The project is viable even with a 20% increase in capital cost as seen below:
| Pre-tax Project IRR (for 15-yr concession | ||
| -20% | Base case | +20% |
1 Construction cost | 21.61% | 15.70% | 13.65% |
2 O&M cost | 15.79% | 15.70% | 15.61% |
3 Revenue | 11.72% | 15.70% | 19.35% |
Notwithstanding, this project can be "re-packaged" by the proponent using any of the following alternatives to improve its viability:
a. Allocate more space for private tenants who are charged comparatively more than government tenants and diversify the use of space or services offered
b. The private partner may also provide special services to the LGUs, such as maintenance and security service, electronic data processing, record keeping, storage, telecommunications, and the use of training and seminar facilities. Again, substantial income should be derived from these activities
c. Enlarge the building. The LGU may permit additional office (or other revenue- producing) space to be built, generating additional net income. However the proponent should make sure that there is still demand for a higher capacity building
d. Sell the office spaces outright - similar to arrangements for condominiums - rather than lease it long term. Most developers and lenders prefer outright sales because revenues are generated up front. However, by selling the building, the LGU will give up ownership of the facility. If LGUs opt for the condominium arrangement, it should ensure a commensurate revenue share
e. Finally, the building might be re-designed as a less ambitious, more economical structure without the "smart" building features described in Sec. B.1.1.3. This could reduce project costs by approximately 5 to 8 percent