Estimating Concession Period for Public Private Partnership (PPP)-based Infrastructure Development: Application of LCCA for Highway Projects Thesis of Master of Science By Engr. Fahim Ullah (NUST201362138MSCEE15413F) Department of Construction Engineering and Management National Institute of Transportation (NIT) School of Civil and Environmental Engineering (SCEE) National University of Sciences and Technology (NUST), Islamabad, Pakistan. August,

Estimating Concession Period for Public Private
Partnership (PPP)-based Infrastructure

Development: Application of LCCA for Highway
Projects
Thesis of
Master of Science
By
Engr. Fahim Ullah
(NUST201362138MSCEE15413F)
Department of Construction Engineering and Management

National Institute of Transportation (NIT)
School of Civil and Environmental Engineering (SCEE)
National University of Sciences and Technology (NUST),
Islamabad, Pakistan.
August, 2015
This is to certify that the
thesis titled
Estimating Concession Period for Public Private Partnership

(PPP)-based Infrastructure Development: Application of LCCA
for Highway Projects
Submitted by
Engr. Fahim Ullah
(NUST201362138MSCEE15413F)
has been accepted towards the partial fulfillment

of the requirements for the degree of
Masters of Science in Construction Engineering and Management
_____________________________
Dr. M. Jamaluddin Thaheem

Supervisor,
Department of Construction Engineering and Management,
NICE, National University of Sciences and Technology (NUST), Islamabad
ii
This thesis is dedicated to my parents, siblings, grand-parents,
colleagues and my respected teachers!
iii
ACKNOWLEDGEMENTS
First and foremost I would like to thank Allah Almighty Who always
helped me throughout my life and to get through this research degree and thesis.
I would like to pay debt of gratitude to my supervisor Dr. M. Jamaluddin
Thaheem (HoD, CE&M), for his profound guidance and encouragement, to
complete this research work. I sincerely appreciate the valuable time, motivation
and personal support accorded by him. I am also extremely grateful to the
committee members, Dr. M. Bilal Khurshid, Dr. Hamza Farooq Gabriel, Dr.
Arshad Hussain and Engr. Kashif Ahmed Khan for their sincere guidance to
complete this research work. I owe my special thanks to my batch mates of CEM-
05 for their support and motivation throughout the course work and in the initial
research work. I am very grateful to all the respondents for their valuable
contribution to this research. And in the end I would like to pay my earnest and
honest gratitude to my family especially my parents for their unconditional support,
encouragement, prayers and patience.
iv
ABSTRACT
Public-Private-Partnership (PPP) is a widely adopted delivery method for
public infrastructure throughout the world. The factors affecting PPP and its
concession period have always presented complexities to decision makers. The
optimum concession period for any PPP based infrastructure project is very
important and sometimes conflicting; private parties attempt at not only ensuring
payback of capital amount but also getting attractive ROI (profit) thus seeking a
lengthy concession period, but the public entity ensures timely transfer of the
constructed facility/infrastructure all the while assuring customer satisfaction and
high quality of service. To make matters worse, the concession agreements rarely
take into consideration the life cycle cost of constructing, operating and
maintaining the infrastructure. In order to reconcile this critical conflict of interest,
the proposed research aims at improving the concession period estimation by
incorporating the probabilistic LCCA as well as System Dynamics.
This will help parties involved in PPP initiatives better understand the
financial implications of their undertaking: the private parties may ensure
substantial profit on top of capital expenditure along with the confidence of closure
within planned and mutually agreed upon time. The donor agencies, which
otherwise have trepidation regarding the extension of concession, causing either
loss of cash flow or negatively affecting the financial viability of the constructed
facility, may make critical decisions based on better estimates – following their
long-term investment policies and exposing optimum levels of portfolio. The
v
public entity, on the other hand, may figure out the optimum amount of toll/tariff to
be charged from the users, as well as timely transfer of rights from concessionaire.
The decision-making implications of this research deal with donor
confidence at the planning phase as well as monitoring the concession period as the
increased certainty of such period will encourage other funding agencies to invest
in the infrastructure development. This will also impact the economic and social
sector development indices of the country. This study attempts to provide a win-
win-win decision making process for considering the significant factors by
formulating a decision making equation. It further classifies and arranges these
factors on the basis of literature review. As a result the existing research from 2005
to 2015 was classified into 6 groups and 3 areas of influence containing a total of
59 factors with the factor involved risk’s severity [in PPP projects] having
maximum frequency. The practical implications of this matrix facilitate the
decision makers in critical scenarios. The discussion and conclusions are expected
to trigger an interesting debate over the criticality of decision making factors for
estimating the concession period as reported in the literature.
vi
Table of Contents
ACKNOWLEDGEMENTS ......................................................................... iv
ABSTRACT...................................................................................................v
List of Abbreviations .....................................................................................x
List of Figures .............................................................................................. xi
List of tables ............................................................................................... xiii
Chapter 1 .......................................................................................................1
INTRODUCTION .........................................................................................1
1.1 Inputs....................................................................................................1
1.1.1 Introduction ...................................................................................1
1.1.2 Private Finance Initiative ..............................................................3
1.1.3 PPP (Public Private Partnership) ..................................................4
1.1.4 PPP in Pakistan .............................................................................5
1.2 Tools and Techniques ..........................................................................9
1.2.1 Life Cycle Cost Analysis (LCCA) ................................................9
1.2.2 Inputs to LCCA ...........................................................................11
1.2.3 The Need for Concession Period Estimation and Use of LCCA 14
1.2.4 Systems Dynamics ......................................................................20
1.3 Outputs ...............................................................................................23
1.3.1 Objectives of the Research..........................................................23
1.3.2 Relevance to National Needs ......................................................23
1.3.3 Advantages ..................................................................................23
1.3.4 Areas of Application ...................................................................24
Chapter 2 .....................................................................................................25
LITERATURE REVIEW ............................................................................25

