Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

Valuing guarantees in a BOT infrastructure project

Valuing guarantees in a BOT infrastructure project Host governments often provide guarantees in build‐operate‐transfer (BOT) infrastructure projects to attract private sector investors. Problems arise because the governments often do not know the full extent of contingent liabilities when issuing guarantees, and because they account and record guarantee costs only when guarantees come due. This paper discusses the guarantees' financial impact from the perspectives of the government and the project sponsor. A typical Indonesian BOT toll road project is taken as the case study. Stochastic simulation using Latin Hypercube technique is applied on the cash flow model with and without guarantees. Several types of guarantees including minimum revenue guarantee, maximum interest rate guarantee, debt guarantee, tariff guarantee and minimum traffic guarantee are discussed. Simulation results reveal that guarantees can reduce risk but are not free of cost. If compared with equivalent subsidies, however, some guarantees can be more effective in lessening the extent of project risk. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Engineering Construction & Architectural Management Emerald Publishing

Valuing guarantees in a BOT infrastructure project

Loading next page...
 
/lp/emerald-publishing/valuing-guarantees-in-a-bot-infrastructure-project-Z42zxs46g6

References (23)

Publisher
Emerald Publishing
Copyright
Copyright © 2004 Emerald Group Publishing Limited. All rights reserved.
ISSN
0969-9988
DOI
10.1108/09699980410571543
Publisher site
See Article on Publisher Site

Abstract

Host governments often provide guarantees in build‐operate‐transfer (BOT) infrastructure projects to attract private sector investors. Problems arise because the governments often do not know the full extent of contingent liabilities when issuing guarantees, and because they account and record guarantee costs only when guarantees come due. This paper discusses the guarantees' financial impact from the perspectives of the government and the project sponsor. A typical Indonesian BOT toll road project is taken as the case study. Stochastic simulation using Latin Hypercube technique is applied on the cash flow model with and without guarantees. Several types of guarantees including minimum revenue guarantee, maximum interest rate guarantee, debt guarantee, tariff guarantee and minimum traffic guarantee are discussed. Simulation results reveal that guarantees can reduce risk but are not free of cost. If compared with equivalent subsidies, however, some guarantees can be more effective in lessening the extent of project risk.

Journal

Engineering Construction & Architectural ManagementEmerald Publishing

Published: Dec 1, 2004

Keywords: Indonesia; Project management; Capital projects; Government; Private sector organizations; Construction industry; Loan guarantee scheme

There are no references for this article.