Echelon - August 2018

Whole-life costing

Winning concessions – often as part of a Public-Private Partnership (PPP) deal – requires forecasting discipline and rigour. Often, PPP deals involve multi-decade long concessions and a deeper level of political and administrative will. Unfortunately, there is a mismatch between political attention spans and the multi-decade whole-life timeframes of infrastructure projects. The larger and more high profile the project, the more applicable this becomes.

Sri Lanka is tendering for a large new electricity generating power station, which is the subject of our cover story. For PPPs like this to be successful, both the specifications and the project risks must be clear. However, in the case of the proposed power plant, neither is.

When the whole-life costing (life of the asset) is manipulated and locked into a binding PPP, the impact is disastrous for the population. It has recently become known how a large power plant Lanka Transformers built in 2010 has passed the risks to the government and captured rewards for private sector investors. In this case, 98% of the repayment risk is pinned on the government, with the PPP receiving guaranteed payments of up to 67% higher than market rates of return, most of which is channeled to the unscrupulous private capital providers.
Our cover story, “A dark tale of private money in electricity,” starts on page 44.