Valuation of strategic options in public–private partnerships

Abstract

This paper investigates the feasibility of and develops an economic valuation model for buyout options in Comprehensive Development Agreements (CDAs). A CDA is a form of public-private partnership whereby the right to price and collect revenues from toll roads is leased to a private entity for a finite but lengthy period of time in exchange for providing local and state governments with a quick influx of cash and/or additional infrastructure. Uncertainty associated with such long-term leases is of substantial public concern. In particular, there is a sentiment that the state and/or municipal governments may not be sufficiently compensated for the forfeited development opportunities and a possibility of lost revenue due to higher-than-expected future growth during the lifetime of the lease. An under-studied aspect of the problem is the feasibility and economic value of an option for the government to buy back the leased infrastructure at a future date prior to lease expiration. Such an option would give the public sector additional control over the future use of leased facilities and address potential concerns regarding long-run uncertainty and possible unforeseen windfalls for the private sector. The buyout option valuation model developed in the paper could help transportation policymakers in decisions on leasing public infrastructure. The paper's contributions include the analysis and feasibility assessment of buyout and revenue-sharing options, an economic consumer demand-based revenue model for purposes of simulation, and the numerical evaluation of the strategic options. The main conclusion is that buyout and revenue-sharing options tend to have a high cost relative to the value of the lease. It is therefore understandable that private sector developers are hesitant to allow such clauses to be included without significant compensation.3

Analysis of Features Affecting Contracted Rate of Return of Korean PPP Projects

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Public-private Partnership (PPP): Service Model Innovation for Entry-exit Inspection and Quarantine Bureau in China

“…(7) What are the main obstacles for the export business? (8) To what extent does your company understand the national standards relevant to the import and export of goods? (9) What kind of policy do you expect Guizhou CIQ to explain in the policy statement?…”

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Viešojo Ir Privataus Sektorių Partnerystės Principas – Oro Uostų Veiklos Atvejis

“…Būtent tokie viešojo ir privačiojo sektoriaus partnerystės principai leidžia riziką paskirstyti toms šalims, kurios geriausiai sugeba su jomis susidoroti. Tai yra vienas iš nurodomų partnerystės principo pranašumų -rizikos paskirstymas atitinkamoms šalims (Power et al 2016).…”