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Financial risk assessment and modelling of PPP based Indian highway infrastructure projects

Author

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  • Kumar, Lakshya
  • Jindal, Apurva
  • Velaga, Nagendra R.

Abstract

This paper investigates financial risk associated with highway infrastructure projects by identifying parameters such as traffic flow and project cost; and further models the risk by analysing real-world PPP based highway projects in India. It applies the Net Present Value (NPV)-at-risk model tool which uses Monte Carlo Simulation taking into account the probability distributions for different input parameters, and gives uncertainty associated with NPV. Further, the model is applied to 30 real-world BOT highway projects to identify critical risks and discuss mitigation strategies. The critical contribution of the paper is towards applying a standard risk-analysis model (NPV-at-risk tool supported by Monte Carlo Simulation) to the real-world PPP based highway infrastructure projects. The application of the developed model can be used as a decision tool to judge the profitability of a project and make investment decisions in the bidding phase by the private investors. It also helps in identifying which source of uncertainty has the most influence on the project’s financial returns and what is the actual relationship between the critical influencing parameters and associated NPV; this will be helpful to government agencies and public authorities to identify the factors that have largest impacts and consider the corresponding mitigation strategies.

Suggested Citation

  • Kumar, Lakshya & Jindal, Apurva & Velaga, Nagendra R., 2018. "Financial risk assessment and modelling of PPP based Indian highway infrastructure projects," Transport Policy, Elsevier, vol. 62(C), pages 2-11.
    • Handle: RePEc:eee:trapol:v:62:y:2018:i:c:p:2-11
    DOI: 10.1016/j.tranpol.2017.03.010
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    References listed on IDEAS

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    1. K.C. Iyer & Mohammed Sagheer, 2011. "A real options based traffic risk mitigation model for build-operate-transfer highway projects in India," Construction Management and Economics, Taylor & Francis Journals, vol. 29(8), pages 771-779, June.
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    Cited by:

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    2. Longsheng Cheng & Mahboubeh Shadabfar & Arash Sioofy Khoojine, 2023. "A State-of-the-Art Review of Probabilistic Portfolio Management for Future Stock Markets," Mathematics, MDPI, vol. 11(5), pages 1-34, February.
    3. Skvarciany Viktorija & Germanaitė Laura, 2019. "Financial Risk Assessment: Case of „Lietuvos Geležinkeliai“, AB," Open Economics, De Gruyter, vol. 2(1), pages 19-29, January.
    4. Kangsoo Kim & Hyejin Cho & Donghyung Yook, 2019. "Financing for a Sustainable PPP Development: Valuation of the Contractual Rights under Exercise Conditions for an Urban Railway PPP Project in Korea," Sustainability, MDPI, vol. 11(6), pages 1-14, March.
    5. Xinhua Mao & Jiahua Gan & Xilong Zhao, 2019. "Debt Risk Evaluation of Toll Freeways in Mainland China Using the Grey Approach," Sustainability, MDPI, vol. 11(5), pages 1-17, March.
    6. Jokar, Ebrahim & Aminnejad, Babak & Lork, Alireza, 2021. "Assessing and Prioritizing Risks in Public-Private Partnership (PPP) Projects Using the Integration of Fuzzy Multi-Criteria Decision-Making Methods," Operations Research Perspectives, Elsevier, vol. 8(C).
    7. Huang, Xingjun & Lin, Yun & Lim, Ming K. & Zhou, Fuli & Ding, Rui & Zhang, Zusheng, 2022. "Evolutionary dynamics of promoting electric vehicle-charging infrastructure based on public–private partnership cooperation," Energy, Elsevier, vol. 239(PD).
    8. Toriqul Bashar & Ivan W. H. Fung & Lara Celine Jaillon & Di Wang, 2021. "Major Obstacles to Public-Private Partnership (PPP)-Financed Infrastructure Development in China," Sustainability, MDPI, vol. 13(12), pages 1-14, June.
    9. Shabir Hussain Khahro & Tauha Hussain Ali & Shafiqul Hassan & Noor Yasmin Zainun & Yasir Javed & Shahbaz Aziz Memon, 2021. "Risk Severity Matrix for Sustainable Public-Private Partnership Projects in Developing Countries," Sustainability, MDPI, vol. 13(6), pages 1-15, March.
    10. Qi Jun & Hasan Dinçer & Serhat Yüksel, 2021. "Stochastic hybrid decision‐making based on interval type 2 fuzzy sets for measuring the innovation capacities of financial institutions," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 573-593, January.
    11. Huaiwen ZHANG & Adnan Khurshid & Xinyu WANG & Alina Mirela BĂLTĂŢEANU, 2021. "Corporate Financial Risk Assessment and Role of Big Data; New Perspective Using Fuzzy Analytic Hierarchy Process," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 181-199, June.
    12. Isaac Akomea-Frimpong & Xiaohua Jin & Robert Osei-Kyei, 2022. "Mapping Studies on Sustainability in the Performance Measurement of Public-Private Partnership Projects: A Systematic Review," Sustainability, MDPI, vol. 14(12), pages 1-20, June.
    13. Mochon, Pablo & Mochon, Asuncion & Saez, Yago, 2022. "Combinatorial versus sequential auctions to allocate PPP highway projects," Transport Policy, Elsevier, vol. 117(C), pages 23-39.
    14. Beenish Bakhtawar & Muhammad Jamaluddin Thaheem & Husnain Arshad & Salman Tariq & Khwaja Mateen Mazher & Tarek Zayed & Naheed Akhtar, 2021. "A Sustainability-Based Risk Assessment for P3 Projects Using a Simulation Approach," Sustainability, MDPI, vol. 14(1), pages 1-22, December.
    15. Vergara-Novoa, Cristian & Sepúlveda-Rojas, Juan Pedro & Alfaro, Miguel D. & Soto, Pablo & Benitez-Fuentes, Paulo Andrés, 2020. "Analysis of revenues, costs and average costs of highway concessions in Chile," Transport Policy, Elsevier, vol. 95(C), pages 114-123.

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