Reasonable concession period for build-operate-transfer road projects in the Philippines

This paper provides a methodology to determine the reasonable concession period that would be advantageous both to the government and the private sector with the impact of risks taken into consideration in the financial evaluation using Monte Carlo simulation and bargaining game theory. The simulation produced a range of concession period for the private sector and government to negotiate. Bargaining game theory was employed in an attempt to find a specific concession period. To demonstrate the applicability of the proposed methodology, two Build-Operate-Transfer (BOT) road projects in the Philippines were used as case studies. The resulting concession period was found to be longer than the actual concession period granted to the private sector indicating the impact of risks in the cash flow. With the proposed methodology, the government could further enhance its policies in processing BOT projects with the end in view of increasing private sector participation in infrastructure development.