The Model Of Concession Pricing Of BOT Project Of Sewage Treatment Based On Real Option Model

These years, our country spends a lot in constructing sewage plants to protect water environment. So, the city sewage plants projects have been developed to a great degree, with the rate of treatment less than 7% in the eighth five-year plan and amount to 20% in 2000. Moreover, in eleventh five-year plan, the rate of treatment will be 45% as more sewage plants are being built in unbans and suburban.With the reformation progressing deeply, the financial sources become diversified including government investment, International Financial Corporation (IFC) and foreign governments loans, self-finance and so on. At the same time, the project management mode is also changed into business entity from government self-management. That is BOT (build-operation-transfer).BOT has been more and more popular on construction of sewage plants in China. However, there are many problems such as a lack of scientific and suitable pricing models of sewage treatment, a lack of immature law environment.Empirical study of sewage treatment projects in Dalian reflects that concession price is a critical factor in the negotiation of BOT. Aimed to the flaws of the existing models, relevant elements of a contractual package are treated as a form of real option. At the same time, a model called ARIMA (an integrated autoregressive-moving average process of order) is used to estimate one key variable of the Black-Scholes model. After calculating, the result is smaller than that calculated by other traditional models. So, using this method, governments' guarantees or alternative forms are evaluated quantitatively, which means this method strikesa balance between risk and benefit.