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The effect of concession period design on completion risk management of BOT projects

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  • Sudong Ye
  • Robert Tiong

Abstract

The design of concession period for build-operate-transfer (BOT) projects is crucial to financial viability and completion risk management. A systematic analysis shows that concession period design involves the design of concession period structure, the determination of the concession period length and incentive schemes. The concession period may have a single-period structure or a two-period structure, its length may be fixed or variable, and it may be combined with incentive schemes. Different designs reflect different risk control strategies for completion time overruns. The single-period concession structure requires the project company to assume completion risk, while the two-period concession structure could, to some extent, reduce the completion risk exposure to the project company, depending on the incentive schemes. Through Monte Carlo simulation, this paper evaluates the mean net present value (NPV), variance and NPV-at-risk of different concession period structures so that both the government and the concessionaires can understand their risk exposure and rewards. The paper then analyses the influence of project characteristics on concession period design to evaluate the feasibility of the design. It is concluded that a well-designed concession period structure can create a 'win-win' solution for both project promoter and the host government.

Suggested Citation

  • Sudong Ye & Robert Tiong, 2003. "The effect of concession period design on completion risk management of BOT projects," Construction Management and Economics, Taylor & Francis Journals, vol. 21(5), pages 471-482.
    • Handle: RePEc:taf:conmgt:v:21:y:2003:i:5:p:471-482
    DOI: 10.1080/0144619032000073488
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    Citations

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    Cited by:

    1. Abraham Park & Chen Yu Chang, 2013. "Impacts of Construction Events on the Project Equity Value of the Channel Tunnel Project," ERES eres2013_97, European Real Estate Society (ERES).
    2. Theys, Christophe & Notteboom, Theo E. & Pallis, Athanasios A. & De Langen, Peter W., 2010. "The economics behind the awarding of terminals in seaports: Towards a research agenda," Research in Transportation Economics, Elsevier, vol. 27(1), pages 37-50.
    3. Zhang, Yiwen & Feng, Zhuo & Zhang, Shuibo, 2018. "The effects of concession period structures on BOT road contracts," Transportation Research Part A: Policy and Practice, Elsevier, vol. 107(C), pages 106-125.
    4. Zhao, Zhen-Yu & Zuo, Jian & Zillante, George, 2013. "Factors influencing the success of BOT power plant projects in China: A review," Renewable and Sustainable Energy Reviews, Elsevier, vol. 22(C), pages 446-453.

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