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 beneficiary 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 is in the interest of the procuring authority to promote higher volume of use

c. The back load 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-pure 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 on the payment due to a breach of a condition should depend on how relevant is the condition criteria or specification being breach.

b. Deductions / adjustments may be larger than the value of the payment in a specific time period, however the total deduction during one month may be 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 cost of service is not entirely linked to inflation and this provides financial efficiency as debt repayment is more accelerated

d. 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

Pick up the incorrect statement

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

a. Inverse volume risk adjustments in transport projects happens because availability of transport infrastructure is unrelated to the actual traffic or volume but maintenance costs and life-cycle costs will vary with 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 availability payment, if demand/occupancy is higher than expected and considered in the design of the facility, private partner should be compensated for increased in O&M costs

Pick up the incorrect statement

d. Options / strategies available to the private partner to deal with transferred risk includes absorb the risk and rely on future negotiations if risk eventuates, pass through the risk to contractors or pay for an 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 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) 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. Allows for or help to handle potential overlaps

Which approach is the correct approach or the most accurate statement, considering a risk tolerability matrix of 3x3?

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

a. A risk with high potential impact but low likelihood could be ignored as long as it is rare / unlikely that eventuates and the expected value will be always low

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

d. Small / low impact means always no priority risk

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 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. 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 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 are NOT true with respect to risk allocation?

c. Risks that are beyond the control and capability of the private partner should 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 represent best the factors (abilities and capacities of the private partner) that makes sensible to transfer a risk to the private partner?

b. Greater ability to assess the risk, greater ability to negotiate with third parties so as to pass through the risk at an efficient price, capable to avoid / eliminate the probability of the occurrence of the risk, higher capacity to mitigate the consequences if it occurs

a. Greater ability to assess the risk, greater ability to negotiate with third parties so as to pass through the risk at an efficient price, higher capacity to reduce probability of the occurrence, higher capacity to mitigate the consequences

c. Greater ability to assess the risk, greater ability to negotiate with third parties, higher capacity to reduce probability of the occurrence, higher capacity to mitigate the consequences, financial capacity to suffer the consequences and absorb financial impact of the risk

What best described the meaning of a compensation event?

c. An event that if eventuates, private partner will have both the right to receive a financial compensation to restore the originally expected financial equation of the Project as well as being excused for any contract breach

b. An event that if eventuates, the private partner will be excused for any contract breach as he is consider to be impede to fulfil its obligations for a reason out of his control

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

Which is a true assertion about the qualification process?

b. A bidders ability to meet the qualification criteria is assessed before their proposal

a. The objective is to set the maximum bar of capability for the bidder entering into a PPP contract

c. The open tender approach should be used for complex projects to encourage more bidders

d. The shortlisting approach is subject to the highest risk of protest by losing bidders

Which assertion about the short-listing process is NOT true?

d. Reduces cost to the public party as a result of reduced competition

a. The number of short-listed candidates commonly ranges from three to five

b. Requires a weighting to be applied to the evaluation of criteria and sub-criteria

c. Dependent upon a pre-qualification process

What is the purpose of a bid bond?

c. To provide a degree of private partner commitment to their bid submission

a. To finance the public parties involvement in dialogue and interactions

b. To provide a financial reward for the successful bidder

d. To subsidize the drafting of a bid

Which correctly describes a difference between a negotiated procedure with Best-and-Final Offer (BAFO) and other dialogue/interactive procurement processes?

d. Bidders will submit a binding technical proposal with a binding price

a. The preferred bidder will be selected based on their weighted qualitative scoring

b. Bidders are pre-qualified and selected based on best ranked qualifying candidates

c. Bidders will present and discuss technical solutions during the course of the interaction

Which one is correct with respect to early termination scenarios?

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

a. When a contract is early terminated because 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 his control so thee partner should not suffer any harm

b. When a contract is early terminated unilaterally by the grantor, the private partner should be entitled to receive a compensation sum that allows him 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

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

Which should be defined by the performance requirements in a PPP contract?

d. The target level of service(s) to be provided by the private partner

a. How much the government is willing to pay, or grant the right to charge for, a public asset

b. The termination process to be followed for any failure to meet the agreed minimum performance targets

c. How to operate the public asset or the means to be used

What is the purpose of a performance points system?

a. To incentivize the private party to avoid contract breaches

b. To reward the private party for exceeding target performance levels

c. To ensure that any breach of contract is treated formally

d. To ensure that any breach of contract leads to a direct penalty

What is the purpose of “rebalancing a contract”?

b. To restore the financial equation of project cash flows if a compensation event occurs`

a. To ensure that both parties are equally rewarded for exceeding performance targets

c. To ensure that both parties equally share the financial consequences of a shared risk materializing

d. To ensure that any excess revenues arising from the contract are shared between both parties

Which contract provision for confidentiality and information disclosure is appropriate?

b. The private partner should establish and maintain a website about the project and its evolution

a. A PPP contract should be fully disclosed to the general public to promote transparency and gain acceptance

c. The project contract and performance information should only be disclosed for auditing purposes

d. The public party should limit information disclosure to within the authority

Why should provisions be made within a contract to permit certain potential changes?

c. To avoid renegotiation or termination of a contract

a. To avoid a material breach of contract

b. To increase competitive bidding

d. To reduce competitive pressure

In which circumstance should a contract grant the private partner the right to compensation in full?

b. Termination for force majeure

c. Termination for default of the private partner

When the assets are “handed-back” to the procuring authority at contract expiration, what should be done with any remaining reserve funds?

c. Released to the private partner

a. Retained by the procuring authority

b. Distributed evenly between both parties

Which is NOT an outcome of the structuring and drafting the tender and contract phase?

a. The PPP has reached its financial close

b. The full tender package is complete and ready to be published

c. The authorization and final approval have been given to launch the tender

d. The authorization and final approval have been given to enter into a contract with the successful bidder

Quiz n°1 - Chap5 - Execution

Authored by Willy Freddie Ndjana

Professional Development

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MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Appraisal provides relevant information and outcomes that feed into Structuring so as to be refined and further developed. Which of the following are true? 1.Appraisal provides definitive scope and preliminary technical design or at least a detailed project outline 2.During appraisal the contract has been preliminary structured including preliminary risk allocation, contract term, revenue regime, payment mechanism, potential co-financing and/or other financial support such as guarantees 3.The procurement strategy is first defined in appraisal including an outline of the tender process

a. All are true

b. Only 1 and 2 are true

c. Both 2 and 3 are true

d. None of them are true

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

What is true with respect to “structuring”

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

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

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

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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

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

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

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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

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

b. Equity provided by government, instruments of credit enhancement

c. Termination scenarios, indexation of payments or user revenues

d. Revenue regime definition, Payment mechanism structure

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Which is NOT true with respect to term definition?

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 lower potential viability gap (or higher excess financial value of the project)

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

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

Government of Ribamontán is considering to develop a new road under a government-pays availability based PPP. Technical analysis and common knowledge talks about the need for at least 20 years of term to capture some of the life cycle risk. Government has some concerns regarding affordability so the longer the term the more affordable will be the Project 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 been too much tested yet in the market). Which one provides a sensible decision and explanation?

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

b. Contract term should be 30 years because that represents 5 years over the maximum term for financing available from the bank community so 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.

c. 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. Term should be 25 years because is sufficiently more than the minimum term advised by technical experts and it is the maximum term available from Lenders

MULTIPLE CHOICE QUESTION

30 sec • 1 pt

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

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

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

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

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