Financial Management and Management Overview Tips for financial modeling

1. Water PPP: Overview and Training Workshop February 26-27, 2009 Financial Management and Management Overview – Tips for financial modeling

2. The importance of the Concessioning Authority to have a good Financial Model while inviting PPP bids Understand project financials, and implications for Tariff / user charges Need for additional revenue sources Need for financial support (Viability Gap funding) Potential “negative grant” Test bankability based on project cash flows (Cash Flow Available for Debt Servicing – CFADS) Lender ratios (DSCR, LLCR..) Loan covenants (Debt service reserve….) Test implication of Risk sharing Demand variation / Tariff variation…. Inflation Choice of bidding parameter (fixed, variable, combination) Scenario analysis to design SPV commitments Performance levels Investment commitments Need for “transfer value” at end of contract

3. 1. Structuring the model – think through the business logic to be used

4. 2. External variables need to be factored carefully

5. External variables need to be factored carefully- Inflation

6. Lender expectations & requirements

7. 3. Modeling of initial cash gaps needs careful consideration and will impact financing assumptions

8. 4. A user-friendly output which supports sensitivitity analysis and aids decision making is important

9. Two illustrative KPMG engagements involving PPP modeling Distribution Franchisee in Madhya Pradesh: KPMG spearheaded the exercise of introducing the Public-Private Partnership Model in electricity distribution in the state of Madhya Pradesh, including the following key areas of support: Identification of potential areas for Private Partnership, across locations and functions. Designed and developed Technical and Commercial agreements for private sector participation in electricity distribution through franchising mode Provided assistance in management of various distribution franchisee initiatives through resolution of issues pertaining to operational coordination and franchise agreement in the three Distribution Companies across Madhya Pradesh Interaction with various private players for promotion of distribution franchise initiative and responding to their queries during pre and post bid process Developed financial models for assessing the implication of various terms of agreement on project profitability, Estimating net financial savings to the Discom based on short listed bid, Determining probable range of bid rate expected from the bidder, Development of key performance indicators to enable the Distribution Companies to monitor franchisee operations, Monitoring performance, conducting reviews and identifying course corrections, Development of MIS formats for measuring the progress of Franchisee on various performance parameters Provided information to Central Govt on the Franchisee initiative on behalf of the Distribution Utilities Preparation of Bid Documents and Bid Process Management was undertaken in Burhanpur, Dewas, Satna and Ujjain. Hyderabad Metro: Provided bid advisory services for a leading conglomerate bidding for the Hyderabad Metro Project. Scope of work included providing inputs on key risks in the Model Concession Agreement, participation in discussion on modifications required in the Model Concession Agreement, Development of financial model, liasoning with the various technical consultants and equipment/service providers to ensure accurate inter-linkages between revenue, costs and quality

10. Presenter’s contact detailsManish AgarwalExecutive DirectorKPMG in India+91 9967574800manishagarwal@kpmg.comwww.in.kpmg.com