Case Study The North-South Railway-Link Project: Financial Viability

This case analyzes the financial and economic viability of a major Brazilian transportation investment, the North-South Railway Link. Singled out for a public-private partnership you are asked to study the cash flows, forecasting methodology, financial design, and risk factors inclusing their incidence on various decision criteria. In particular, you try to understand how the various risks interact with the project’s capital-structure design, its ownership structure, and the contractual arrangements for the concession itself. The ultimate objective is to decide whether a PPP structure is necessary and, if so, why. To what degree should the railway be funded by private investors (debt or equity) or with public funds? How would you decide on the allocation of various risks and returns among the various stakeholders through the capital and ownership structure?
In addition to Hauswald (2005), “The North-South Railway-Link Project,” KSB-AU (Fin-05-003) you might want to carefully read Sharp, Richard (2005), “Results of Railway Privatization in Latin America,” Transport Papers 6 (September 2005), which assesses the success of PPPs in the Latin-American railroad sector, in preparation for the case discussion.For your analysis you should rely on the XLS files Railway Industry Selected Financials.xls and Hauswald (2008), NS Rail-Link Projections.xls. Carefully analyze the projections and assumptions, and familiarize yourselves with the structure of the cost, revenue and DCF spreadsheets.