Balancing Public and Private Stakeholder Interests in BOT Concessions: Minimum Revenue Guarantee and Royalty Scheme Applied to a Water Treatment Project in China
Publication: Journal of Construction Engineering and Management
Volume 141, Issue 2
Abstract
Because of demand uncertainties, a build-operate-transfer (BOT) project may lead a concessionaire either to realize an excessive profit or suffer a loss. The object of this paper is to establish an adjustment mechanism to automatically balance the risks and rewards between public and private sectors under the fixed preset concession period. Using a revised net present value (NPV) financial evaluation model and the Monte Carlo simulation technique, the authors construct a model that can determine the optimum solution of the minimum revenue guarantee (MRG) level and the collect rate of royalty for BOT projects. The MRG and royalty collection combination (G&R) is shown, via a reduction in the decision variables, to be a more effective scheme than those in previous studies. The results of a sensitivity analysis based on a wastewater treatment BOT project prove that Scheme M of MRG based on 90% volume combined with a 20% royalty rate is the leading option because it guarantees that the concessionaire will always earn a reasonable anticipated return under the fixed term. The main contribution of this paper is to provide a simple tool for balancing the risks and benefits for the government and investors.
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Acknowledgments
The work described in this article is supported by the National Natural Science Foundation of China (NNSFC, Project 71272146), the Shandong Province Soft Science Research Project (Project 2013RKE28007), Fundamental Research Funds for the Central Universities (Project 13CX04025B), and Shandong Province Higher Educational Science and Technology Program (Project J14WG58).
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Information & Authors
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Published In
Journal of Construction Engineering and Management
Volume 141 • Issue 2 • February 2015
Copyright
© 2014 American Society of Civil Engineers.
History
Received: Feb 5, 2014
Accepted: Aug 7, 2014
Published online: Sep 5, 2014
Published in print: Feb 1, 2015
Discussion open until: Feb 5, 2015
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