Selecting BOT/PPP Infrastructure Projects for Government Guarantee Portfolio under Conditions of Budget and Risk in the Indonesian Context
Publication: Journal of Construction Engineering and Management
Volume 137, Issue 7
Abstract
Guarantee provision in privately financed infrastructure projects implemented as build-operate-transfer/public-private-partnership (BOT/PPP) arrangements is not uncommon in many countries, and Indonesia is no exception. But, given that the government budget is, in most if not all cases, not unlimited, there must be a selection of BOT/PPP projects posing proposals for seeking government guarantees. This paper presents a project selection methodology under the chance-constrained goal-programming framework in the context of the Indonesian BOT/PPP infrastructure industry. The ultimate objective of the selection is to result in a portfolio of guaranteed projects that brings maximum welfare gain to the economy as a whole, maximum total net change in financial net present value but, at the same time, puts the government at the lowest fiscal risk for a given budget constraint. The proposed methodology allows the government to examine relationships among the expected total payment, budget-at-risk allocated, and a desired confidence interval of actual payment not exceeding the budget-at-risk. The government can also compare two or more alternative scenarios and choose the optimal one that delivers the highest value for the money. To illustrate the model application, without sacrificing the generality of the proposed methodology, a much-simplified hypothetical case is presented, examined, and discussed.
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Acknowledgments
We gratefully acknowledge the support of the Deutscher Akademischer Austauschdienst (German Academic Exchange Service). This work was done while the first writer was at Fachgebiet Bauwirtschaft und Baubetrieb, Technische Universität Berlin, Germany for a postdoctoral research stay with a DAAD fellowship. We also wish to express our appreciation to Prof. Dr.-Ing. Dieter Jacob and Dirk Neunzehn of the Technische Universität Freiberg, Germany for a fruitful discussion held in Berlin on guarantee issues. A sincere thanks is also due to the staff members of the Risk Management Unit of the Ministry of Finance, Indonesia, Andre Permana of the Nanyang Technological University, Singapore, and Bely Utarja of the Prasetya Mulya Business School, Indonesia for intense discussions on Indonesian guarantee funds. We would also like to thank all the anonymous reviewers for their helpful and constructive comments.
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Published In
Journal of Construction Engineering and Management
Volume 137 • Issue 7 • July 2011
Pages: 512 - 522
Copyright
© 2011 American Society of Civil Engineers.
History
Received: Jan 18, 2010
Accepted: Oct 15, 2010
Published online: Oct 26, 2010
Published in print: Jul 1, 2011
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