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PUBLIC-PRIVATE PARTNERSHIP (PPP) GOVERNING BOARD Policy Circular No.__ - 2015

____ January 2015 FOR: All Heads of Departments, Bureaus, Offices, Commissions,

Authorities or Agencies of the National Government, Government-Owned and/or Controlled Corporations, Government Financial Institutions, State Universities and Colleges, Local Government Units

SUBJECT: GUIDELINES AND PROCEDURES FOR THE APPRAISAL OF

PUBLIC-PRIVATE PARTNERSHIP (PPP) PROJECTS I. Rationale

In compliance with the instructions of the PPP Governing Board and the Investment Coordination Committee – Cabinet Committee (ICC-CC) to separate the project appraisal of PPP projects from non-PPP projects, this Guidelines has been formulated for use by the ICC-Technical Working Group (TWG) comprising of the National Economic and Development Authority (NEDA) Secretariat, Department of Finance (DOF), Department of Environment and Natural Resources – Environmental Management Bureau (DENR-EMB), and Public-Private Partnership (PPP) Center.

II. Key Areas of Appraisal and Institutional Responsibilities

2.1 The ICC-TWG shall jointly undertake specific aspects of the

appraisal of PPP projects, provide guidance to the proponent implementing agencies (IAs) during the process thereof, and provide recommendations to the ICC-CC.

2.2 The specific areas of roles and responsibilities of the ICC-TWG

shall be as follows:

a) NEDA Secretariat – shall appraise each PPP project in terms of its alignment and contribution to the Philippine Development Plan (PDP). In so doing, NEDA Secretariat will undertake the assessment of the socioeconomic aspects of the project through a cost-benefit analysis and/or other methods deemed necessary, including ensuring compliance with existing laws, rules and regulations (e.g., social, environmental, local appraisal policies, etc.). In the exercise of due diligence, it shall also look at the financial data needed for the economic analysis, such as capital investments, operations and maintenance costs, demand projections, and such other pertinent economic evaluation parameters;

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b) DOF – shall appraise the risk structure and allocation of the project’s fiscal requirements and government undertakings, the project’s financial internal rate of return (FIRR) and its impact on fiscal sustainability through assessment of government’s direct, contingent, and opportunity costs;

c) DENR-EMB – shall conduct a review of the environmental

impact assessment done on the project, the environmental risk analysis and the proposed mitigation measures. The review shall also cover the integration of climate change adaptation measures and disaster risk reduction, if any, as well as a review of the environmental monitoring and management plan for the project; and

d) PPP Center – shall be responsible for the initial review of the

project, including value for money analysis, commercial viability (e.g., review validity of the financial model and underlying assumptions), bankability, and financing structuring.

The PPP appraisal process flow chart is shown in Annex A.

III. Secretariat Support in the Appraisal and Approval of PPP Projects Prior to the ICC-CC Meeting

3.1 The PPP Center shall act as the PPP Secretariat to the ICC-TWG and to the ICC-CC with respect to PPP projects. The responsibilities of the PPP Secretariat in the appraisal and approval process of PPP projects are shown in Annex B (Internal Guidelines and Procedures of the PPP Center in Processing PPP Projects for the Investment Coordination Committee).

3.2 Upon checking the completeness of project submissions from the IAs, the PPP Secretariat shall transmit the accomplished ICC Project Evaluation Forms (PE) Forms, endorsement letter by the head of the proponent IA, and such other documents to the ICC-TWG within three (3) working days from receipt thereof. The PPP Secretariat shall also acknowledge the IA’s submission within three (3) working days from receipt.

3.3 The PPP Secretariat shall schedule TWG meetings to facilitate

the appraisal process. During the TWG meetings, the PPP Secretariat shall take note of all requests for the additional information made by the TWG. As Secretariat to the ICC-CC, the PPP Center shall also disseminate to the TWG the agreements reached during these meetings and monitor compliance with the agreed submission deadlines.

