System Dynamics-based Concession Pricing Model For PPP Highway Projects

As a modern transportation infrastructure, highway is a strong support for the continuousand stable development of national economy. At the same time it promote the industrialstructure optimization and along the development of regional economy. But the characteristicsof more engineering projects, high quality requirements, more occupation of land and hugesums of invest also made the founding problems in the process of highway construction isvery important. As an important means of financing, the Public-private partnership(PPP)model can effectively make up for the huge funding gap existing in the expresswayconstruction in our country, which has been increasingly applied in highway construction inour country. The core issue of the PPP project is the concession price, as it determines thecommercial viability and profitability of a project. There are many concession pricingmethods exist in the PPP projects theorists, but results from the current practice of highwayconcession pricing point of view, there are many problems, and even lead to project forcharter mispricing ultimately fail. Therefore, this is especially important to conduct theresearch of the expressway project concession pricing, through learning from the relatedexperience of international highway franchising and combining with the actual situation ofour country.Concession pricing belongs to the category of semi-structured decision-making,it facesmany complicated factors, and the factors involved in a lot of data data is often uncertain,incomplete, or impossible to quantify. If directly using the mathematical model to determinethe concession pricing problem is often ignore many important decisions information can’t bequantified, which may lead to a model can’t run or calculation errors and other issues. thisarticle based on the recent comprehensive review of literature and its study, comparing theadvantages and disadvantages of each method, and finally proposed concession pricingparameters can be divided into two categories:the first category can be quantified anddetermine the parameters, such as the total investment of the project cost, operation cost,interest on loans, etc; the second category is impossible to quantify parameter, such as thedegree of government support, price competitiveness and so on.Based on the first kind of quantifiable parameters, by using system dynamics model tocalculate the basic price highway PPP projects. From the viewpoint of engineering economics,economic analysis was carried out on the highway concession pricing, by using the NPV asthe most appropriate indicators of investment decision.Using VensimPLE software in thisstudy analyzed the relationship between the concession pricing parameters by causal loopsand feedback loops to build highway PPP projects based on system dynamics model of thebasic price.And then through the numerical simulation analysis of actual case, the results ofsimulation is very closed to the highway practical concessionary prices, the result is greatly verified the effectiveness and practicability of the highway PPP project model.Based on the second type is the quantitative parameters,using case-based reasoning(CBR) to adjust the basic price concession to form the final price.Considering the franchiseand its key risk factors of the highway PPP projects to make adjustments to the currentconcession price. In this article, using the method of CBR to consider for the highway PPPproject concession pricing unquantifiable risk factors, by calculating the adjustment factorbetween the base price and the final price to determine the final price concession pricing.This research puts forward the system dynamics method is more suitable for concessionpricing model, for the government and the project company and traveler concession pricedecision-making to provide theoretical basis and application basis. so as to help thegovernment and private investors on PPP project plans to reach a consensus to create a"win-win" situation.