• Minimum Revenue Guarantee

    With Minimum Revenue Guarantee a government grants to a private partner a minimum level of revenues for a concession period.

    Because of substantial financial consequences for both parties it is of great importance that such a governmental support is calculated consistently and accurately.

    Read More
  • Concession Buyout Option

    Sometimes the public partner would like to redeem a concession from the private partner before the end of the concession period.

    The main question before signing the concession agreement is how much the public partner will have to pay the private partner in order to get back the concession and ownership over the built infrastructure.

    Read More
  • Least Present Value of Revenues

    In the case of the LPVR Mechanism, the concession is auctioned to the private partner that offers the least present value of revenues from the user fee.

    Consequently, LPVR presents a very good approach to mitigating the traffic risk, which originates from uncertain future traffic demand.

    Read More
  • Deferment Option

    It might happen that certain project will not be as profitable as planned and for that case the public partner grants the private partner the deferment of concession payment.

    Deferment option is one of the real options and its value has to be calculated before the private partner decides to enter the public-private partnership.

    Read More
  • Abandonment Option

    Abandonment option enables the investor to stop the project if it turns out to be loss-making.

    But how much is the abandonment option worth alone and how much does it contribute to the NPV of the project?

    Read More

Public incentives in PPP as real options

"Knowing what is the exact value of an incentive granted to the project is crucial for establishing how feasible a specific project is and what financial consequences each of the partners may expect in the project’s life."
"Value of a real option is always expressed in money."
Minimum Revenue Guarantee presents one of the most attractive solutions for risky infrastructure Public-Private Partnership projects, where the private partner’s revenues are based on the usage of a built infrastructure.

Minimum Revenue Guarantee

Minimum Revenue Guarantee presents one of the most attractive solutions for risky infrastructure Public-Private Partnership projects, where the private partner’s revenues are based on the usage of a built infrastructure. A typical example is a toll-road where after the completion of the project the private partner gains income from charging a toll to the toll-road users, but the Minimum Revenue Guarantee can be used in any other project where built infrastructure produces an income for the private partner.
Read More
In the case of the Least Present Value of Revenues, the concession is auctioned to the private partner that offers the least present value of revenues from tolls.

Least Present Value of Revenues

In the case of the Least Present Value of Revenues Mechanism, the concession is auctioned to the private partner that offers the least present value of revenues from tolls.

LPVR Mechanism was first introduced in 1998 by Engel, Fischer and Galetovic as a new auction mechanism. However, eventually it turned out that the Least Present Value of Revenues is a very good approach to mitigating the traffic risk, which originates from uncertain future traffic demand.

Read More

Abandonment option enables the investor to stop the project if it turns out to be loss-making.

Abandonment Option

Abandonment option enables the investor to stop the project if it turns out to be loss-making.

That kind of example was the Taiwan High-Speed Rail Project, which links national capital Taipei and southern city Kaohsiung with 345 km of high-speed rail. Private partner had approximately 1 year time after the contract signing date to abandon the project. In pre-construction phase private partner gained additional information about the project and difficulties that he might expect in the course of construction and operation.

Read More

Deferment Option

Some infrastructure PPP projects are more profitable than others and sometimes the private partner needs to pay the public partner regular installments for granting a concession. However, it might happen that the project is not as profitable as planned and for that case the public partner grants the private partner the deferment of concession payment. The deferment option is one of the real options.

This approach was used in case of The Transurban City Link project in Melbourne, Australia.

Read More

We help our clients with:

o Defining public incentives
o Valuation of public incentives
o Valuation of risk
o Feasibility studies
o Assistance and representation in negotiations
o Services of state aid

Our Vision

"We have a vision that in a world surrounded with risk, there should be someone who will consult clients all around the globe about how much their risk is worth and how feasible their project is. And when we say how much risks and projects are worth, we believe that their value should be expressed in numbers rather than in words."

Merging Real Options and PPP

With our proficiency in Public-Private Partnership infrastructure projects and Real Options Valuation we successfully solve the most challenging problems regarding the risk, real options and feasibility of planned infrastructure Public-Private Partnership undertakings.

"Risk comes from not knowing what you're doing."
-Warren Buffett

REAL OPTIONS CONSULTING

At Real Options Consulting Ltd, we are merging real options and PPP.

Company

Real Options Consulting Ltd is a company specialized in the valuation of risks and real options in infrastructure Public-Private Partnership projects.

We bring to our clients the best of theory and practice of Real Options and Public-Private Partnership with the purpose of creating the most suitable solutions for them.

Contact Us

Real Options Consulting Ltd 20-22 Wenlock Road, London, N1 7GU
United Kingdom
Website: http://www.ppp-infrastructure.com
Email: [email protected]
Phone: +44 70 2403 4340