Public Private Partnerships (PPP), Project Appraisal & Financial Analysis
Governments and development partners around the world now understand that public-private partnerships (PPPs) can be an important option to help meet infrastructure and basic service needs while contributing to a reduction in poverty. By bundling construction and service delivery, PPPs offer the possibility of improved accountability, greater innovation, and long-term efficiencies. However, to get the hoped-for benefits of PPPs, public sector officials and managers need to develop and maintain skills and capacities to identify, assess, and procure PPPs and, once the project is up and running, to manage the contract and regulatory requirements. This training is geared towards enhancing the skills of PPP players by imparting hands-on skills.
The training is also designed to equip professionals with the knowledge, analytical tools and practical skills required to identify, articulate, quantify and optimize the value generated by projects and investments. It focuses on strengthening participants’ ability to demonstrate the financial, economic, operational and strategic benefits of projects while ensuring that resources are allocated efficiently and investment decisions are supported by robust financial and economic analysis.
The course provides a comprehensive understanding of project value articulation, cost-benefit analysis (CBA), investment appraisal, financial modelling and financial impact optimization. Participants will explore techniques for identifying project costs and benefits, quantifying tangible and intangible value, assessing investment returns, evaluating project cash flows and measuring the financial implications of different project scenarios.
MAIN TRAINING MODULES
PPP introduction
- Introducing and scoping the PPP concept
- Private participation in public infrastructure and services: what is and is not a PPP
- Types of PPP and terminology issues
- Where PPPs are used: infrastructure sectors
- When to use PPPs: motivations and caveats
- Typical basic structure of a PPP project
- How a private finance PPP project is financed: where the money to pay construction costs comes from
- Causes of project failure: the need for sound process management and preparation of projects
- Introduction to the PPP framework concept and initial framework considerations; private sector concerns about frameworks and markets
- An overview of the PPP process cycle: how to prepare, structure and manage a PPP contract
PPP project financing
- Basic considerations of PPP project finance
- Ideologies of project finance
- A basic description of major sources of funding
- Project finance: benefits and limitations
Establishing PPP framework
- Why have a PPP framework?
- What is in a PPP framework?
- Objectives of the PPP framework
- Scope of the PPP framework
- Choice of legal and administrative instruments to create the PPP framework
- Defining the PPP process
- Institutional responsibilities
- Public financial management of PPPs
- Oversight of PPP programs and projects
Project identification and PPP screening
- Objectives of the project identification and screening phase: where we are in the project cycle
- Overview of the project identification and screening phase
- Identifying needs: entry routes to the pipeline (up to full feasibility)
- Project prioritization
- Option analysis and selection techniques
- Technical outline of the selected solution
- Information requirements and data checklist
- Economic soundness: introduction to cost-benefit analysis
- Scoping the PPP project and its challenges
- Testing PPP suitability and affordability
- Project management plan and project governance considerations
- Identifying stakeholders and developing the communication strategy: ensuring government support and managing the stakeholders
- Assessing capabilities and needs, and hiring advisors
Appraising PPP projects
- Where we are in the PPP process
- Objectives of this phase
- Overview of the appraisal phase and process
- Detailing the scope of the contract, designing the technical requirements and assessing costs
- Designing a preliminary structure of the PPP
- Developing the financial model
- Assessing the technical feasibility
- Assessing commercial feasibility
- Market sounding
- Confirming economic feasibility: refining the cost-benefit analysis
- Assessing fiscal feasibility (affordability)
- Analysis of impact on government deficits and debt
- Assessing environmental feasibility
- Assessing social feasibility
- Assessing legal feasibility
- Value for money assessment
- The procurement strategy
- Formal requirements regarding the appraisal of PPPs and the conditions established by the framework for the green light decisions
- Planning ahead
- Obtaining the final approvals
Procurement procedures, drafting tender and contracts, and award
- Introduction to tender approaches
- Main types of PPP tender processes
- Where we are in the project cycle
- Objectives of this phase
- Special characteristics of the PPP tender process
- Overview of the phase
- Time to prepare and submit offers: requirements for proper assessment and preparation by the prospective bidders
