Research on the refinancing capital structure of highway PPP projects based on dynamic capital demand

Abstract

PurposeWith the majority of highway projects in China having entered their operational phases, the maintenance and repair of the pavement is receiving increasing attention. One problem that needs to be addressed urgently is that of how to raise the proper funds for highway maintenance to ensure the sustainable operation of the project. To this end, the aim of this study is to investigate the capital demand for operation and maintenance of a project by means of a refinancing scheme, in order to reduce the possibility of project bankruptcy and to enhance the economic value of the project.Design/methodology/approachBased on an analysis of the dynamic complexity of the highway pavement maintenance system, a Markov model is used to predict pavement performance, and an optimal capital structure decision model is proposed for highway public–private partnership (PPP) project refinancing, using the method of system dynamics (SD). The proposed model is then applied to a real case study.FindingsResults show that the proposed model can be used to predict accurately the dynamic changes in the demand for road maintenance funds and refinancing during the period of operation, before making the optimal decision for the refinancing capital structure.Originality/valueAlthough many scholars have studied the optimal refinancing capital structure of PPP projects, the dynamic changes inherent in the demand for maintenance funds for highway PPP projects are seldom considered. Therefore, in the approach used here the influence of the dynamic change of road maintenance capital demand on refinancing is investigated, and SD is used for the optimal capital structure decision-making model of highway PPP project refinancing, to make the decision-making process more reasonable and scientific.

Application of System Dynamics in Construction Engineering and Management: Content Analysis and Systematic Literature Review

“…Within decision making and policy analysis research, the issue of sustainable infrastructure management has been a recurring theme. Related articles focused on studying the dynamics of maintenance and rehabilitation of highway projects for policy analysis and decision making [39][40][41], environmental and economic impacts of infrastructurehighway projects [42], and fnancing of infrastructure projects [43,44]. Furthermore, sustainability studies also used SD to explore the dynamics of causal relationships and strategies and to realize sustainability improvement programs [45][46][47].…”

“…Ruiz and Guevara [47] used dimensional consistency, integration error, and anomaly tests. Nojedehi and Nasirzadeh [135] and Hou and Wang [43] used structure assessment tests, boundary adequacy, dimensional consistency, and extreme conditions. Luo et al [61] used structural validity and dimensional consistency tests.…”

The Role of Public–Private Partnerships in Local Government Debt Is a Potential Threat to Sustainable Cities: A Case from China

“…The second topic focuses on risk management in PPP projects, risk identification and risk evaluations, and risk transfer (risk allocation) [21]. Those risk factors include political risk factors [22], natural risk factors [23], operational risk factors [24], relationship risk factors [25], and market risk factor [26]. The third topic is contract management in PPP.…”