Outline Business Case Study

for the

New Blue River Crossing

September 2024

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 The New Blue River Crossing
1. STRATEGIC CASE .......................................................................................... 3
1.1. Background ........................................................................................................ 3
1.2. Project Background ............................................................................................ 5
1.3. Project Rationale ................................................................................................ 5
1.4. Project Overview ............................................................................................... 5
1.5. Project objectives, scope and requirements ....................................................... 6
1.5.1. Objectives .................................................................................................... 6
1.5.2. Scope ........................................................................................................... 7
1.5.3. Requirements ............................................................................................... 8

2. ECONOMIC CASE ........................................................................................... 8

2.1. Options appraisal and selection ......................................................................... 8
2.1.1. Options....................................................................................................... 10
2.1.2. Qualitative options appraisal ..................................................................... 13
2.1.3. Quantitative options appraisal ................................................................... 14
2.1.4. Preferred Option ........................................................................................ 15
2.1.5. Recommendation ....................................................................................... 15
2.2. Exploration of PPP Option............................................................................... 15

3. COMMERCIAL CASE ................................................................................... 16

3.1. Risk Identification and Allocation ................................................................... 16
3.2. Risk Mitigation ................................................................................................ 17
3.3. Commercial Interest ......................................................................................... 17
3.4. Statutory Process and Approvals to be obtained: ............................................ 17
3.5. Contract Terms................................................................................................. 18
3.6. Tender Process ................................................................................................. 18

4. FINANCIAL CASE ......................................................................................... 20

4.1. Affordability .................................................................................................... 20

5. MANAGEMENT CASE ................................................................................. 22

5.1. Project Management and delivery ................................................................... 22
5.2. Project Management Structure ......................................................................... 22
5.3. External Advisers ............................................................................................. 23
5.4. Costs and Budget ............................................................................................. 23
5.5. Timetable ......................................................................................................... 24
5.6. Commitment of Sponsors and users ................................................................ 24
5.6.1. Project Sponsor .......................................................................................... 24
5.6.2. Informing, Engaging and Involving Group ............................................... 24
5.7. Next Steps ........................................................................................................ 25

6. CONCLUSION ................................................................................................ 25
Annex A: Factors in Assessing PPP Potential ......................................................... 26
Annex B: Checklist questions .................................................................................. 27

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 The New Blue River Crossing

This is a case study of a hypothetical project. In the interests of brevity, much of the detailed
justification that would be expected of a real-life submission has been omitted. Please note that this
case study contains a number of deliberate errors.

It is assumed that the delegates are officials from the Central Ministry of Economics and Finance,
and are being asked to evaluate and, if appropriate, approve the ‘Business Case’ for this project.

1. STRATEGIC CASE

1.1. Background and Strategic Context

1.1.1. The Republic of Paradise

The Republic of Paradise is considered to be a stable and prosperous country. However,

Paradise contains enormous disparities between a wealthy and industrialised North and
a poor South dependent on mining and agriculture.

In order to improve the economic competitiveness of the country, in 2020 the Central
Government published the national “Investing in Infrastructure Strategy 2020-2030”.
This strategy contains a number of targets for transport infrastructure:
• Tackle transport congestion and improve the reliability of journey times to
ensure that congestion does not constrain or discourage economic activity;
• Improve transport connectivity and integration between regional and
national networks across the country to ensure more efficient travel;
• Improve access to employment and learning to help people into work,
increase the proportion of people in employment and increase the number and
range of learning opportunities;
• Improve accessibility to key services to ensure that people have access to all
the services they need, such as healthcare;
• Reduce the impact of transport on the environment;
• Increase levels of health and activity by improving transport infrastructure for
pedestrians and cyclists.

1.1.2. The Region of Heaven

The Region of Heaven is located in the East of the Republic of Paradise, at the
convergence of a number of key strategic transport links between the South and the
North of the country, many of which rely upon the Blue River crossings at this point.

The Region has suffered considerable economic decline since the shutting down of the
old mining production sites. The Regional government has developed a Regional
Development Plan to address this, and some of the key aims of the Plan are to:
• Invest in transport infrastructure to expand the capacity of the river crossings;
• Better integrate the regional transport network to the national network;
• Alleviate poverty in the local area;
• Create sustainable jobs for local residents; and
• Improve air quality and public health.

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The region’s two main cities are Northbank and Southbank, on either side of the Blue
River. Northbank and Southbank are the Region of Heaven’s two major urban centres,
and together account for the majority of economic output in the region. The two cities
share strong cultural, social and economic links; and developed concurrently during the
region’s successful industrial era up to the 1960s. Many residents and workers travel
regularly between the two cities, and rely on the river crossing as a means of accessing
employment and learning opportunities and key services. Economic output is currently
lower than the national average, and significantly lower than that of Megacity, the
capital.

1.1.3. The Old Bridge

The Old Bridge, which is currently a toll-free bridge, is the main crossing point of the
Blue River between the main regional cities of Northbank and Southbank, and more
generally between the North and the South of the country. The alternative Blue River
crossing points are the West Tunnel, 50km west, and the East Tunnel, 100km east of
the Old Bridge. However both of these tunnels have limited capacity in comparison to
the Old Bridge and neither are directly linked to the national highway network.

The Old Bridge is the largest highway bridge in the country and it is of significant
strategic importance to the regional and national highway network. It was opened in
1950 and it was originally designed with 2 lanes of traffic for flows of less than 10,000
vehicles per day (VPD). In 1970, it was widened to 4 lanes and re-designed to have an
increased capacity of approximately 40,000 VPD. At present, the bridge regularly
carries in excess of 80,000 VPD on weekdays, which has led to extensive traffic
congestion and delays. The breakdown in transport connectivity and access on this
major strategic route is widely accepted as a threat to the economic prosperity of the
Region of Heaven .

