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Project Finance Modeling Test - Express Fiji

Express Fiji is a project company contracted to build and operate a highway in Fiji, with a 40-year concession and a 4-year construction period. The project will generate revenue through tolls, with estimated traffic of 3.125 million passenger cars and 2.8 million heavy vehicles in the first year, and maintenance costs projected at £8.9 million annually. The financing structure includes a 65/35 gearing ratio and aims for an internal rate of return (IRR) of 23% through adjusted tariffs for heavy vehicles.

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362 views2 pages

Project Finance Modeling Test - Express Fiji

Express Fiji is a project company contracted to build and operate a highway in Fiji, with a 40-year concession and a 4-year construction period. The project will generate revenue through tolls, with estimated traffic of 3.125 million passenger cars and 2.8 million heavy vehicles in the first year, and maintenance costs projected at £8.9 million annually. The financing structure includes a 65/35 gearing ratio and aims for an internal rate of return (IRR) of 23% through adjusted tariffs for heavy vehicles.

Uploaded by

Ethan sdbn
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Financial Modeling – Express Fiji

Financial Modeling –
Express Fiji

Express Fiji is a project company that was awarded the


contract to build and operate a highway in a city in Fiji in
2023. (Fiji is an island country in the South Pacific
Ocean).

UK Aid supports the project, and here are some details


about it:

A. Timing of the project

• Concession contract duration: 40 years


• Construction duration: 4 years
• Operations duration: 36 years

B. Traffic & Project Revenues

Project revenues come from tolls.

Following traffic studies, the estimated traffic on the future road the first year of
operation is:

• 3 125 000 Passenger Car (PC) per year


• 2 800 000 Heavy vehicle (HV) per year

Traffic will then evolve by 2% per year.

The tariff (2023 value) applied to each vehicle is as follows:

• 3,56 £/PC
• 13,96 £/HV

The project company anticipates an inflation of 4% per year (starting from contract
award).

C. Maintenance Costs

The cost of maintenance (including heavy maintenance and SPV costs during
operation) has been estimated annually at £8,9M per year (value 2023).

The project company anticipates an inflation of maintenance costs of 4% per year


(starting from contract award).

1
Financial Modeling – Express Fiji

D. CAPEX

The construction cost (including SPV costs during operation) has been estimated at
£75M per year of construction.

E. Project Financing

Funding will be provided in the form of non-recourse financing, i.e., equity and senior
debt. The project company has secured binding funding offers on the following basis:

Debt:
- Door-to-door maturity: 40 years (for the sake of this exercise)
- Gearing: 65/35
- Fixed Rate:
o Base Interest Rate: 1,50%
o Fixed Rate Margin: 5,85%
o Arrangement fee: 1,50%
o Engagement fee: 35,00% of margin

F. Tax & Accounting assumptions

As a simplification, it is envisaged that for:


- Accounting: all investments are amortized on a linear basis over the term of
the concession as of the commissioning of the motorway.
- Tax: The only tax is the corporate tax, and the rate is equal to 30%.

What should be the tariff charged to HVs in order to obtain an IRR of 23% ?

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