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3.4 The TWG Members shall submit their evaluation report within

ten (10) days from receipt of the project documents as transmitted by the PPP Secretariat, within which TWG meeting may be called to thresh out issues raised during the meetings. Notwithstanding the ten (10) day period, the TWG Members shall be given three (3) days from the submission of the complete inputs and responses from the IAs, which shall be submitted within two (2) days from the TWG meeting, to submit their respective evaluation report. Thereafter, another TWG meeting may be called to discuss the evaluation reports submitted by the TWG members. Within two (2) days thereafter, AIs shall submit their responses.

3.5 The PPP Center, as PPP Secretariat to the ICC, will be

responsible and accountable for the evaluation and recommendation made to the ICC. It shall prepare a Term Sheet1 (Annex C) that will consolidate the appraisal forms submitted by the TWG based on the PE Forms, and other documents submitted by the IA. The Term Sheet will be signed by the PPP Center Executive Director, which incorporates inputs from TWG and other concerned agencies, as necessary. The Term Sheet along with the associated documentation will help the ICC-CC to undertake its review process and approve the Project. Based on its assessment, the ICC-CC shall provide appropriate recommendation to the NEDA Board for approval and to proceed with the PPP procurement. The Term Sheet shall be ready two (2) days before the proposed ICC-CC meeting.

3.6 The PPP Secretariat shall perform other tasks as provided in

Item 3.2 of Annex B hereof in coordination with the ICC Core Secretariat in preparation for the ICC-CC meeting.

During the ICC-CC Meeting

3.7 The PPP Secretariat shall present the results of the TWG evaluation to the ICC-CC. To ensure ownership of projects presented to the ICC, the proponent IAs and their concerned Undersecretary or Assistant Secretary shall present the technical details of their proposed project.

After the ICC-CC Meeting

3.8 The PPP Secretariat shall draft the letters to the proponent

agencies/LGUs relaying the results of the ICC meeting within

1The Term Sheet reflects the Project Evaluation Report (PER) referred to in the Internal Guidelines and Procedures for Processing of PPP Projects for the ICC.

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five (5) working days following the ICC-CC meeting; as well as the minutes within 10 working days for confirmation of the ICC in its next ICC-CC meeting.

3.9 PPP projects approved by the ICC-CC will be elevated to the NEDA Board for confirmation, as required under existing laws, rules and regulations. The ICC-approved cost and other NEDA Board conditions will be reflected in the NEDA Board resolution as the basis for negotiations, the compliance of which will be monitored and reported by the PPP Secretariat to the ICC on a monthly basis through the ICC Project Appraisal Monitor (IPAM).

3.10 PPP projects for which ICC endorsement/approval was deferred

will be remanded to the PPP Secretariat for re-evaluation. The PPP Secretariat shall closely coordinate with the proponent IA and the TWG towards the resolution or compliance with the ICC instructions.

3.11 For projects approved by the ICC-CC, the PPP Secretariat shall

coordinate with the proponent IAs for the preparation of materials for the NEDA Board (i.e., ICC Memorandum for the NEDA Board, PowerPoint Presentation, and Summary Matrix for PPP projects). The NEDA Board materials shall be submitted to the NEDA Board Secretariat2 at least two (2) weeks prior to the proposed schedule of the NEDA Board meeting, for consolidation and transmittal to the Office of the Executive Secretary, copy furnished the Office of the President (OP) Office of the Cabinet Secretary and OP-Presidential Management Staff, for consideration of inclusion in the agenda of the next NEDA Board meeting.

3.12 In case a project that has already been approved by the ICC will

undergo material changes to its project structure such that it is required to be referred to the ICC for re-approval subject to Republic Act 7718 (The Philippine BOT Law) and its Implementing Rules and Regulations, as amended, a TWG meeting shall be called and the Secretariat shall prepare a Memorandum for the ICC reflecting the recommendations of the TWG.

IV. Appraisal Process3

The appraisal process to be followed by the appraising bodies is in Annex D.

2 NEDA Legal Staff 3 Portions of which were culled from the ICC Project Evaluation Procedures and Guidelines as of 24

June 2004.

