Research On Public-Private Partnership And LPVR Mechanism On Road Project

Because road projects require high investment and maintenance cost, that road infrastructure can't meet the need is a universal problem all over the world. Government applies Public-Private Partnerships to provide road. The PPP not only decrease the press of government budget, but reduce the cost and improve the quality of road service. In the way of cooperate with private company, we have appropriate economic and legal circumstance, so we should extend PPP in road.The main way of Private company entry road service is concession. Before the franchise is awarded, the relation between firms and the State is competitive; after the contract is awarded, it becomes a bilateral monopoly. For breaking monopoly, we must substitute "competition for the field" for "competition in the field". The best way of "competition for the field" is auction for the road concession.The target of bid is selecting the best bidder to operate road project. In fact, under the affect of traffic forecast. Auction mechanisms commonly used in practice for awarding infrastructure concession contracts induce a bias towards the selection of concessionaires who are optimistic about demand, but are not necessarily cost-efficient. Though analyzing the minimum price auction, the maximum payment auction and LPVR(Least—Present—Value of Revenue) auction, it shows that the two former auctions are more affected by the traffic forecast having more probability of selection errors and contract renegotiation. On the contrary, LPVR auction are less affected by the traffic forecast and has less probability of selection errors and contract renegotiation.Though the analyzing of theory and cases, it shows the most distinct character of LPVR mechanism is flexible-term. On basis of character, PLVR mechanism overcomes the problem caused by traditional fix-term concession. It reduces the revenue risk, renegotiation and gives government more flexibility to settle the problem of concession. So PLVR mechanism is a good option for road concessions.