Financial Modelling for

WTE-PPP project
Veronica
August Sulistyono

Introduction

PublicPrivatePartnership means:
formsofcooperationbetweenpublicauthoritiesandtheworldof
businesswhichaimtoensurethefunding,construction,renovation,
managementormaintenanceofinfrastructureortheprovisionofa
service(CommissionoftheEuropeanCommunities greenpaper)
ProjectFinance means:
financingofaspecificassetinwhichlenderslookprincipallytothe
revenuesgeneratedbytheoperationofthatassetforthesourceof
fundsfromwhichloanswillberepaid

Regulatory Basis PPP-WTE in Indonesia

PPP
PR67/2005(asamended)
Sectoral
LawNo.18/2008(wastemanagementsectoral law)
GovernmentSupportandGovernmentGuarantee
PR78/2010 MOFRegulation260/2010(Guarantee)
MOFRegulation223/2012(VGF)

Distinguish between project finance and

PPP
Projectfinancemaybeutilisedbythepartyresponsiblefor
financingaproject
PPPisutilisedbyapublicsectorentitylookingtoshiftthe
responsibilityforfinancingaprojecttoaprivateparty(the
successfulbidder)
PPPandprojectfinancearecombinedwhenthesuccessfulbidder
inaPPPprojectusesprojectfinancetofinancetheproject
(alternatively,thesuccessfulbiddercouldfinancetheprojectusing
equityorthroughaconventionalconstructionloan,seeabove)
Projectfinancemethodscan(andfrequentlyare)usedwithoutPPP
(mostfrequentlyinconnectionwithnaturalresourceprojects

General Project Finance

Sponsors

GCA

PPP
agreement

SPC
Debtfunding
&
Security
Package

Direct
Agreement

Lenders

Shareholder
s
Agreement
and
Equity
subscription
Agreement

EPC
Contract

Contractor

Services
Agreemen
t

O&M

Insuranc
e
Package

Insurer

Supply
contract

Supplier

Offtake
Contract

Purchaser

Some Special Characteristics of a Project

Finance Loan Agreement

(Almost)alwayssecuredbyprojectassetsandothersecurity
(butbasisforfinancingisrevenuesfromproject,not asset
value)
Proceedstobeusedfordefinedprojectcosts(predominantly
constructioncosts)
o Certificationsregardingexpendituresasprojectcosts
requiredfordrawings(confirmedbytechnicaladvisor)
o Interestduringconstruction(IDC)
o Mayincludestandbyfacilityforcostoverruns
o Voluntarypartialcancellationofcommitmentsmayrequire
demonstrationthattheborrowercanstillfinancethe
projectwiththereducedamount

SomeSpecialCharacteristicsofaProjectFinance
LoanAgreement
Closerelationshipbetweentermsofprojectagreementsand
loanterms/securitypackage
Directagreements/collateralwarranties/othersecurity
Referencestoconstructioncontracts,contractorsand
constructionprogramme inloanterms
Repaymentprofile:
Usuallyamortizinginaccordancewithprojectrevenues
Notbulletmaturity(althoughthismayappearinproject
bondsandinrealestatefinancing)

PPP-Project Finance in WTE Indonesia

IIGF
Recourse
Agreement

MOF

Guarantee
Agreemen
t

Headof
Region

VGF

PPP
agreement

Direct
Agreement

Lenders

Shareholder
s
Agreement
and
Equity
subscriptio
n
Agreement

SPC
Debtfunding
&
Security
Package

Winning
Bidder

EPC
Contract

Contractor

Services
Agreemen
t

O&M

Insuranc
e
Package

Insurer

Supply
contract

PD.
Kebersihan

PP
agreement

PLN

General terms in PPP on connection

with financing WTE Indonesia
PR67/2005requiresprivateentitytoreachfinancialclose
within1(one)yearsincePPPagreementissignedandcanbe
extendedbecauseofgovernmentdefault;
Financialclose:(i)loanagreementissignedtofinancethe
project;and(ii)partofloancanbedisbursedtostart
construction;
CommonlyinseveralWTEprojects,thePPPagreement
requiresratioofloanisnotmorethan80%oftotalproject
capital;and
Theprivateentityisprohibitedtomakesecurityover
state/regionassets.

Government Support (VGF)

Currently,PPPprojectmaybegrantedfeasibilitysupportby
MOFintheformofhalfofconstructioncost;
ThepurposeofVGFistomaketheprojectfinanciallyfeasible;
GeneralrequirementsforVGF:
a. TheWTEPPPprojectshalleconomicallyfeasibletoobtain
VGF;
b. TheWTEPPPProjectshallhaveminimuminvestment
valueIDR.100.000.000(onehundredmillion);
c. TheWTEPPPprojectisatenderedproject;
d. Etc.

Simplified VGF Process

Preparation

Transaction

Ground
Breaking

VGFLetter

Headof
Region

Application

MOF

VGF

SPC

1. IftheprojectisobtainVGFfromMOF,thentheVGFshallbestipulatedunder
tenderdocuments;
2. PleasenotethattheVGFonlycover,formaximum,apartofconstructioncost,not
totalinvestmentaPPPWTEproject.

Government Guarantee
GovernmentguaranteeinPPPWTEprojectwillbegivenbasedon
proposalfromGCAtoIIGF;
IIGFwillguaranteeobligationsofGCA,includinglicensing,permit,
approval,changeinlaw,default,delayinfinancialclose,demand
risk,revenuerisk,etc.
Thecriteriatoobtaingovernmentguarantee;
a. TheWTEPPPprojectshallatypeofprojectregulatedunderPR
67/2005;
b. TheWTEPPPprojectshallcomplywithsectorlawsand
regulationandtenderedincompetitiveway;
c. TheWTEPPPprojectshalltechnically,financially,economically,
andenvironmentallyfeasibleanddoesnothavenegativesocial
impact;
d. ThePPPagreementshallhasprovisionforbindingarbitration.

