PPP / PFI Modeling

PPP / PFI Modeling (T302) is a 1-day course that teaches you how to build a financial model consistent with the tax and accounting rules typical of public private partnership (PPP) and UK private finance initiative (PFI) transactions, including a session recently added to model elements of the new IFRS rules. The course builds on the techniques and knowledge acquired from the two pre-requisite courses, FAST Modeling Skills (T101) and Project Finance Modeling (T201).

The course aims to de-mystify a topic clouded in unnecessary jargon and complexity. The course builds up the standard T201 fixed asset / capital allowance based project finance model, applying finance debtor accounting treatment (pursuant to FRS5), including levelization of service fee elements as a mark-up on relevant costs. As well, we implement the modeling of construction-period margin and income recognition associated with IFRS Financial Asset accounting.

Participants will also have a chance to tune-up their modeling skills and get some feedback on questions that may have arise in the context of PPP / PFI transactions, including major maintenance expenditure accounting and tax treatment, together with associated project finance reserve accounts. At the conclusion of the course you will have covered all the primary elements of PPP / PFI transactions and gained a fundamental understanding of how the financial statements are derived based up step-by-step calculations of the key elements.

PPP / PFI Modeling is aimed at those who need to understand the idiosyncrasies of PPP transactions, with a focus on their tax and accounting requirements. Participants who lack a grasp of business theory, project finance, and basic model building skills will struggle to keep up with the pace of this course, and may find it more effective to take a ‘watch, not do’ approach to the course.

Consistent with all Financial Mechanics T-series courses, PPP / PFI Modeling is a very hands-on course with limited lecturing or speaking to PowerPoint slides. Attendees will follow along with the instructor, adding Excel calculations to their own financial model on their own computers themselves; in this way they practice immediately what they have been taught in order to embed in their minds the principles of finance debtor accounting and other PPP / PFI-related elements.

The course applies FAST modeling in its approach, namely producing models that are flexible, accurate, structured, and transparent, i.e. avoiding complex formulas so they are simple to follow even if the subject-matter is complicated.

PPP / PFI Modeling is broken into four sessions (punctuated by coffee and lunch):

• Introduction to finance debtor treatment (and comparison with fixed asset treatment via 'financed sale to customer' analogy); discussion of FRS5 vs SSAP21 treatment. Conceptual distinction between ‘availability’ and ‘service’ elements of revenue / unitary payment.
• Levelization of service fee income via variously named 'tracking accounts' (e.g. Unitary Payment Control Account or UPCA) based upon a mark-up on qualifying costs.
• Overview of status of IFRS implementation and two IFRS variants: Financial Asset and Intangible Asset, modeling of key components of Financial Asset implementation during construction (not seen in FRS5), e.g. margin on costs, expensing of IDC to P&L, potential cash tax liability under composite trader. Session wraps-up with further overview of differences that may occur under Intangible Asset determination and Q&A.
• Open session intended to discuss various infrastructure finance related topics (class-determined priorities), including modeling issues associated with asset renewal (a.k.a. lifecycle) reserve accounts, review of FRS12 provisioning of ongoing capital expenditure, RPI and/or LIBOR swaps, 'what if' analysis on property-specific finance debtor or asset rates, handling of transactions with material terminal value, and FRS4 loan-related cost amortization.

It is best if attendees are intimately familiar with the principles and specific techniques of FAST Modeling, which is applied throughout the PPP / PFI Modeling course. Preferably this knowledge should be obtained from reasonably recent attendance of the FAST Modeling Skills (T101) course followed by some practical application in the context of on the job. As well, a firm understanding of the primary project finance topics covered on Project Finance Modeling (T201) is an important foundation upon which the topics of PPP / PFI Modeling course are based.

Attendees will also need to bring with them a laptop, ideally one they are accustomed to using, with a Microsoft Windows operating system and MS Excel loaded. Laptops may be rented from Financial Mechanics for an additional charge.