Pick up the incorrect statement

b. There is not a minimum % of equity required by lenders but leverage is always defined mathematically as a result of the debt service ratios

a. Debt repayment profile may be flat repayment, constant amortization (and decreasing debt service) and “sculpted” to meet covenants so as to maximize debt volume

c. The cost of the debt includes the base interest rate, the margin over the base rate, bank fees (e.g. structuring, arranging, availability of finance) and the costs of interest rate hedging

d. To properly develop the financial model, it is important to be aware of the availability of finance providers and likely conditions

Pick up the incorrect statement

d. There is no a need for the Financial Model to reflect applicable accounting policies as the exercise being done is for the use of the public sector

a. User charges involve estimation but service payments / government payments are a result/output

b. Potential revenue estimated will be used to determine the floor for payments to the procuring authority (the concession fee) or the ceiling for the public payments required if there is a viability gap

c. Estimating demand is a challenge, especially in greenfield projects, and depends on estimates of price elasticity (usually through evaluation of willingness to pay)

Pick up the incorrect statement

c. Scenarios represent changes in a key variable while a sensitivities represent a complete set of new values of key variables

a. Free cash flow represents revenues less expenses. After expenses including taxes we will have the cash available for debt service

b. The Base Case is the Financial Model’s most likely/expected case -most likely assumptions- and it is defined iteratively. That means that, for example, the contract term may be extended or public support may be increased -or decreased- to meet the targeted value of the equity IRR.

d. The contract term is dependant on factors such as affordability and commercial feasibility

Pick up the incorrect statement:

c. In a user-pays project, when the charges to users might not be sufficient to repay the finance needed to meet the CapEx, the project is not feasible and we may not proceed with it as a PPP

a. A feasible project is a project whose expected revenues (inflows) under a reasonable scenario are considered sufficient to cover all costs (outflows) and pay back invested equity with a reasonable return. That is what is tested with commercial feasibility

b. When dealing with user-pays, we will first observe the capability of the project to raise funds on the basis of the charges to users, i.e. to what extent the funds needed for financing the project may be repaid with an adequate return (interest and equity IRR).

d. In a government pays project, the first objective is to estimate the price to be paid by the government

Pick up the incorrect statement:

b. The equity IRR to be considered as the target in the exercise is to defined for the specific project, and will depends in several factors including the expected nationality of the investor and the expected size of the company that will invest.

a. From a Lender´s perspective, the key drivers or KPIs to observe (as to assess whether the project is feasible) are the ratios, like DSCR, LLCR and PLCR, assuming a certain leverage and cost of debt as an input.

c. The debt repayment profile should be sculpted to maximize the size of debt (i.e. the leverage), which basically means to sculpt the repayment profile according to the cash flow so as to meet the level of ratio considered as a requirement.

d. CAPM is an approach to estimate the equity internal rate of return expected to be requested by the investors for investing in the project assessed.

Pick up the incorrect statement

c. Companies participating in a market sounding may logically deserve a special treatment in the bidding process in exchange of their interest

a. Transparency is a factor to consider when designing and conducting a market test, it being appropiate to provide access for the public to all documents shared or produced, including a specific web page where interested parties (industry players) may offer their comments and suggestions

b. Is important to filter the feedback as this could be biased

d. Is good practice to consider market sounding exercises at an early stage in the project, and to consider a procurement appraisal process before formulating the procurement plan in detail

The procuring authority is assessing a government pays PPP with a 20-year term. According to the financial model and the provisional results of the commercial feasibility, the project requires yearly direct fiscal commitments / direct liabilities (after 3 years of construction) of 50 million US$ per year (in real terms) for 17 years, to be updated per inflation (estimated in 5% per annum). We have the following information relevant for the affordability assessment: National Guidelines require that: 1.Total PPP commitments / liabilities of a particular procuring authority, in flow terms (payments estimated for each year), can not represent more than 10% of the projected budget of the respective procuring authority for each year. 2.There is cap on total PPP fiscal commitments/liabilities of the country in flow terms (total payments projected/liabilities from all PPPs estimated for each year) equal to 0,5% of GDP on a yearly basis. All government PPP commitments together (total liabilities including the project under assessment) estimated for the first year of operations of the project represent 0,50% of the national GDP projected for that year and GDP is projected to grow at 5% per annum. 50 million represents 2% of the projected budget of the procuring authority in the first year of operations. The total projected PPP commitments/liabilities of the procuring authority in annual flow terms (payments estimated for each year related to PPP contracts already in place), including the project being assessed, would represent 9,95% of the projected budget allocations for the authority per year for the next 20 years.

