Financial Economic Plan asseveration: the RSM offer

Audit and Assurance

The asseveration of the Economic Financial Plan is the analysis of the economic and financial feasibility of a project, issued by an auditing firm or a bank. The Procurement Code (Legislative Decree 50/2016) stipulates that this activity is also required as part of a project financing transaction (Art.183)

ECONOMIC AND FINANCIAL PLAN ASSEVERATION: WHAT DOES IT CONSIST OF?

The Asseveration of the Financial Economic Plan consists of all those analyses aimed at assessing the ability of a project to generate adequate cash flows to ensure the repayment of debt and the remuneration of risk capital, and thus the realization of the public work with private capital. Therefore, it is not the verification of the data given by the company, but the analysis of the economic and financial sustainability of the project.

This verification activity must be based on:

price that the promoter intends to ask the administration for the award of the concession;
price the promoter intends to pay to the administration for the establishment or transfer of rights;
fee that the promoter intends to pay to the contracting authority;
of the duration of the concession;
planned time for the execution of the work and the start of management;
of the financial structure;
of the proposed cost/revenue and timeframe and the resulting cash flows generated by the project.

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PEF Certification Letter

The PEF certification letter is the document that certifies the overall sustainability of the Economic and Financial Plan on the basis of:

the overall value of the investment;
the maximum time envisaged for completion of the works and commencement of operations;
the duration of the concession relationship;
the structure of the individual costs and revenues set out in the PEF;
the financial structure of the transaction as represented in the PEF, including the analysis of the project’s bankability profile in relation to the debt indicated in the Economic and Financial Plan.

RSM Società di Revisione e Organizzazione Contabile S.p.A., as an audit firm, is legally authorised to carry out certification activities relating to the Economic and Financial Plan and to issue the relevant PEF certification letter.

Certification of the Economic and Financial Plan (PEF) in Project Financing

Project Financing

Project Financing is a type of financing designed to fund projects of public utility. It was developed for financially independent projects characterised by significant funding requirements and by the possibility of allocating risk among the various parties involved in the transaction.

Project Financing is initiated by a private party in relation to an asset owned by a public authority (such as sports facilities, cemeteries, hospitals, nurseries, etc.). The private party is entrusted with the initial phase of constructing the asset and then with the subsequent phase following completion, during which the public authority recovers the costs incurred and ultimately regains ownership of the asset.

The Certified Economic and Financial Plan in Project Financing

The certified Economic and Financial Plan may be submitted to the Public Administration as part of a Project Financing proposal.

The PEF is referred to in Article 153 of the Public Contracts Code as a fundamental element in the assessment of a Project Financing proposal, as it sets out the assumptions and underlying conditions that determine the economic and financial equilibrium of the investment and its management throughout the concession period.

In particular, the certified Economic and Financial Plan is used to:

assess the economic viability of an investment project and its ability to repay the debt incurred for its implementation;
estimate the profitability of the completed project;
justify the level of proposed tariffs or fees, as well as any need for public contributions.

Accordingly, certification of the PEF is also fundamental in Project Financing, because it serves to verify the project’s economic and financial sustainability, in particular its ability to generate cash flows adequate to service the financing and satisfy shareholders.

How to Prepare an Economic and Financial Plan for Certification

The first step in preparing an Economic and Financial Plan for certification is the development of the following statements:

Forecast Income Statement

This relates to the profitability of the project, that is, whether, as presented, it will be capable of generating an adequate economic return over the concession period.

Forecast Balance Sheet

This provides a “snapshot” of the company at the end of each financial year covered by the project, in terms of its assets and liabilities. It therefore shows the sources of capital and their uses, highlighting the investments made by the company in connection with the project.

Forecast Cash Flow Statement

This sets out the cash inflows and outflows expected to arise from the management of the project. By comparing expected receipts and payments, it highlights whether or not the investment is expected to achieve cash balance.

In this context, numerous data points must be taken into account, including: the project timetable, technical and operational assumptions, tax inputs, financial management assumptions, reserve assumptions, and assumptions relating to working capital.

RSM Società di Revisione e Organizzazione Contabile S.p.A., as an audit firm, is legally authorised to carry out certification activities relating to the Economic and Financial Plan and to issue PEF certification letters.