vii
2.1 Inputs..................................................................................................25
2.1.1 Introduction to PPP .....................................................................25
2.2 Tools & Techniques ...........................................................................27
2.2.1 Identification of factors affecting concession period ..................27
2.2.2 Grouping of the factors ...............................................................32
2.2.3 Areas affected by the factors.......................................................36
2.2.4 Yearly distribution of the factors ................................................62
2.3 OUTPUTS..........................................................................................70
2.3.1 Frequency analysis ......................................................................70
2.3.2 Decision making matrix ..............................................................73
Chapter 3 .....................................................................................................62
RESEARCH METHODOLOGY.................................................................75
3.1 Inputs..................................................................................................75
3.2 Tools and Techniques ........................................................................75
3.2.1 Pilot Survey.................................................................................75
3.2.2 Initial Questionnaire....................................................................77
3.2.3 MODAL Analysis .......................................................................81
3.3 Outputs ...............................................................................................84
3.3.1 Top 10 factors Identification.......................................................84
3.3.2 Developing an LCCA model for top 10 factors ..........................88
Chapter 4 ...................................................................................................100
RESULTS AND SYNTHESIS ..................................................................100
4.1 Tools and Techniques ......................................................................100

4.1.1 The gap between the academia and Industry ............................100
4.1.2 The gap between Academia and Pakistani Industry .................103
4.2 Outputs .............................................................................................106
4.2.1 The Overall gap between Industry and Academia ...................106
4.2.2 Developing the equation for Concession period Improvement
............................................................................................................106
4.2.3 Synthesis ...................................................................................112
viii
4.2.4 Case Projects .............................................................................115
4.2.5 Discussion .................................................................................123
Chapter 5 ...................................................................................................124
CONCLUSIONS AND RECOMMENDATIONS ....................................124
5.1 Inputs................................................................................................124
5.1.1 Literature review .......................................................................124
5.1.2 Methodology .............................................................................125
5.1.3 Results .......................................................................................125
5.2 Tools & Techniques .........................................................................125
5.2.1 Achieving the objectives ...........................................................125
5.2.2 Concluding the Objectives ........................................................126
5.3 Outputs .............................................................................................128
5.3.1 Summarizing the conclusions ...................................................128
5.3.2 Recommendations .....................................................................128
5.3.3 Recommendations for further research .....................................129
REFERENCES ..........................................................................................131
ix
LIST OF ABBREVIATIONS
PPP = Public Private Partnership
EPA = Environmental Protection Agency
EU = European Union
GOP = Government of Pakistan
NHA = National Highways Authority
GDP = Gross Domestic Product
HSE = Health, Safety and Environment
FWO = Frontier Works Organization
ISO = International Organization for Standardization
HDI = Human Development Index
NPV = Net Present Value
SD = Systems Dynamics
CP = Concession Period
IPO = Input Process Output
PMBOK = Project Management Body of Knowledge
BOT = Build Operate Transfer
VGF = Viability Gap Fund
x
LIST OF FIGURES
Figure 1: Sketch of NPV approach ..............................................................11
Figure 2: System diagram for areas affected ...............................................43
Figure 3: Factors appearance frequency chart .............................................61
Figure 4: Factors identification chart (2005-2012) ......................................69
Figure 5: Factors repetition chart (2012-2015) ............................................70
Figure 6: Factors frequency v/s areas affected ............................................74
Figure 7: Pilot Survey options .....................................................................77
Figure 8: 3D cube showing allocation of factors .........................................88
Figure 9: Systems Diagram for model .........................................................90
Figure 10: SD model for calculating concession period ..............................91
Figure 11: Revenue stream ..........................................................................92
Figure 12: Involved risk severity .................................................................93
Figure 13: NPV ............................................................................................94
Figure 14: Return on investment..................................................................95
Figure 15: Construction cost ........................................................................95
Figure 16: Operational revenue in year .......................................................96
Figure 17: Income in year ............................................................................97
Figure 18: Market situation..........................................................................98
Figure 19: Traffic count ...............................................................................98
Figure 20: Size of investment ......................................................................99
Figure 21: Comparison of Academia and Industry ....................................102
Figure 22: Pakistani industry vs Academia ...............................................105
xi
Figure 23: Normal behavior for Concession period ..................................113
Figure 24: If only risks are increased .........................................................113
Figure 25: Worst ever possibilities for 20 year CP0 ..................................114
Figure 26: Best possible conditions ...........................................................114
Figure 27: Data from responses .................................................................115
xii
LIST OF TABLES
Table 1: Different forms of PFI 17

Table 2: PPP Projects in Pakistan 19
Table 3: Identified Factors with their references 42
Table 4: Functional and characteristic groups 47
Table 5: Groups with their factors 47
Table 6: Areas affected by the factors 50
Table 7: Appearance of factors and their criticality 64
Table 8: Yearly appearance of the factors 76
Table 9: Initially identified factors in year 2005 79
Table 10: Frequency Analysis 85
Table 11: Names and Countries of experts 92
Table 12: Questions from questionnaire and average response score 93
Table 13: Modal analysis of responses 96
Table 14: Top 10 factors from Industry 98
Table 15: Top 10 factors from literature 98
Table 16: Total score of factors 100
Table 17: Deviation table for both scores 114
Table 18: Deviation of Pakistani industry and Academia 117
Table 19: Industrial score and year of identification by Academia 120
Table 20: Table for % effect 124
Table 21: Modified % effect table 124
Table 22: Data from Lahore-Sheikhopora-Faisalabad Dual Carriageway 130
Table 23: Data Obtained from Lahore Islamabad Motorway (M-2)
Overlay and Rehabilitation Project 133
Table 24: Data of Lahore Sialkot Motorway Project 134
xiii
Table 25: Data of M-9 Project 136
Table 26: Achieving the objectives 139
xiv
Chapter 1
INTRODUCTION
The input–process–output (IPO) model, or input-process-output pattern, is a

widely used approach in systems analysis for describing the structure of an information
processing program or other process. Many introductory programming and systems
analysis texts introduce this as the most basic structure for describing a process. (Goel,
2010). A program or process using the input-process-output model receives inputs from
a user or other source, does some computations on the inputs, and returns the results of
the computations.
This method is widely used in construction engineering and management related

documentation and is also adopted by the Project Management Body Of Knowledge
(PMBOK).This thesis follows the same format.
1.1 INPUTS
1.1.1 Introduction
The private sector’s participation in infrastructure funding and management is