The Old Bridge’s size, structural complexity, traffic usage and sensitivity to disruption
presents the Region of Heaven with a combination of maintenance considerations which
are probably unique to any region in the Republic of Paradise. The unit costs of
maintaining such a large,
complicated structure are
disproportionally high and the
current levels of maintenance
funding available are
insufficient for the Region of
Heaven to be able to commit to
the long-term maintenance of
the Old Bridge. As a result, a
backlog of major maintenance
has developed and concerns have increased about whether the Region of Heaven could
continue to allow unrestricted availability of the crossing. It is thus evident that the
current situation is unsustainable and that infrastructure investment is required to
address the above mentioned problems and support the implementation of the
Government’s “Investing in Infrastructure Strategy 2020-2030” in the region.

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1.2. New Blue River Crossing

The Regional Government of Heaven has committed to supporting the key aims of the
“Investing in Infrastructure Strategy 2020-2030” in the region, issued by the Republic
of Paradise Central Government in 2020.

In order to help achieve the Strategy’s objectives, consideration has been given to the
design, construction, financing, operation and maintenance of the New Blue River
Crossing and connecting roads, along with the refurbishment of the Old Bridge, on a
Public-Private Partnerships (PPP) basis.

1.2.1. Project Rationale

The aim of the proposed project is to deliver a new crossing for the Blue River in the
Region of Heaven that links into the existing principal road networks. It will aim to
provide better connections between the cities of Northbank and Southbank, and
between the North and the South of the country, thereby providing connectivity for the
region and reducing congestion on the existing Old Bridge. The new capacity will
provide an opportunity to re-balance the transportation infrastructure within the Region
of Heaven and help it deliver local sustainable economic, social and transport goals.

1.2.2. Project Overview

The proposed 1km long, 6-lane wide New Blue River Crossing will be located
approximately 1.5km upstream of the Old Bridge, and will reduce the volume of traffic
crossing the existing bridge by directing the natural movement of through traffic over
the new crossing. This is forecast to attract over 80% of the traffic crossing the river,
and will free up the Old Bridge so it can be restored to its original function as the local
bridge across the river between the Northbank and Southbank cities, primarily serving
the local communities.

The scheme also includes approximately 9km of associated road improvements on the
approaches to the New Blue River Crossing, including modifications to existing
junctions to prioritise traffic to use the new crossing, and the construction of new
connecting roads.

The existing Old Bridge is not currently tolled, however both bridges will be tolled
following completion of the New Blue River Crossing and refurbishment of the Old
Bridge. The preferred option is for both crossings to have a free-flow open road tolling
system with electronic toll collection utilising TAGs and Automatic Number Plate
Recognition cameras, with no toll plazas, barriers or means to pay by cash at the
crossings.

There is no central government funding available for this project. The aim is to fund
the project through a DBFOM Concession PPP, whereby the scheme will be self-funded
(with no local or central government subsidies) through the payment of user toll charges
on both bridges, payable directly to the Concessionaire / Project Company. It is,
however, expected that there will be local opposition to tolling as local residents and

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businesses are not willing or able to pay charges, and the existing bridge is not currently
tolled.

The expected contract duration will be 30 years from financial close, where
construction is expected to take approximately 3.5 years with the remainder being the
operation / service period.

Key features of the proposed PPP project solution are as follows:

§ Capital Cost £500 million

§ Annual unitary payments £35 million
§ Contract term 3.5 years of construction Period +
26.5 years of operations
§ Expected contract commencement January 2025
§ Construction Starts March 2025
§ Availability of New facilities September 2028

1.3. Project objectives, scope and requirements

1.3.1. Objectives

The Region of Heaven Transport Authority aims to provide a new crossing for the Blue
River between the Northbank and Southbank cities that links into the existing principal
road networks, and to refurbish the existing Old Bridge.

The objectives of the proposed New Blue River Crossing are to:

• Objective 1: increase capacity and river crossing options, and to relieve congestion
on the existing Old Bridge;

• Objective 2: improve integration with the regional and national transport networks
to enhance regional economic development;

• Objective 3: improve accessibility to education, jobs and services located in the

main cities of Northbank and Southbank to maximise regional social mobility;

• Objective 4: improve air quality and public health by encouraging the increased
use of cycling and walking;

• Objective 5: ensure continuity of crossing traffic to minimise the disruption to

transport links during the construction phase;

• Objective 6: minimise user charges for local residents for both the New Blue
River Crossing and the existing Old Bridge to maximise affordable utilisation of
the bridges by local businesses and residents,

• Objective 7: extend the useful life of the existing Old Bridge by providing a long
term (25-year+) maintenance regime for it.

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 1.3.2. Scope

The New Blue River Crossing involves the design, construction, financing, operation
and maintenance of a new 1km long 6-lane wide (3 lanes in each direction) tolled
bridge, and in addition the construction and refurbishment of various structures and
junctions on the approach roads to the new bridge, with a total of approximately 9km
of new dual carriageway.

The route of the proposed project is shown on the figure below:

The New Blue River Crossing will:

• be a 1km long tolled crossing

with a speed limit of 60mph;
• have 3 lanes across the river in
each direction;
• cross the Blue River around
1.5km to the east of the Old
Bridge;
• have both cycling and
pedestrian lanes on each side;
• form the centerpiece of a new
and improved high standard
link road (9km long)
connecting the national
motorway network to the north
of Northbank City with the
regional motorway network at
the south of Southbank City;
• reduce journey times in peak
times by up to 20 minutes;
• create an estimated 5,000 new
jobs through direct
employment, regeneration
activity and inward investment;
• generate an estimated £60
million a year in Gross Value
Added from the new jobs by 2030.

As part of the project, it is proposed that the Old Bridge and its approaches will be
refurbished and reconfigured with 4 traffic lanes reduced to 2 with the space occupied
by the former 2 lanes used to provide improved pedestrian and cycle facilities.

Both the New Blue River Crossing and the Old Bridge will be tolled using an electronic
toll collection system. The collection of toll revenue and the provision of demand
management services for both bridges will be part of the project. However the operation
and maintenance of the refurbished Old Bridge will be undertaken by the Region of
Heaven Transport Authority, so these activities will be excluded from the proposed
project.

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 1.3.3. Requirements

Based on the above Objectives and Scope, the requirements for this investment are:

Criteria Requirements

Capacity A physical solution that increases traffic flow capacity, and

relieves congestion on the existing Old Bridge.

