Default and Abandonment Option in Motorway Concessions

Abstract

As long as motorway concessions are subject to the variability of traffic demand, it is necessary to apply valuation methods that can take into account that uncertainty. In the past, many concession projects have faced an early termination of the contract due to lower traffic than expected. These insolvency situations raise the issue of the compensation to the concessionaire when the contract is prematurely terminated. A methodology based on the real-options approach has been developed in this paper to assess insolvency situations in motorway concessions. Under this approach, the mechanism of compensation can be modeled as an abandonment option, granted by the public administration to the concessionaire, in which the value of the option will depend on the evolution of traffic. This methodology is then applied to the case of a real concession in Spain. The results show a significant value of the abandonment option, which represents an implicit aid from the public administration to the concession. In this way, the methodology presented in this paper can contribute to gaining a better understanding of the risks of motorway concessions and enhancing the transparency in concession contracts.

Valuation of Infrastructure Projects: Review of the Real Options Literature

“…We perform the same analysis to investigate which infrastructure projects are evaluated in these reviewed papers. As we expected, Figure 3 shows that most of the sample (47%) evaluates road projects, such as toll roads ( 3 , 38 , 39 ), bridges ( 2 ), and motorways ( 40 ). We point out that studies of sanitation projects, which include potable water treatment and sewage treatment, have been expanded in recent years, but there is still plenty of space in the literature for the application of the ROA in the evaluation of this type of project.…”

“…In many cases, it is reasonable to terminate a concession agreement early in the face of various uncertainties. This option can be modeled by binomial trees ( 51 – 53 ), by Monte Carlo simulation ( 40 ), or by continuous models ( 54 ). We also note that the option to abandon appears as a single option in 8% of the reviewed papers.…”

Evaluating uncertainties to deliver enhanced service performance in education PPPs: a hierarchical reliability framework

“…actual performance, Pi,ta and performance standard, Pi,t∗ are selected as input variables because of the service characteristic in PPP school projects. In contrast, for economic PPPs, the focus is often on revenue (Cabero Colín et al. , 2017) or cash flow (Lai et al.…”

“…actual performance, P a i;t and performance standard, P * i;t are selected as input variables because of the service characteristic in PPP school projects. In contrast, for economic PPPs, the focus is often on revenue (Cabero Col ın et al, 2017) or cash flow (Lai et al, 2013) as key variables. The performance function of the failure limit state of the service component ðC i Þ can be described by Equation (1):…”

Valoración del mecanismo de terminación anticipada en los contratos de concesión 4G en Colombia

“…No obstante, los riesgos exógenos del proyecto no pueden ser controlados por el sector privado y, generalmente, el mercado no ofrece productos para asegurarse contra este tipo de riesgos. El riesgo de demanda es el principal factor de incertidumbre exógeno del proyecto; del flujo de caja futuro dependen la posibilidad de financiación del proyecto, el pago de los gastos operacionales y la rentabilidad del concesionario(Cabero et al, 2016;Liu et al, 2017;Sánchez, Lara y Cabero, 2018).En países en vía de desarrollo, las partes involucradas en una app padecen de un sesgo optimista en la estimación de los flujos de caja futuros del proyecto debido a que el originador del proyecto, sea este la entidad pública o el sector privado (en caso de las iniciativas privadas), en ocasiones considera que sus expectativas positivas o alcistas sobre los ingresos futuros se realizarán, por lo que sobrestima los ingresos de tráfico. El sesgo es producto de la necesidad o la conveniencia de que el proyecto efectivamente se adjudique a una firma del sector privado y que esta, a su cuenta y riesgo, lo ejecute.…”