Study On Investment Decision Of PPP Projects Considering The Government Support

The Public-Private-Partnership (PPP), as a special project financing model, is the project level application of the public-private partnership concept. The complete concept of PPP project financing was proposed in 90s of the last century, although before that the public-private partnership had had a long history. PPP model as a powerful tool is now adopted by worldwide governments in solving the funding gap problems in government investments, increasing the supply of social and public goods and services and enhancing the social and public goods or service quality and operational performance.As a developing country, China is now facing a huge gap in the supply of public goods, such as infrastructure. Aiming at fixing this gap, attracting non-state capital investment in infrastructure projects is receiving more and more attention, which is expected to solving the bottleneck of infrastructure funds, expanding financing channels and improving the infrastructure investment and financing system. PPP model as a new and developing project financing model has great application prospect in China. With the continues development of private capital in last 30 years, the main investors of PPP projects in China has been gradually extending to the internal capital from the external capital in the early stage. The PPP projects in China are normally the large infrastructures projects, featuring as big investment, long construction period and long investment recovery period, leading to the big risk for investors to take. Therefore, the investment decision-making of PPP project becomes an important problem needed to be urgently solved.The soul of investment is to obtain the reasonable return, while the investment return level of the PPP project depends largely on the significance of government support due to its specialty. Moreover, compared to the early mode of PPP projects, the government support plays even more important role in these days. Thus, the benefit from the government support becomes a key reference in this type of investment decisions.In this thesis, the government support is referred to the government actions benefiting the investors. The government support in the PPP projects includes various types, such as guarantees, subsidies and granting the right to future development of new projects, etc. The government support, regardless of its type, has an impact, directly or indirectly, on the cash flow and will be finally reflected in the returns to investors. Based on the risk analysis of the PPP projects, this thesis will divide the various types of government support into three levels mainly considering the incoming incentives. The guarantee degree of the investment return and incentives to investors gradually increase with the increase of these three levels.An approach for quantitative evaluating the benefits from the government support in the PPP projects is proposed in this thesis, where the internal rate of return IRR of own funds is adopted as the evaluation index and the Monte Carlo approach is employed in simulation. Preliminary conclusions of this thesis by comparing the equity expected rates of return under different types and significances of government support using IRR and CAPM models are believed to be meaningful for investors in investment decision of the PPP projects.