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Solvĕre uses Palisade software to minimise financial risk in infrastructure PPP projects
@RISK enables advanced analysis of availability-based payment mechanisms to ensure correct risk allocation between partners

13 November 2013 - Civil engineering consultancy, Solvĕre, uses risk analysis software from Palisade to enable the participants in Public Private Partnership (PPP) infrastructure projects to minimise their financial risks. The move accompanies the increased use of availability-based contracts for transport initiatives, in which the public sponsor pays the private partner a pre-established payment.

How much and at what intervals the government pays the contractor is determined by the ‘payment mechanism’. This relates to the quality of the service provided by the private partner whose revenue is therefore dependent on its performance score and the incentive or penalty rules of the contract.

Solvĕre’s methodology uses @RISK risk analysis software from Palisade to estimate the performance and to forecast the potential deductions in the payment mechanism for each project. This provides advanced analysis to enable all parties involved in infrastructure PPPs to account for each element of the project that can affect its financial status and therefore profitability.

Using @RISK enables Solvĕre to provide consultancy services, including:

  • Support for governments and public agencies in the design of payment mechanisms and performance indicators at the investment planning and bidding stages.
  • Advice for contractors in estimating payment deduction risk, revenue forecasting and CAPEX/OPEX (initial investment/operation expenditure) balance throughout the life of the contract.
  • Due diligence review of the payment mechanisms for lenders and investors in loan or secondary market asset transactions.

The key objective is to quantify, for various levels of probability, the economic impact of the performance criteria not being met. Solvĕre’s @RISK model takes into account the contract specifications and the resources committed by the operator to complete the project and undertake maintenance of the infrastructure, combining them in order to evaluate the expected level of performance on this base scenario.

Solvĕre builds a specific model for each project and its associated payment mechanism, which is broken down into the main variables that could potentially have an impact on the outcome. The @RISK model is used to determine the ‘performance probability’ function – i.e. the likelihood of an event occurring that will affect the performance and by how much.

“The nature of PPPs makes them highly-complex contracts, with payment mechanisms being subject to a significant degree of uncertainty which needs to be analysed in terms of probability and risk,” explains Laura Cózar, director at Solvĕre. “We identify and analyse the different elements of the process so that informed decisions can be made to ensure the feasibility of the project and a proper risk allocation between the partners. @RISK is a powerful and flexible tool that enables us to manage and present large amounts of complicated information in a way that is easy to understand and act upon.”

About Solvĕre
Solvĕre is a consulting firm specialising in providing technical advice on transport, water, hospitals and public service infrastructure projects developed under Public-Private Partnership (PPP) schemes. Its professional services include due diligence for loan and secondary market transactions, risk analysis, CAPEX/OPEX studies, feasibility studies and payment mechanism models. With experience of working in more than 30 countries, the Solvĕre partners provide advisory services to governments, public agencies, private contractors, lenders and investors in the infrastructure sector.

About Palisade
Palisade Corporation is a software developer and solution provider that produces decision support tools for professionals in many industry sectors. The company was founded in 1984, and at present more than 150,000 people use Palisade’s software in fields that range from finance to oil and mineral exploration, real estate to heavy manufacturing and pharmaceuticals to aerospace. Its software is used by more than 90 percent of Fortune Global 500 companies. Sample clients include Royal Dutch Shell, Petrobras, Procter & Gamble, PEMEX, China Minmetals, Mitsubishi, Merck, Unilever, Allianz, Total, Raytheon and BHP Billiton, as well as top business schools around the world.

For more information, contact:

Randy Heffernan
Tel: +1 607-277-8000
Fax: +1 607-277-8001

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