A well prepared PPP project proposal consists of 5 components:
3. Technical Assessment Study, which includes a preliminary design with sufficient technical ground surveys to prepare a capital cost estimate to within ±20%. The design process identifies and records the relevant design standards, together with primary design criteria that are compatible with the project's objectives and location. The outline design examines alternative sites and alternative layouts at each site, so that a number of feasible options for the PPP project could be identified that would provide the basic operational requirements. This process also identifies physical limitations on available sites that could restrict the design layout. A cost estimate should be 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. The operational and maintenance costs should be determined for each element of the alternative technical solutions. Some maintenance costs will be routine in nature and others will need to be estimated on a periodic basis. The preliminary cost estimate must also be accompanied by an outline implementation program reflecting the timing and interrelationships of all of the major components of the project. The technical specification must conform to the least cost solution to meet the projected demand for the service (phased if necessary) and other objectives. Preliminary technical evaluation is usually initiated as soon as a project is identified and selected for PPP implementation. The data that is gathered at this stage is needed in order to (1) arrive at a 'least cost' solution for implementation and (2) complete a social cost benefit analysis (SCBA). SCBA will explore the different technical configurations of a project in order to determine which option yields the greatest economic benefit. If this is done well, it becomes easier to assess the project from the perspective of SCBA prior to, or when the investment appraisal is initiated.
4. Demand/Market Study, encompassing demand forecasts for the product or service the project will deliver. Forecasts should be derived for short, medium and long term (5, 10, 15+ years) and should provide for different growth scenarios.
5. A Social Cost Benefit Analysis (SCBA), that sets forth the rationale for undertaking the project based on the economic benefits to the community. The economic viability indicators are economic internal rate of return (EIRR), economic net present value (ENPV) and present value (PV) of economic benefits/PV of economic cost (B/C ratio).
6. Environment, Social and Gender Impact Analysis identify all social impacts and resettlement activity, proposed mitigation and their related costs. Social studies should conform to Philippine social impact regulations including that which relates to indigenous peoples if relevant. Environmental Impact Assessment Study includes outputs from environmental studies and consultation shall serve as key inputs in the preparation and formulation of necessary environmental impact statements, management and mitigation plans and other activities, particularly disaster risk mitigation, and climate change adaptation, that defines and addresses all major impacts, proposed mitigation and the broad estimate of mitigation costs. Environmental studies should conform to Philippine environmental regulations.
7. Financial Analysis examines the viability, stability and profitability of a project by looking at financial indicators such as financial internal rate of return (FIRR), financial net present value (FNPV), payback period (cost of project/projected annual cash flow) and debt service cover ratio (DSCR). Using a financial model various financial scenarios are simulated to determine tariff structure, tariff path and escalation, extent of cost recovery, debt-equity options, debt service options, requisite government support, etc. The financial model is also used to undertake a sensitivity analysis as well as outline a financial structure that shows funding sources for each component of the project.
The financial analysis must include a technical description and a project implementation plan that identifies all relevant engineering and non-engineering components. It must include a preliminary outline design, containing technical specifications such as location, technology, right of way requirements, and initial capacity. The preliminary output design must also contain a construction schedule, standard of project outputs and performance standards which will provide the basis of the minimum technical requirements to be included in the Request for Proposals (RFP).
The market sounding process is to be undertaken towards the end of the financial analysis when there is sufficient data that will permit a substantive discussion with the private sector, including both potential contractors and investors. The feedback from the market sounding is integrated into the final project structure. For example, the private sector may point out fundamental problems with the proposed project structure that will need to be revised if the tender is to be successful.