A modeling government revenue guarantees in privately built transportation projects: a risk-adjusted approach

Kokkaew, Nakhon; Chiara, Nicola

doi:10.3846/16484142.2013.803262

Cited by 38 publications

(16 citation statements)

References 17 publications

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“…To verify the effectiveness of the proposed model, a hypothetical case study was conducted choosing a typical PRH PPP project. It is worth pointing out that using hypothetical examples is a standard process in the real option related literature [9,50,[64][65][66]. Chongqing is one of the cities whose PRH coverage is the largest and the development of PRH is the most mature in China.…”

Section: Project Profilementioning

confidence: 99%

Investment Valuation Model of Public Rental Housing PPP Project for Private Sector: A Real Option Perspective

et al. 2019

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Public rental housing (PRH) in China is mainly invested by the government at present. The huge capital demand brings it great pressure and a series of problems appear meanwhile. Public–private partnership (PPP) has been regarded as a way to solve the funding dilemma of PRH. However, the PRH project is not attractive for the private sector since the expected profit seems unsatisfactory based on traditional valuation methods. To improve this situation, this paper proposed an investment valuation model from a real option perspective. For the private sector, three types of options, including deferral option, abandonment option, and expansion option, were identified during the concession period of a PRH PPP project. On this basis, a two-stage binomial tree model was constructed for estimating the investment value. Then, the proposed model was tested in a hypothetical example of a typical PRH PPP project in Chongqing, China. The result shows that great potential value can be excavated through flexible strategies and adaption to uncertainties. This paper provides a deep analysis on the gaps of the real option application in public housing investment assessment, which is meaningful for improving the supply efficiency and financial sustainability of PRH.

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Section: Project Profilementioning

confidence: 99%

Investment Valuation Model of Public Rental Housing PPP Project for Private Sector: A Real Option Perspective

et al. 2019

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“…This section presents the noise-based option model for the case of the PPP sewage treatment project in China [41]. Hypothetical cases are commonly used for demonstration in real option literature [31,42]. In this article, we introduced some additional inputs, such as the volatility of short-term uncertainty, mean-reverting rate and mean value of noise.…”

Section: Illustrative Case Examplementioning

confidence: 99%

Effects of Short-Term Uncertainties on the Revenue Estimation of PPP Sewage Treatment Projects

Liu

Liao

Guo

et al. 2019

Water

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Many sewage treatment facilities in China have been developed and operated using the Public-Private Partnerships (PPP) model. However, a big challenge faced by these PPP projects is that the subsidy requested from the government during the operation is normally higher than what was estimated originally, thus often exceeding the budget that the government can afford. This leads to a high risk of project failure or insufficient operation. This problem is largely caused by the uncertainties exhibited in the existing models, such as the Black-Scholes (BS) model. While being used in the budget estimation, these models cannot sufficiently account for the short-term uncertainty that may be incurred during the operation of projects. In this study, a method to account for this short-term uncertainty has been proposed to improve the BS model. This allows for investigations to address issues related to how the real option value of a government subsidy is affected. A Monte Carlo simulation was performed to take into account the noise in the estimation. A sensitivity analysis further revealed that this discrepancy is largely affected by the values of the relevant parameters in the short-term uncertainty model. We found that the short-term uncertainty has a significant effect on private revenue and government subsidy and that the changes of the latter are more sensitive to the change of short-term uncertainty. The value of the relevant variables of short-term uncertainty determined the fluctuation of the revenue. The mean value and revenue had a positive correlation. The reverting speed and revenue showed a negative correlation. The short-term volatility had a positive correlation toward the fluctuation range of the revenue. The simulation results indicate that this enhanced method can produce more accurate information for a better assessment of the PPP project under a wide range of uncertainty scenarios, allowing for the best decision making by the government.

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“…In the case of the revenue distribution model with MRG and MRC, the evaluation standards of MRGs and the MRC become the focus of disputes. Moreover, the MRG increases the risk of the government subsidy expenditure and the level of government debt [11]. This is contrary to the purpose of reducing subsidy expenditure or the debt of the government.…”

Section: Introductionmentioning

confidence: 96%

“…Indeed, many PPP projects have encountered disputes or failures since the realized revenues may not be in line with the expectations when the project was initiated. This scenario can lead to an imbalance of revenue distribution between the government and the private partner [10], thereby increasing any renegotiation costs [11], as well as increasing government debt risks for Minimum Revenue Guarantees (MRG) of the PPP project. The payment mechanism of the project is the primary means of enabling an effective revenue-risk distribution [12] and means of incentive for the participants to achieve or exceed the expected revenue and IRR of the project.…”

Section: Introductionmentioning

confidence: 99%

“…Therefore, many scholars have studied the excess revenue distribution of PPP projects. Such scholars believe that the government and private partner should share excess returns according to a specified distribution [11,16,17]. In the case of the revenue distribution model with MRG and MRC, the evaluation standards of MRGs and the MRC become the focus of disputes.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Developing a Revenue Sharing Method for an Operational Transfer-Operate-Transfer Project

Fang

et al. 2019

Sustainability

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The transfer-operate-transfer (TOT) project model is used widely as a commercial framework for public-private-partnerships to support provision of infrastructure and enable the delivery of services. However, operational delivery of such projects can encounter certain challenges, such as the need for improved revenue sharing between governmental and private partners. The purpose of this paper is to design a revenue sharing method (RSM) that satisfies the revenue-sharing forecast in the contract design stage and the realized revenue sharing in the contract execution period for an operational TOT project. This approach identifies the impact of external uncertainty and effort level as well as the input ratio on revenue sharing of participants, distributes and reasonably minimizes the project revenue uncertainty among the participants, and achieves an improved matching of the participants’ revenue sharing with their risk-sharing, resource input and effort level. The paper utilizes the fuzzy-payoffs Shapley value method for revenue distribution for an operational TOT project, where the fuzzy alliance and input ratio coefficient are adopted to gradually optimize the Shapley value and form the RSM of an operational TOT project. The RSM allows prediction of the revenue sharing of participations under uncertain conditions of project revenue and supports improved decision-making by participants.

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A modeling government revenue guarantees in privately built transportation projects: a risk-adjusted approach

Cited by 38 publications

References 17 publications

Investment Valuation Model of Public Rental Housing PPP Project for Private Sector: A Real Option Perspective

Investment Valuation Model of Public Rental Housing PPP Project for Private Sector: A Real Option Perspective

Effects of Short-Term Uncertainties on the Revenue Estimation of PPP Sewage Treatment Projects

Developing a Revenue Sharing Method for an Operational Transfer-Operate-Transfer Project

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