Effects of Public Supports for Mitigating Revenue Risk in Public–Private Partnership Projects: Model to Choose Among Support Alternatives

Public supports for mitigating revenue risk in public-private partnership (PPP) projects are used for attracting private financing for public infrastructure. The difficult assessment of impacts that these supports may have on PPP projects may lead to choosing a nonoptimal form of guarantee. The intrinsic PPP project characteristic of partnerships among different actors lasting a long period imposes the simultaneous achievement of competing objectives and a greater transparency in risk allocation. This paper proposes a structured model for assessing and benchmarking the impact of different public supports released to mitigate revenue risk in PPP projects, from the standpoints of the private and public actors, for choosing the public support that better ensures the achievement of a win-win condition. First, we quantify the net benefit gained by each party under three support instruments, namely the minimum revenue guarantee (MRG), least present value of revenue (LPVR), and price cap (PC), by identifying the condition of satisfaction of the involved actors and analyzing the probability that such condition is not achieved for each party. Then, by applying the Monte Carlo simulation, we benchmark and choose the public support that ensures compliance with the win-win condition. We use two case studies to apply the model and a plan of experiments for investigating how the choice of the optimal form of public subsidy for revenue risk mitigation may change based on contextual factors and project characteristics. The results reveal that public supports are not beneficial to all parties, since they generate, under different conditions, unequal net economic benefits for the two parties and/or unfair risk allocation. The results of the sensitivity analysis show that the win-win condition achievement, in terms of actors' performance and risk allocation, depends on the characteristics of the project and of public supports. The findings of the study emphasize the importance of the accurate selection of the form of public support before its releasement in order to ensure a successful PPP.