|Title||Revenue Risk Sharing Mechanisms in Transportation Public-Private Partnerships|
|Publication Type||Working Paper|
|Year of Publication||2016|
|Authors||Liu, T, Bennon, M, Garvin, M, Wang, S|
Abstract: A number of toll roads delivered via PPPs have encountered financial distress due to revenue risk with traffic levels significantly lower than those forecasts in recent years. As a result, there has been a shift in PPP road procurements to models in which the government retains some or all of the demand risk for the project, instead of the concessionaire. A tangible framework to guide governments’ decisions in choosing among financial support mechanisms in allocating revenue risks is thus a relevant development for policymakers. This paper proposes a framework to evaluate fiscal support alternatives by comparing the marginal leverage they enable a project to take and the level of financial exposure they allocate to the procuring government. A quantitative methodology is developed that defines inputs and measurable indicators, and also incorporates stochastic modeling and simulation techniques designed for use at an early stage of project planning. The results of a numerical case study demonstrate that flexible term procurement does little to increase project leverage, minimum revenue guarantee is most applicable to projects with significant revenue volatility, while availability payment procurement is more applicable to projects that are projected to have a lower volatility and lower mean revenue relative to their capital investment.
Key words: Public-Private Partnerships (PPPs); toll road; revenue risk; government financial support; borrowing capacity; value at risk