c. The project is in compliance because is meeting both thresholds of fiscal exposure (that of the procuring authority and that related to aggregated exposure of the government).

a. The project is in compliance with the regulatory limits on PPP exposure because 50 million US$ represents only 2% of the budget of the procuring authority in first year.

b. The project is in compliance because total yearly PPP commitments of the authority, after adding the project to PPP contracts already in place, will represent 9,75% of the projected budget appropriations per year.

d. The project is NOT in compliance because all government PPP commitments together including the project (all payments estimated for each year) represent 0,50% of the projected GDP in 1st year of operations, and payments will grow as per inflation.

There is a government-pays PPP contract for a road, in which government clearly defines the services to be provided by the private partner and the calculation of the price to be paid to the private partner. Payments are related to volume of use of the road, and there is a guarantee in the contract so that a minimum revenue covering 50% of the debt is assured. (If traffic goes below certain a threshold, the government covers the difference. The threshold is structured so as to cover approximately 50% of the debt). At the end of the contract period, the asset will revert to the government for no payment. Based in the information provided about this PPP project, which is true?

c. The asset is to be regarded as a public asset only under IPSAS 32, but it may be validly considered off balance sheet according to Eurostat / ESA 2010, as risk appears to be sufficiently transferred according to the Eurostat guidelines

a. According to IPSAS 32 and Eurostat / 2010 guidelines, the asset should be regarded as a public asset and incorporated in the government´s balance sheet, as the government has clear control and an interest in the residual value (IPSAS) and because government is guaranteeing 50% of the debt (ESA 2010)

b. According to either guideline the asset may be treated as off the balance sheet of the government

d. The asset should only be regarded as a public asset according to Eurostat, but not according to IPSAS.

Pick up the incorrect statement/definition

a. A process with a separated call for qualifications (RFQ) and call for bids (RFP issuance), in which potential bidders are invited to pre-qualify before the issuance of the RFP and contract, and those that prequalified are invited to submit only one bid represents an one-stage open tender process.

b. A negotiated process with BAFO is a process in which there is: i. A separate call for qualifications (RFQ), in which potential bidders are invited to submit qualifications so as to be selected on a short list ii. An invitation to shortlisted bidders to submit their bids and negotiations with all of the shortlisted bidders or with a limited number of candidates iii. Iterative bids so as to narrow the number of bidders iv. Selection of two candidates to submit their final offer

c. A process with a short-listing followed by a dialogue period so as to refine the RFP and especially the contract. At the end of the dialogue, the procuring authority calls for bids. This is competitive dialogue

d. A process in which an RFP is published at the same time as the contract, and the tender launch constitutes an invitation open to any potential bidder, to submit proposal, at the same time as requesting qualifications, a one-stage open tender process.

What is true with respect to “structuring”

b. The "structure" will be implanted into a set of documents — the RFP (and potentially the RFQ), and the contract itself

a. There are two main types of structuring: financial and budgetary (or fiscal) and risk structuring

c. The length of this phase does not depend on the work done in appraisal

d. The structure work is all done in Appraisal phase

Which one does not accurately describe tasks developed in Structuring Phase as described in the Guide?

d. Define the proposal requirements and evaluation criteria & draft RFP; Draft the contract and package the tender documents; Develop pre-tender interaction; Carry a control check and handle approvals and authorizations; Launch the tender

a. Establish the project team and finalize the project management plan, Define/confirm the contractual model and contract scope, Finalize due diligence and preparation, Further develop the project definition and technical requirements

b. Develop and finalize the contract structure regarding financial structure & payment mechanism, Refine the contract structure regarding definitive risk structuring & allocation, Update the financial model & potential confirmation / reassessment of financial assessment matters; and Revisit economic analysis

c. Test, market/promote and communicate the project; Define and draft other contractual terms and contract provisions; Define qualification (and potentially short listing) criteria & draft RFQ;

