On the financial and risk analysis of waste treatment projects in greece

Abstract

Risk assessment is one of the most critical procedures for the evaluation of environmental projects. Over the last decades, there are several methods and techniques developed in the risk assessment literature establishing the quantitative risk analysis of waste treatment projects. Herein, the authors focus on the correlation between the fi nancial sustainability evaluation and the quantitative risk analysis of waste treatment projects, which are implemented with Build-Operate-Transfer contracts in Greece. Particularly, the authors use a formula for the investor's profi t rate computation, which corresponds in positive cash fl ows throughout the project's operational phase and ensures the partnership's fi nancial sustainability. Documentation of the specifi c formula is achieved through the quantitative risk analysis of a waste treatment project, where the uncertainty of the project's fi nancial sustainability is analyzed and useful conclusions are discussed. Over the past two decades, public private partnership (PPP) contracts are used by many governments for the purpose of delivering a project or a service that is traditionally provided by the public sector. Generally, these types of contracts include the collaboration between the public and the private sector, while in most cases the private partner is responsible for the project funding and the invested capital is recovered through the operation revenue over the concession period. According to the World Bank Group's database (1), for the period 1990-2009, there are 400 investments with private participation implemented in the waste treatment (WT) fi eld. Since the PPP projects are becoming a popular option for the public services delivery, there are many authors who refer to specifi c large WT projects imple- mented in different countries (2-4), while other researchers focus on the identifi cation and analysis of their key aspects (5). These projects are mainly implemented following a Build-Operate-Transfer (BOT) contract, which is the most commonly used contract type in PPPs (6). Generally, BOT contracts can be defi ned as long-term cooperation agreements for the provision of high quality infrastructure, products, or services (7), with which signifi cant technical, legal, political, and economic risks are shared between the public and private sectors (8). In a previous study, we examined the fi nancial sus- tainability of the WT projects that were implemented through PPPs in Greece (9) and we developed a formula for the computation of the investor's profi t rate (PR). The PR's minimum value that is calcu- lated through the specifi c formula can be used by decision makers to achieve the positive cash fl ows on behalf of the private sector throughout the project's time horizon, ensuring the partnership's fi nancial sustainability. Herein, we use the results arising through the above formula and we implement the quantitative risk analysis (QRA) of a WT project to validate the project's fi nancial sustainability. The rest of this paper is organized as follows. The framework of the BOT contracts is presented in Section 2 and the review of the literature on the commonly used methods for the fi nancial analysis and the QRA are presented in Section 3. A QRA for the evaluation of a WT project is implemented in Section 4, while the results are discussed in Section 5 and useful conclusions are summarized in Section 6.