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4.1 Socio-Economic Appraisal (NEDA) 4.1.1 Economic Appraisal

The economic appraisal of PPP projects shall be made to ascertain the project’s desirability in terms of its net contribution to the economic and social welfare of the country as a whole. It shall consider the following:

a) Appraisal of project costs and benefits – Since projects are

usually evaluated in terms of their effect on national income, costs and benefits identified must necessarily reflect the additions to and reductions from national income as a result of project implementation. These include the following:

i. Economic Costs – The basic guidelines in identifying

the costs of a project stems from the definition of cost itself, or activities that involve use of real resources. Cost items are usually classified into capital costs4 and operating and maintenance costs5. Sunk costs, on the other hand, are defined as all those costs incurred on the project prior to the preparation of the feasibility study. Since these expenses have already been incurred, they shall no longer be subject to investment decision-making. As such, this component of project cost should not be included in the analysis.

ii. Benefits – A benefit constitutes an increase in output or savings in resource use. To the extent possible, the effects of all benefits on national income should be quantified (e.g., value of each human life saved in terms of the capacity to earn during productive life);

iii. Externalities – In several instances, project effects may be positive or negative and extend beyond the contours of the project, but not reflected in the financial analysis of the project. If these effects, known as “externalities,” involve a significant economic cost or confer a significant economic benefit, these should be taken into account in evaluating the overall economic impact of the project; and,

4 Capital Costs include land; detailed engineering design; preparatory installation work; cost of

equipment; raw materials and supplies for construction; cost of buildings and auxiliary installations; engineering and administrative cost during construction, organization cost;

5 Operating and Maintenance Costs include raw materials and other supplies; energy and fuels; labor; rent and insurance; depletion of natural resources.

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iv. Secondary benefits - refer to the beneficial effects on activities that are technologically linked to the project’s direct users. These benefits should, whenever possible, be incorporated into the analysis and the appraisal process.

b) Economic valuation of costs and benefits – This process

involves adjustment of the financial prices of goods and services of both costs and benefits to reflect economic values. Market prices may not be an acceptable measure of the true costs and benefits due to distortions (i.e., taxes, subsidies, quotas, regulatory measures, or monopolistic practices). To deal with this problem, shadow prices are employed to measure the value of a commodity from the economy’s viewpoint. The valuation of project costs and benefits should be in constant prices at the current year’s level. In the case of projects where price levels are not in current year’s levels, appropriate price indices shall be applied to inflate or deflate prices accordingly;

c) Measurement of economic desirability, sensitivity analysis and selection of projects based on economic feasibility indicators – The indicator to be used for estimating the economic desirability of projects shall be the economic internal rate of return (EIRR), which is defined as the discount rate which equates the net present social value (NPSV) of the benefits and costs of the project such that the NPSV is zero and the benefit cost ratio (BCR) is one. The NPSV is the discounted net economic benefit accruing to the project. The decision rule is to accept projects where the NPV is greater than zero.

d) The following parameters provided by NEDA shall be used

for estimating the economic stream of costs and benefits: i. Shadow Exchange Rate - the shadow exchange rate

(SER) is applied to correct the distortion in the prevailing exchange rate due to balance of payments disequilibrium and the projection structure. The SER currently adopted is 1.20 of the prevailing exchange rate, and shall be applied to all direct and indirect foreign exchange costs of a project and those benefits which may be expressed in foreign exchange;

ii. Shadow Wage Rate - the shadow wage rate (SWR) is used to reflect the true economic value of labor employed in a project. The SWR is applicable only to the unskilled labor component of wages paid and is currently estimated at 60% of legislated wage rates; and

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iii. Social Discount Rate - the social discount rate (SDR)

shall be used to discount the stream of economic costs and benefits to their present values. It is the rate at which the social value of project costs and benefits decline over time. The SDR, currently set at fifteen (15%) percent or as may be changed, amended or updated, shall likewise be used as the hurdle rate for a project’s EIRR.

e) The sensitivity parameters used during the financial

appraisal shall likewise be applied in the economic appraisal of projects. The basis will be the cost-benefit flows (adjusted to economic terms). Probability weights for the above sensitivity analysis may later be assigned as validated by the ICC Secretariat.

