Real option theory for risk mitigation in PPPs

Transcription

1 Real option theory for risk mitigation in PPPs Roberta Pellegrino a, Nevena Vajdic b and Nunzia Carbonara a a Politecnico di Bari, Italy b University of Belgrade, Serbia

2 Presenta(on outline Introduc7on Research aim Research ac7vi7es Research outcomes Further research

3 Introduc(on Due diligence of risk iden7fica7on and alloca7on Risk management is not sta7c, it is dynamic Flexibility in PPP project development Managerial flexibility can be modeled as a real op7on Possibility of taking some ac7ons in the future by spending a certain cost to acquire this right

4 Research aim Focus on one step of this risk management process: the iden7fica7on of op7on strategies to shape and mi7gate risks Develop an op7on- based risk management (OBRiM) framework able to support decision makers to find the cost- effec7ve combina7on of real op7ons (or forms of flexibility) to embed in a PPP investment in order to op7mally control risk and maximize investment value

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6 Research ac(vi(es. Iden7fy main risks in PPP projects Focus on transport PPPs 2. Define real op7on- based mi7ga7on strategies for each type of risk, based on: Literature on PPP risk management Literature on other non- PPP fields Case studies

7 Research outcomes Iden7fica7on of main risks in PPP projects Iden7fica7on of main risk in transport PPPs Technical risks (site risks, design risks, construc7on risks, opera7ng risks) Commercial risks (revenue risks) Economic and financial risks Regulatory/poli7cal risks (changes in law, poli7cal issues)

8 Research outcomes Iden7fica7on of risk mi7ga7on strategies for each risk Iden7fica7on of real op7on- based mi7ga7on strategies

9 Technical risks Special Session Public Private Partnerships in Transport: Theory & Prac7ce, TRA 202

10 Commercial risks

11 Poli(cal risks

12 For example, revenue risk Demand/usage Risk mi'ga'on strategy Revenue sharing mechanism Real op'on based strategy The government has a right to claim the certain percentage of the revenue if the rate of return on the project s investment is above a specified value (Gomez- Lobo and Hinojosa, 2000)

13 For example, financial risks Interest rates Risk mi'ga'on strategy Interest rate guarantee Real op'on based strategy Interest rate guarantee: A guarantee that limits the movement of interest rate to within a specified range Maximum interest guarantee: The government compensates the project sponsor an equivalent amount if the interest rate turns out to be higher than the expected value. This guarantee is callable only during the debt service period (Wibowo, 2004)

14 Further research Modeling mi7ga7on strategies in terms of real op7ons Assessing the value of real op7ons and their impact on project s value Comparison of mul7ple real op7on based mi7ga7on strategies and iden7fica7on of the cost- effec7ve one Case study

15 Thank You