BEPAM Issue 3.2 (Vol. 3 Issue 2) CONTENTS and EDITORIAL

Built Environment Project and Asset Management

BEPAM Issue 3.2 (Vol. 3 Issue 2) CONTENTS:

Financial anatomy of E4 Helsinki-Lahti shadow toll PPP-project
Pekka Leviäkangas, Marcus Wigan, Harri Haapasalo


Fiscal effects and public risk in public-private partnerships
Emmanouil Sfakianakis, Mindel van de Laar


Real option theory for risk mitigation in transport PPPs
Roberta Pellegrino, Nevena Vajdic, Nunzia Carbonara


Comparison of revenue guarantee programs in build-operation-transfer projects
Kohei Asao, Takashi Miyamoto, Hironori Kato, Crispin Emmanuel D. Diaz


Use of key performance indicators for PPP transport projects to meet stakeholders’ performance objectives
Goran Mladenovic, Nevena Vajdic, Bjorn Wündsch, Alenka Temeljotov-Salaj


Can the pilot public-private partnerships project be applied in future urban rail development?: A case study of Beijing Metro Line 4 project
Tingting Liu, Suzanne Wilkinson


A PPP renegotiation framework: a road concession in Greece
Nikos Nikolaidis, Athena Roumboutsos




BEPAM Issue 3.2 (Vol. 3 Issue 2) EDITORIAL:


Public Private Partnerships in Transport: Theory and Practice[1]


Athena Roumboutsos[2]

Department Shipping, Trade and Transport, University of the Aegean, Chios, Greece


Rosário M. R. Macário,

Departamento de Engenharia Civil, Arquitectura e Georrecursos, Instituto Superior Técnico





An introduction to the Special Issue on Public Private Partnerships in Transport: Theory and Practice, to justify its need, to highlight key issues and propose future research in response to current and future challenges.


Setting the context of Public Private Partnerships (PPPs) in Transport, the key issues of this infrastructure and service delivery model are highlighted through the authors’ critical description of the contributions in the Special Issue, which present a balanced presentation of Theory and Practice.


The Editorial summarises critically and constructively the findings of the contributions to the Special Issue and based on these put forward the need for research in new assessment methodologies and the need to develop appreciating projects.

Research Implications:

Issues identified in combination with current macro-economic and social developments lead to the proposal of research needs that need to be addressed in support of the next generation of PPPs in the transport sector and not only.

Practical Implications:

The contributions to this Special Issue were selected so as to offer examples from practice and describe them through theory so as to enhance the understanding of the factors influencing the implementation of the PPP model of project delivery in the transport sector.

Social implications:    

The Special Issue on PPPs in Transport: Theory and Practice highlights the need for the development of new structures and new concepts that will lead to value creation, value capture and value continuation in order to address sustainably societal challenges in mobility.


The Special Issue with respect to PPPs in transport is timely with respect to international developments and questions raised with respect to the applicability of the project delivery model. Research proposed for the next generation of PPPs presents the context of value creation, value capture and value continuation.


Keywords: Public Private Partnerships, Transport Sector, Private Finance





  1. 1.Introduction

Public Private Partnerships (PPPs) have been established as a common alternative for governments to deliver major infrastructure projects. The project delivery scheme, in many cases, has been advanced by the need to respond to public sector needs for infrastructure, restrict public sector spending, leverage public funds and exploit private sector skills in management, operation and innovation based on an equitable sharing of project risks between the contracting parties. The transport sector has especially benefited from the PPP scheme furthered by the need to address negative externalities and endorse international trends in transport policy, including deregulation of the transport market.

