Residual Value Risks of Highway Pavements in Public–Private Partnerships
Publication: Journal of Infrastructure Systems
Volume 24, Issue 3
Abstract
Residual value risk of an infrastructure asset under public–private partnerships (P3s) refers to the risk that on expiry or termination of the P3 contract, the asset does not have the value that the sponsoring public authority originally expected. A concern arises that significant residual value risk might present in long-term P3 projects. To address the concern, this paper presents a semiempirical method to quantify the residual value risk in P3 pavement assets relative to the public-sector comparators (PSCs). Based on a long-term pavement performance database maintained by a provincial ministry of transportation in Canada, the study shows that P3 pavement assets significantly outperform the PSCs in terms of service life, the probability and duration of deferred maintenance, and the residual life after the concession period. It was found that the average residual life of a P3 asset reaches 13.5 years, more than double the average residual life of 6.3 years of a PSC. Based on a modified depreciation method at zero discount rate, these residual lives were translated into mean residual values of 45.0 and 24.7% of capital expenditure for the P3 and PSC assets, respectively. The simulation study at different discount rates found that while the mean residual value risk is significantly greater than zero, suggesting obvious outperformance of P3s over traditional delivery methods, the probability that the residual value of a P3 asset is less than that of a PSC does not change with the discount rate and is stabilized at 20%. The outperformance of P3 assets over PSC assets was mainly attributed to the disciplined asset management and strict handback requirements under P3s. The study concludes that the P3 model, when the contract is strictly implemented, can effectively manage and mitigate the residual value risk in pavement assets.
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Acknowledgments
The authors would like to thank Stefan Dery, Errol Lobo, and Justin Tsang of PPP Canada for their discussions and encouragement through the course of the study. The PPP Canada team helped identify some of the information sources of the P3 agreements. They also provided the rehabilitation cost profiles of a couple of P3 projects. These data and information enhanced the authors’ understanding of the maintenance programs in P3s. The authors would also like to thank Dr. Ningyuan Li of the Ministry of Transportation, Ontario (MTO) for discussion of the current pavement management practices in Ontario and Canada at large. Lou Politano of Infrastructure Ontario helped to clarify several issues related to the current maintenance and rehabilitation practices in P3. The financial support from PPP Canada is gratefully acknowledged. However, the report does not necessarily reflect the official views or policies of PPP Canada, Ryerson University, or any other parties, public or private, who may be the source of the original data and information. The authors also want to thank the three anonymous referees for their constructive comments that have greatly improved the quality of the paper.
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Published In
Journal of Infrastructure Systems
Volume 24 • Issue 3 • September 2018
Copyright
©2018 American Society of Civil Engineers.
History
Received: Sep 5, 2017
Accepted: Apr 2, 2018
Published online: Jul 11, 2018
Published in print: Sep 1, 2018
Discussion open until: Dec 11, 2018
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