4.1.2 Social Appraisal – The social appraisal of the PPP projects

shall be undertaken to determine if the proposed project is responsive to national objectives of poverty alleviation, employment generation and income redistribution. NEDA shall, whenever possible, take into consideration project benefits beyond those that are simply financial and economic. If the project is of national or local interest, in the case of LGU projects, mainly because of its social benefit, this section takes on added importance. The following aspects may be considered in the qualitative assessment of the social benefits of the project:

a) Income Distribution - the extent to which the income of the

poorest sector of the population is improved as a result of the project may be quantified. Reference must be made to the relative improvement in comparison with other groups in the country;

b) Employment - the extent to which the project reduces underemployment may be assessed. This may be quantified in terms of work years created by the project, with distinction made between permanent employment and employment during the investment or construction phase. The number of jobs created may be compared with the expected increase in the labor force of the project area;

c) Access to Land - if the project includes land settlement or

land reform aspects, the distribution of land rights with and without the project should be demonstrated;

d) Internal Migration and Resettlement - it may be useful to note

the possible effect of the project on rural-urban migration and to identify any resettlement issues that the Project faces;

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e) Nutrition and Health - if the project is located in an area where serious nutrition or health problems exist, or if the project is directed toward groups with nutrition and health deficiencies, the expected effects of the project on these problems might be mentioned;

f) Other Indicators of the Quality of Life - some projects may

have a significant effect on the quality of rural life through improvements in access to domestic water supplies, electricity, schools, and other facilities. These may be mentioned and the quantities of the new amenities noted; and

g) Gender and Other Appropriate Social Safeguards - all social

impacts, including gender, rehabilitation and resettlement activities, proposed mitigation and their related costs would be assessed.

4.2 Technical Validation (IA) a) The objectives for technical validation shall be as follows:

i. To determine if the project is technically feasible, project design is technically sound and workable and that its operations and maintenance can be locally sustained;

ii. To ascertain if the proposed technology is cost effective; and

iii. To ensure that the project does not adversely affect

the environment and / or that appropriate measures are taken to protect the environment.

b) In terms of the procedure, the IA shall validate the technical

aspects of the project prepared by the Transaction Advisor or the technical consultants engaged by the IA, as the case may be, and may consult with Department of Science and Technology (DOST) in cases when the proposed technologies are untried, new, or old / obsolete. Inputs or comments from other experts, consultants from industry or academe may also be solicited as necessary. The technical review shall cover, among others, the following:

i. Engineering design proposed including site and

location surveys, construction phasing and technology proposed for the construction and operations of the project;

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ii. Evaluating design standards to be used and primary design criteria that are compatible with requirements of the IA and practical for implementation in the project area;

iii. Reviewing outline design under alternative sites and

alternative layouts to determine feasible PPP options including determining physical limitations restricting the design layout, if any;

iv. Reviewing cost estimates prepared for each

development alternative that clearly identifies all major elements including engineering works, environmental mitigation works, service diversion costs, accommodation works, land costs, and resettlement costs;

v. Reviewing operational and maintenance costs for

each element of the alternative technical solutions - both routine maintenance costs and estimates of periodic maintenance costs;

vi. Reviewing preliminary cost estimate that is

accompanied by an outline implementation program reflecting the timing and interrelationships of all of the major components of the project;

vii. Assessing the appropriateness of the technical

specification and determining whether it provides a least cost solution to meet the projected demand for the service (phased if necessary) and other objectives;

viii. Assessing the advantages and limitations of any

technology proposed for the project with empirical evidence of success rate in other countries, in the case of new technology; also, determining the applicability of the new technology to conditions in the Philippines, specifically in the proposed project area; and

ix. Assessing environmental impact that would arise out

of using the proposed design for the project.

