few key features of the webinar room. On the top left side of your screen is the audio call-in information and the link to the P3-VALUE 2.1 tool. Below the audio information is the list of attendees, below the list of attendees is a box titled "file share" where you may access a copy of today's presentation. Simply select the file, click "download files" and follow the prompt on your screen. In the lower left corner is a chat box where you can submit question to the presenters throughout the webinar. We will take questions after the presentation. If you experience any technical difficulties, please use the chat box to send a private message to me, Jordan Wainer. Our webinar is scheduled to run until three o'clock Eastern today and we are recording today's webinar so that anyone unable to join us may review the material at a later time. And with that, I'd like to turn it over to Patrick DeCorla-Souza.

Patrick DeCorla-Souza: Thanks Jordan and welcome everybody to the second webinar in the series on P3-VALUE 2.1. So this is the webinar when we are going to talk about Value for Money assessment. The earlier webinar and let me show you, here is the information on where you can find earlier webinars. so the Value for Money Analysis webinar on February 8th, 2016 is a prerequisite for this webinar, that's where you would get all of the theory behind Value for Money and in today's webinar, we are simply going to talk about the updates to the P3-VALUE tool. And if you want to review the webinar that we presented a month ago on financial liability assessment, you can go to the same URL on our P3 Toolkit website. So with me to help present this webinar today is Wim Verdouw who is with IMB/Rebel and I am Patrick DeCorla-Souza, I am with the Office of Innovative Program Delivery in the Federal Highway Administration. So we are going to present this webinar in three parts, first we will just recap Value for Money Assessment, in other words, a very brief summary of what we presented in the prior webinar in 2016. Then we will go over the improvements and enhancements that have been to P3-VALUE since then and then we will illustrate the enhancements using an example illustration. So first a very quick recap of Value for Money Assessment, it's done either in the early stages, that would be in the planning stage or early stage of project development in order to evaluate whether a P3 would be appropriate, whether it would provide good value for money relative to conventional procurement. So the tool that we are presenting, P3-VALUE 2.1 could be used in the planning stage, a very early project development stage, as you get more information on your project, you would need to do more detailed analysis, perhaps hiring financial experts to do the evaluation. At the procurement stage, you would actually have a bid, but as in the early stages, planning and project development, you don't have a P3 bid but you need to estimate what a potential concessionaire might bid and that's called a shadow bid. When you get to the procurement stage and you issued an RFP and received bids, you then have an actual bid from various concessionaires and then you can use the bid numbers to make a comparison that conventional delivery to find out whether the actual bid would provide value for money. Now obviously in stages one and two, planning and project development, it's a little more difficult because in that case, in these two stages, you actually have to estimate what a potential bidder might bid, which is a little more difficult to do than if you already have the bid. So high level P3 screening is what you could use P3-VALUE 2.1 for and so the P3-VALUE 2.1 has a simplified input sheet instead of the more detailed kinds of information you might need for detailed evaluations since this is meant to be used only at the screening stage when you have less information, therefore the inputs are also much simplified. Here we have a very quick overview of the results of Value For Money Analysis, on the left hand side, you see a stacked bar that has at the bottom, base cost and that would be the construction and design cost as well as the operations and maintenance cost over the entire lifecycle. Then the next stack is the financing cost and these are all in present value so they reflect for example the interest cost of the life of the project, however, if you discount debt service payments at the same discount rate as the interest rate on borrowed money you are left with basically only the financing fees as the estimate of financing cost since the interest payments get zeroed out with the discount rate. Next we have on the next stack, we have risks which have not been included in the base cost, for example if you have a design build as your conventional delivery, that would include risk transferred to the design-build contractor however it may not include other costs such as lifecycle, performance costs over the project's lifecycle or revenue risk estimates and so that's what that light blue stack would include. Ancillary costs are costs that the public agency would bear to conduct procurement including any bid stipends provided to bidders and monitoring and oversight costs over the entire lifecycle. Finally the red stack is competitive neutrality and most often that includes simply