Construction Research Congress 2020
Debt/Equity Tradeoff Model for Revenue Based DBFOM PPP Transportation Infrastructure: Case Study of I-95 (VA) Express Lanes
Publication: Construction Research Congress 2020: Project Management and Controls, Materials, and Contracts
ABSTRACT
Private sector participation and investments in public-private partnerships (PPPs) infrastructure projects are crucial for addressing the insufficiencies and filling the financial gaps left by the lack of government funds. However, because of a history of project failures owing to unrealistic economic structures and unfeasible traffic revenue forecasts, the private sector rarely engages in infrastructure investment. The purpose of this study is to develop a robust revenue-generating financial structure for transportation infrastructure in order to attract additional capital infrastructure investment by the private sector. Multi-objective linear optimization methods were applied to find the best solution with the goal of maximizing the internal rate of return (IRR) for equity investors and satisfying the debt repayment criteria for lenders based on four major financial sources: government funds, debts, the Transportation Infrastructure Finance and Innovation Act, and equities. The model was applied to the I-95 Express Lanes project in Virginia and the corresponding results showed that optimized financial structures require an average of an 8.34% greater equity contribution than the baseline projection to satisfy both equity investors and lenders. However, the results showed that IRR decreased by approximately 0.24% as compared to the baseline model. In conclusion, additional equity contributions enable stable cashflow streams but result in a lower IRR. Thus, the tradeoff between debts and equities should be optimized in order to attract private infrastructure investors.
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Published In
Construction Research Congress 2020: Project Management and Controls, Materials, and Contracts
Pages: 1177 - 1185
Editors: David Grau, Ph.D., Arizona State University, Pingbo Tang, Ph.D., Arizona State University, and Mounir El Asmar, Ph.D., Arizona State University
ISBN (Online): 978-0-7844-8288-9
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© 2020 American Society of Civil Engineers.
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Published online: Nov 9, 2020
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