growing around the world and this increase is taking especial relevance in the case of
road projects (toll roads) and other PPP projects (Albalate et al., 2013). Recently noted
1
that as the size of the private sector increases in the road projects in Europe, the more
detailed and specific its regulation becomes. Privatization of construction projects is an
emerging market in the US too. Indeed, there have been significant Greenfield projects
in the US since the early 90s, such as the Dulles Greenway (MWAA, 2012) opened in
1995. More recently several Brownfield privatizations have occurred: the Chicago
Skyway in 2005, the Indiana Toll Road in 2006, and the Pennsylvania Turnpike in
2008, within a more general trend that includes prospects for privatization of roads in
New Jersey, as well as build-operate-and-transfer (BOT) concessions in Texas.
Therefore, the described wave of privatization is accompanied by a renewed interest on
the way the public sector regulates, and this interest can be explained by the
redistributive effects that can arise by the fact of giving the right to exploit a network
asset as a motorway (Albalate and Bel, 2009).
In recent years there has been a proliferation of schemes promoting cooperation

between the public and private sectors to provide infrastructure development over a
wide range of economic activities. Governments in many different parts of the world
have embraced these Public-Private Partnership (PPP) arrangements. One stated reason
for these developments is a concern over public expenditure. These arrangements are
often presented as a core part of “modernizing public services, so there is a claim that
such initiatives are part of improving the quality and efficiency of public services”
(Fairbrother, 2003; Albalate and Bel, 2009).
However, while this is a positive view of PPPs, many take a more skeptical view
of their value, pointing to their complexity, the short-term and long-term costs and the
consequences for labor and those reliant on public services (Demirag et al., 2011).
Decision making for concession period of PPP projects has always been tricky for the
parties associated and various factors have been identified over the years that help
propose such duration of concession period which allows for overall advantage. From
year 2005 till 2012 significant work has been performed on finding and identifying the
factors which affect this length. And from 2012 onwards, the research has been applied
in nature and the already identified factors are repeated with no new factors being
recognized. During this time, the severity of risk associated with PPP projects have
2
received significant attention from researchers around the world and due considerations
have been given to these projects.
This thesis attempts to collect and synthesize the performance and decision
factors which may be formulated/formalized as policy guidelines regarding PPP
projects. Further, it attempts to provide a decision making criteria for determining major
components of a concession period by using the analysis of the factors identified from
the literature and their effects on the three parties to the PPP arrangement i.e. the user,
the concessionaire and the public body.
1.1.2 Private Finance Initiative
Private Finance Initiative (PFI) projects are usually long-term contracts for
services that include the provision of associated facilities or properties. Under the
contract, the private sector entity will have responsibility for designing and constructing
the building or facility and maintaining and servicing it throughout the contract term
(Fairbrother, 2003)
In the PFI model, the private sector assumes responsibility for the design,
construction and operation of an infrastructure facility. In this model, the public sector
purchases infrastructure services from the private sector through a long-term agreement.
PFI projects, therefore, bear direct financial obligations to the government in any event
(Zawawi et al., 2014). In addition, explicit and implicit contingent liabilities may also
arise due to loan guarantees provided to the lenders and default of a public or private
entity on non-guaranteed loans. In the PFI model, asset ownership at the end of the
contract period is generally transferred to the public sector. Setting up of a Special
Purpose Vehicle (SPV) may not be always necessary. A PFI contract may be awarded to
an existing company. For the purpose of financing, the lenders may, however, require
the establishment of an SPV (Takim, 2009). The PFI model also has many variants. In a
PFI project, as the same entity builds and operates the services, and is paid for the
successful supply of services at a pre-defined standard, the SPV-private company has no
incentive to reduce the quality or quantity of services. This form of contractual
agreement reduces the risks of cost overruns during the design and construction phases
or of choosing an inefficient technology, since the operator’s future earnings depend on
3
controlling the costs (Ke et al., 2010). The public sector’s main advantages lies in the
relief from bearing the costs of design and construction, the transfer of certain risks to
the private sector, and the promise of better project design, construction and operation
(Rossi and Civitillo, 2014).
As per Davenport (2002), there are a variety of slightly different forms of PFI,
the most important of which are listed as shown in Table 1.
Table 1: Different forms of PFI
BOT build-operate-transfer DBO design-build-operate