As such, PPPs have been the object of interest for both academia and practitioners and significant contributions have been made to the international literature in this respect. However, as presented by Tang et al (2010) in their review of PPP journal publications between 1998 and 2007, the majority of publications concerned empirical based research with a focus on case studies and survey findings. This constitutes evidence that Practice has been leading knowledge creation. It also explains the fragmented knowledge existing with respect to PPPs. Addressing this issue COST Action TU1001 on “Public Private Partnerships in Transport: Trends and Theory” was established to promote theoretical development and combine findings. On a similar course, the taskforce TG72 of the CIB set respective targets concerning the entire spectrum of PPP sectors. Furthermore, the global downturn of the economy and new regulations in the banking system has contributed to the identification of shortcomings in the implementation of PPP projects and a slowdown in the PPP market (cf. EPEC, 2013). In order to address issues, new models need to be deployed based on sound theoretical research, capable to provide predictions and forecasts of outcome in support of the decision-making process and PPP performance. In this context, the transport sector is of particular interest: it represents the sector, where PPPs have been mostly applied; it is the sector mostly affected by the economic downturn; and, finally, it is the sector with increasing public needs seen as an important factor for growth.

Theoretical constructs can only be justified through close ‘‘partnership’’ with market developments and this special issue includes contributions to this effect. Papers have been selected so as to highlight the key aspects of PPPs in the transport sector combining either individually or in combination Theory and Practice.

They also set the framework for future research needs in support of the successful and mutual beneficial contribution of the private sector in transport infrastructure and services delivery.


2. Key Issues of Transport PPPs

In the quest for public sector Value for Money (VfM), many PPP models have been employed. All have a common denominator: the use of private capital for financing and/or funding (through user charges or taxes) an infrastructure and/or service. Identifying and comparing with the “anti-monde” is a principal problem, even in the ex-post situation as developed by Leviäkangas, Wigan, and Haapasalo (2013) with respect to the E4 Helsinki-Lahti road, which was built in 1995-1999 in Finland as the first real PPP project. In their cash flow based approach they compared the economics of PPP versus traditional procurement of road infrastructure projects to conclude that win-win situations are hard to find in shadow toll arrangements. This is largely due to the different discount rates used by investors and the public sector (Roumboutsos, 2010). So, if the societal benefits remain constant, the PPP model can hardly be justified. Furthermore, they emphasize the fact that in most cases, the public sector does not include all costs in its appraisal as opposed to the private investors, who, in principle and as a rule, price all of the relevant risks and uncertainties of which they are cognisant.

Admittedly, in the public conscious, infrastructure, and more so transport - as it is linked to the right of mobility, has for long been a public asset. In this approach, it has been taken for granted and the investments in it have seldom, if ever, been risk-priced by the public sector.

However, risk has a cost. Sfakianakis and van de Laar (2013) highlight the fact that PPPs can impose important future costs on the government, which in turn create obligations similar to public debt obligations for financing infrastructure investment. Government guarantees, typical in PPP contracts, constitute explicit contingent liabilities, which should be transparently valued to assess a country’s fiscal profile. A risk, often ignored in PPP literature, is government default or inability to correspond to obligations stemming from the PPP commitment. The authors use data from Chile for the period 1990-2007. In their approach, the public risk is priced by introducing a credit default swap (CDS). They conclude that from a government’s perspective, PPPs do not differ too much from typical public investment: explicit contingent obligations arising from PPPs are similar to sovereign debt commitments and project costs will burden taxpayers at some point in the future.

Pricing of risk as allocated to parties is, therefore, an important element of the PPP setting and managing these risks is dynamic, corresponding to their evolution over time. Taking stock of managerial flexibility may increase the “value” of the project and this is modelled as a “real option”, which represents the price of acquiring the right to take an action in the future (Dixit and Pindyck, 1995; Trigeorgis, 1996) and allows the proactive management of risks (Cheah and Garvin, 2009). Here, a significant gap exists between theory and practice. Pellegrino, Vajdic and Carbonara (2013) effectively propose to bridge this gap by framing mitigation strategies for transport infrastructure projects as real options and proposing an option-based risk management framework. While, the pricing of a real option is a challenge, this approach highlights the fact that PPPs over their contract life-cycle also present opportunities for both the private and the public sector.

Considering the real option approach, Asao, Miyamoto, Kato and Diaz (2013) compare the two basic types of revenue guarantee programs: a payment-based annual and a period-extension-based cumulative revenue guarantee program. Using Monte Carlo simulation applied to a toll road project in the Philippines, they find that the cumulative revenue guarantee program provides better pay-offs to the public but may significantly undermine the business initiatives of the private sector as risk is significantly capped.  

