Abstract
Various risk factors influence the success of public–private partnership (PPP) projects. This study analyzes the risk attributes of PPP projects and develops a regression model based on a 20-year PPP project database to quantitatively analyze the factors affecting the contracted internal rate of return (CIRR) of PPP projects. Although the risk factors of PPP projects have been widely studied, the factors affecting CIRR have not been explored. Information from the intra-info DB system managed by Korea Development Institute was used to calculate the impact of the variables on CIRR. It was observed that the CIRR of Korea’s PPP projects did not reflect the risks associated with the facility types, service area, amount of private investment, and operation period accurately. Financing costs did not demonstrate a statistically significant relationship with the CIRR either. Furthermore, the CIRR of projects with a minimum revenue guarantee option was found to be higher than that of projects without. The CIRR of the current project was found to be closely related to the number of bidding competitors and the CIRR values of previous projects that are similar to the current one. This is attributed to a failure in the bureaucratic negotiation behavior of the parties due to their avoidance of responsibilities.
Highlights
Public–private partnership (PPP) projects aim to use creativity and efficiency, and expertise, capital, and fair risk allocation of the private sector to build and operate infrastructures [1] that were previously handled solely by the government, such as transportation infrastructure, social infrastructure including schools [2], hospitals, water and heating supply networks [3], and energy facilities [4], land development [5], and even the city re-qualification program [6]
The contracted internal rate of return (CIRR) values of PPP projects did not indicate the existence of a statistically significant relationship with the interest rate on five-year government bond yields, which is an indicator of the financing cost of a PPP project
The study revealed that the CIRR values of Korea’s PPP projects did not accurately reflect the risks associated with the project characteristics
Summary
Public–private partnership (PPP) projects aim to use creativity and efficiency, and expertise, capital, and fair risk allocation of the private sector to build and operate infrastructures [1] that were previously handled solely by the government, such as transportation infrastructure, social infrastructure including schools [2], hospitals, water and heating supply networks [3], and energy facilities [4], land development [5], and even the city re-qualification program [6]. PPP serves as an economic arrangement for financially constrained governments by providing infrastructure and enhancing the quality of service through performance-oriented management. PPP projects provide benefits to the citizens and promote economic growth through timely responses [7,8,9,10] to the rapidly growing infrastructure demands. Osei-Kyei and Chan [14] classified PPP research into the following categories: risk management [15,16], relationship management [17,18,19], financial profitability [20,21], and procurement [22,23]
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