| Title |
A Study on the Fair Returns of Private Participants' Investments on BTO PPI Projects |
| Keywords |
BTO ; PPI ; MRG ; fair returns |
| Abstract |
This study will estimate the fair return on private participants' investments on BTO type PPI (Private Public Infrastructure) projects using the data from past BTO projects in Korea. In the past, the real returns of 6%~9% were provided to private participants. The results of this study show that those returns were too high compared with the estimated fair returns, especially for projects with the minimum revenue guarantee (MRG) by the government. Moreover, the excess portion of the return over the fair return becomes even larger when there is a demand forecast bias. In reality, most of the BTO projects have far lower actual revenues than the initial forecasted revenue in concession agreements. This phenomenon implies that BTO projects have a tendency of overly forecasting revenues. If so, the value of the minimum revenue guarantee becomes larger, and therefore, the fair return to private participants should decrease. It is hoped that this study helps future BTO projects' concession agreements between the government and private participants to become more fair from the perspectives of risk and return profiles. |