Integration A scheme that enables and enhances regional and national

transport networks integration.

Accessibility A scheme that increases accessibility to education, jobs and

services for residents located mainly in the Northbank and
Southbank cities.

Quality of physical A physical solution that encourages usage by cyclists and

asset pedestrians.

Continuity A scheme that is delivered with minimal disruption to existing

traffic flows.

User affordability/ An affordable solution for local businesses and residents.

cost minimisation

Old Bridge useful A cost-effective solution that allows the refurbishment and long
life extension term maintenance of the existing Old Bridge.

2. ECONOMIC CASE

2.1. Options appraisal and selection

A number of project options have been

analysed, including reengineering of the
existing bridge, tunneling, and various
new bridging options. As a result of this
project option analysis and various
supporting studies, the emerging lead
proposition is for a 4 span cable stayed
bridge approximately 1km long with 3
pylons carrying the support cables and
with a carriageway of 3 lanes in both
directions.

It should be noted that the Blue River estuary varies in width from less than 500m to
nearly 5km, and includes areas which are particularly sensitive to environmental
disturbance. A significant volume of shipping uses the Blue River, and sufficient

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clearance needs to be maintained to allow this traffic to continue. A key issue therefore
is whether a new crossing should be a bridge or a tunnel.

Whilst a tunnel would avoid some environmental problems, for much of the estuary it
would present engineering difficulties. Ground conditions, comprising mainly
superficial drift material, would make conventional tunneling difficult and may prevent
the use of say immersed tube technique.

On the other hand, a bridge would also have a significant impact on the environment.
Depending on its type and its precise location, it could be visible from over a wide area,
but there would be the opportunity to make it a major positive feature of the landscape
and a landmark for the region. However, the presence of bridge piers in the river would
also have a major impact on the river’s flow regime, which could in turn have a major
effect on the ecology of the estuary.

Options appraisal has been carried out through the following options identification
and selection framework:

Options Appraisal Framework

Dimension Description
Scope The “what”: What is the potential coverage of the project.
Service Solution The “how”: How the preferred scope of the project can be delivered.
Service Delivery The “who”: Who can deliver the preferred scope and service solution for
the project.
Implementation The “when”: When the project can be delivered.
Funding The “how much”: Potential funding requirements for delivering the
preferred scope, solution, service delivery and implementation arrangements
for the project.

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2.1.1. Long list and Short list of Options

Using the options identification and selection framework, eight options were originally
identified and analysed, of which 4 were retained for further appraisal.

Process to identify and assess the long list of options

1 Take each dimension in 2 3

Consider Undertake a SWOT Allocate an overall
turn and each dimension
identify a wide
in turn analysis for each option assessment to each option
range of realistic options

1. Scope Meets spending

ü Preferred way forward
objective / CSF Option most likely to
optimise public value
2. Service solution Partly meets
? spending
objective / CSF Possible
3. Service delivery Does not meet Potential options (including
Status Quo & Do Minimum)
X spending
objective / CSF
4. Service implementation
Advantages Disadvantages Discount
Unrealistic options
5. Funding

Summary of long list assessment

Status quo
Do minimum Intermediate option Most Ambitious
(Baseline)
1.Scope 1.1 Existing 1.2 Refurbish and 1.3 Build new 1.4 Build new
arrangements expand existing crossing and crossing and
crossing connecting roads and connecting roads and
close existing refurbish existing
crossing crossing
Carry Forward as Carry Forward as Carry Forward as Preferred Way
Baseline Possible Possible Forward
2. Solution 2.1 Existing 2.2 4 lane Bridge 2.3 6 lane Bridge 2.4 6 lane Tunnel
arrangements
Carry Forward as Preferred Way Carry Forward as
Discount
Baseline Forward Possible
3 Service 3.1 Existing service 3.2 DB+OM 3.3 DBOM 3.4 DBFOM
Delivery model
Carry Forward as Carry Forward as Preferred Way
Discount
Baseline Possible Forward
4.Project 4.1 Do nothing 4.2 4 years 4.3 2 years 4.4 2 years
implementat
ion
Carry Forward as Preferred Way Carry Forward as
Discount
Baseline Forward Possible
5. Project 5.1 Existing funding 5.2 Publicly funded 5.3 Privately financed 5.4 Privately Financed
Funding and and publicly funded and funded
financing (PPP Availability) (PPP Concession)
Carry Forward as Carry Forward as Preferred Way
Discount Forward
Baseline Possible

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2.1.2. Appraisal of long list of options

From the long list assessment, the 8 options initially identified and analysed are:

Old Bridge
Quality of User
Options Capacity Integration Accessibility
Asset
Continuity
Affordability
useful life
extension

Option 1
Do nothing ✗ ✗ ✗ ✗ ✗ ✓ ✗
Option 2
Refurbish and
expand existing
✓ ✗ ✓ ✗ ✗ ✓ ✓
bridge
Option 3
DBFOM new
bridge, close
✓ ✓ ✓ ✓ ✓ ✗ ✗
existing bridge
Option 4
DBFOM new
bridge, ✓ ✓ ✓ ✓ ✓ ✗ ✓
refurbish
existing bridge
Option 5
DB+OM new
bridge, ✓ ✓ ✓ ✓ ✓ ✗ ✓
refurbish
existing bridge
Option 6
DBFOM new
tunnel, close
✓ ✓ ✓ ✓ ✓ ✗ ✗
existing bridge
Option 7
DBFOM new
tunnel, refurbish
✓ ✓ ✓ ✓ ✓ ✗ ✓
existing bridge
Option 8
DB+OM new
tunnel, refurbish
✓ ✓ ✓ ✓ ✓ ✗ ✓
existing bridge

1. Option 1: Do Nothing: Carry out essential maintenance and repair works to

existing bridge. Past experience has proven that there are insufficient funds
available to maintain the bridge in an acceptable state. The increasing traffic
volumes also mean that the capacity of the bridge is at its limit, and any increased
usage may have safety implications. This is not seen as an acceptable option but
has been retained as a baseline.