4.3 Financial Appraisal and Risk Allocation (DOF)

a) The objectives of financial appraisal and risk allocation shall be as follows:

i. To assess the financial viability of a PPP project and

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its ability to meet its debt-service obligations and provide a reasonable return on equity;

ii. To assess financial commitments and opportunity costs of the government, including financial risks on the project;

iii. To determine the potential project risks including

government exposure with regards to retained risks on the project; and

iv. To assess project structure components that will

mitigate government exposure and provide the best value for government.

b) In terms of the procedures, the financial appraisal process to

be undertaken for determining the financial viability of the PPP project will include the following assessments:

i. Reviewing the project viability that covers the whole of

project life, including the construction and operations phases, to assess the project viability from an appraisal of the following aspects: i1. Tariff structure for ‘user pays’ concession model or

annual ‘availability payments’ model with proposed periodic escalations, thereof;

i2. Reviewing financing plan and debt: equity

structure; i3. Assessing the debt costs and repayment structure

and its impact on the cash flows: reviewing adequacy of cash flows to meet debt repayment commitments (principal + interest) during the tenor of the debt using ratio analysis benchmarks like debt service coverage ratio (DSCR), loan life coverage ratio (LLCR), and other key financial ratios;

i4. Determining the financial viability of the project

from both, of the following viewpoints: the free cash flow to firm viewpoint and the free cash flow to equity viewpoint. The former looks at the discounted returns to all real investment flows for the project from all private finance, irrespective of whether these come from equity or from loans. The latter looks at the proponent’s (investor’s) equity contributions as the investment;

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i5. Computing for the project to be financially viable in the free cash flow to project approach, the resulting financial internal rate of return (FIRR) should at least be equal to the weighted average cost of capital (WACC) while the net present value (NPV) should at least be equal or greater than zero using the same WACC as the discount rate. For the free cash flow to equity approach, the resulting FIRR should exceed the cost of equity contribution of the proponent while the NPV should be greater than zero using cost of equity capital as discount rate; the resulting FIRRs using these two approaches should be provided as a range of values in the term sheet. If a project’s FIRR falls below the WACC, but the EIRR is at least the threshold set by the ICC, viability gap funding (VGF) may be considered (see item ii below);

i6. Applying sensitivity analysis to the appraisal

process by determining whether the project will remain feasible if changes in the assumptions or project structure used in the calculation / projections were to take place according to the degree in which they are likely to vary from the estimated or projected values; and

i7. Assessing the business case for delivery of the

project using alternate PPP structures and delivery model, and selecting the preferred PPP model.

ii. Assessing the proposed level of financial support

required from the government in the form of VGF and other forms of guarantees and revenue enhancements to make the project commercially attractive, and assessing the fiscal prudence of providing these forms of financial support;

iii. Assessing the risk analysis to evaluate whether:

iii1. all risks relevant to the financial appraisal of the project have been identified in the risk allocation matrix as given in Annex E;

iii2. identified risks have been allocated to the party best able to manage them;

iii3. an appropriate strategy has been developed to mitigate retained risks

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iv. Determining the unmitigated retained risks for the Government to get a perspective of the contingent liability and potential financial exposure for the government; and

v. Reviewing the overall project financing structure based on user tariff, payment mechanism, and type and expected sources of funds to determine whether it is achievable.

4.4 Appraisal of Fiscal Requirements (DOF) The appraisal of fiscal requirements shall determine the explicit (arising from the contract) and implicit (arising from public expectations) fiscal commitments of the government from the PPP project and its sustainability during the tenor of the contract period. The DOF shall take into consideration the fiscal impacts of the Project as a long-term sustainability issue that extends over the lifetime of the PPP contract. The following aspects shall be considered in the assessment of the fiscal sustainability aspects of the project:

a) Assessing and evaluating the cost of the fiscal commitments

implied by the project structure, including the amount of viability gap funding that the Project may require as well as public undertakings, including but not limited to the assumption of tax obligations or the provision of right-of-way by government, if any;

b) Conducting a preliminary appraisal of the involved contingent liabilities;

c) Assessing the fiscal commitments and opportunity costs to

determine whether these are fiscally responsible; and

d) Adopting appropriate strategies in the budget of the government to plan for the fiscal commitments.

