Sun, Y and Zhang, L (2015) Balancing public and private stakeholder interests in BOT concessions: Minimum revenue guarantee and royalty scheme applied to a water treatment project in China. Journal of Construction Engineering and Management, 141(2): 04014070, ISSN 0733-9364
Abstract
Because of demand uncertainties, a build-operate-transfer (BOT) project may lead a concessionaire either to realize an excessive profit or suffer a loss. The object of this paper is to establish an adjustment mechanism to automatically balance the risks and rewards between public and private sectors under the fixed preset concession period. Using a revised net present value (NPV) financial evaluation model and the Monte Carlo simulation technique, the authors construct a model that can determine the optimum solution of the minimum revenue guarantee (MRG) level and the collect rate of royalty for BOT projects. The MRG and royalty collection combination (G&R) is shown, via a reduction in the decision variables, to be a more effective scheme than those in previous studies. The results of a sensitivity analysis based on a wastewater treatment BOT project prove that Scheme M of MRG based on 90% volume combined with a 20% royalty rate is the leading option because it guarantees that the concessionaire will always earn a reasonable anticipated return under the fixed term. The main contribution of this paper is to provide a simple tool for balancing the risks and benefits for the government and investors.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | build-operate-transfer; concession period; minimum revenue guarantee; project planning and design; royalty collection |
| Index terms: | guarantee, concessionaire, sensitivity analysis, profit, revenue, China, project planning, investor, concession period, private sector, Monte Carlo simulation, net present value, build-operate-transfer, option |
| Subjects: | contract type, control systems, modelling and simulation, economic analysis, contractual arrangements, contract structure, Geography, decision analysis, sociology, environmental hazards, industry analysis |
| Topics: | Procurement, Sustainability, Stakeholder Management, Risk Management, Geographical Context, Project Management, Research Practice, Business Strategy |
| Descriptive scope: | 3 PCA |
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