Financial Risk Analysis of Project Finance in Indonesian Toll Roads
Publication: Journal of Construction Engineering and Management
Volume 131, Issue 9
Abstract
If a project is implemented using a project-finance approach, the debt service payment relies solely on the project cash flows and its assets. This paper identifies, quantifies, and evaluates major financial risks associated with project-financed toll road projects in Indonesia. Ordering payments by priority level, subject to cash availability, enables risk to be evaluated from the different perspectives of multiple parties involved. The paper makes use of Latin Hypercube simulations for risk analysis because they deal with problems involving large and complex systems. To better illustrate the concept, a case study is presented. A sensitivity analysis of the impact of delay-in-adjustment risk and of the adoption of a new regulation related to the toll adjustment is performed and discussed. Simulation results show that the project sponsor fares worse as delay-in-adjustment risk increases but that the creditor can fare better, given that the risk level is low or moderate. Output statistics also reveal that the adoption of the new regulation has negative impact on the project cash flows from both the project sponsor’s and the creditor’s perspectives under different scenarios associated with delay-in-adjustment risk.
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Acknowledgment
The first writer wishes to thank Deutscher Akademischer Austauschdienst (DAAD) for providing the financial support during his stay at the Technical University of Berlin under the long-term scholarship program.
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Received: Nov 25, 2003
Accepted: Mar 10, 2005
Published online: Sep 1, 2005
Published in print: Sep 2005
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