Abstract
Due to budgetary constraints, the government releases the right to ancillary business development for private investors to increase profits in PPP projects. However, the ancillary business scale is not specified in the regulations, and there is little relevant research on modeling the scale. Thus, our research aims to create a model with mathematical analysis to evaluate the ancillary business scale. The model is constructed based on the discounted cash flow model to calculate the ancillary business scale attracting private investors with a case study of a social housing project. For this case, the calculated ancillary business minimum scale (ratio of ancillary business to project in total floor area) based on the 7-year (2009–2016) and 17-year (2000–2016) data are 30.81% and 52.79%, respectively; neither is able to meet the scale listed in the tender condition regulated by the government, i.e., 25%. Moreover, this study performs a sensitivity analysis on the expected rate of return and rent discount of the case. The government needs to raise the proportion of ancillary businesses or to increase the rent of social housing to successfully attract private investors.
Highlights
A public-private partnership (PPP) can be defined as “a long-term contract between a private party and a government agency, for providing a public asset or service, in which the private party bears significant risk and management responsibility” [1]
Through the application of the methodology in the case study of Huilai House Social Housing in Taichung, the calculated ancillary business scale is higher than the limitation imposed by the government, which explains why no private investors are willing to participate in the project bidding, and provides the reasonable scale of ancillary businesses in BOT negotiations
With the financial model created in the research and the case study of social housing BOT project, the ancillary business scale attracting investors can be derived
Summary
A public-private partnership (PPP) can be defined as “a long-term contract between a private party and a government agency, for providing a public asset or service, in which the private party bears significant risk and management responsibility” [1]. Based on the above points, this research aims to investigate how to construct a practical financial model and define a reasonable (minimum level) scale of ancillary business for an objective negotiation reference to the government and private investors on the BOT investment. This systematic approach of the model can be adjusted according to local conditions and applied as an effective decision support tool for those projects. The study is an example of a general issue in BOT projects in concessions where there are ancillary commercial facilities that are not restricted only to the case of social housing
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