Monitoring performance, then, seems to be the solution and introduces the need to include in the PPP agreement performance indicators in order to limit strategic behaviour and achieve value for money, which cannot be established on a purely financial basis. The literature review carried out by Mladenovic, Vajdic, Wündsch and Temeljotov Salaj (2013) identified a number of Key Performance Indicators (KPIs), which in general may be group as technical, operational/functional and financial. Surprisingly, there was no reference with respect to innovation or wider societal benefits that are usually considered as drivers for infrastructure delivery by the private sector. This finding is also in line with cases reported in the 2013 P3T3 Discussion Papers (Roumboutsos et al, 2013). This is despite the fact that PPP success has been suggested (cf. Grimsey and Lewis, 2004) to depend on the capabilities of the private sector partner.

Liu and Wilkinson (2013) identified “capabilities” of both the public and private sector to be a key success factor for Beijing Metro Line 4 Project. Notably, the Beijing project was seen as a “golden line” because of its location, size of construction and anticipated traffic volume, which contributed to ensuring its revenue streams and financial viability. It also initiated a pipeline of urban rail projects increasing its attractiveness to potential private sector investors. Appropriate risk allocation, however, was again emphasized as the decisive factor to success.

While, practitioners and academia have placed emphasis on properly allocating risks, evidence on transport PPPs (cf. Guasch, 2004 and Baeza and Vassallo, 2010) indicates that agents settled on plans that seemed complete at the agreement stage and proved incomplete at a later time due to incomplete or asymmetric information ex-ante, due to policy trade-offs (cf. Flyvbjerg et al, 2005), due to the specificities of transport infrastructure risks (Roumboutsos et al, 2012), due to the competitive nature of the transport market (Preston, 2012) or due to unexpected downturns in the local or global economy as currently experienced. Traffic/ revenue risk has been a source of major PPP contract renegotiations. These are accompanied by residual-rights, asymmetries in information and potential “hold-up” leading to unsatisfying renegotiated contracts and the increase in transaction costs. In these cases, Nikolaidis and Roumboutsos (2013) show that the outcome is less related to mutual benefits and more on how strategic power is distributed within the stakeholder network.


3. Research in support of the next generation of PPPs in Transport

The contributions to this special issue suggest the need to re-asses the driving factors of the PPP model. Value for Money (VfM) seems to be a limiting factor as it concentrates, primarily, on value capture at the time of conception, or at the start of operation, while the issue is to identify solutions for keeping value in PPPs sustainable in the long run. Risk allocation, while recognised to be central in the development of the PPP arrangement, it is neither optimal nor accurately priced for both the public and private sector agents involved. Performance is rarely monitored with respect to value generating aspects such as innovation or the societal benefits of accessibility or addressing global challenges (eg. climate change, health, the ageing population, safety and security etc). This puts a strain on the arrangement, especially in the transport sector, which is vulnerable to global macro-economic and societal changes, as these reflect on transport demand and, consequently, on anticipated revenue streams.

These considerations prevail as challenges in creating, capturing and continuing value.

Transport PPP projects and the level of private sector contribution need to be carefully designed for value creation on a “1st best approach” in order to include value assessment for all stakeholders involved over time. Notably, transport infrastructure projects are part of a wider public planning process: they are part of the transport network; they reflect on land value; they follow developments in fast-track sectors such as the ICT and energy. Assessing this value exceeds the potential of the traditional CBA (Cost Benefit Analysis). Even MCA (Multi Criteria Analysis) tools may not be adequate. Developing new assessment methods by which to capture and continue value may be timely and important in minimizing strategic behaviour.

This approach to value assessment, introduces an additional important aspect: how to construct an appreciating transport infrastructure and/or service. What levels of flexibility are needed and how are they priced.

These are issues that currently, and more so in the future, concern practitioners and the academic community. This will require the development of analytical models and frameworks. These would need to be tested on a wider set of cases bringing to the foreground the deficit in the number of PPP projects for which there is available and accurate information over time. This deficit needs to be addressed.