2. Option 2: Do Minimum: Major refurbishment and expansion of existing bridge.

This option can help expand the useful life and capacity of the existing bridge and
improve accessibility to education, jobs and services in the region at an affordable
cost to users. However, it presents major problems relating to integration of the
regional and national transport networks, promotion of cycling and walking and
continuity of traffic flows. This option has been retained for further analysis.

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3. Option 3: DBFOM new 6-lane bridge and connecting roads & close existing bridge.
This option can help expand capacity, integration, accessibility, encourage cycling
and walking through the construction of dedicated lanes on the new bridge and
ensure continuity of service by keeping open the existing bridge during
construction. However, it may require relatively high user charges and will not
provide the desired expansion of the existing bridge’s useful life. This option has
been therefore discarded.

4. Option 4: DBFOM new 6-lane bridge and connecting roads & refurbish existing
bridge. As option 3, this option can help expand capacity, integration, accessibility,
encourage cycling and walking through the construction of dedicated lanes on the
new bridge and ensure continuity of service by keeping open the existing bridge
during construction. It has the additional benefit of ensuring the preservation and
expansion of the useful life of the existing bridge, however this will necessarily
mean higher user tolls unless Government provides availability payment support.
This option has been retained as the preferred option.

5. Option 5: DB+OM new 6-lane bridge and connecting roads & refurbish existing
bridge. This option presents all the benefits, as well as the user affordability issues
of option 4. However, under a DB+OM structure, a turnkey design and build
contract and a separate operating and maintenance concession contract would be
awarded, so there would not be single point of accountability for all aspects of the
project. Furthermore, this structure does not deliver optimal whole life costing or
transfer significant long term risk to the private sector. For example, despite
contractual transfer of risks, much of latent defect risk and life cycle risk effectively
sits with the public sector because there is no bank funding at stake. Finally, because
the operator would not receive ongoing unitary charge payments in respect of which
performance deductions may be made, the operator will be less incentivised to
achieve passenger-focused outputs. This option has therefore been discarded.

6. Option 6: DBFOM new 6-lane tunnel and connecting roads & and close existing
bridge. This tunnelling option presents the same advantages and disadvantages of
option 3, with the additional benefit that a tunnel avoids some of the environmental
problems and visual impact of a bridge. However, the tunnelling option presents
higher engineering technical difficulties and costs. Furthermore, it does not ensure
the preservation of the existing bridge. This option has therefore been discarded.

7. Option 7: DBFOM new 6-lane tunnel and connecting roads & refurbish existing
bridge: This tunnelling option presents the same advantages and disadvantages of
option 4, with the additional benefit that a tunnel avoids some of the environmental
problems and visual impact of a bridge. However, as explained above, the
tunnelling option presents higher engineering technical difficulties and costs. This
option has been retained for further analysis.

8. Option 8: DB+OM new 6-lane tunnel and connecting roads & refurbish existing
bridge. This option is similar to option 7, but delivered through a DB+OM
structure. As explained in option 5, this structure does not deliver optimal whole

12
 life costing or transfer significant long-term risk to the private sector. This option
has therefore been discarded.

2.1.3. Qualitative appraisal of short list of options

Having discarded options 3, 5, 6 and 8, option 1 was kept as a “do nothing” base case
and options 2, 4 and 7 were subjected to further evaluation using qualitative criteria.

Summary of short list of options

Option 1 Option 2 Option 4 Option 7

Status Quo Do Minimum referred Way Most Ambitious
(Baseline) Forward
Build new crossing Build new crossing
Refurbish and
Existing and connecting and connecting
Project Scope expand existing
arrangements roads and refurbish roads and refurbish
crossing
existing crossing existing crossing

Existing
Project Solution 4-lane bridge 6-lane bridge 6-lane tunnel
arrangements

Service Existing service

DRFOM DBFOM DBFOM
Delivery model

Project
Do nothing 2 years 3 years 3 years
Implementation

Privately financed
Privately financed Privately Financed
and taxpayer
Project Funding Existing funding and user-funded and user funded
funded (PPP
(PPP Concession) (PPP Concession)
Availability)

Each criterion was given a weighting, to reflect its perceived relative importance. Then
each option was marked on a scale of 3 (3=good, 2=acceptable, 1=bad) for each of the
criteria. Finally, the raw score (R) was multiplied by the weight of the criteria to obtain
the weighted score (W). The results of this exercise are shown in Table I, showing the
raw (R) and weighted (W) scores.

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 Table I. Appraisal of non-financial benefits.

Criteria Weight Options

1 2 4 7
R W R W R W R W

Capacity 20 1 20 2 40 3 60 3 60

Integration 20 1 20 1 20 3 60 3 60

Accessibility 15 1 15 3 45 3 45 3 45

Quality of physical solution 15 1 15 1 15 3 45 3 45

Continuity 10 1 10 1 10 3 30 3 30

User affordability 10 3 30 2 20 2 20 1 10

Old bridge useful life 10 2 20 3 30 3 30 3 30

extension

Weighted total 100 10 130 13 180 20 230 19 220

R = raw score
W = weighted score
The results of this appraisal are summarised in Table II.

Table II. Results of qualitative appraisal of short list of options

Option Weighted
score Ranking
1: Status quo 130 4
2: Refurbishment and expansion of existing bridge 180 3
4: DBFOM new bridge, refurbish existing bridge 230 1
7: DBFOM new tunnel, refurbish existing bridge. 220 2

This non-financial evaluation shows option number 4 as the preferred option.

2.1.4. Quantitative appraisal of short list of options

After the qualitative evaluation, the Transport Authority carried out an initial economic
and financial assessment based on the latest and more detailed costs (from year 2012).
These costs are based on the bridge being fully operational. The table below summarises
the rankings resulting from this information:

Table III. Results of qualitative and quantitative appraisal of short list of options

Option Qualitative Quantitative

Ranking Ranking
1: Status quo 4 4
2: Demolish OCB, build on the same site 3 3
4: Build Large 12 lane New bridge 1 1
7: Build New 6 lane bridge and refurbish OCB. 2 2

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2.1.5. Preferred Option

On the basis of the qualitative criteria, the preferred option was option number 4:
design, build, finance, operate and maintain a new 1km long 6-lane bridge and 9km of
connecting roads & refurbish the existing bridge. Further economic and financial
appraisal, discounted at an appropriate discount rate (3.5%), showed that this option 4
is also likely to be the best option from a quantitative point of view. Option 4 is thus
the preferred option.