the taxes that are forgone but a public agency or the public sector under conventional delivery and the idea is that when you have a P3, the concessionaire from the profits made is required to pay taxes back to the states and local governments and if you do a conventional delivery the public agency or the state does not get those taxes because there is no concessionaire and so you account for that in the competitive neutrality adjustments sort of leveling the playing field so to speak between conventional delivery and P3 delivery. On the right hand side, you see the purple stack is the base cost for P3s and that includes most of the risks that have been transferred over to the P3 concessionaires, if they are not included in the actual design-build or O&M costs then they would be included in the financing costs because financing costs, the cost of capital include a risk premium and that risk premium actually reflects the lifecycle cost and revenue risks that are transferred over to the concessionaire. So the little stacks above financing costs, retained costs are the costs that are retained by the public agency, there are some responsibilities that the public agency would retain, retained risks, again, there are some risks that might be retained or shared with the concessionaire and so those have to be accounted for and finally ancillary costs are again the costs for procurement which might be higher than under conventional delivery and they also include monitoring and oversight of the concessionaire that might actually be lower since the concessionaire and its investors and lenders provide a lot of those oversight responsibilities. One of the key issues in Value for Money Analysis is to understand that conventional delivery is assumed to occur in the same timeframe as the P3 and as we know, very often that really is not the case because the conventional delivery might be delayed owing to lack of funding or lack of financing ability of the state or even lack of capability of staff resources available to conduct the procurement and oversight. Now another important factor is that Value for Money is a cash flow analysis so non-financial benefits such as travel time savings, safety benefits or vehicle operating cost savings are not included in the analysis and so in normal Value for Money Analysis, these are accounted for just qualitatively rather than quantitatively. Now in P3-VALUE 2.1, one advance we have made is tried to address the issue of transparency. In review of analyses that have been done in the United States, we've found that it wasn't easy to look at Value for Money results and understand what were the differences in the assumptions with regard to investment costs, that is design and construction costs between P3 and conventional delivery or even the differences in operations and maintenance costs that were assumed, this wasn't very clear looking at the results, so we tried to make it transparent in our VfM Analysis output sheet. A second thing we found and again in analyses conducted in the U.S. is it wasn't clear what the costs of financing were under these alternatives, how different was the financing costs for a P3 relative to conventional delivery, it wasn't easy to see that. And so we attempted to have this specifically and clearly available in our output sheet. And finally long term risk differences, how are risk costs different between the two methods of project delivery, we tried to clearly show the differences in the assumed costs of risks, so it is very clear what these assumptions are. Then very often analysts have omitted to include procurement and oversight costs in the analysis and of course these are relatively small compared to the size of some of these major construction projects but we thought it was important for a comprehensive and clear and transparent overview of the two alternatives, we thought it was important to clearly show these costs and they are clearly shown in the VfM Analysis output. Then competitive neutrality, not all analyses include this and so we made sure that that is available as a separate line item. One thing that none of the analyses that I am seeing have accounted for is no build O&M cost savings. Now remember that O&M costs under the build option, that is the either the P3 or conventional delivery, O&M costs are included in the investment cost or the overall lifecycle cost, but the fact that O&M costs may be reduced under no build which is a saving is not accounted for. That might give a biased view on the actual impact on the budget, the financial impact on the procuring agency which won't have to now spend money on operations and maintenance, so we have pulled out O&M cost savings as a separate line item. Finally as I mentioned earlier, Value for Money Analysis tends to ignore non cash benefits that is benefits to users for example and we tried to account for that in our output sheet by doing separate calculations of user benefits so you get a more comprehensive picture of each item. So all of these are innovations you might say that we've introduced into P3-VALUE 2.1. For more information, of course we've got a primer and we've got a guidebook that you can look at and of course the user guide for the P3-VALUE 2.1. So let me see, Jordan, are there any questions at this point?