BOO build-own-operate DBOM design-build-operate-
maintain
BLT build-lease-transfer DBFOM Design-Build-Finance-
Operate-Maintain
BOOM build-own-operate-maintain DOT design-operate-transfer
BOOT build-own-operate-transfer ROO rehabilitate-own-operate
BOOTT build-own-operate-train- ROT rehabilitate-operate-transfer
transfer
BTO build-transfer-operate DOT develop-operate-transfer
DBFO design-build-finance-operate PPP public private partnership
1.1.3 PPP (Public Private Partnership)
The Public Private Partnership (PPP) form of procurement is recognized as an

effective way of delivering value-for-money public infrastructure or services. It seeks to
combine the advantages of competitive tendering and flexible negotiation, and to
allocate risk on an agreed basis between the public sector and the private sector
(Carbonara et al., 2014). It is important that risk allocation is clearly communicated and
understood between the parties. It is thus essential for public clients and private bidders
to evaluate all of the potential risks throughout the project life. Public and private sector
4
bodies must place particular attention on the procurement process while negotiating
contracts for PPP to ensure a fair risk allocation between them (Carbonara et al., 2014).
In recent years there has been an increasing market of PPP for the development and
operation of infrastructure projects (Demirag et al., 2011). With the fast pace of market-
oriented transformation, a delicate balance has to be sought among private sector
capacity, government regulatory function and public satisfaction.
PPPs are contentious. The European Commission (2013) identifies four

principal roles for the private sector in PPP schemes:
• To provide additional capital;

• To provide alternative management and implementation skills;
• To provide value added to the consumer and the public at large;
• To provide better identification of needs and optimal use of resources.
PPP projects are usually long-term contracts for services that include the
provision of associated facilities or properties. Under the contract, the private sector
entity will have the responsibility for designing and constructing the building or facility,
and maintaining and servicing it throughout the contract term (Fairbrother, 2003;
Albalate and Bel, 2009). In practice, concessions do not always fit neatly into a single
category. However, the technical distinction between concessions and operating
concessions may be of great significance in respect of rules on public finances and
tendering.
1.1.4 PPP in Pakistan
In order to facilitate private investment, the Ministry of Finance, Government of

Pakistan, established the Infrastructure Project Development Facility (IPDF) and
Infrastructure Project Financing Facility (IPFF) in May 2006 to facilitate the preparation
and closure of PPP transactions between public sponsors and private investors and to
determine the funding gap for public funding for making transactions viable while
minimizing the cost for the public through competitive bidding (IPDF 2006).
According to National Highways Authority (NHA) a grand total of PKR

425,678 Million has been utilized so far in PPP projects as shown in the Table 2 (NHA
5
2013).
Table 2: PPP Projects in Pakistan
A) Projects at Implementation Stage
Length Approximate
Sr.
Cost
# Project Status
(Km) (Rs in Mil)
1 10 Service areas at M-2 - 1,125 Operational (13th Year)
N-25 Lakpass Tunnel

2 0.18 679 Operational (5th Year)
M-1 service areas at Indus
3 river - 689 Construction stage
Concession Agreement signed
M-1 Haro service areas in March 2013. Financial
4 - 260 Close stage.
Subtotal : 2,753
B) Procurement Stage
Length Approx.Cost
Sr.
# Project Status
(Km) (Rs in Mil)
1 Karachi-Hyderabad 136 21,000 Prequalification Completed, Bids
Motorway (M-9) to be received on 16-01-2014
Connecting Road Concession Negotiation Stage
Network for New 21 7,149
2 Benazir Bhutto
6
International Airport,
Islamabad
Multan - Muzaffargarh - Evaluaton is pending for want of
3 D.G Khan (N-70) 80 6,979 VGF Rs 1.5 Billion
4 Habibabad Bridge (N-5) - 831 Concession Approval Stage.
Overlay and Financial Evaluation is in hand

Modernization of and Letter of Support to be
5 Lahore-Islamabad 357 46,000 issued