Which does not include an accurate description of elements of Financial Structuring?

c. Termination scenarios, indexation of payments or user revenues

a. Contract term, co-financing effort by grants, co-financing effort by public loans

b. Equity provided by government, instruments of credit enhancement

d. Revenue regime definition, Payment mechanism structure

Which is NOT true with respect to term definition?

d. Shorter terms are beneficial when users’ affordability is an issue

a. The term should be long enough to include lifecycle costs but consider the impact of uncertainty (e.g. the risk of needing to upgrade a road)

b. The term should allow bidders to maximize their gearing (which lowers wacc / increases affordability)

c. A longer term implies more free cash flow and a lower potential viability gap (or higher excess financial value of the project)

The Government of Ribamontán is considering developing a new road under a government-pays availability based PPP. Technical analysis and common knowledge talks about the need for a term of at least 20 years to capture some of the life cycle risk. The Government has some concerns regarding affordability so the longer the term the more affordable the Project will be in terms of yearly expenditure (lower availability payment per year). Lenders are able to provide long term finance up to 25 years and a more sophisticated private financing structure (by means of a miniperm followed by a project bond) could potentially allow for 30 years (however this has not yet been tested much in the market). Which one provides a sensible decision and explanation?

b. The contract term should be 30 years because that represents 5 years over the maximum term for financing available from the bank community so it is giving lenders a material cushion, and going longer may imply higher liabilities in Net Present Value terms. If a project bond solution is possible, there could be still a benefit for the public party by means of longer debt term and higher gearing.

a. The contract term should be 30 years as that’s the maximum term for financing considering the different financing options.

c. The contract term should be 50 years, the maximum term available by the national legislation, because that will allow the procuring authority to enjoy the maximum potential increase affordability.

d. The contract term should be 25 years because this is sufficiently more than the minimum term advised by technical experts and it is the maximum term available from Lenders.

What is NOT true with respect to pure co-financing?

b. Situations in which the government provides pure co-financing generally include viability gap financing, increasing commercial feasibility, and decreasing affordability

a. Pure co-financing is also referred to as grant financing

c. Governments providing pure co-financing should take care to avoid spoiling VfM

d. Pure co-financing is public financing that the private partner is not required to pay back

Which of the following is NOT true?

b. Shadow payments that are based on volume (demand, number of cubic meters etc.) introduce demand or volume risk, which is beneficial as it generates VfM

a. Volume risk payment structures make sense when traffic or volume risk is considered reasonably assessable and manageable by the private partner and it is in the interest of the procuring authority to promote higher volume of use

c. The back-loaded nature of shadow tolls means that payments grow as long-term demand grows so there is higher average life of payments, but this will increase the overall financial burden to the government

d. It is common to establish a system of bands to temper risk / share part of the risk and reward

b. One reason for higher bankability in volume payments than in availability payments is that volume payments increases over time

a. Calibrating the payment mechanism implies assigning final numbers to the various parts of the mechanism so as to run simulations of performance scenarios to assess the financial impact of different levels of performance

c. Is not uncommon for EMDE markets to apply non-standard approaches in designing availability payment schemes like “tranching the payment” (dividing the payment amount into components) or limiting the deduction to be applied in payment calculations

d. Performance requirements and availability criteria must be objective, measurable and realistic, as well as challenging but achievable

Pick up the incorrect statement

c. The unitary payment covers all of the private partner’s costs. However it is customary to divide it into segments. An example would be dividing a road by fixed stretches of 1 km or segmenting the payment in a hospital by weighting its areas considering the surface of each of them

a. The adjustment of the payment due to a breach of a condition should depend on the importance of the condition criteria or specification being breached.

b. Deductions / adjustments may be larger than the value of the payment in a specific time period, however the total deduction during one month is usually limited to 100% of the maximum monthly payment

d. A rectification period is a period of time to remedy a breach so that it is not taken into account for the purpose of deductions, but not every breach should have a rectification period