4.5 Financial Model Validity Review and Value for Money (VfM) Appraisal (PPP Center)

a) The financial model validity review will evaluate the

robustness of the following aspects:

i. Ensure that the basis of the assumptions used in the financial model are acceptable and aligned with current practices;

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ii. Soundness of the model structure, including cross referencing and appropriate applicability to the project financial assessment process;

iii. Testing the project sensitivities to determine

implications on the financial model output; and

iv. An overall model review for consistency of the outputs generated.

b) The VfM analysis undertaken on the project will compare the

net present cost (NPC) of alternate project delivery model - one using the public procurement route and the other the estimated PPP NPC to determine whether the PPP model provides the lowest NPC for the project. The appraisal process will involve an assessment of the following aspects:

i. determining the unadjusted cost of public

procurement;

ii. adjusting the above for expected cost or time overruns from a public procurement;

iii. adjusting for any benefits that will accrue to a government agency for a public procurement; and

iv. risks retained by the government.

The NPC of the public procurement will need to be represented in the form of a Public Sector Comparator (PSC) which will be calculated as given in the below table. The NPC of the total PSC will be compared to the prospective PPP bid to determine VfM, which will need to be further confirmed at the contract award and financial close stage.

Capital costs

Operating costs

Revenues (if applicable)

RAW PSC Competitive Neutrality

Risks Total PSC

+ - = + + = PhP

c) Changes in the base case financial model will need to be

closely monitored by the PPPC to ensure that the VFM is undertaken based on the updated financial figures; and

d) The financial model review and the value for money outcomes that the project will be able to achieve include the following assessments:

i. Assessment of likely private sector interest for

undertaking the project as a PPP. This will include an

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appreciation of key concerns and issues raised by the private sector and likely response of the government to such issues. The PPPC along with the IA will undertake a formal market sounding process in association with the TA to determine interest levels of the private sector and address issues raised during the project development stage; and,

ii. Assessing forecasts, including ‘willingness to use’ and ‘willingness to pay’ demand survey assessments for the PPP project to determine revenue options from user of the infrastructure facility and for provision of the services therein. Forecasts should be reviewed for short, medium and long term (5, 10, 15+ years) periods and should include assessing different growth scenarios.

4.6 Legal and Institutional Appraisal (TWG Members)

a) The objectives of the legal and institutional appraisal shall be

as follows:

i. To assess the legal aspects that may impact the proposed PPP structure and determine the feasibility of the contract structure for implementing the PPP delivery model;

ii. To review and recommend improvements / revisions on the institutional arrangements and linkages in order to ensure a more efficient implementation of the project; and

iii. To ascertain the ability of the private sector to

implement the project as proposed and scheduled. b) The procedures for this appraisal shall be as follows:

i. Legal - As part of the first level review of the project,

the TWG shall assess the legal aspects of the project by considering the following:

i1. Reviewing the legal and regulatory environment to

determine policies on ownership of project resources, private sectors’ ability to use the resources, legal and regulatory requirements to develop the project as a PPP;

i2. Assessing the contractual and institutional

structure and tendering requirements, including the procurement plan;

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i3. Reviewing the legal architecture and contractual arrangement of the project and the contractual structures to be used;

i4. Reviewing key contractual clauses, if available,

legal and commercial risk exposure for government, termination mechanisms and arbitration procedures; and

i5. Review site plans and verify land ownership and

right-of-way aspects of the project

ii. Institutional - The TWG shall assess the institutional capability of the private sector market to implement the project by considering the following:

ii1. The feasibility of proceeding with the project as

scheduled, based on the preparedness of all concerned agencies;

ii2. Where relevant, the arrangements made to

address the concern of those who may oppose the project (e.g., environmental conservation groups and those who may be relocated); and

ii3. Recommending possible measures to improve the

program of implementation and delivery of the project.

V. Documentation

All documents and correspondences (i.e., Term Sheet, exchange of letters between PPPC and implementing agencies, confirmed minutes of ICC meetings, etc.) shall be officially submitted, with certifications as true copies/photocopies as applicable, to the NEDA Secretary for Socioeconomic Planning and ICC Co-Chair, within two (2) weeks after every ICC meeting on PPP projects, for ICC records purposes.

