The maximum eligible grant that should be given to a PPP project is the amount equal to the present value of a project's investment costs plus operating costs less the present value of the net revenue from the investment over a specific reference period discounted at the weighted average cost of capital of the project. The viability-gap approach applies to all projects that generate net revenues through charges borne directly by users.
The investment grant needed to cover the viability gap of a project is calculated as follows:
PV (IC + OC) - PV (R)
where |
|
IC | =investment cost |
OC | =operating cost |
R | =revenues |
PV Discount | =weighted average cost of funds |
The formula aims at ensuring enough financial resources for project implementation, avoiding, at the same time, the granting of an undue advantage to the recipient. It does not apply for projects that do not generate any revenues or those whose revenues do not fully cover operating costs. Funding gap in this case would equal 100%.