Financial Risk Analysis Framework of Stakeholders in PPP O&M Contracts for Inter-City Motorway Projects
Keywords:
Risk analysis, PPP, O&M contract, Availability payment, Stakeholders, MotorwayAbstract
Public Private Partnership (PPP) has been welcomed by government around the world as an innovative infrastructure delivery. Currently, there is a new type of PPP arrangements that is being employed in the highway sector in Thailand called PPP O&M Gross Cost in which the private operator is responsible for operation and maintenance of the project to meet performance specification and will be paid for a fixed sum of money over the contract period and the public agency is responsible for land acquisition, construction cost, and still bears the market risks such as tolled revenue risk. In PPP O&M contracts, compensation made to the private operator will be linked to output performance. This payment mechanism is called “availability payment.” Under this payment mechanism, the actual compensation will be adjusted by performance deduction to be calculated in each period if the private operator fails to meet performance specifications of the contract. This article is to present risk analysis framework using Monte Carlo simulation of key stakeholders in PPP O&M contracts, namely, public agency, private operator, and lenders. The proposed framework is then applied to a case study project named Motorway#6 (Bang Pa-In to Nakhon Ratchasima). Based on the application of the proposed financial risk analysis framework, this study found that the financial risk of the public agency was high. However, the public agency must include economic benefits into the evaluation since financial NPV is only part of the whole public project evaluation. As for private operator, the financial risk is relatively high as well. This is mainly due to the low bid price of the private operator. Finally, lender’s risk of the default of the loan, measured using DSCR, was quite low since the mean of the DSCR was greater than 1 over the course of the term loan.
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