Determining contract conditions in a PPP project among deep uncertainty in future outturn travel demand

Kangsoo Kim (), Jinseog Kim (), Hyejin Cho () and Donghyung Yook ()
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Kangsoo Kim: Korea Development Institute
Jinseog Kim: Dongguk University
Hyejin Cho: Korea Institute of Civil Engineering and Building Technology
Donghyung Yook: Korea Research Institute for Human Settlements

Transportation, 2024, vol. 51, issue 3, No 7, 937-961

Abstract: Abstract Accurate travel demand forecasting is crucial before finalizing the decision to implement a public–private partnership (PPP). While government needs to determine the government payments (GPs) and level of user fee, private investors need to evaluate financial feasibility. However, travel demand forecasting involves a deep uncertain future, which relies on other exogenous forecasts. Plain reliance on the best available estimates often causes negative consequences. This study implements a many-objective robust decision-making (MORDM) framework to minimize the vulnerabilities and negative effects that deep uncertainty in travel demand forecasts might have on the PPP project. The MORDM framework is established to allow the government and private partner to pursue their objectives and identify the plausible minimum revenue guarantee and level of user fee conditions in the presence of deep uncertainties in travel demand forecasts. Results from a case study on a Korean railway PPP project illustrate that there exists a significant risk of GPs to private partners under the contracted demand incorporated within the current contract conditions. The GPs have been estimated under the current contract conditions, considerably higher than under robust contract conditions. Similarly, the net present value (NPV) under the robust contract conditions is lower than the NPV under the current contract conditions. Unlike previous approaches, the study provides an alternative to prediction-based analysis that could determine contract conditions by minimizing any negative effects caused by deep uncertainty in future outturn travel demand.

Keywords: Deep uncertainty; Travel demand forecast; PPP; MORDM; Contract conditions (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11116-022-10354-0

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