RISK MANAGEMENT IN PPP: REAL OPTION THEORY

Transcription

1 RISK MANAGEMENT IN PPP: REAL OPTION THEORY Carbonara N., Costantino N., Pellegrino R., Sciancalepore F. Dipartimento di Ingegneria Meccanica e Gestionale Politecnico di Bari r.pellegrino@poliba.it Symposium Public Private Partnerships in Transport: Trends & Theory 1

2 Outline Introduction Real Option Theory Research motivation Research Objective Symposium Public Private Partnerships in Transport: Trends & Theory 2

3 Introduction The complexity of procurement regulation and management increases passing from traditional construction contracts to PPPs for infrastucture Risk allocation Duration Financing Symposium Public Private Partnerships in Transport: Trends & Theory 3

4 Introduction Risk allocation PPP requires the analysis and allocation of a broader spectrum of risks Risks should be allocated to the party who is best able to manage them Transferred as well as retained risks should be adequately assessed and managed to assure PPP success A way of doing this is through the definition and addition of flexibility elements into contractual relationships Flexibility can be build, for example, by introducing special clauses which can alter the timing and sequence of activities and reduce risks Symposium Public Private Partnerships in Transport: Trends & Theory 4

5 Introduction Duration Long duration of PPP contracts increases the uncertainty and requires that all project participants assess and manage risk proactively Private financing Investment opportunities have to be carefully evaluated also taking into account the uncertainty evolution IMPORTANCE OF FLEXIBILITY IN RISK MANAGEMENT AND EVALUATION Symposium Public Private Partnerships in Transport: Trends & Theory 5

6 Introduction Traditionally economic feasibility of projects was analyzed by methods based on DCF, such as NPV. These methods tend to ignore the existence and value of the managerial flexibility, that naturally exists or is built artificially through contractual conditions and clauses, guarantees, and so on Real cash flows can differ from the forecasted values due to both uncertainty and managerial flexibility Symposium Public Private Partnerships in Transport: Trends & Theory 6

7 Motivation of research Need for management and evaluation of risks Need for tools of risk transfer and mitigation for PPP success Application to PPP of (new) techniques for estimating the value of managerial flexibility and risk mitigation, such as Real OptionTheory Symposium Public Private Partnerships in Transport: Trends & Theory 7

8 Real Option Theory Real Option Theory is a natural extension of the theory of financial option pricing to projects and assets of the real world A real option is the right, but not the obligation, to take some actions in the future (if they are convenient) against a fixed predefined cost to acquire this right The concept of managerial flexibility in PPP can be described and modeled by real options possibility of taking some actions in the future by spending a certain cost to acquire this right Techniques of real option pricing for assessing the value of managerial flexibility and its impact on project risk Symposium Public Private Partnerships in Transport: Trends & Theory 8

9 Research Objective Define and analyze tools and solutions (e.g., contractual clauses, conditions, guarantees, and so on) aimed at increasing flexibility and mitigating risks into PPP transactions/contracts Analyze and develop an approach, based on real options, to assess risks and their mitigation tools in PPP Develop a framework to assess the risk exposition by public party, to be used also in the definition of Value for Money and Public Sector Comparator (PSC) Analyze the current adoption of risk mitigation tools in PPP all over the world, how they are adopted and possible guidelines suggested by legislation Symposium Public Private Partnerships in Transport: Trends & Theory 9