Key indicators for the financial assessment of availability payment ppp projects

Abstract

As a consequence of renewed interest in attracting private financing for big infrastructure investments, public-private partnership (PPP) arrangements are mostly seen as a suitable mechanism for ensuring sound and quicker delivery of transport infrastructure projects. Unlike conventional delivery methods, when correctly implemented, PPPs are expected to deliver projects more effectively with an efficient transfer of risk and better management of assets. However, a general concern is that expectations of mobilising private sector funds have been overestimated in a number of cases. Some pitfalls of PPP arrangements can be overcome by proper financial assessment of the project and by carrying out an appropriate value for money (VfM) analysis which is often a rationale for using PPPs. Not all PPP models are suitable for all projects. Public sector agencies in different countries are increasingly using availability payment contract models of PPPs, for projects with uncertain revenue streams, to undertake critical infrastructure investments. Moreover, turning to availability payment projects where demand risk is retained by the government can significantly improve the attractiveness of transport investments to the private sector. An appropriate financial analysis and estimation of the minimum Annual Availability Payments that a potential concessionaire requires from the public sector to undertake the project is a key element of a successful availability payment PPP project. This paper reflects on critical indicators relevant for the financial assessment of availability payment PPP projects.