2.1.6. Recommendation

It is recommended to approve the proposal to design, build, finance, operate and

maintain the New Blue River Crossing Bridge and connecting roads, and refurbish the
Old Bridge, both on a PPP concession basis.

2.2. Exploration of PPP option

The results of the completed “Factors in Assessing PPP Potential” checklist (see Annex
A) confirmed that the preferred project option comprising the design, construction,
financing, operation and maintenance of the New Blue River Crossing and
refurbishment of the Old Bridge may be suitable for a PPP model.

However, after further demand studies and a few consultations with potential local
users, the Authority decided to deliver the project on an availability-based PPP model,
whereby the demand risk will be borne by the public sector, and not on a concession
(user pays) model as initially proposed. The detailed traffic forecasts show that if the
DBFOM of the new bridge and the refurbishment of the existing bridge are to be
entirely financed from the toll fees, the revenues may not be sufficient to cover the
costs. Furthermore, the local residents, who are economically disadvantaged, have
complained that they will be unable to pay the economic rate for the toll charges. This
implies that a level of taxpayer subsidy will be required to compensate for the revenue
gap.

Therefore, as part of the availability PPP project, the Region of Heaven Transport
Authority will make regular payments to the Project Company on an availability and
performance basis, in the form of a pre-agreed monthly unitary charge, from the date
of full operations commencement. It is expected that the central government’s Ministry
of Transport will provide funding to support the availability and performance payments
of this project.

The Project Company will design, build, finance (by way of non-recourse debt), operate
and maintain the new bridge and connecting roads, refurbish the existing bridge and
provide tolling operations (including toll collection) on both bridges.

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3. COMMERCIAL CASE

3.1. Risk Identification and Allocation

In developing this detailed appraisal, the Authority has recognised that it needs to
develop a more sophisticated approach to risk. The first step was to compile a risk
register showing the key risks associated with the project. The list is shown in the table
below.

The Authority then ascribed a probability of occurrence to each of the risk factors, using
4 categories: high (75%), medium (45%), low (25%), or negligible (0%). For each risk
factor, the severity of impact was estimated using three categories: high (10), medium
(5), low (2.5). Combining the impact and the probability gives the risk value. Finally,
the risk was allocated to the party that was considered best able to manage it (public,
private, or shared).

Risk Proba- Prob. in Risk Allo-

factors Risk category bility % Impact value cation
Design aspects
Cost overrun caused by design Low 25 5 125 Private
Construction delay caused by design Low 25 5 125 Private
Operating inefficiencies caused by
design Med 45 5 225 Private
Obtaining planning permission Low 25 10 Private
Construction
Construction problems cause time
overrun Med 45 5 225 Private
Construction problems cause cost
overrun Med 45 5 225 Private
Contractor becomes insolvent Negl 0 10 0 Private
Operations
Bridge unavailable Med 45 5 225 Private
Loss of contract income Med 45 5 225 Private
Operational problems cause cost overrun Low 25 5 125 Private
Changes to specifications High 75 5 375 Shared
Failure to meet standards Low 25 5 125 Private
Changes to legislation High 75 5 375 Private
Financial
Inflation rate changes Med 45 5 225 Private
Reduced residual value of site and assets High 75 2.5 187.5 Private
Government Guarantees removal post
construction phase. Med 45 2.5 112.5 Private
Demand
Low traffic numbers Med 45 10 450 Private
Low toll income due to local user
discount schemes Med 45 10 450 Private

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3.2. Risk Mitigation

No risk mitigation strategy is required as all the important risks were transferred to the
private sector.

3.3. Commercial Interest

The proposed scheme for the New Blue River Crossing is envisaged as all new build
and with a revised capital cost of around £500 million might be attractive to the PPP
market. A similar £100 million scheme in Megacity, the capital city, recently achieved
financial close as a PPP scheme.

Furthermore, the Authority and its technical advisers had a number of informal
discussions with local as well as international contractors all of whom have expressed
strong interest in the project. There is a reasonably large market for contractors;
however the annual turnover of the largest local company last year was £200 million.

The technical advisers have based their cost assumptions on a conventionally procured
project of a similar size that was completed 2 years ago in the capital city, together with
in-house technical assumptions. The financial advisers have not had yet any detailed
discussions with the banks, but based on the recent financial close of the £400 million
northern motorway project, are confident that they will express an interest.

The local representative of the regional development bank has indicated that they are
not in a position to support any one bidder but that the project is likely to fall within
their general lending criteria.

3.4. Statutory Process and Approvals to be obtained:

As part of the land reform programme undertaken in the 1970s, the State distributed
land and property to farmers and miners in the Region of Heaven. However, due to the
lack of accurate registry records, land ownership is still an unresolved problem in the
region, and one of the main causes of lack of development of the southern part of
Southbank City, through which will pass the proposed road connecting the new bridge
to the regional highway network. Although this situation may be regarded as a potential
problem for the development of the New Blue River Crossing and the integration of the
regional and national highway networks, we expect that this problem will be resolved
before the project reaches financial close.

Furthermore, even though the Authority has never before done a similar procurement
process, it is confident that it can satisfy the following statutory stages prior to
commencement of the procurement process, and it will carry the risk should there be a
delay in concluding the approvals process:

• Authorisation to construct the new bridge and connecting roads

• Planning permissions for land acquisition and bridge development.
• Compulsory Purchase Orders for the land

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 • Planning permission for the engineering works
• Environmental Consents / Permits
• Listed building consents for the existing Old Bridge.
• Maintenance Staff transfer consultation for Old Bridge staff to the private
contractor.
• Road user charging order for both bridges.