Motorway (M2)
Improvement / widening of
6 N-5 from M-2/N-5 junction 20 6,162 Concession Negotiation Stage
to Wah underpass(Taxila)
Karachi Northern Bypass Financial Evaluation is in hand.
(M- 10) & Karachi - Hub Pending for want of Rs 3.7~6.5
7 Bypass (N-25) 63 12,130 Billion as VGF.
Subtotal : 100,251
C) Development Stage
Length Approx.Cost
Sr.
# Project Status
(Km) (Rs in Mil)
Pindi Bhattian to Faisalabad Shall be available for

1 Motorway (M-3) 53 4,770 investment in June 2014
after completion of
Commercial Feasibility.
2 Khanewal to Lodhran (E-5A) 100 24,000 Shall be available for

investment in June 2014
Shall be available for
7
Lodhran to Sukkur investment in Jun 2014
3 Throughway (E5B) 385 40,000 after completion of
Sukkur to Hyderabad Shall be available for

4 Highway (N-5) 350 21,000 investment in June 2014
after completion of
Havelian to Mansehra investment in Jun 2014
5 Expressway (E-35) 72 20,000 after completion of
Khushal Garh Additional investment in Dec. 2013
6 Bridge (N-80) -- 1,500 after completion of
Two Service Areas at River investment in Dec. 2013
7 Kabul on (M-1) -- 800 after completion of
234 70,000 Shall be available for

8 Multan – Rajanpur investment in Dec. 2013
Motorway after completion of
(M-5) Commercial Feasibility

9 Rajanpur – Shikarpur 226 56,000 investment in Dec. 2013
Motorway (M-6) after completion of
Commercial Feasibility
investment in July 2014
10 Tarnol - Fateh Jang (N-80) 32 3,604 after completion of
8
Karachi – Hub – Dureji investment in Dec. 2013
11 – Dadu Motorway (M-7) 350 81,000 after completion of

