Investment Appraisal

Advice to Promoters, Governments, Lenders and Investors on the terms of investment in transport infrastructure and services that are partly or wholly financed by the private sector.

Overview

In recent years there has been an increasing emphasis on the participation of the private sector in the provision of transport infrastructure and services. This development has increased to duty of care on advisors and consultants as such projects are run as businesses and require a rigorous appraisal of use, revenues and costs, rather than the socio-economic appraisals that the public sector generally requires.

Faber Maunsell has acted in three capacities on privately-financed transport projects:

• Advisors to Concessionaires;
• Auditors to Lending Banks
• Advisors to Governments and their agencies

Our objectives are as follows:

• To give independent advice that enable our clients to make prudent decisions on investment
• To provide high quality, reliable forecasts that everyone trusts
• To formulate projects that give the best return, in financial and socio economic terms, to providers and users
• To ensure design standards are maintained and that the principles of best value are implemented

This experience gives us an understanding both of the objectives of the organisation inviting tenders and assessing them, and the requirements of potential concession companies and the constraints within which they can operate. We are therefore well-acquainted with the objectives of all the three main parties involved in privately financed transport projects, and are able to give the best advice.

Clearly the approach taken to each study depends on the nature of the Brief, and we therefore customise our methodology to suit individual requirements, working closely with our clients in this respect.

Services Offered: Traffic, Revenue and Project Optimisation

Faber Maunsell offer a complete service from data collection, analysis, modelling and forecasts through to project optimisation and bid management.

Typical procedures are:

• An extensive Roadside Interview Survey (RIS) programme for road projects, and Passenger Surveys to determine which traffic can feasibly transfer to a new route or transit line
• Surveys concerning Drivers and Freight Operators Willingness-To-Pay Tolls. We have used Stated Preference and other market research surveys in a wide variety of situations: Western Europe, Central and Eastern Europe and the Far East, for this critical task
• The development of a Comprehensive Traffic or Transit Assignment Model, incuding mode and route choice to determine traffic and passenger flows and revenues for various categories of traffic
• Definition of the Optimum Toll Strategy (open, semi-open, closed) and toll charges for each vehicle category, bearing in mind the social and legal environment
• In the case of transit projects, determine the optimum service pattern, including frequencies and stopping patterns, phasing, and fare structures: this is a very important phase in transit projects where project optimisation plays a vital role in preparing a viable project
• A review of Alternative Modes of Transport, normally rail and coastal shipping, where applicable
• An Economic Development Study to define the future course of the national economy and developments in the project corridor, which will together determine future traffic growth
• An Environmental Impact Assessment, to current National or EU standards, to ensure the scheme is consistent with the concepts of sustainable development and meets the criteria for investors such as the EBRD and World Bank
• A Financial Analysis, to provide a realistic basis for financing the project which will enjoy the respect of potential investors
• A Social Cost/Benefit (Economic) Evaluation to ensure the project gives an adequate return to the wider community and meets the requirements in this area of the investing authorities
• Advice during negotiations to secure first, the concession, and secondly, finance for the project. This includes reports and presentations to lenders and investors

These activities may be preceded by an Institutional Study, whose objectives would be to set up a quasi-governmental organisation to administer the preparation and issuing of tender invitations, their assessment and determining the terms and conditions of such tenders.

We ensure that the scheme is consistent with the concepts of sustainable development and meets the criteria for investors such as the EBRD and World Bank.

Risk

The concept of Risk in investment and, in particular, to lenders, is an important one in determining terms and conditions of loans and in the structure of the financing plan. Faber Maunsell have developed a formal Risk Assessment procedure that has the confidence of Lending Banks.

The Risk Analysis assesses how uncertainty in the forecast economic outcomes and other inputs affects the flow forecast. This is used to produce a probability distribution of flows, and hence, revenues. This gives an indication of whether the project is still bankable in unfavourable economic circumstances.

Faber Maunsell offers the following services to clients:

As employer's agent

• Development of the Specimen Design and Employer's Requirements
• Responding to tenderers' submissions during the Tender Period
• Evaluation of Tenders
• Reviewing all designs to determine their suitability
• Undertaking a technical assessment of any changes put forward by the concessionaire
• Monitoring and auditing performance of concessionaire, designer, contractor and checker during design and construction

As Promoter's Designer

• Value Engineering, to give contractor-client a competitive edge within specified constraints
• Providing design information to enable contractor-client to price the scheme
• Production of compliance information including Departures from Standard, Approval In Principal Documentation, culminating in the Tender Design Submission
• Submission of detailed design information, incorporating further Value Engineering, and obtaining approvals
• Examination of the Quality of Construction Work on site by audit/sample inspection