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Negotiating concession period for highway public-private partnerships with imperfect information
conference contributionposted on 2019-01-01, 00:00 authored by Hongyu Jin, Shijing Liu, Nilupa UdawattaNilupa Udawatta, Chunlu LiuChunlu Liu
Public–private partnership (PPP) schemes have been widely used in delivering infrastructure projects such as highways, bridges, and tunnels. The concession period as one of the most important parameters in the contractual arrangements of PPP projects is usually predetermined by governments without plausible reasoning. This practice induces frequent renegotiation of concession contracts and even project failure, since it neglects market uncertainties. To identify a reasonable length for the concession period, various decision support models have been developed by researchers and practitioners. However, existing models are usually established based on the assumption that perfect information is available for decision-making, which is unreasonable in relation to real-life projects. Therefore, focusing on highway PPPs, this paper proposes a methodology to help governments identify a specific length for the concession period in the context of imperfect information. Bargaining game theory is adopted to explore the bargaining behavior of both governments and private investors. Referring to a real highway PPP project in China, Project CB is used as a numerical example to validate the proposed method. The outcome shows that the proposed decision method is capable of identifying the optimal length of the concession period for highway PPPs. Even though the negotiation may not be conducted in most cases, the identified concession period provides a good reference for governments to define the length of the concession life prior to launching the request for bids. Limitations and future research are also discussed.