Optimal Capital Structure of Power Plant Projects with Various Bargaining Powers in Project Negotiations

Chen, Borliang; Liou, Fen‐May

doi:10.1061/(asce)ey.1943-7897.0000407

Cited by 11 publications

(6 citation statements)

References 18 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…Marco et al (2017) represented a regression analysis model to address the relationship between risk factors and capital structure in BOT projects. Chen and Liou (2017) introduced optimal capital structure on the basis of cooperative bargaining game model between project company and loan providers. In all the previous studies except the research conducted by Islam and Mohamed (2009), it is assumed that the concession period length has been determined before.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Therefore, appropriate mix of debt and equity becomes the main decision variable that should be extensively reviewed during the investment appraisal (Iyer and Sagheer, 2012). The project company and the loan providers determine the equity level at the loan negotiations (Chen and Liou, 2017). The sponsor is expected to provide a minimum level of equity to demonstrate his confidence and commitment to the project while equity has the last claim on the project cash flow.…”

Section: Introductionmentioning

confidence: 99%

See 1 more Smart Citation

Financial conflict resolution model in BOT contracts using bargaining game theory

Bayat

Khanzadi

Nasirzadeh

et al. 2019

View full text Add to dashboard Cite

Purpose This study aims to determine the optimal value of concession period length in combination with capital structure in build–operate–transfer (BOT) contracts, based on direct negotiation procurement and considering the conflicting financial interests of different parties involved in the project. Design/methodology/approach The financial model of a BOT project is developed considering all the influencing factors. Then, fuzzy set theory is used to take into account the existing risks and uncertainties. Bilateral bargaining game based on alternating-offers protocol is applied between the government and the sponsor to divide project financial benefit considering the lender’s requirements. Finally, concession period and equity level will be determined simultaneously according to the sponsor’s and government’s share of project financial benefit and the lender’s requirements. Findings The proposed model is implemented on a real case study, and a fair and efficient agreement on concession period length and capital structure is achieved between the government and the sponsor considering the lender’s requirements. It is revealed that being the first proposer in the bargaining process will affect the concession period length; however, it will not affect the equity level. Moreover, it is shown that considering income tax as a part of government’s financial benefit increases the length of concession period. Research limitations/implications The presented model concentrates on direct negotiation procurement in BOT projects where the sponsor and government bargain on dividing financial benefits of project. It is assumed that the product/service price is determined before according to market analysis or users’ affordability. All the revenue of project during concession period is assumed to belong to the sponsor. Practical implications The proposed model provides a practical tool to aid BOT participants to reach a fair and efficient agreement on concession period and capital structure. This could prevent failing or prolonging the negotiation and costly renegotiation. Originality/value By investigation of previous studies, it is revealed that none of them can determine the optimal value of concession period length and capital structure simultaneously considering the BOT negotiation process and different financial interests of parties involved in the project. The proposed model presents a new approach to determine the financial variables considering the conflicting interests of involved parties. The other novelty aspects of the presented model are as follows: introducing a new approach for calculating the sponsor and the government’s share of project financial benefit that will affect the determination of the concession period length and considering the effect of existing risks and uncertainties on final agreement between the involved parties using fuzzy set theory.

show abstract

Section: Literature Reviewmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Financial conflict resolution model in BOT contracts using bargaining game theory

Bayat

Khanzadi

Nasirzadeh

et al. 2019

View full text Add to dashboard Cite

show abstract

“…For a PPP project, the main or sole source to meet financial obligations is the project cash flow [6,47]. An optimal and operational financial structure that reflects the characteristics of project financing is extremely important for both the private sector and the bank because it synchronizes both profitability and repayment capacity [50,51]. From the bank's perspective, only truly good projects with real, tangible service provision, and well structured should be considered to be implemented as PPP projects and be financed [48].…”