12 Nowshera–Peshawar (N-5) 43 - investment in June 2014
after completion of
investment in June 2014
13 Lahore - Multan (N-5) 335 - after completion of
- Commercial Feasibility.
SUB-TOTAL : 322,674
GRAND TOTAL (A+B+C): 425,678
1.2 TOOLS AND TECHNIQUES
1.2.1 Life Cycle Cost Analysis (LCCA)
LCCA is an engineering economic analysis technique that builds on the well-
founded principles of economic analysis to evaluate the over-all long-term economic
efficiency between competing alternative investment options. It does not address equity
issues. It incorporates initial and discounted future agency, user, and other relevant costs
over the life of alternative investments. It attempts to identify the best value (the lowest
long-term cost that satisfies the performance objective being sought) for investment
expenditures (USDOT, 2002).
LCCA can be used to study new construction projects and to examine
preservation strategies for existing transportation assets. LCCA considers all agency
9
expenditures and user costs throughout the life of an alternative, not only initial
investments. More than a simple cost comparison, LCCA offers sophisticated methods
to determine and demonstrate the economic merits of the selected alternative in an
analytical and fact-based manner. LCCA helps transportation agencies answer questions
like these:
• Which design alternative results in the lowest total cost to the agency over the
life of the project?
• To what level of detail have the alternatives been investigated?
• What are the user-cost impacts of alternative preservation strategies?
LCCA’s structured methodology provides the information and documentation
necessary for successful public dialogue. Because of this, LCCA is a valuable tool to
demonstrate a transportation agency’s commitment to infrastructure preservation.
Many agencies are turning to life cycle cost analysis as a means of evaluating
the long-term economic viability of pavement designs. As such, it is important for each
agency to conduct a realistic assessment of pavement economics in order to provide
objective input in the life cycle cost analysis.
The determination of life cycle costs of alternative pavement types is an
important part of a rational means for decision making. An appropriate and non-biased
method of LCCA is articulated by the Federal Highway Administration (FHWA) in
1998. It uses the net present value (NPV) approach of determining the costs of several
alternatives.(FHWA, 2009)
10
1.2.2 Inputs to LCCA
1.2.2.1 Net Present Value Method
A simplified sketch of how the NPV method of LCCA works is shown in Figure
1. The initial cost, the rehabilitation costs, and the salvage value are all considered
according to what their values would be in terms of the present value of money. Then a
discount rate factor is applied to account for the time value of money, and the future
rehabilitation costs and salvage value are discounted back to the present.
This simply means that dollars in the present are presumed to be worth more
than dollars in the future. The life cycle cost is then the sum of the initial costs and
discounted future costs and salvage value.
In determining the life cycle cost of a pavement, it is important to include only
those costs which pertain to the pavement. In other words, common costs such as
striping, sod, guardrails, etc. should not be included unless the difference in pavement
type causes a cost differential in these items.
Rehabilitation
Initial Cost
Maintenance Maintenance
Year 0
n
Salvage
Figure 1: Sketch of NPV approach
11
1.2.2.2 Initial Cost
The basis for cost of the initial construction should be unit prices from bid
records of projects constructed over the last two or three years, and only representative
prices should be included. For example, very small projects or projects where paving is
only a minor component of the total cost may cause unit prices to be skewed. It is
realistic to consider the initial cost both by itself and as part of the life-cycle cost
analysis.
This recognizes that the agency is constrained by an annual budget, and needs to
examine the short-term ramifications of expenditures as well as the long-term impact of
pavement type decisions.
1.2.2.3 Predicted Performance Life
It is important that the agency refer to its past experiences with different
pavement types. It is important to document the performance from the time of original
construction or reconstruction until the next reconstruction. In other words, a simple
overlay or mill and fill are rehabilitation activities and do not constitute the end of the