Simplified Guarantee Process

Preparation

Transaction

FinancialClose

MOF
Approval
CoGuaranteeAgreement

Headof
Region

Application

Recourse
Agreement

IIGF
GuaranteeAgreement

SPC

1. IftheprojectisobtainguaranteefromIIGF,thentheguaranteeshallbe
stipulatedundertenderdocuments;
2. Therecourseagreementandguaranteeagreementwillbesignedalong
withthePPPAgreement

Tipping Fee
InseveralPPPWTEprojectsinIndonesia,inordertomakethe
projectfinanciallyfeasible,theGCAwillpaytippingfeetothe
privateentity;
TippingFeeisthepricechargedtodelivermunicipalsolidwasteto
alandfilldumpsitefacility,WastetoEnergyfacilityandrecycling
facility
ThePPPTipping Fee isamountpaidbyGCAtoprivateentityas
compensationofwastemanagementcost,andconsideredasreturn
ofinvestmentofprivateentityforthebuildandoperatedfacility.
Thetippingischargedbytheamountoftonagebasedonthesolid
wastedeliveredbytheSolidWasteDumpTruckenteringtheland
filldumpsitefacility,WastetoEnergyfacilityandrecyclingfacility

Obligation to Purchase electricity

from waste management by PLN
InordertomakefinanciallyfeasibleofPPPproject,theother
sourceofrevenuesmaybeoriginatedfromsaleofelectricity
generatedfromsolidwastemanagement;
MEMRhasissuedMEMRRegulationNo.4of2012toassign
PLNtopurchaseelectricityfromrenewableenergy; the
arrangementarenotifiedonPPA(PowerPurchase
Agreement)
PLNisobligedtopurchaseelectricityfromrenewableenergy
forthecapacityupto10MW.

Bankability
Ifthefinancialelements(guarantee,VGF,tippingfee,PPA)asabove
isfulfilled,includingthesecurity,andtheriskallocationofrelated
agreementiswellmanaged,thentheprojectisideallyBankable.
Thedecisiona WtEcompanyhavetomakeisderivedfromhow
muchtheoutcomeofWtE worth.The valuationisthesingle
financialanalyticalskillthat WtE stakeholdershavetomake.
TheValuationanalysisinvolvesassessing

IdentificationofPotentialIncome(TippingFee,PowerPurchaseAgreement,OtherIncome)
ProjectedCashFlowlevels and
RisksinvaluingthoseCashFlows,whetheritbethecashflowfrom(1)assets,(2)debtor(3)
equity

Measurementvalue forecastingandriskassessment isavery

complexanddifficultproblem. Including(expectedInterestrate,
Inflationrate,CostofMoneyand/orValueForMoney

Financial Modelling
ThescopeofFinancialModellingincludes:
ModellingVariablesandProjectReturns
ProjectedProfitandLossStatement
ProjectedCashFlowStatement,ProjectedIRR(InternalRate
ofReturn)andProjectedNPV(NetPresentValue)
ProjectedBalanceSheetStatement
LoanSchedule
RevenueDetail
ExpenditureDetail
AssumptionofModelling
Performingsensitivityandscenarioanalysisonmodeloutputs

Assumptions in Financial Model

TheassumptionofFinancialModelbasedon three
basicoperatinginputs:
Capitalexpenditures
Revenues
Operatingexpenses

Basedon thesethreeinputsworkontheIRRandNPV
withtheappropriateExpectedInterestRateand
ExpectedInflationRate
Forecasts forthevaluedrivers candiffersfromoneWtE
FinancialModelandtheother

Financial Analysis Issues

Foreachlineiteminthefinancialstatements,show
ratiosfortheitemsandshowassumptionsforthe
ratios
Thekeyistoidentify realeconomicdriverssuchas
price,capacityutilization,marketshareandother
thingsthatreallydrivevalue
ArrangebyRevenues,Expenses,Capital
Expenditures,WorkingCapitalandDepreciation
Ifdeferredtaxesarepresent,calculate book
depreciationandtaxdepreciation

Measurement of Risk in Financial

Modelling
ThefundamentalissueinanyvaluationofFinancialModelling ishowto
assesstheriskoffuturecashflowprojections.
Financialtheory
Financialtheory)shouldbeusedtocomputetheWACC (Weighted
AverageCostofCapital),thatcan beusedtoestimateequity
returns,thatoptionspricingmodelsshouldbeusedforcredit
spreads,debtcapacityandcovenants.
MathematicalModels
Mathematicalmodelsincludestatisticalmodelsforcreditanalysis
andvalueatrisk.
PracticalMarketInformation
Practicalmarketinformationcanbeusedtogaugerequiredequity
returns,requiredcreditspreads andrequiredfinancialratios
DirectEvaluationwithFinancialModels
Useoffinancialmodelstodirectlyassessrisksthroughsensitivity,
scenarioandsimulationanalysis.

A good WTE financial model should:

Berelativelysimple
Focusonkeycashflowdrivers:WtERevenues (PPAand
TippingFee),Rates(InterestRateandInflation),Expenses,
CapitalExpenditures,WorkingCapitalandDepreciation
Clearlyconveyassumptionsandconclusions
EvaluateRisksthroughsensitivityanalysis,breakeven
analysis,scenarioanalysis.
AgoodFinancialModel allowsdecisionmakerstofocuson
appropriaterisksandsummarizesdatainanefficientway
thekeyvaluationissuesshouldbereadableandeasyto
understand,

THANK YOU