Joint Optimization of Critical Concession Parameters for Sustainable PPP Contracts

Abstract

To fully leverage the advantages of the public–private partnership (PPP) model in delivering sustainable infrastructures, the values of critical concession parameters need to be determined. Traditional determination methods overlook the sustainability benefits of the projects, which hinders their application on sustainable infrastructures financed as PPPs. This research enriches the risk allocation scenarios by quantifying the sustainability benefits and develops a multiparameter joint determination method according to fair-risk allocation and game equilibrium principles. This research presents an innovative concept of value-for-money risk and highlights the fact that for sustainable PPP contracts, the concession parameters should be determined for reasonably shared value-for-money risks instead of revenue risks. Project JZ is created as a numerical example to verify the applicability of the proposed method. The result shows that the proposed method can determine the optimal values of concession period, concession price, and minimum revenue guarantee (MRG), which contribute to a win–win outcome in achieving the goals of financial and sustainability benefits for both public and private parties. The data analysis reveals that achieving the equilibrium risk-sharing ratio for value-for-money risks requires a shorter concession period or a decreased MRG level than revenue risks. Also, higher concession prices correlate with shorter concession periods and increased MRG levels.