Pick up the incorrect statement

a. Unavailability will only start when the unavailability event is detected through scheduled inspections

b. A closure of a carriageway in a highway due to maintenance should not constitute an unavailability event provided it is in accordance with agreed maintenance plans

c. In terms of indexation, availability-based projects opt for a compounded indexation formula – only a proportion of the unitary charge is adjusted for inflation. This is because the cost of the service is not entirely linked to inflation and having part of the payment no subject to indexation provides financial efficiency as debt repayment is more accelerated

d. In an early completion situation: early availability is usually in the interest of the procuring authority, but it may not be ready to make payments – the solution may be to establish an early completion floor

Which of the following is incorrect?

d. Yearly payments may be an appropriate frequency of payments considering how complex monitoring and calculations are in these projects

a. Inverse volume risk adjustments in transport are made projects because availability of transport infrastructure is unrelated to the actual traffic or volume but maintenance costs and life-cycle costs will vary with the intensity of use

b. In the former case [A], to avoid misalignment of interests between parties, the procuring authority may define a small shadow payment linked to volume or revise the value of the payment if traffic consistently exceeds a defined threshold

c. In a social infrastructure PPP based on an availability payment, if demand / occupancy is higher than expected and than considered in the design requirements of the facility, the private partner should be compensated for increased O&M costs

Pick up the incorrect statement

d. Options / strategies available to the private partner to deal with transferred risk includes absorbing the risk and relying on future negotiations if the risk eventuates, passing the risk through to contractors or paying for insurance

a. There are risks that should be taken back / not transferred as the transfer will not generate VfM, i.e. the price for the risk to be charged by the private partner can be higher than the value of the risk for the public if retained

b. “Best able to manage the risk” means greater ability to prevent, and/or deal with consequences and/or better ability to price the risk accurately

c. Sometimes (in some countries depending on their level of development) it may be necessary to sacrifice VfM in favour of a reasonable level of bankability

Which is NOT correct with respect to a risk register?

c. It is aimed to define and register the risk allocation

a. It is needed to conduct an organized qualitative assessment of risks

b. It helps to identify and avoid blind spots, i.e. to be sure that all potential risks are regarded

d. It allows for or help the procuring authority to manage potential overlaps between risks

Which is a sensible statement, considering a risk tolerability matrix of 3x3?

b. A risk with medium potential impact and high likelihood should be prioritized

a. A risk with high potential impact but low likelihood could be ignored as it is rare and unlikely to eventuate, and the expected value will be always low

c. A risk with high likelihood but low potential impact should not be a priority

d. Small / low impact risks will never be a priority

What is NOT true with respect to quantitative assessment?

d. It is commonly based in a base case constructed on the basis of the most pessimistic or conservative view of the project’s main cash flows

a. As part of the exercise it is necessary to conduct a sensitivity analysis to test the robustness of the Project

b. It is about estimating values of the possible outcomes or “expected values” of risks

c. Values may be presented in the form of the most likely of outcomes, or as a the full range of possible outcomes

Which are NOT true with respect to risk allocation?

c. Risks that are beyond the control and capability of the private partner should always be fully retained

a. The default position on risk allocation is defined by the scope of obligations and services considered and how and when will the private partner be paid

b. Design, construction, commissioning, operations, maintenance, revenues, and financial risks should be generally transferred to private partner while risks related to responsibilities not naturally embedded in the scope or revenue regime should be retained

d. Risks related to direct actions by the authority or government should be always retained

Which ones represent factors (abilities and capacities of the private partner) that make it sensible to transfer a risk to the private partner? 1. Greater ability to assess the risk and greater ability to negotiate with third parties so as to pass through the risk at an efficient price 2. Higher capacity to mitigate the consequences 3. Higher capacity to reduce probability of the occurrence 4. Financial capacity to suffer the consequences and absorb financial impact of the risk

a. 1, 2 and 3 represent sensible factors in favor of transferring a risk

b. Only 1 and 2 represent factors in favor of transferring a risk

c. Only 2 and 3 represent factors in favor of transferring a risk

d. None of them represent sensible factors in favor of transferring a risk

What best describes the meaning of a compensation event?

c. An event for which the private partner will have both the right to receive financial compensation to restore the originally expected financial equation of the project as well as being excused for any contract breach

b. An event for which the private partner will be excused for any contract breach as it is considered to have been impeded from fulfilling its obligations for a reason out of its control

d. An event for which the private partner will have only the right to receive financial compensation to restore the originally expected financial equation of the Project, but will not be excused for contract breaches because that is the purpose of Relief Events