VI. Effectivity This Circular shall take effect immediately. For information and guidance.

Approved:

ARSENIO M. BALISACAN Secretary, National Economic and Development Authority Chairman, PPP Governing Board

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ANNEX A

PPP APPRAISAL AND APPROVAL PROCESS

START Submission of PPP Project

(IA)

First Level Project Assessment

(PPP Secretariat)

ICC-TWG (for PPP Projects)

Conduct of TWG Meeting/s

Submission of Project Evaluation Reports/ Conduct of Another TWG Meeting,

if necessary

Preparation of Term Sheets

Project Approval/Recommendation (ICC-CabCom)

Project Approval (NEDA Board) END

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ANNEX B

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ANNEX C

Term Sheet for Approval by the ICC Cabinet Committee

S. No. Particulars Response of IA / PPPC

1.0 GENERAL

1.1 Name of the Project

1.2 Type of PPP Structure (BOT, BT, BLT, etc.)

1.3 Project Location (Region/Province/District)

1.4 Implementing Agency (ies)/ Government-Owned or- Controlled Corporation(s)/ Local Government Unit(s)

2.0 PROJECT BACKGROUND

3.0 PROJECT DESCRIPTION

3.1 Project Scope

3.2 Objectives

3.3 Sectoral linkages, including linkages with the national and regional development goals, gender development and environment (ex: Education…)

3.4 Project Costs and Financing

3.5 Concession/Cooperation Period (Range)

3.6 Implementation Schedule / Processing Schedule (Specify Target Date for each Activity)

1.

3.7 Project Phasing

Project Component

Construction Start Date

Target Date for Completion of Construction

3.8 Estimated Economic Life of Project

3.9 Market Analysis Demand Projections

3.10 Social Analysis

3.11 Environmental Analysis

3.12 Value for Money Analysis

3.13 Legal and Institutional Analysis

3.14 Market Soundings Results

4.0 PROJECT REVENUES

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S. No. Particulars Response of IA / PPPC

5.0 GOVERNMENT EXPOSURE

5.1 Right of Way costs

5.2 Resettlement Costs

5.3 Tariff subsidy

5.4 National and Local Taxes, Duties, Fees and Charges

5.5 Risk Assessment Matrix and Mitigation Measures

5.6 Viability Gap Funding (VGF) Required

5.7 Credit Enhancements / Other Government support required

5.8 Contingent Liability Estimate

5.9 Availability Payments

6.0 BID PROCESS

6.1 One stage / Two Stage Process

6.2 Procurement Timetable

6.3 Proposed bid parameter (highest concession payment, lowest VGF, lowest tariff, lowest availability payment, etc.)

7.0 PROJECT EVALUATION

7.1 Technical Analysis Implementing Agency Proposal

7.2 Economic Analysis NEDA Findings

7.3 Financial Analysis DOF Findings

8.0 ISSUES AND COMMENTS

9.0 RECOMMENDATIONS

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ANNEX D

Appraisal Process to be followed by Appraising Bodies

S. No. Key Areas of Appraisal Appraisal Process to be Performed Institutional

Responsibility

1 Socio-Economic Appraisal

Ensuring alignment of the project with the Philippine Development Plan (PDP)

NEDA

Reviewing Project need, rationale and government’s role in the proposed PPP project Assessing current state of provision of the infrastructure facility, perceived gaps and evaluating social and economic benefits from a proposed PPP delivery model Assessing gender analysis and gender issues including gender gaps, if any that the project must address Assessing social risks including resettlement and rehabilitation issues that may impact the project and the strategic response thereof Reviewing the economic analysis of the project including the economic rate of return on the project Assessing the social and economic risks that the project may be exposed to, including the strategy adopted for its transfer / allocation / mitigation

2 Technical Validation

Validating the engineering (civil, mechanical, electrical, structural, MEP and other design) and technical aspects and soundness of the project as prepared by Transactions Advisors or technical consultants, including optimal sizing, capacity and quality standards for the infrastructure facility and service delivery