Jordan Wainer: There's no questions at this time. If you have any questions, please put them in the chat box?

Patrick DeCorla-Souza: Okay so let me move on then and we can stop later and see if there are questions. So now we are getting to part two which is where we are going to introduce you to the new look and feel of P3-VALUE 2.1. And just to remind you, it's an analytical tool in Microsoft Excel, it was originally designed as an educational tool, we have now updated to make it useful for quantitative screening analysis for your specific project, at the early stage of project development. These are the user guides, quick start guides and frequently asked questions that are available with more information and as I said earlier, primers and guidebooks. So before I turn it over to Wim Verdouw who will take you through the tool, I want to give you an overview of the structure of the tool. So in the red box, you see that you have actually two options for inputs now, a simplified input sheet and the more detailed sheets that you had in the original P3-VALUE, so this simplified sheet is just a single sheet and all of the requirements for input are simply input into that single sheet. Now one thing is that if you're choosing the simplified option, the simplified analysis option in P3-VALUE 2.1 you do not use the risk assessment module, that is the blue module that is shown at the bottom, that module is only used in the detail level analysis. So basically when you're using the simplified input sheet, you need to include in your cost estimates, your estimate of the risks, both the design-build phase as well as the longer term operations and maintenance phase. So as you can see, we still have the three types of evaluation, financial viability, value for money and project delivery benefit cost analysis. We explained financial viability at the last webinar, we are reviewing Value for Money Analysis today and in a month's time, in April 26th, we will review the project delivery benefit cost analysis. What you see is if you're doing the detailed analysis, the risk assessment module automatically feeds the risk values into these three modules and you do not have to input them into your original input sheets. So the simplified input sheet, we did review it at the last webinar but Wim Verdouw will review it again to refresh your memory then he will also review the output for Value for Money, so you can see all of the different line items I spoke about. And the outputs relating to benefit cost analysis that have also been updated will be demonstrated on April 26th in the next webinar. So with that, let me turn it over to Wim and he will take you through the analytical tool. Wim?