3.5. Contract Terms

Detailed contract terms will be developed during tender process, where the Authority
believes it has the goodwill of contractors and can negotiate favourable terms.

3.6. Tender Process

Tendering is to be done through a Competitive Dialogue process, as the first pathfinder

project for the Authority:

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The Pre-qualification document / PQQ and tender processes have been designed to
maximize interest, both national and international. At the PQQ stage, the criteria /
requirements which will be sought have been summarised in the following Chart :-

AREAS FOR PRE QUALIFICATION QUESTIONS (PQQ) ANALYSIS AND YES /NO
PROVISION OF SUPPLEMENTARY INFORMATION REGARDING
TENDER PROCESS
Demonstrate relevant experience in the following areas :
• Bridge Design Yes
• Construction and Project Management (PM) Yes
• Toll Operations Yes
• Bridge Maintenance Yes
• Provide references Yes
• Provide indicative budget for Investment No
• Provide outline of Project Design Approach No
Provide details of legal and contractual context No
Bid Costs to be borne by Bidders Yes
Contribution to or partial reimbursement of Bid Costs No
Economic and Financial Information
• Audited Annual Financials (last 3 years) Yes
• Shareholding No
• Profitability No
• Credit Rating if available No
• Minimum Sales (last 3 years) Yes
• Bid Bond Yes
Evidence of relevant experience in Bridge Building & Operations
Minimum length constructed (1.0 km) Yes
Minimum investment value undertaken Yes
Required Experience of Project Team
5.4 Experience in bridge operation Yes
5.5. Experience in tolling equipment management and maintenance Yes
5.6. Architectural and design experience Yes
Consortia & Project Management
Prior Consortia experience Yes
Possibility of modifying the bidding Group post-PQQ Yes
Workplan Yes
Outline investment schedule Yes
Organogram of Consortium Yes
Services
Tolling Equipment Supply and Maintenance Yes
IT Yes
Evaluation Criteria / Methodology
Tick the Box (Pass / No Pass) Yes
ADDITIONAL INFORMATION
Draft Contract N.A.
“Preferred Bidder” / Reserve Bidder Formula Yes
Payment Mechanism
Unitary Charge Yes
Sanctions in form of fines Yes
Indicative Length of Contract / Concession 30 years
PQQ to lead to short list No

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4. FINANCIAL CASE

4.1. Affordability

For the projected revenues, the Region of Heaven Transport Authority and its technical
analysts looked in more detail at the preferred option, which involves the DBFOM of a
new 1km long 6-lane wide bridge and connecting roads, the refurbishment of the
existing bridge, and tolling services for both bridges. They created a financial and
funding model using their best estimate of expected capital, operating and maintenance
costs, inflation and their financing structure. On this basis they have calculated that the
monthly unitary charge payable by the authority is £35 million per annum escalating at
1.6% p.a. for inflation from the date of availability over the 26.5 year operational
period.

The authority have assumed:

§ Sale of authority land that will provide £50 million, which will be contributed
as an upfront capital sum for the project;
§ Debt/Equity ratio of 90/10 (based on international examples in other PPP
markets); and
§ Annual Debt service cover ratio of 1.2 per annum;
§ Fixed rate of interest for the period of the concession incorporating a margin of
1% per annum for the debt;
§ Return on equity of 16% per annum.

The Project costs have been under constant review and refinement throughout the
project development stage. Capital costs were originally estimated at circa £550m
excluding land costs, but including risk allowance. Total lifecycle cost was estimated
at circa £150m over the period of the contract, with total operational and maintenance
cost estimated at circa £450m. Due to affordability constraints, the design of the bridge
has had to be changed from steel to concrete, saving circa £100 million in costs. In
addition, innovative project management techniques can provide additional potential
savings of £150 million.

As the toll revenue will be insufficient to cover the costs, the National Ministry of
Transport will meet 60% of the unitary charge with the Region of Heaven Transport
Authority paying for the remaining 40%, out of local budgets. This is mainly due to the
inability of local residents (who currently comprise 70% of users of the Old Bridge) to
pay the economic rate of the tolls, and agreement of the local authority to subsidise the
free crossing for them. The pricing mechanism for the toll has yet to be settled, in
particular the extent to which it will be fixed, inflation linked, volumes/profits linked,
or subject to reviews.

With the future growth of traffic, and to assist with the affordability of the scheme, the
Authority is proposing to share 50% of the revenues with the National Ministry of
Transport, which will generate an estimated income of £22 million per annum to help
fund part of their contribution towards the unitary charge.

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It is therefore proposed for the project to be funded through a combination of toll
revenues and payments from Central and Regional Government. The National Ministry
of Finance is in the process of preparing a law to enable multi-budget commitments
(which will need parliamentary approval).

The summary of the project life cycle costs is as follows :

Construction Phase (3 .5 years) £ million

Construction costs 440.47
Routine & Reactive Maintenance costs 1.50
Major Maintenance inspections 0.15
Asset Renewals 2.00
Bid costs 13.80
SPV construction management fee 5.48
SPV insurance costs 2.17
Other SPV costs 3.98
Tax payments 0.00
Senior debt fees 10.27
Mezzanine & subordinated debt fees 20.18
TOTAL 500.00

Operation Phase (26.5 years) £ million Annualised £ million

Unitary Payment (100%-indexed) 35
Routine & Reactive Maintenance costs 38.61 1.6 (first 6 years) ; 1.4 thereafter
Major Maintenance inspections 6.91 0.3 (first 12 years) ; 1.0 thereafter
Ongoing Major Maintenance costs 17.04 0.3
Asset Renewals / Lifecycle costs 7.12 0.0 (first 6 years) ; 0.6 thereafter
SPV costs 13.46 0.5
Energy costs 1.45 0.06
Tax payments 0.41
Senior debt service (interest & principal) 709.80
Mezzanine debt service (interest & principal) 107.84
Subordinated debt (interest & principal) 143.32
Dividend (paid in Mar 41-Sep 43) 3.04
TOTAL 1,046.00

No assessment of any potential Government support or guarantees has yet been made
or as regards the On/Off Balance Sheet implications.

