Revenue Risk Management for P3 Highway Projects: Implementation of Revenue Guarantees in the U.S. Market

The Public-Private Partnership (P3 or PPP) model has been proposed as an alternative delivery system to address funding shortage problems associated with large-scale projects. Appropriately allocating and managing risks among project participants is critically important for a P3 project's success. This thesis focuses on one of the tools to manage revenue risk, the revenue guarantee, where a guarantor compensates a concessionaire with a predetermined amount of revenue in the event of a revenue shortfall. It is a form of real option—specifically a put option if a premium is paid for the downside protection or a collar option if potential upside revenue is traded for the protection. Previous research has explored the purpose and valuation of revenue guarantee options. This study focuses on the feasibility of utilizing a guarantee in US P3 highway projects through preparatory study and field investigation. In the preparatory phase, the work examines existing revenue risk management methods and how revenue guarantee options supplement them while also proposing an implementation framework. Additionally, it discusses a new option type,a collar option, including its concept, benefits, applicability, and valuation. In the field investigation phase, the preparatory work is synthesized into interview protocols that are used to seek market perspectives on revenue risks and revenue guarantee feasibility. Twenty people representing government officials, concessionaires, financial advisors and lending institutions were interviewed. The interview results indicated that a revenue guarantee shows promise as a viable tool, and the government should be willing to provide one. The decision to utilize a revenue guarantee depends on funding method selection, a public agency's institutional capacity, and the effectiveness of alternative risk mitigation approaches. Suggestions for implementation, such as applicable projects and a guarantee triggering criterion, are also provided.

Name thesis:degree_name

Ph. D.

Level thesis:degree_level

doctoral

Discipline thesis:degree_discipline

Environmental Design and Planning

Department dc:contributor.department

Environmental Design and Planning

Grantor dc:publisher

Virginia Tech

Year dc:date.issued

2010

Author dc:creator

• Shan, Liang

Chair dc:contributor.committeechair

• Garvin, Michael J.

Committee members dc:contributor.committeemember

• McCoy, Andrew P.
• Kumar, Raman
• Fiori, Christine M.

• revenue guarantee
• option
• infrastructure
• risk allocation
• PPP

Statement dc:rights

• In Copyright

Licence dc:rights.uri

• http://rightsstatements.org/vocab/InC/1.0/

Dc Identifier Other

etd-06112010-150006

OAI identifier oai:identifier

oai:vtechworks.lib.vt.edu:10919/38600