TY - JOUR
T1 - A model for determining the optimal project life span and concession period of BOT projects
AU - Zhang, Xiaoling
AU - Bao, Haijun
AU - Wang, Hongdi
AU - Skitmore, Martin
N1 - Funding Information:
The work described in this paper was fully supported by a grant from the College of Liberal Arts and Social Sciences, City University of Hong Kong (Project No. 9610282 ); This paper is also substantively funded by the CityU Start-up Grant for New Faculty ( 7200376 ), the Research Writing Grant from the College of Liberal Arts and Social Sciences, City University of Hong Kong (Project No: 9618005 ) and funded by the Early Career Scheme of Hong Kong Research grant council (Project No: 9048039 ). The work described in this paper is partly supported by the National Natural Science Fund (Project No: 71303203 ) and the grant from the Environment and Conservation Fund (Project No. 92110732 ) by HKSAR Depts. It is also partly funded by the matching fund for NSFC (Project No: 9680114 and 7004309 ). The authors wish to express their sincere gratitude to the above-mentioned grants.
Publisher Copyright:
© 2016 Elsevier Ltd and Association for Project Management and the International Project Management Association.
Copyright:
Copyright 2017 Elsevier B.V., All rights reserved.
PY - 2016/4/1
Y1 - 2016/4/1
N2 - The concession agreement is the core feature of BOT projects, with the concession period being the most essential feature in determining the time span of the various rights, obligations and responsibilities of the government and concessionaire. Concession period design is therefore crucial for financial viability and determining the benefit/cost allocation between the host government and the concessionaire. However, while the concession period and project life span are essentially interdependent, most methods to date consider their determination as contiguous events that are determined exogenously. Moreover, these methods seldom consider the, often uncertain, social benefits and costs involved that are critical in defining, pricing and distributing benefits and costs between the various parties and evaluating potentially distributable cash flows. In this paper, we present the results of the first stage of a research project aimed at determining the optimal build-operate-transfer (BOT) project life span and concession period endogenously and interdependently by maximizing the combined benefits of stakeholders. Based on the estimation of the economic and social development involved, a negotiation space of the concession period interval is obtained, with its lower boundary creating the desired financial return for the private investors and its upper boundary ensuring the economic feasibility of the host government as well as the maximized welfare within the project life. The outcome of the new quantitative model is considered as a suitable basis for future field trials prior to implementation. The structure and details of the model are provided in the paper with Hong Kong tunnel project as a case study to demonstrate its detailed application. The basic contributions of the paper to the theory of construction procurement are that the project life span and concession period are determined jointly and the social benefits taken into account in the examination of project financial benefits. In practical terms, the model goes beyond the current practice of linear-process thinking and should enable engineering consultants to provide project information more rationally and accurately to BOT project bidders and increase the government's prospects of successfully entering into a contract with a concessionaire. This is expected to generate more negotiation space for the government and concessionaire in determining the major socioeconomic features of individual BOT contracts when negotiating the concession period. As a result, the use of the model should increase the total benefit to both parties.
AB - The concession agreement is the core feature of BOT projects, with the concession period being the most essential feature in determining the time span of the various rights, obligations and responsibilities of the government and concessionaire. Concession period design is therefore crucial for financial viability and determining the benefit/cost allocation between the host government and the concessionaire. However, while the concession period and project life span are essentially interdependent, most methods to date consider their determination as contiguous events that are determined exogenously. Moreover, these methods seldom consider the, often uncertain, social benefits and costs involved that are critical in defining, pricing and distributing benefits and costs between the various parties and evaluating potentially distributable cash flows. In this paper, we present the results of the first stage of a research project aimed at determining the optimal build-operate-transfer (BOT) project life span and concession period endogenously and interdependently by maximizing the combined benefits of stakeholders. Based on the estimation of the economic and social development involved, a negotiation space of the concession period interval is obtained, with its lower boundary creating the desired financial return for the private investors and its upper boundary ensuring the economic feasibility of the host government as well as the maximized welfare within the project life. The outcome of the new quantitative model is considered as a suitable basis for future field trials prior to implementation. The structure and details of the model are provided in the paper with Hong Kong tunnel project as a case study to demonstrate its detailed application. The basic contributions of the paper to the theory of construction procurement are that the project life span and concession period are determined jointly and the social benefits taken into account in the examination of project financial benefits. In practical terms, the model goes beyond the current practice of linear-process thinking and should enable engineering consultants to provide project information more rationally and accurately to BOT project bidders and increase the government's prospects of successfully entering into a contract with a concessionaire. This is expected to generate more negotiation space for the government and concessionaire in determining the major socioeconomic features of individual BOT contracts when negotiating the concession period. As a result, the use of the model should increase the total benefit to both parties.
UR - http://www.scopus.com/inward/record.url?scp=84959225445&partnerID=8YFLogxK
U2 - 10.1016/j.ijproman.2016.01.005
DO - 10.1016/j.ijproman.2016.01.005
M3 - Article
AN - SCOPUS:84959225445
SN - 0263-7863
VL - 34
SP - 523
EP - 532
JO - International Journal of Project Management
JF - International Journal of Project Management
IS - 3
ER -