Wim Verdouw: Thank you very much Patrick and I hope that the Excel sheet is now visible for all of you. When you open P3-VALUE 2.1, as before you will come across this model navigator and the model navigator allows you to navigate the model given there's rather a large number of sheets, the model navigator makes it easier to move from one sheet to another. As we discussed last week, the new model has two different input options, one is the simplified input option which we'll be looking at today and there's the detailed input option which is what P3-VALUE 2.0 already had. So I'm clicking on the inputs, I'm clicking on the simplified input sheet and here I am on the simplified input sheet which effectively brings together all of the relevant inputs with the exception as Patrick already mentioned of the risk inputs, the risks are now assumed to be included in cost, if we are at a high level priority [ph?] evaluation we most likely do not yet have a detailed risk register and as such, instead we are using risk adjusted costs. Of course we're today talking about the Value for Money Analysis and therefore we are interested in costs, we are interested in the value of risks but as I mentioned, those are included in our risk adjusted costs. We're interested in the revenues and with that, of course the traffic and we're interested in financing. And so I'm going to quickly as I did last month, I'm going to quickly walk through the sheet and the present to you the output sheet that summarizes the Value for Money results. So the very left, the tool allows us to choose whether we're looking at an availability payment or a toll concession, and the question, if it is an availability payment is whether it is tolled or not, right now we're looking at a tolled facility which is also a toll concession under the P3. Then, as you can see we moved down, we see the timing input for both the PSC and the P3 and here in this case, we're assuming that the projects start at the same time, the pre-construction is the same, the construction is slightly shorter for the P3 whereas the end date is still the same. Next we see the risk adjusted capital costs for the project, acknowledging as Patrick already mentioned, that certain costs may be higher for P3, for example we would expect the public procurement cost to be higher under a P3 and in the right column here in column G we see what percentage of the costs are allocated to the P3 and how much of the cost is retained by the agency. A similar set of inputs is provided for the operational costs and then we get to the financing cost, so if we're assuming a P3 as a DBFOM, in other words the private concessionaire is expected to also provide financing then we need to provide the financing inputs for both the PSC, the conventional procurement as well as the P3. And as we also know from practice, private financing tends to be more expensive and in this example, we see that for example in the difference in the interest rate between the PSC which here is assumed to be four percent and for the P3 which is assumed here to be six percent [ph?]. Of course you can adjust this based on market conditions and your understanding of the projects. The model also allows you to modify the cost of equity and the gearing, for example, if we're looking an availability payment product, we are likely to see more debt and less equity than if we're looking at a toll concession and that's simply a reflection of the risk that the project has for its financiers. In the middle column we have the traffic and toll inputs, starting with the top section of the traffic both under no builds, the managed lane or toll lanes and the general purpose lane. The no build is particularly relevant when we are going to look at the cost benefit analysis and a little bit less relevant or actually not relevant for our Value for Money outputs. Next we see the toll inputs, so for different types of vehicles and the different periods in the week, we may have different toll rates. And then there's additional information regarding speeds on the different lanes as well as the shares of type of vehicles on those different lanes. The speeds of course are more relevant for the benefit cost analysis when we talk about the cost savings, time savings whereas when we talk about Value for Money we'll be mainly focusing on the number of vehicles and the toll that they are expected to pay. Down here at the bottom, we see some more inputs, for example the ramp up, as well as again, some additional inputs which we will not need today which are related to the benefit cost assessment. And here on the far right, we have some more inputs, again related to benefit cost inputs which I'm going to skip for now but where it becomes very relevant for today is the tax inputs, so the model allows us to input a different tax rate for both the state and federal and then whether or not these are to be included in the competitive neutrality adjustments, and later on we'll see in the output sheet how those are treated to make sure that we make a fair apples to apples comparison between the PSC and the P3. There's also the possibility to adjust the P3 or the PSC I should say for the cost of self insurance both for construction and for O&M as well as any differential in credit subsidy or tax benefits between the PSC and the P3. In this current example, we are not considering those differences but we could if we wanted to. And then in order to be able to compare all of this, we need some evaluation date, in this case we've chosen 2018, we have some escalation and we have a discount rate both nominal which we'll be using in the Value for Money assessment as well as the real discount rates which will be used in the benefit cost analysis. And then lastly, as Patrick already alluded to, there are the long term risks here on the very right bottom, distinguishing between the revenue uncertainty, the fact that yes we may have a certain projection for toll revenues and also there's uncertainty around them and two, a P3, under a P3, the concessionaire takes long term risks regarding the operations of the asset and those risks also should be valued and the model gives different options as how to value these. Now going to the new output sheet for the Value for Money outputs, I just want to remind people that of course the original sheets still exist, for example in the previous version we had this Value for Money output summary and what we are about to show you is conceptually not different, we're using the same numbers but presented in a different and hopefully more