Which one is correct with respect to early termination scenarios?

b. When a contract is terminated early unilaterally by the grantor, the private partner should be entitled to receive a compensation sum that allows it to repay all debts and costs of breaking contracts, recoup all the equity investment and enjoy an equity IRR similar to the one originally expected, because the procuring authority should assume the consequences of its decisions

a. When a contract is terminated early because of a Force Majeure event, the private partner should be entitled to receive a compensation sum that allows the partner to repay all debts and costs of breaking contracts, recoup all the equity investment and enjoy an equity IRR similar to the one originally expected, because the event was beyond its control so the partner should not suffer any harm

c. When a contract is terminated by the default of the private partner there is never any compensation for the private partner as a consequence for defaulting materially its obligations

d. The usual approaches as described in the Guide to calculate the compensation sum are: book value, debt-based compensation, market value/market sale and an expert opinion

Quizz - Chap4&5 - Preparation

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Quizz - Chap4&5 - Preparation

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Professional Development

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Practice Problem

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Hard

Willy Freddie Ndjana

Used 1+ times

FREE Resource

40 questions

Show all answers

MULTIPLE CHOICE QUESTION

1 min • 1 pt

Which is NOT true about this phase (Appraisal)?

a. Appraisal is naturally progressive

b. It helps to filter the Project: the gateway process avoids sinking resources into poor projects and failing in delivery

c. Projects that are feasible are also suitable for PPP delivery

d. The procurement decision is taken in this phase

MULTIPLE CHOICE QUESTION

1 min • 1 pt

Which one describes deliverables of appraisal phase?

a. Technical requirements, financial model, preliminary contract structure and request for proposals

b. Technical requirements, financial model, preliminary contract structure and procurement strategy

c. Technical requirements, financial model, preliminary contract structure and request for qualifications

d. Technical requirements, financial model, the contract in draft and procurement strategy

MULTIPLE CHOICE QUESTION

1 min • 1 pt

Which is NOT a deliverable of the appraisal phase?

a. Financial model

b. Technical requirements

c. Preliminary contract structure

d. The RFP and RFQ

MULTIPLE CHOICE QUESTION

1 min • 1 pt

Which is NOT true regarding the scope definition?

a. Scope definition delineates the boundaries and interfaces between the public and private sectors

b. Scope definition is intended to determine the precise space or geographical area in which private partner will deliver the service service

c. Scope definition defines the general framework from which to outline the technical and performance requirements

d. Scope definition provides the context to decide upon the revenue regime which will form the basis of the financial and risk structure of the PPP

MULTIPLE CHOICE QUESTION

1 min • 1 pt

What is NOT true with respect to project design and construction requirements:

a. They are usually in the form of a functional design or a reference design, so as to allow the bidder / private party to enjoy a higher return

b. Providing a functional design or a reference design to bidders is consistent with a PPP focusing on outputs/services, allowing flexibility for innovation and efficiency

c. A minimum level of detail is necessary to allow for identification of the key design requirements that will later be included in the PPP contract as specifications for construction

d. The Procuring Authority could provide a fully prescriptive design when it has certainty of the optimal means and methods of meeting the need

MULTIPLE CHOICE QUESTION

1 min • 1 pt

What is NOT true regarding the design technical requirements?

a. It is necessary to check applicable regulatory standards and policy directives like minimum size of a class or safety regulations in roads

b. Detailed Technical Requirements allows bidders to accurately assess the technical risks and price the service

c. They should state and describe clearly the full design of the infrastructure as expected and required by the authority

d. While defining technical requirements, costs will be assessed so as to provide key input to the commercial feasibility which is to be done in this phase

MULTIPLE CHOICE QUESTION

1 min • 1 pt

What is not true with respect to preliminary structure?

a. Preliminary structure involves preliminarily defining the structure of the contract in terms of financial structure and risk allocation

b. The preliminary structure influences commercial feasibility, value for money and affordability

c. The structure will be refined or further detailed in Structuring Phase

d. It allows to the procuring authority to proceed straight forward with contract drafting once the project receives the green light at the end of the phase

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