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A platform for research: civil engineering, architecture and urbanism
A Valuation Model for Choosing the Optimal Minimum Revenue Guarantee (MRG) in a Highway Project: A Real-Option Approach
Using Public-Private Partnership (PPP) model, the governments can utilize the resources of the private sector for financing and development of the capital-intensive infrastructure projects such as highways. PPP Highway projects are subject to revenue risks due to the uncertainty inherent in future traffic projections. Hence, the private sector is often reluctant to engage in these high-risk investments unless the government shares a portion of revenue risk by providing support instruments such as Minimum Revenue Guarantee (MRG). Incorrect modeling of traffic uncertainty and poor choices of MRG and Toll Revenue Cap (TRC) thresholds leads to inappropriate risk-sharing between public and private partners. This may inhibit the government from utilizing the capabilities of private sector and reduce the government's flexibility in investing on infrastructures in the future. A model for finding the optimal MRG and TRC thresholds based on Real Options methodology is presented. It incorporates the concepts of risk-neutrality and computes the investors' risk profile under MRG and TRC. It can help private sector better analyze the financial risks of BOT projects and make proper entry decisions based on the support instrument provided. It can be used by government to avoid undervaluing PPP initiatives or granting unnecessary subsidies to investors.
A Valuation Model for Choosing the Optimal Minimum Revenue Guarantee (MRG) in a Highway Project: A Real-Option Approach
Using Public-Private Partnership (PPP) model, the governments can utilize the resources of the private sector for financing and development of the capital-intensive infrastructure projects such as highways. PPP Highway projects are subject to revenue risks due to the uncertainty inherent in future traffic projections. Hence, the private sector is often reluctant to engage in these high-risk investments unless the government shares a portion of revenue risk by providing support instruments such as Minimum Revenue Guarantee (MRG). Incorrect modeling of traffic uncertainty and poor choices of MRG and Toll Revenue Cap (TRC) thresholds leads to inappropriate risk-sharing between public and private partners. This may inhibit the government from utilizing the capabilities of private sector and reduce the government's flexibility in investing on infrastructures in the future. A model for finding the optimal MRG and TRC thresholds based on Real Options methodology is presented. It incorporates the concepts of risk-neutrality and computes the investors' risk profile under MRG and TRC. It can help private sector better analyze the financial risks of BOT projects and make proper entry decisions based on the support instrument provided. It can be used by government to avoid undervaluing PPP initiatives or granting unnecessary subsidies to investors.
A Valuation Model for Choosing the Optimal Minimum Revenue Guarantee (MRG) in a Highway Project: A Real-Option Approach
Ashuri, B. (author) / Kashani, H. (author) / Molenaar, K. R. (author) / Lee, S. (author)
Construction Research Congress 2010 ; 2010 ; Banff, Alberta, Canada
Construction Research Congress 2010 ; 1244-1253
2010-05-04
Conference paper
Electronic Resource
English
| British Library Conference Proceedings | 2010
Valuation of the minimum revenue guarantee and the option to abandon in BOT infrastructure projects
| Online Contents | 2006
Valuation of the minimum revenue guarantee and the option to abandon in BOT infrastructure projects
| British Library Online Contents | 2006
Valuation of the minimum revenue guarantee and the option to abandon in BOT infrastructure projects
| Online Contents | 2006