Research On Multi-stage Investment And Revenue Risk Allocation In PPP Projects With Flexible Contract

The investment is large and the contract period is long in PPP projects.The uncertainty in investment and operation processes poses severe challenges to the concession contract design and implementation in the course of contract execution.Due to the high uncertainty of the project,the prediction of demand and revenue of PPP projects often have large deviations.Therefore,it is very difficult to define the rights and responsibilities of both sides clearly and scientifically in the contract-making stage.In view of this,stakeholders need to sign a flexible contract to make dynamic adjustment measures.Flexible contract allows stakeholders to dynamically adjust their decisions to deal with uncertainty according to agreed rules.In the field of PPP project management,the research on flexible contract is still in the initial stage,the existing research is still inadequate,as follows:(1)the research on flexible mechanism is still not perfect,more researches are about the post adaptability clause,and the studies on ex ante incentive clauses is are less;(2)the flexible mechanisms of the operation stage are more concentrated,but there are few flexible mechanisms about the investment,especially the multi-stage investment.Moreover,for the operation risk sharing mechanism,there are few contracts covering both the minimum revenue guarantee(MRG)and excess revenue sharing(ERS),and embodying the flexibility and incentive;(3)the research on dynamic decision model under flexible contract mechanism is not perfect.This dissertation studies two problems of multi-stage investment and revenue risk allocation under flexible contract mechanism.In the perspective of pre-incentive,we study the design of flexible terms,contract pricing and the dynamic decision-making mechanism in the process of performance.American multiple-exercise option and optimal multiple stopping theory are used in mathematical modeling.Therefore,this dissertation first summarizes the theory and its numerical solution.As following,the investment decisions of multi stage PPP projects and revenue risk allocation contract are studied respectively.Regarding the multi-stage investment problem,this dissertation studies the expansion timing decision-making of multi-stage PPP projects with dedicated asset in the first stage project.A multi-stage expansion timing decision model is first presented by the optimal multiple stopping theory,and solved by multi-least Squares Monte Carlo simulation method.The validity of the model is verified by a numerical example of a three-stage sewage treatment PPP project.Through the numerical example,the optimal expansion strategies of each stage and the project value are given,the influences of the dedicated asset and capacity constraints on the project value and expansion strategies are analyzed,and the sensitivity of model parameters are given.The results show that the project value is increased due to the flexibility of the expansion timing.Due to capacity constraint,increasing demand uncertainty leads to a decline in total project value and a delay of investments.Moreover,both the demand threshold of the expansion and the project value are increasing with the decreased dedicated asset.Based on the expansion timing decision model without government subsidies,this dissertation then considers the impacts of government subsidies on the expansion decisions and the project value.The investment subsidy and revenue subsidy are investigated,and the comparisons of two subsidies on multi-stage expansion decisions and project value are provided.The comparisons show that there is more incremental value for the revenue subsidy,and that the investment subsidy brings an earlier expansion.Regarding the issue of revenue risk allocation,the swing option is adopted to model the contract covering both the MRG and ERS.The contract includes a base-load component and a swing component.The base-load contract grants the concessionaire the right to obtain the partial revenue shortfall,or the obligation to share the partial excess revenue,at each financial audit point.The swing component provides an incentive by giving the concessionaire more opportunities to choose between redeeming the shared excess revenue and obtaining the overall shortfall guarantee.In this dissertation,the contract is priced from the perspective of the concessionaire.The contract value of the swing part can be defined as the expected amount to be paid by the government if the concessionaire executes the optimal exercise policy.The contract pricing is formulated as an optimal multi-stopping problem solved by multi-least Squares Monte Carlo simulation.Through a demonstration case of a highway in China,the contract value and the concessionaire's optimal strategies are obtained.Finally,the effects of allocation thresholds and proportions on the contract value are discussed and some implications are derived from the findings.The results show that the narrow sharing threshold band makes the value of the contract higher;the effect of the share ratios demonstrates that the contract value is mainly related to the difference between the two allocation ratios(the minimum revenue guarantee ratio and the excess revenue sharing ratio);in this contract,the upswing and downswing rights are integrated,and it is found that the value of the integrated contract is greater,which reflects the value of flexibility.The research results of this dissertation can provide theoretical basis for the investment decision-making of multi-stage PPP projects,and present the reference for the government subsidy in multi-stage PPP projects.The new revenue risk sharing contract reflects the characteristics of "fairness,flexibility,and incentive",can enrich the revenue risk allocation theory and provide new ideas of the contractual design for the government and the concessionaire.