transparent way to allow users to compare the PSC to a P3. So here we are on the Value for Money simplified output sheets which contains both a table comparing the PSC here in column D and the P3 in column E as well as a graph showing visually what's already contained in the table. Here, again we're talking about a toll concession so we're starting off with the toll revenues and in the PSC, those toll revenues flow to the agency, whereas under the P3 those toll revenues flow to the developer. Of course, if this were to be an availability payment on a toll facility then the revenues would still continue to exist but they flow to the agency instead and the developer would receive an availability payment. Again, we're looking right now at a toll concession so that is not the case. Next we see the cost expected negatives, again these are risk adjusted costs, pre-construction, construction and O&M. These are net present values discounted at the public borrowing rate of four percent. Under the assumptions that we've used in this model, there are some efficiencies for the P3, we're assuming that the P3 can do certain work at a lower cost than the PSC could but of course, that's all input based and we believe there's no difference than the difference here that we see and cost would of course disappear. In section 1b, cost component 1b, retained space costs, those are costs that are to be retained by the public agency under a P3 and in this particular case, you may remember that we had some 100 percent figures in the cost input allocation early on and that's why these are zero but if we had said that only 90 percent of the construction costs are borne by the P3 developer and 10 percent are retained by the agency then in that case, we would have seen a negative value here, negative value being a cost. And so we get to the base cost which is simply a summation of 1a and 1b excluding, not considering revenues. The next is the financing cost and here it's important to repeat what Patrick already mentioned, this is the cash flows associated to financing, so financing fees as well as interest payments and the like, discounted at the public borrowing rate or at four percent in this case. As a result for the PSC, they only considered financing costs and not being the financing fees because the rest cancel out. The P3 however has a higher cost of capital, given that we're discounting those flows at the public discount rate, we see here a higher cost and what we already know of course is that borrowing money, money is more expensive for a P3 concessionaire than for the public agency. Of course what we should not forget is that the difference here in the financing cost is effectively also a reflection of the difference in risk transfer which is what we will get to in just a second. Here in row 34, we have the P3 shadow bid, so this 88 million dollars is effectively what the P3 is willing to pay or in this case requires as a payment from the agency to do the projects. Getting to cost component three which is what I mentioned earlier, under a P3, a toll concession P3, all revenue risk is transferred to the P3 developer as well as long term performance risk. Under the PSC however, the agency retains those risks and those need to be valued. The model P3-VALUE 2.1 gives users multiple ways to value this, they can provide their own valuation of these risks, they can ignore these risks or alternatively they can decide to use the difference in financing cost as an indication for the value of the lifecycle performance risk and the revenue uncertainty and in this particular output sheet, that is the assumption that we are using, that as an order of magnitude estimate for what those risks are and of course again, those risks are not relevant for the P3 because they have already borne this risk, this is also reflected in their cost of financing. Then we come to the additional costs and cost, no build cost saving, so we are saying that as Patrick mentioned if the project were to be not done then we would still have some O&M and in this case there are certain savings and the reasons why we're seeing slightly higher savings on the P3 is that the P3 is implemented one year earlier, in other words, there's one year left of O&M under the no builds to be performed and therefore there's a higher cost saving. There's also the differential in the procurement and oversight cost for the agency, in other words, here we see a higher cost for the P3 which is in line with our expectation. And then lastly, we get to the competitive neutrality adjustment that Patrick already discussed earlier and there's four categories of them, there's the different taxes for state and federal, they're being added here as a benefit to the P3, alternatively they could have been subtracted as a cost from the PSC. And there's also the option to include the value of self insurance as well as any difference in credit subsidies between the PSC and the P3. As I pointed out earlier, the input sheets, right now those are set to be zero and so we have a competitive neutrality adjustment here of 116 million dollars which then allows us to come to a total net value, the number here positive means positive value to the agency of 278 under the P3 versus 228 under the PSC, so that means that under these assumptions, the P3 is somewhat more attractive with a differential of 50 million dollars. Here we just see a repeat again of what we already discusses which is the valuation based on the difference in financing cost of the lifecycle performance risk and the revenue uncertainty and here at the very bottom, we also see the social benefits of P3 delivery and the social benefits of acceleration. These are benefits that we can-- does not express as cash flows because there's no dollar figures being exchanged but they do reflect the fact that an early delivery will create cost benefit to society if it is a positive project in the first place. Here on the right we see the graph that shows effectively the same as what the table already shows, revenues and the different cost elements on the left side for the PSC and the right side the P3, sorry, the middle, the P3 and then the right side we see the differential between the P3 and the PSC. In other words, we see for example a large jump [ph?] here is the long term risk retained by the agency, so that's a big differentiator between the P3 and the PSC but of course, partially offset or almost fully offset by the increase in financing costs. And with that, I would like to hand it back to you Patrick to further interpret these figures.

