Cumulative Effects on the Change of Residual Value in PPP Projects: A Comparative Case Study

Abstract

Public private partnerships (PPPs) have been adopted widely to provide public facilities and services. According to the PPP agreement, PPP projects would be transferred to the public sector. However, problems related to the subsequent management of ongoing PPP projects have not been studied thoroughly. Residual value risk (RVR) can occur if the public sector cannot obtain the project in the desired conditions as required in the agreement when a project is being transferred. RVR has been identified as an important risk in PPPs and has greatly influenced the outputs of the projects. In order to further observe the change of residual value (RV) during the process of PPP projects and to reveal the internal mechanism for reducing the RVR, a comparative case study of two PPP projects in mainland China and Hong Kong was conducted. Based on the case study, different factors leading to RVR and a series of key risk indicators (KRIs) were identified. The comparison demonstrates that RVR is an important risk that could influence the success of PPP projects. The cumulative effects during the concession period can play significant roles in the occurrence of RVR. Additionally, the cumulative effects in different cases can make the RVR different because of different stakeholders’ efforts on the projects and ways to treat RVR. Finally, alternatives for the public sector to treat RVR were proposed. The findings of this research can reduce RVR and improve the performance of PPP projects.