Research On The Decision Method Of Concession Period For Highway BOT Projects

BOT pattern is frequently applied in the highway construction in China. However, a number of problems still exist in highway BOT projects. Hasty argumentation and deficiency of decision basis have caused quite a few BOT projects end in failure. At present, most highway BOT projects in China make the decision of their concession periods referring to the length of the concession periods of the existing congener projects, thus lacking of scientific decision making guidance.As there are not enough theoretical research supporting the implementation of highway BOT projects, the determination of concession periods of highway BOT projects in China appears rather random, and the division of risk responsibility between the government and the project companies is not clear, from which resulted the great divergence of both sides in deciding which one to bear the responsibility when risks happen. Consequently, there is nothing new to see the highway BOT projects already in operation cease to return to the negotiation phase, or even forced to stop when just step into the operation phase. Highway BOT projects'failure, no matter for the government or for the project company, have caused a great loss. Therefore, this paper aims to build a model for the determination of highway BOT project's special permission period, theoretically supporting the decision-making practice of highway BOT project's concession period and also lessening the failure probability of highway projects.This paper mainly consists of 6 parts. Part 1 is the introduction, which presents the background and the significance of this research, the research method and research route of this paper, the contents and the framework of this paper, and finally the expected innovation and the possible inadequacy. Part 2 is a conclusion of the research on concession period, particularly the conclusion of the research on the concession period formation. Major aspects of the research on concession period are sorted out through consulting literature and sorting materials. Besides, the relevant theory is elaborated again on the foundation of the digestion and absorption of the previous research as well as the author's own understanding. It includes the determination of the meaning of concession period, fixed concession period's structure and its selection and the frequently used decision-making strategies of BOT project's concession period. The concession period defined in this paper is single-limited and with the construction period and the operation period incorporated. Accordingly, some extensively used methods for the determination of BOT project's concession period are summarized as NPV method, game theory method, MNPV method. Part 3 gives an analysis of the key influencing factors of highway BOT project's concession period, primarily identifying some possible influencing factors. First, an analysis of likely risks project companies may be faced is made in this part, arriving at the conclusion that completion risk, operation risk, financial risk and natural environmental risk are the possible risks. Then the influences of such risks on the project's concession period are presented. Following the above risk analysis, two kinds of influencing factors are primarily obtained: factors in the first kind are definite ones, such as the priced charged, discount rate, ratio of return on investment and the relevant provisions of concession period operating agreement; factors in the latter kind are the uncertain ones, such as construction period, construction cost, traffic and operating cost. Part 4 deals with the construction of the model for the decision-making of highway BOT project's concession period. In this part, a further presentation is given out concerned with the determination of possible influencing factors of highway BOT project's concession period and the determining methods are put forward for the definite influencing factors and the uncertain ones respectively. Regarding to the determination of the definite factors, proper methods are proposed respectively via summarizing pervious research achievements. While for the uncertain factors, the Monte Carlo simulation method specially addressing randomness problems is introduced to make a simulation of these uncertain factors. Thus, after enough simulations, statistical characteristic values of the variables influenced by each uncertain factor are attained. In other words, not directly determining the specific values of these uncertain influencing factors, but obtaining the numerical prediction of the variables influenced by them through stochastic simulation and thereby build the decision-making method for highway BOT project's concession period. Part 5 is the example analysis, demonstrating the application of the constructed model by means of a simplified fictional highway BOT project. Part 6 is the conclusion, giving final remark on the research together with its result in this paper.The innovation of this paper lies in the application of different discount rates when simulating the NPV of both the government and the project company through Monte Carlo simulation method and the introduction of CPM method into Monte Carlo simulation method.