Patrick DeCorla-Souza: All right. Thanks Wim. Jordan, do we have any questions before we go forward?

Jordan Wainer: There are no questions right now, however I forgot to do the opening poll, so I'm going to pull those up really quickly if you don't mind, Patrick.

Patrick DeCorla-Souza: Okay.

Jordan Wainer: Sure. So we typically ask these in the beginning but I didn't so our first question for all of you, we're just trying to get a sense of whose attending the webinar. The first question is what is your affiliation? The second question is how many people are participating along with you today? So if you could just take a moment and fill that out, that's really helpful for us.

Jordan Wainer: Okay. Thanks everyone for filling that out, and I'll turn it back over to Patrick now.

Patrick DeCorla-Souza: All right, thanks Jordan. So we are now going to do the third part which is showing how the tool can be applied to a specific project and this is a managed lanes project involving addition of two managed lanes on an existing facility and we're going to say that under the conventional delivery or PSC, construction might be delayed by as much as five years. Here is the information about the project, it's 20 miles long, three existing lanes in each direction so with the addition of two lanes in each direction, that becomes five lanes in each direction. The pre-construction, construction and O&M costs are shown as well as the major maintenance cost which is ten million every ten years, I'm sorry, every eight years. Timing would be beginning in 2018 we'll have pre-construction for two years, four years of construction and then a total P3 concession term of 46 years which would include the pre-construction and construction duration so that actual operations will be for 40 years. Now what we are saying is if we actually do it under a P3, construction would be three years long instead of four years and so the operation space will actually be 41 years, that is 46 minus the five years of construction and pre-construction. So we will demonstrate two options, one is toll concession option and the other will be an availability payment concession option. So the inputs as you saw when Wim was demonstrating the input sheet, these are the inputs for the toll concession, you see the timing inputs on the second block there and then you see the capital cost inputs, they're all as we indicated on the prior slide, so you see that under the P3 option, we actually have slightly lower costs for pre-construction, that's the second last line from the bottom, so about ten percent reduction in pre-construction costs and another ten percent reduction in construction costs. The financing, we see that under both options the agency is able to provide a subsidy of 100 million dollars from its budget. Under the toll concession, the equity investors require a 12 percent rate of return and the debt to equity ratio is 75 percent debt, 25 percent equity. And then you have information on debt maturity, interest rate, debt service coverage ratio, interest on reserves and debt issuance arrangement fees, all provided for each option in this table. Now under availability payment you have the same 100 million available from the agency's budget however, the cost of equity, that is the required rate of return on equity is a little lower because of lower risk and it's ten percent for this option and the concessionaire could avail of more debt so 85 percent of the investment cost would be debt and only 15 percent equity making the cost of capital a lot lower because of the higher proportion of debt. Then we have all of the other parameters as usual and a lower debt service coverage ratio because the lenders are more confident that they will be repaid since they're not reliant on toll revenues but on payments from the public agency instead. The risk inputs, again, I draw your attention to the block at the bottom, guidance for valuation of outputs, there are three ways that you can provide inputs for risk. So the first is as Wim mentioned a risk calculation based on the weighted average cost of capital, in other words the information that we provided in the prior to slides and the model will calculate based on the risk premium and the weighted average cost of capital will calculate what the risks are for revenue risk and lifecycle performance risk. Now the second option is if you have the information available, if you have estimates, you can input them directly and so that's another option. And the third option is if you don't have your own estimates of risk and you don't want to use the weighted average cost of capital as a basis for your risk estimates then you can just, you know, provide no estimates, zero estimates and then I'll show you in the output how to deal with that. So the information at the top is simply telling the model which option you want to use and we show that we want to use option 1, the information in red is what the model would use if you wanted option 2, that is on the second row, 400 million dollars is what you estimated as being the value of risk. Now the model does need to break down the risk premium that it calculates into revenue risk versus the lifecycle performance risk, two components of this long term risk. And it uses at least based on what you give it here, 1.6 percent, if you tell it that 1.6 percent of the weighted average cost of capital would be the estimate that you would like to use for revenue risk premium, it will use that and that's something you can change based on what you would like to use. The competitive neutrality adjustment as I explained previously primarily is based on which taxes you want to consider as being forgone by the public sector. So now if you are taking the state government's perspective then you would want to include state taxes, if you are taking a federal perspective because of the fact that the project has federal funds in it, then you would also consider the federal tax rate and you would input those values as shown. Now you would also want to add in cost of self insurance, the P3 is required to buy insurance for some kinds of things that under conventional delivery, the public agency insures by itself, that is it doesn't buy insurance, it just sells insurers, so you'd want to account for that in your competitive neutrality adjustment, we didn't have any information so we just zeroed that out, similarly the insurance at the O&M stage was zeroed out, if you have good information, you can provide information there. Now additionally, if you are taking a federal perspective, you would want to account for TIFIA credit subsidies or tax exemptions, federal tax exemptions. And so the second last row and the last row are the values that you would input based on your analysis of how much of for example tax exempt bonds are used or how much of TIFIA credit is used and you do some calculations and provide numbers in there. So I'm going to show you, given the inputs that we provided in the prior slides, what the outputs would look like. So for the toll concession output, we'll show you the calculation of toll revenues and if you recall the stacked bars that I showed you earlier, you would see those stacked bars in table form, so base costs, financing costs, long term risk, ancillary costs and competitive neutrality. So these are all as I showed you in the stacked bars. Now we have an additional item as I mentioned, we've incorporated a calculation for social welfare benefits which are important if the P3 is going to be implemented earlier than the conventional delivery so you get extra benefits in the earlier years as well as if the P3 provides better quality of service and you would want to account for that and P3-VALUE allows you to do that and