IA

Reviewing integration aspects, if any, with existing infrastructure and assessing responses to integration issues that may impact operations Assessing Right of Way and undertaking appraisal of site and location related considerations Assessing optimal timing and phasing of construction Reviewing preliminary structural / architectural designs and layout of infrastructure facilities Reviewing construction, supply, installation, operations and maintenance performance standards Reviewing project construction and implementation schedule Assessing environmental issues that may impact the project Reviewing design and monitoring framework Reviewing the base case project cost estimates, including construction phasing Reviewing project implementation schedule including timelines for bid process till contract award

3 Risk Allocation and Financial

Appraisal

Assessing the ability of the project to generate revenue from users based on demand estimation and willingness to pay surveys with inputs from the TAs

DOF

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S. No. Key Areas of Appraisal Appraisal Process to be Performed Institutional

Responsibility

Assessing other cost recovery options (and alternative revenue generation) to ensure that the project is sustainable Assessing the financial viability of the project and reviewing the financial rates of return (FIRR), project payback (PB), net present value (NPV) and other investment parameters Reviewing key ratios including average debt service (ADSCR), loan life coverage (LLCR), etc. to determine cash flow sensitivities for debt funders to determine issues, if any, for financial close Assessing viability gap funding needs and financial guarantees required, if any Reviewing the project risk matrix, relevant to the financial appraisal ,including the risk transfer, allocation and mitigation strategy and assessing the estimates of retained risks on the project Initial review of termination payments and potential implications to the government from contingent liabilities that may materialize from the project.

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Financial Model Validity Review

and VfM Appraisal

Assessing private sector appetite to undertake the project and reviewing the list of likely private sector investors for the project

PPPC

Assessing private sector feedback received during the market sounding exercise carried out for the project Reviewing the financial model and assessing the sensitivity of the model to changes in key variables Reviewing the basis of assumptions in the financial model as to their consistency and comparability to projects of a similar nature Assessing alternate PPP structures and delivery model that are feasible for the project Assessing the Value for Money (VfM) drivers and reviewing the quantitative and qualitative analysis that estimate the VfM for the project Reviewing “bankability” measures for the proposed PPP project structure and the financing plan

5 Appraisal of

Fiscal Sustainability

Assessing requirements of the project in terms of capital outlays required directly or indirectly from the national government (NG) and/or government financial institutions (GFIs)

DOF

Assessing the fiscal impact of the PPP project on government costs and revenues, including periodic fixed availability payments and sources of financing it, thereof Prepare/assess preliminary contingent liability estimates that may materialize from the project based on a public undertaking proposed for the project, if any, or availability/lease payments that the Government may be obligated to pay for the project.

Assessing on and off balance sheet impacts on an annual basis for the government from the PPP project, including cash flows impact on the government’s income / operating statement Assessing the overall fiscal, monetary and balance

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S. No. Key Areas of Appraisal Appraisal Process to be Performed Institutional

Responsibility

of payments (BOP) implications of the project , as necessary

6 Environmental Appraisal

Review and evaluate the environmental aspects of the Feasibility Study of the Project integrating the environmental considerations. This includes the evaluation of predicted significant adverse impacts of the proposed development projects to the environment (physical, biological and socio economic/land, air water and people) and the appropriateness of the proposed mitigating measures to address the perceived impacts.

DENR - EMB

Review of the environmental risk assessment/analysis of the proposed projects with its proposed mitigation measures to be specified in the EIA Study. Review of the environmental risk assessment/analysis of the proposed projects with its proposed mitigation measures to be specified in the EIA Study. Review the integration of climate change adaptation (CCA) measures and disaster risk reduction (DRR) in the proposed project.

Evaluation of the identified environmental monitoring and management plan (EMMoP) as specified in said Feasibility Study.

7 Legal and

Institutional Appraisal

Assessing current laws, policies and institutional aspects of the Project to ascertain the legal validity and viability of the proposed PPP project structure

TWG Reviewing contract clauses (if available), key legal and commercial risk exposure, termination mechanisms and arbitration procedures Assessing the appropriateness of the institutional arrangements for the Project Reviewing all legal requirements relating to project implementation and operations