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5. MANAGEMENT CASE

5.1. Project Management and delivery

This section describes how the Region of Heaven Transport Authority intends to
manage the various phases of the project. The section will cover how decisions will be
made, the management structure, stakeholder involvement, the role of external advisers
and the costs of the management of the project.

5.2. Project Management Structure

The Project Management Structure is shown below.

Project Management Structure

The roles of the components of the project management structure are as follows:

Executive Project Board

The Project Director will seek guidance and support from an Executive Project Board
consisting of senior representatives of Region of Heaven Transport Authority Board.
The Project Board will meet on a regular basis to review progress reports from the
Project Director, ensure the agreed project plan is followed and that risks, issues and
changes are being identified and managed effectively. The Board is comprised of 25
people, including representatives of all the relevant stakeholders.

Project Owner

The Project Owner defines the project objectives and brief and ensures that they are
met on time and within budget. The Chief Executive of Region of Heaven Transport
Authority Board acts as Project Owner.

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Project Director

The Project Director (PD) constitutes a single point of responsibility for day-to-day
oversight of the process and progress. The PD is ultimately responsible for delivering
the project successfully in line with the Region of Heaven Transport Authority’s
objectives. The PD manages on a day-to-day basis all aspects of the project including
human resources, tasks, plans, budgets, risks, issues and change. The Chief Executive
of the Region of Heaven Transport Authority will act as well as Project Director.

Project Team

The Project Team members are responsible for carrying out the planned project
activities in their area of expertise. They are also responsible for identifying, developing
and conducting training in their area as required. Project Team members will ensure
that progress on activities carried out in their area is documented. The majority of
project team members have been specifically appointed or seconded for the life of the
project.

5.3. External Advisers

Financial advisers (a local auditing firm who are also auditors to the Paradise Region
Transport Authority) were appointed to advise on financial issues for the preparation of
this Business Case. A range of appropriately qualified and experienced external
advisers including legal, technical and environmental will be appointed as and when
the project processes require them.

5.4. Costs and Budget

In setting up the project the Region of Heaven Transport Authority was cognisant of the
fact that in addition to external advisers, there was a need for budget for a suitably
staffed project team capable of supporting the project across its whole life. It was also
recognised that the size and composition of the team might require to be varied over
time. The team currently consists of a Project Director, Service Development Manager
and Project Support Officer. Part-time members of the team include transport
representatives, a Client Adviser and a Finance Manager. It is recognised that moving
forward, project staffing may require to be reviewed to ensure appropriate skills are
available.

The forecast Project Team budget in GB£ across the period 2022–2026 is as shown
below.

2022-23 2023-24 2024-25 2025-26

Staff 100,000 100,000 100,000 100,000
External 20,000 10,000 10,000 10,000
Total 120,000 110,000 110,000 110,000

The above figures include the costs of external professional advisers.

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5.5. Timetable

Key milestones for the development of the New Blue River Crossing are as follows:

• Submission of Project Initiation Document to February 2024

the Heaven Republic National Ministry of Transport
• Submission of Outline Business Case to October 2024
the Heaven Republic National Ministry of Transport
• Procurement Process Starts November 2024
• Identification of Preferred Bidder December 2024
• Signature of contract January 2025
• Financial Close February 2025
• Construction Starts March 2025
• Availability of New facilities September 2025

5.6. Commitment of Sponsors and users

5.6.1. Project Sponsor

The National Ministry of Transport has in principle agreed to support the New Blue
River Crossing as set out in this Business Case. The procuring authority, will however,
remain the Region of Heaven Transport Authority.

5.6.2. Informing, Engaging and Involving Group (IEIG)

In October 2022, the Informing, Engaging and Involving Group (IEIG) was established
to develop a process that would involve the public, staff and stakeholders in the Region
of Heaven. The Group includes representatives from the Republic of Paradise Ministry
of Transport, the Region of Heaven Local Authorities, user and carer groups and the
voluntary sector to offer personal knowledge and experience to the project
implementation.

The principles under which the Group work are as follows:

• The communication process must be 2-way and effectively inform and engage the
public, staff and stakeholders;
• The messages to be communicated should be consistent across the region with
agreed lead transport specialists as spokespeople in their local areas;
• The process of project route selection must be open to scrutiny and managed in a
way that is appropriate for the Region of Heaven.

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Group’s communication plan includes:.
• The production of information briefing bulletins in a style to be used throughout the
project;
• The setting up of a Freephone number;
• The development of presentation material to be delivered by one of the lead
clinicians on request.

5.7. Performance reporting

The project team carry out monitoring and send management information to the project
board when they request it on specific items for discussion. This is done in the form of
papers and is usually qualitative reporting as the current systems do not support detailed
financial reporting on a project of this scale.

5.8. Next Steps

The stakeholder group (IEIG) will continue to meet for the duration of the project and
continue to coordinate the ongoing involvement and engagement around the
development of the agreed proposal for the region.

6. CONCLUSION

The design, construction, financing, operation and maintenance of a 1km long, 6-lane
wide New Blue River Crossing and 9km of integrating roads, refurbishment of the
existing Old Bridge, and provision of tolling services for both bridges, will be a major
step towards the implementation in the region of the national “Investing in
Infrastructure Strategy 2020-2030”. This Business Case demonstrates that the New Blue
River Crossing is viable, desirable, bankable, affordable and deliverable on an
availability PPP basis. We are convinced that the New Blue River Crossing will achieve
significant transport, economic and social benefits for the population of the Region of
Heaven.

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 Annex A: Factors in Assessing PPP Potential

The “Factors in Assessing PPP Potential” table forms a basic checklist of factors likely
to show a scheme’s suitability for the PPP and its relative attractiveness to the PPP
market. The results of the completed checklist (see Table below) confirm that the “New
Blue River Bridge” project may be suitable for the PPP model.