provides an estimate of these benefits. So let's see what the toll concession output looks like. You saw that in the Excel spreadsheet, I've pulled this out here to show how the overall comparison is made between the PSC, that is the conventional delivery and the P3 option. So you see in this case, revenues to the agency, 784 million, however, in the P3 option, the revenues go to the concessionaire but they get more revenue simply because they are able to complete construction one earlier if you recall, they complete in three years instead of four years, so they get a whole extra year of revenues which brings them up to 806 million dollars. The costs are simply based on what you input for pre-construction, construction and O&M and you see these are all present values so they're a little lower because the construction costs obviously are spread out over the first five to six years of the total concession term and you do a present value, they are reduced a little bit. As Wim mentioned, 100 percent of the costs are transferred to the concessionaire so we see nothing as being retained, none of those costs are retained so we have zeros in the cost component, retained costs to the public agency. Then financing costs, now you see a huge difference between financing costs, again as Wim mentioned, these reflect the higher interest rates and the higher equity cost of capital, the higher rate of return required by equity and that's the present worth calculation, so now very transparently you can see how much more expensive the financing costs of the P3 are. So obviously we want to see some countervailing benefits of a P3 to make those higher financing costs worth it. The shadow bid number is simply taking the toll revenues from the top, subtracting the costs, the construction, pre-construction and O&M costs and those present values and then subtracting the financing costs. So you see that the negative amount there means that the public agency would have to provide a contribution or subsidy if you will or a funding gap of 88 million dollars in present value. So now let's look at the remaining line items, the risk, cost of risk, in this situation we chose the model, we asked the model to calculate the risk estimates and so that's what it's done, it calculates the lifecycle performance risk and the revenue uncertainty risk based on the weighted average cost of capital and the 1.6 percent estimate that we provided as input. So you see now, there's 267 million dollars in risk values that the public agency would need to account for. If you remember the stacked bar, that's the blue risk bar that is being calculated here. Then you go down and you see the estimates for procurement and oversight and no build cost savings, of course that’s a positive because that's a savings, so instead of being in brackets or in parentheses, it's a positive number. And then the competitive neutrality adjustment is only made on the P3 side because what we are basically doing is we have paid taxes in the prior slide you see that 397 million in financing costs includes the taxes that they would be paying to the state and federal governments and so what we are doing here is simply crediting them for that and so that's the 36 million dollars to the state government, 81 to the federal government for a total 116 million. And so when we do, we add up all the line items, we make a comparison and we see that the total for the PSC is 228 million and for the P3, it's 278 million. So these are positive values which means that the government has positive impact in present value terms on its budget and the impact is higher, the budgetary surplus is higher under the P3 by about 50 million dollars, 278 minus 228. So what this comparison is saying with these numbers we have a positive value for money. Now of course, if we had not estimated risk, if we had put in zero for risk remember down below, you see below the value 228, you see the estimates of risk that we have included, 105 and 162, so if you add those numbers back in, that's a total of 267 million, you would find that there would be more surplus under the PSC if you ignore the risks, so it would be something like 200 million dollars higher than under the P3. So you would have to then evaluate whether that extra 200 million dollars that you would have would be worth the risks that you would be keeping under conventional delivery, so that helps you evaluate what is a better option if you have not evaluated the risks or estimated the value or risk separately. Now remember I mentioned that there might be some social welfare benefits and if the P3 is completed earlier, in this case we are saying that five years is sooner than under conventional delivery, you get a lot more benefits which are shown at the bottom in red and those are again surpluses so they more than countervail 166 plus 431 is over 600 million in social welfare benefits, again more than compensate for the 200 million in higher cost, I mean higher benefits in cash flow that we would have under PSC if we didn't account for the risk cost. So there again you see there's another way of, if you just want to ignore this and only look at social welfare benefits, you can simply do that kind of trade-off comparison. So very quickly since we are getting close to quitting time, I want to go through the availability payment option. Very similar, you see here the cost differences, you see down at the bottom, the financing costs are somewhat lower because of the lower costs of capital and we go on to the next sheet and you see again, in the case of the P3 option, we have not transferred the revenue risk so the public agency keeps that risk, about 190 million shown here and everything else, the cost of-- the O&M cost savings, et cetera are similar. So we end up in total 169 million positive impact on the budget of the agency under PSC versus 239 million positive impact under the P3, so we say that there's more value for money and this time, again by something like 70 million dollars under the availability payment option. Now again, if you ignore the risks and you see the risks at the bottom, if you ignore those risks, about 300 million dollars then you would get positive, a higher surplus under the PSC and then you would need to trade that off against the social welfare benefits which you see at the bottom, which is 166 million social welfare benefits due to P3 delivery and project acceleration, a total of again, almost 600 million dollars. So that's the way you would take everything into consideration in your evaluation accounting for every line item that traditional VfM analyses tend to ignore or not quantify. So with that, I just want to alert you there's going to be another webinar that will go into more detail on how these social welfare benefits are calculated in P3-VALUE 2.1 and you do need to register for the webinar and the link is provided on this sheet. So here's my contact information if you have any more questions. So with that, let me turn it over to Jordan and to open the lines and see if there are any questions.

Jordan Wainer: Sure. Thanks Patrick. There's no questions in the chat box, but if anyone has any questions for Patrick or Wim, you can press star six on your phone and ask them over the phone. In the meantime, I'm going to open up our end polls, we just have one poll asking about if your expectations for the webinar were met, but if you do have any questions, feel free to press star six and ask your question over the phone.

Jordan Wainer: Well I don't hear any other questions, so with that, I think we will go ahead and end the webinar. Thank you all for joining us this afternoon and I hope you...

[recording ends abruptly]

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