pavement life. The analysis period should be long enough to capture major
rehabilitation or reconstruction activities for all pavement options. The Asphalt
Pavement Alliance recommends that the analysis period be around 40 years and that it
include at least one rehabilitation activity for each pavement option (Alliance 2012).
This complies with the FHWA-recommended minimum of 35 years.
12
1.2.2.4 Maintenance Costs
Maintenance costs are frequently difficult to define because of either a lack of
record keeping or accounting that does not appropriately discriminate between different
types of maintenance activities. Maintenance costs in a life-cycle cost analysis usually
have minimal impact when compared to the initial and first rehabilitation costs. If
maintenance costs are used within an LCCA procedure, then historical documentation
of actual pavement activities and expenditures should be used.
As with rehabilitation, unrealistically frequent or inappropriate maintenance
activities can artificially increase life-cycle cost.
1.2.2.5 Salvage Value
Because some or all of the pavement structure continues to serve its purposes
beyond the analysis period, it is important to account for its condition at the end of the
analysis period.
Salvage value is typically the term used in life-cycle cost analysis, but FHWA
chooses to use the term “remaining service life” (RSL) value to distinguish the idea that
the pavement will continue to serve beyond the end of the analysis period. Another
method used is to consider the salvage value as some percentage of the initial pavement
construction cost.
1.2.2.6 Discount Rate
The selection of a discount rate in life-cycle costing can be contentious because
there is a great deal of uncertainty associated with future interest rates and inflation. An
unreasonably low or negative discount rate essentially means that it would not matter
financially if a project were to be constructed today or 10 years from now. This would
13
overemphasize the influence of uncertain future costs. Too high a discount rate would
overemphasize the importance of the initial cost.
1.2.3 The Need for Concession Period Estimation and Use of LCCA
The massive financial investment in infrastructure and highway projects deters
the public procurement in the face of declining monetary reserves. This offers
investment venture to the private entities which may invest in constructing the facility
and earn from the users by charging nominal amount of toll/tariff. The concession
period for such megaprojects is usually 25-30 years; from an estimation point of view –
keeping into consideration the uncertainty, the length of concession period makes
estimates very difficult. On top of that, the lifecycle cost of operating and maintaining
the facility also needs to be incorporated. In case no such provision is offered, the
concessionaire is not left with more options (The China Post, 2013). The existing
concession models in Pakistan do not necessarily take into account the probabilistic
analysis of project lifecycle cost which either results in an extension of concession
period or an escalation of tool/tariff beyond nominal/economically viable levels.
This research focuses on incorporating the probabilistic LCCA in the planning
phase to facilitate the project financing entities by better estimating the concession
period. It involves estimating various uncertain variables: economic variables
(consumer price index, purchasing power parity, interest rate, inflation rate, exchange
rate, etc.); project variables (material cost, traffic forecast, growth rate, environmental
cost, operations and maintenance cost, debt servicing cost, discount rate, etc.);
alternative variables (projected alternative routes, potential diversion of traffic flow on
alternative routes, investment in other means of transport, etc.). These variables will be
14
modeled to estimate improved concession period which reconciles the heightening
contractual and use-based relationship between public and private entities, and the
service users.
This research attempts to add into the confidence of funding agencies by
working out better concession agreement which ensures timely recovery of capital as
well as interest. The public agencies will also benefit from this research as they can
better estimate the total cost of project during the pre-feasibility phase where the
financial evaluation is performed. With this knowledge, the public agencies may better
