Cost simulation of the private finance initiative project: A case study in a Japanese public housing project

Abstract

This paper calculates the costs, including the impact of interest payments, of private finance initiative (PFI) projects using an actual long-term PFI project as a case study. The case study is a PFI public housing project in Japan, including design, construction, minor maintenance and major maintenance (large-scale repairs) costs. The cost simulation takes into account the associated penalty risks of various scenarios for the PFI project. A calculation of the proportion of interest to the total project cost is calculated for each scenario to reveal the impact of interest payments. The key finding of this research is that both shorter minor repair and large-scale repair cycles during the 30-year PFI project produce lower maintenance costs. This research presents comprehensive financial planning for future PFI projects, including maintenance and repair during relatively long-term projects. The results of the cost simulation show that the proportions of the infrastructure development costs are largely consistent in construction grades with different infrastructure development principal costs. Furthermore, the case study confirms that interest payments are dominant in the financing of long-term PFI projects.