Question

1. The XYZ Pension Fund is resource-constrained and has only $8,000,000 available for co-investment in an infrastructure asset, and must show its Board of Trustees that it has selected the most potentially profitable investments. It is being offered 6 alternatives, each of which has reached construction completion, and with 25 years’ concession period remaining. These are:

Project type	Financed by	Gross Investment required	Net Present Value $	Projected IRR %
Single toll road	Bank debt	$1m	80,000	13.9
Large general Hospital	Bond	$4m	430,000	14.4
Metro-system expansion	Bank debt	$3m	250,000	16.0
Portfolio of PFI schools	Bank debt	$2m	230,000	14.1
Bridge River crossing	Bank debt	$2m	210,000	16.1
Skyscraper	Bond	$2m	190,000	15.7

You are the projects’ financial advisor retained by the Trustees. Advise them (explaining your reasons);

2. Now consider a significant new PPP project (financed wholly by the private sector) where for some reason construction completion is delayed. Critically analyse and describe the consequences for the “D&B”/”Tier 1” Contractor, of the following situations:
   1. a time overrun extending past the projected Completion Date
   2. what the “penalties” might be on the [Tier 1] Contractor, and importantly also explain why “penalties” is written here in quotes; and
   3. which parties might seek remedies and apply or enforce these “penalties” at each stage in a progressive delay;
   4. giving an indication of how large they might be and why; and demonstrate how this would be calculated and applied.

Answer 1

Project type	Financed by	Gross Investment required	Net Present Value $	Projected IRR %
Single toll road	Bank debt	$1m	80,000	13.9
Metro-system expansion	Bank debt	$3m	250,000	16
Bridge River crossing	Bank debt	$2m	210,000	16.1
Skyscraper	Bond	$2m	190,000	15.7

I would advise the Trustees to go with the above projects. These are all infrastructure projects with the highest IRR in sequential order.

There is no information available for the 2nd part of the question. Kindly provide the details so that I can answer.