Research On Revenue Risk Allocation Mechanisms For Toll Road Public-Private Partnerships Projects

Revenue risk is a major cause of renegotiations and early terminations of transportation PPP(Public-Private Partnership)projects.How to choose among and optimize revenue risk sharing mechanisms is a research topic that has significant theoretical and practical value.Firstly,a comprehensive literature review,an expert interview and a multiple case study are conducted to identify commonly adopted revenue risk sharing mechanisms and problems in their applications.Based on a theoretical analysis,a framework is proposed to design and choose among revenue risk sharing mechanisms,innovatively taking the decision objectives of the three critical stakeholders(i.e.the lender,the private investor,and the procuring government)into account.The comparison indicators of the framework are the weighted average cost of capital(WACC)and the expected present value of government cash flow(E)given a revenue risk sharing structure,while the constrained conditions are the project financial feasibility and the procuring government's budget restrict.Secondly,based on the historical traffic and revenue data of 140 toll roads in China,a series of statistical tests are conducted(e.g.stationary test,fat tail test and autocorrelation test)to verify the hypothesis that traffic and revenue time series data follows the geometric Brownian motion(GBM).Then,a GBM-based model is proposed to simulate the revenue risk of toll roads in China,with the critical GBM parameters estimated by historical data.Thirdly,a forecast model of the debt financing interest rate is established based on an empirical study.The lender's borrowing capacity(BC)decision model subjects to the restraint condition that the interest rate can cover the lenders' weighted marginal cost of funding(WMCF)for the project,while the lenders' WMCF is computed given the revenue risk.Based on these models,the BC and WACC of the project given its revenue risk model can be calculated via numerical simulation,providing a reference for the discount rate adopted to evaluate the financial feasibility of the project.Finally,prediction models of the revenue risk and government cash flow are established under four major revenue risk sharing mechanisms,including flexible term contract,minimum revenue guarantee,price compensation guarantee,and availability payment.A numerical case study is conducted to estimate the WACCs,evaluate the financial feasibility,and calculate the Es under different structures of each of the four revenue risk sharing mechanisms,and discuss the optimal mechanisms given various levels of government budget restrict within the proposed comparison framework.Building on the results of this dissertation,an integrated five-step design and comparison framework is constructed to support the procuring government to design and choose among revenue risk sharing mechanisms:(1)establish the revenue risk model;(2)assess the financial feasibility of the project;(3)design feasible structures for each revenue risk sharing mechanisms;(4)select the optimal mechanism given the government budget restrict;(5)incorporate the selected mechanism into the project procurement plan.