Table: Factors in Assessing PPP Potential

Factor Yes No Unknown
Strategy
The strategy underpinning the project is clear and has been agreed with
“internal” stakeholders x
The strategy and any associated change programme is acceptable to the
local community x
The project is required now x
There will be a continuing need for the facility x
The facility could be provided by a private sector partner without detriment
to the future operation of the organisation x
The local authority can clearly see benefits in partnership working x
Content
The facility required is clear and can be defined in specific terms It can be
described and measured in an output specification x
The local authority seeks an output and not simply an asset x
The project is of a kind that has previously proved suitable for PPP x
The project is of a frequently offered or repetitive nature x
There is scope for a private sector innovation and cost saving x
Risk
There is a realistic opportunity to transfer public sector risk x
The risks to be transferred are of a kind that a private sector partner can
accept and manage x
There is scope to find alternative uses for any assets remaining at the end
of the proposed period of contract x
The nature of the opportunity will offer an incentive to the private sector
to perform effectively x
Financial Factors
The project is affordable against revenue projections x
Any estimated unitary charge is also affordable x
Off balance-sheet treatment has been achieved for similar projects x

Timescales and Term

The contract proposed has a forecast term suited to the service and to whole
life costing x
The target date for service start can be met by PPP procurement timetable x
Marketability
Projects like the one proposed have already attracted PPP market interest x
The project is likely to offer a commercial return to the private sector x
The income stream supporting the project is well covenanted x
The market is likely to be receptive to the opportunity x
There are sufficient players in the market to offer effective competition x
The project could be linked with another opportunity to enhance
marketability x
Project Management Arrangements
The local authority has defined its project management team x
The local authority has identified sufficient financial resources to support
the project x
The local authority has agreed arrangements for involving all appropriate
stakeholders during the procurement process x

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 Annex B: Checklist questions

1. STRATEGIC CASE

Clarity of requirements
• Are the scope, requirement and term of the project clear and stable? Have
they been approved?
• This should cover the case for change, including rationale, background,
policy context and strategic fit.
• Are there clear SMART objectives that describe the intended outcomes
and support post evaluation and are dependencies, constraints and risks
identified?

2. ECONOMIC CASE

Value for Money

• Has the best project option and best procurement option been identified?
• Have the critical success factors for the project been clearly explained?
• Have a wide range of possible options been considered in the long list and
subject to cost benefit analysis in the short list (including status quo and do
nothing options)?
• Is ruling out of potential promising options clearly justified?
• Are all economic costs and benefits clearly calculated for each option with
NPV calculated correctly?
• Are there any decisive unquantified cost/benefits and if so have they been
clearly explained?
• Are there appropriate sensitivity analyses, including worst case scenario?
• Are results of each option presented clearly including the status quo and do
minimum option?
• Are risks, constraints and dependencies identified and managed?
• Is optimism bias properly included and aligned with risk?
• Are wider impacts assessed e.g. sustainability, competition, regulatory
impact?
• If PPP is involved, is tax properly treated and is risk transfer clearly
achieved?
• Is there a public sector comparator for PPP schemes based on a traditional
procurement
• Is best VfM = max NPV and if not do unquantified benefits justify the
cost?
• Exchequer impact calculated separately and not included in NPV!
• Are monitoring and evaluation costs included?

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3. COMMERCIAL CASE

• Is the proposal commercially feasible / deliverable?

• What procurement is required; goods, services, land, buildings?
• What is the procurement strategy?
• What are the key contractual issues?
• Are there any clear contractual key milestones and delivery dates
• Has the accounting treatment been agreed?
• Is risk identified and managed and allocated in a risk allocation table?
• What if any are the personnel implications and is TUPE (employee transfer
legislation) applicable?

Risk allocation
• Have the project risks been fully identified and their potential allocation
assessed?
Indication of commercial interest
• Is there evidence of contractor, lender and investor market interest to
justify launching the project on the proposed terms?
• Has a project marketing strategy and prospective bidders list been drawn
up?
• What are the expected availability and terms of equity and debt finance?
Legal processes
• Have required approvals been identified / obtained (e.g. environment,
planning)?
• Is there clarity about site and land issues?
• Are all relevant project approvals in place?
• Are appropriate powers confirmed for the public authority to award and
enter into the long-term contracts?

Key terms and conditions

• Has the draft PPP contract been prepared reflecting the project
requirements, proposed risk allocation and payment mechanism?
• Have external project interface issues, agreements, terms and conditions
been identified and assessed?

Project information
• What plans exist to publicise the launch of the project to potential bidders?
• Has a project information memorandum been prepared by the project
team?
• Have the bidder qualification and bid evaluation criteria been developed?

4. FINANCIAL CASE

• Focus on affordability; is full budget funding secured and budgeted by all

parties?
• What are the impacts on income/expenditure a/c and on balance sheet if
applicable?
• Are potential cost over runs provided for are there any contingent
liabilities?

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Affordability
• Is the project scope fully affordable?
• Are the user tariffs realistic/are budgets and approvals in place for any
public-sector payment (or asset provision) obligations?
• Is the expected accounting treatment clear?

5. MANAGEMENT CASE

• Is the proposal practically deliverable and what are the delivery plans?
• Are there clear delivery dates and detailed milestones?
• Does the proposal require programme or project management techniques?
• Is there a contract management plan?
• Change management requires a change management plan
• If in a controlled environment such as ICT use of PRINCE 2 is mandatory
• Does the plan include clear arrangements for Gateway peer reviews?
• Is there a contingency plan with arrangements & provision for risk
management?
• There should be a benefit realisation table and plan.
• Does the plan include monitoring arrangements (who when how and
costs)?
• Does the plan include post implementation evaluation arrangements
(including who when how and costs)?

Project team/processes
• Is a credible and well resourced team in place to manage the procurement
phase and an effective bid evaluation strategy agreed?
• Are project governance structures and processes in place to ensure timely
and effective decision-making?
• Are credible and experienced advisers appointed?
• Has the appropriate assessment be carried out to demonstrate that the
proposed approach is expected to meet any value for money criteria (to the
extent required by policy)?

Commitment of stakeholders/users
• Have all relevant stakeholders been identified, are they committed to the
project, and are arrangements in place for continued communication and
consultation?

Indicative timetable
• Is a realistic procurement timetable in place for the procurement phase?

29