Section: Importance Weights Of Bankability Criteriamentioning

confidence: 99%

Identifying Critical Bankability Criteria for PPP Projects: The Case of China

Zhu

Chua

2018

Advances in Civil Engineering

View full text Add to dashboard Cite

Public-private partnership (PPP) projects employ a high leverage in terms of debt finance needed by the private consortium. Debt finance providers need to know the bankability-related issues of PPP projects to make the timely arrangement of debt financing and avoid funding problems. However, there is still a lack of a systematic research on the bankability of PPP projects despite the worsening debt arrangement situation for PPP projects after the credit crisis and economic recession from 2008. To bridge this knowledge gap and enhance the practical debt arrangement of PPP projects, this study aims to identify and prioritize the critical bankability criteria of PPP projects. To achieve the objectives, 41 bankability-related criteria were first identified from a comprehensive literature. A structured questionnaire survey was then conducted with 31 industry experts in China who worked in financial institutes and had experienced PPP projects to investigate the relative importance of each criterion. To handle the uncertainty and vagueness of the subjective evaluation from surveys, this study analyzed the relative importance weight of each criterion using a proposed fuzzy analytical hierarchy process-based approach. The results showed that political environment, economic environment, shareholders’ credibility, financial market, legal system, public sector’s reliability, financial structure, and regulatory framework were ranked as the top eight critical bankability criteria. The findings of this study first contributed to the project finance body of knowledge for the bankability of PPP projects. Moreover, the outputs of this study would provide valuable information to the private and public sectors for formulating strategies on improving the bankability of PPP projects.

show abstract

“…In this segment, a mathematic model which combines the real options and cooperative game is presented to determine the optimal concession period of the BOT solar PV power project. Since the implementation of the BOT photovoltaic power project is a problem of multi-agent cooperation, including the government and the private sector, an effective and stable cooperation relationship between the two agents should be developed to promote the wide deployment of the BOT solar PV power generation project [49,50]. Hence, apart from the trigger lines of the concession period for each major stakeholder, the concession period is determined to maximize the sum of the project's values of the two major stakeholders, which considers the value of the option to defer, i.e., option values of the stakeholders minus their option value to defer.…”

Section: Establish the Option-cooperative Game Model For The Optimal mentioning

confidence: 99%

The Determination of Concession Period for Build-Operate-Transfer Solar Photovoltaic Power Project under Policy Incentives: A Case Study of China

Chen

2019

Energies

View full text Add to dashboard Cite

Since the concession period is one of the most crucial variables influencing the success of a photovoltaic (PV) power project under build-operate-transfer (BOT) mode, this paper presents a real option game model—which integrates the real option and cooperative game theory—to determine the optimal concession period of the BOT solar PV power project under policy incentives by considering the value of the option to defer. In the proposed model, an effective interval of concession period for the BOT project was identified by using a real option, and the equilibrium value of the concession period was obtained by applying classical optimization theory. To evaluate our model, we empirically determined the optimal concession period for the BOT solar PV power project in China, and a sensitivity analysis was conducted to demonstrate how relevant influential factors, which are presented in the model, affect the equilibrium value of the concession period and its effective interval. The results indicate that the current investment environment in China could successfully implement the BOT solar PV power project under policy incentives, including initial cost subsidy and the feed-in tariffs mechanism. While the high volatility of electricity demand, investment cost, and land-use rent fee can lead the failure of the BOT solar PV project implementation, promoting the technological development of PV power generation, maintaining the market stability, and increasing the policy incentives can help the BOT power project to be arranged with an optimal concession period. In addition, the feed-in tariffs mechanism is more helpful than the initial cost subsidy for winning the BOT contract.

show abstract

Optimal Capital Structure of Power Plant Projects with Various Bargaining Powers in Project Negotiations

Cited by 11 publications

References 18 publications

Financial conflict resolution model in BOT contracts using bargaining game theory

Financial conflict resolution model in BOT contracts using bargaining game theory

Identifying Critical Bankability Criteria for PPP Projects: The Case of China

The Determination of Concession Period for Build-Operate-Transfer Solar Photovoltaic Power Project under Policy Incentives: A Case Study of China

Contact Info

Product

Resources

About