- Managing matters during the bid submission stage in open tenders
- Qualification matters
- Specific matters on managing dialogue and interactive processes: managing the dialogue period and one-on-one meetings
- Evaluation of proposals
- Negotiation with a “preferred” bidder
- Award
- Contract signature
- The financial close
- Oversight and integrity of the tender process
- Outcomes of this phase
Fundamentals of project appraisal and investment analysis
- Introduction to project appraisal and investment decision-making
- Understanding the project life cycle
- Types of project appraisal: financial, economic, technical, environmental and social
- Project identification, screening and selection
- Understanding project costs, benefits and assumptions
- Capital budgeting and investment decision criteria
- Overview of financial modelling in project appraisal
Development of project financial models
- Introduction to financial modelling and its applications
- Structure and components of a project financial model
- Identifying key financial model assumptions and drivers
- Estimating capital expenditure (CAPEX)
- Estimating operating expenditure (OPEX)
- Revenue forecasting and demand projections
- Working capital requirements
- Financing structure: equity, debt and grants
- Preparation of integrated financial statements:
- Projected income statement
- Projected balance sheet
- Projected cash flow statement
Project cash flow analysis
- Understanding project cash flows
- Distinguishing between accounting profit and cash flow
- Classification of project cash flows:
- Initial investment cash flows
- Operating cash flows
- Financing cash flows
- Terminal and residual value cash flows
- Preparation of projected project cash flow statements
- Incremental cash flow analysis
- Free cash flow to the firm (FCFF)
- Free cash flow to equity (FCFE)
- Working capital and its impact on cash flows
- Treatment of taxes, depreciation and capital allowances
- Identifying cash flow gaps and funding requirements
- Financial modelling using Microsoft Excel
Net present value (NPV) analysis
- Concept and principles of the time value of money
- Understanding discount rates
- Cost of capital and weighted average cost of capital (WACC)
- Calculation of present and future values
- Understanding net present value (NPV)
- Step-by-step calculation of NPV using Excel
- Interpretation of NPV results
- Investment decision-making using NPV
- Limitations and practical applications of NPV
Internal rate of return (IRR) analysis
- Understanding the concept of internal rate of return
- Relationship between IRR and NPV
- Calculation of project IRR
- Application of IRR using Microsoft Excel
- Interpretation of IRR results
- Comparison of IRR against the cost of capital and required rate of return
- Modified internal rate of return (MIRR)
- IRR challenges in projects with unconventional cash flows
Return on investment (ROI) calculation and interpretation
- Understanding the ROI formula
- Calculating gross and net investment returns
- Measuring ROI over different investment periods
- Annualized ROI
- Comparing ROI across projects and investment alternatives
- Interpreting positive and negative ROI
- Common ROI calculation errors and limitations
Payback period and investment recovery analysis
- Understanding the payback period concept
- Calculation of simple payback period
- Discounted payback period
- Cumulative project cash flow analysis
- Determining the investment recovery period
- Interpretation of payback results
- Advantages and limitations of payback analysis
Sensitivity, scenario and risk analysis
- Introduction to financial model risk analysis
- Identification of critical project assumptions
- Sensitivity analysis of key variables:
- Project costs
- Revenue and sales volumes
- Operating costs
- Interest rates
- Inflation
- Exchange rates
- Scenario analysis: best-case, base-case and worst-case scenarios
- Break-even analysis
- Stress testing of financial models
- Impact of changes in assumptions on NPV and IRR
- Monte Carlo simulation: introduction and application
- Developing risk mitigation measures
Project financial viability and investment decision-making
- Assessing overall project financial viability
- Interpretation of financial appraisal results
- Comparing alternative investment projects
- Financial sustainability and long-term viability
- Project funding and financing gaps
- Investment decision-making using NPV, IRR, ROE and payback
- Reconciling conflicting investment appraisal indicators
- Preparation of investment appraisal reports
- Presenting financial analysis findings to investment committees and management
- Developing recommendations for project approval, rejection or restructuring
Way forward after training
Participants will develop a work plan, with the help of facilitators, that stipulates the application of skills acquired in improving their organizations. ASPM will monitor implementation progress after the training.
Training evaluation
Participants will undertake a simple assessment before the training to gauge knowledge and skills, and another assessment after the training to demonstrate the knowledge gained.
