Ye, S and Tiong, R L K (2003) Tariff adjustment frameworks for privately financed infrastructure projects. Construction Management and Economics, 21(4), pp. 409-419. ISSN 01446193
Abstract
Since privately financed infrastructure (PFI) projects are usually natural monopolies, their tariffs should be regulated to ensure socially desirable outcomes. In reality, the regulation is usually realized through tariff adjustment mechanisms. There are four basic tariff adjustment frameworks for PFI projects - adjustment based on sale price, revenue, operating income and profit after tax. They have different risk exposures and incentives. The adjustment based on the sale price provides the project company with the highest potential to increase profit but exposes it to the highest risk, while the adjustment based on the guaranteed ROR exposes the project company to the lowest risk but provides the least potential for increasing profit. Adjustments based on the revenue or the operating income are somewhere in between. In practice, a hybrid of two or more adjustment frameworks may be adopted to adapt to specific project environments. A well-designed tariff adjustment framework can create a 'win-win' solution for both the public and private sectors.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | bot; privately financed infrastructure; regulation; risk management; tariff adjustment framework |
| Index terms: | private sector, income, risk management, infrastructure project, revenue, profit, regulation, exposure |
| Subjects: | risk assessment, economic analysis, public and environmental health, political science, infrastructure and transport systems, industry analysis |
| Topics: | Health and Safety, Business Strategy, Engineering Principles, Risk Management, Governance |
| Descriptive scope: | 2 PC |
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