Hence, the need for PPPs Theory and Practice continues…



Asao, K., Miyamoto, T., Kato, H., and Diaz, C. (2013) Comparison of Revenue Guarantee Programs in Build-Operation-Transfer Projects, this issue

Baeza, M. A. and & José Manuel Vassallo, J. M. (2010), “Private concession contracts for toll roads in Spain: analysis and recommendations”, Public Money & Management, Vol. 30 (5), pp. 299-304

Cheah, Y.J. and Garvin, M.J. (2009), “Application of Real Options in PPP Infrastructure Projects: Opportunities and Challenges”, In: Policy, Finance & Management for Public-Private Partnerships, Akintoye, A. and Beck, M. (eds.). Blackwell Press.

Dixit, A. and Pindyck, R. (1995), “The options approach to capital investment”, Harvard Business Review.

EPEC, (2013) Market Update:Review of the European PPP Market in 2012, European Investment Bank Publications,

Flyvbjerg, B., M., Skamris, M., Holm and Buhl, S. L. (2005), "How (In)accurate Are Demand Forecasts in Public Works Projects? The Case of Transportation", Journal of the American Planning Association, Vol. 71, No. 2, pp. 131-146.

Grimsey, D. & Lewis, M. (2004) Public private partnerships: the worldwide revolution in infrastructure provision and project finance, Northampton, MA, Edward Elgar Publishing.

Guasch, J.L. (2004), “Granting and Renegotiating Infrastructure Concessions: Doing it right”, Washington, DC. The World Bank.

Leviäkangas, P., Wigan, M., and Haapasalo, H. (2013) Financial anatomy of E4 Helsinki-Lahti shadow toll road, this issue

Liu, T. and Wilkinson, S. (2013) Can the pilot Public-Private Partnerships project be applied in future urban rail development? A Case Study of Beijing Metro Line 4 Project, this issue

Mladenovic, G. Vajdic, N., Wündsch, B., and Temeljotov Salaj, A. (2013) Use of Key performance indicators for PPP transport projects to meet stakeholders’ performance objectives, this issue

Nikolaidis, N. and Roumboutsos, A. (2013) A PPP Renegotiation Framework: A Road Concession in Greece, this issue          

Pellegrino, R., Vajdic, N. and Carbonara, N. (2013) Real option theory for risk mitigation in transport PPPs, this issue

Preston, J. (2012) Integration for seamless transport, International Transport Forum Discussion Paper, No. 2012-1,

Roumboutsos, A. (2010) Sustainability, social discount rates and public procurement. International Advances in Economic Research, Vol. 16(2), pp. 165 – 174

Roumboutsos A., Pellegrino, R., Vanelslander, T. and Macario, R. (2012) Risks and Risk Allocation in Transport PPP projects: a literature review In Roumboutsos Α. and Carbonara, N. COST Action TU1001, Public Private Partnerships: Trends & Theory, 2011 Discussion Papers, ISBN 978-88-97781-04-2

Roumboutsos, A., Farrell, S., Liyanage, C. and Macário, R. (2013) COST Action TU1001, Public Private Partnerships: Trends & Theory, 2013 Discussion Papers, Part II, ISBN 978-88-97781-61-5

Sfakianakis, E. and van de Laar, M. (2013) Fiscal effects and public risk in public-private partnerships (PPPs), this issue        

Tang, L.Y., Shen, Q. and Cheng, E.W.L. (2010) A review of studies on Public–Private Partnership projects in the construction industry, International Journal of Project Management, Vol. 28, pp. 683–694

Trigeorgis, L. (1996), Real options: Managerial flexibility and strategy in resource allocation, MIT, Cambridge.


[1] The Special Issue is the culmination and outcome of one of the activities of COST Action TU1001 “Public Private Partnerships in Transport: Trends & Theory (P3T3), in conjunction with CIB TG 72 on Public Private Partnership.

[2] Corresponding Author: A. Roumboutsos, Email: This email address is being protected from spambots. You need JavaScript enabled to view it.