perform the concession negotiation and set the toll/tariff rules keeping in view not only
the present economic conditions but also estimate the escalations from a lifecycle point
of view. The user will benefit from this research in the shape of nominal tariff charges
and improved quality of service as the probabilistic analysis, in the light of performance
curves, will dictate the maintenance and rehabilitation decisions which will ascertain
top-quality condition of highways resulting in reduced travel time and comfortable
journey.
Public Private Partnership (PPP) is an emerging procurement pattern which aims
at efficiently as well as affectively achieving the value for money (VFM) in the
infrastructure projects, which otherwise might suffer delayed, or worse declined,
procurement (Nisar, 2007; Andersen, 2000).
Before making a PPP procurement decision – and figuring out if the allocation
of risk between public and private sectors is optimum and acceptable, developed
countries calculate a so-called Public Sector Comparator (PSC). It aims at addressing
the allocation of risk which is a central issue in contracting (Quiggin, 2004). Further, the
15
justifiable and economically viable VFM is assessed prior to committing to the PPP
(Coulson, 2008) as the lack of such critical findings may result in avoiding PPP and
opting for public procurement. Since there is some criticism on the utilization of PPP,
raising concerns that some projects should not have been developed under this model
(Cruz & Marques, 2013), it is only relevant to perform a thorough risk management in
the prefeasibility or conception phases.
Of other risks involved in these partnerships, the estimation risk for the
concession period is of serious concern. The closure risk – the inability of the funding
agency to reach financial closure – poses great concern for the public entity partnering
on behalf of the government (Bracey & Moldovan, 2006). However, at the feasibility
and planning level, a poor estimate of period for which the concessionaire will be
allowed to operate and maintain the facility, and raise revenues poses even greater
challenge to both public and private entities. For the public agency, an administrative
and decision making scenario raises which commands and influences the bid process;
with ample knowledge of total project cost (estimated or calculated), the public agency
may decide for the minimum possible offer to accept. It also has implications in
establishing the toll/tariff rate as the public agency is responsible for not only ensuring
the financial recovery on part of donor agencies but also providing market compatible
toll/tariff rates in the light of economic capacity of the users. For the private sector, this
risk is tantamount to make-or-break situation; the corporate sector needs to guarantee a
profitable ROI within a stipulated time. Any extension in this time may pose serious
financial pressures demoralizing the private investors from further doing business with
those public agencies. In case no extensions are given, the financier has no other option
but to escalate the revenue generation by unjustifiably and excessively raising the usage
16
charges, transferring the financial burden to the common public. Thus, considerable
research has gone into identifying the length of concession period in a transportation
projects under BOT arrangement (Yu & Lam, 2013).
The general trend suggests that risk allocation between the public and private
sectors involved in public-purpose transport investments is an onerous and tricky matter
to resolve owing to opportunistic behavior by the stakeholders committed to the PPP
contract in transport concessions (Medda, 2007). Although the allocation of risk
between public and private stakeholders in the PPP construction projects vary from
country to country, a major consensus is found over the assumption of entire financial
risk by the private sector (Ke et al., 2010; Li et al., 2005), undertaking long-term
maintenance and operation responsibilities. Thus, the common contractual forms are
BOT (Build-Operate-Transfer) and DBFOM (Design-Build-Finance-Operate-Maintain).
An exception to this risk sharing is such projects where promotion and/or development
of some underdeveloped and deprived parts of the country. For this purpose, public
planning authorities make use of Human Development Index 1 (HDI) and offer Viability
Gap Fund 2 (VGF) to initiate such PPP ventures. As a concluding thought, it must be
noted that because of being megaprojects, highway infrastructure projects are threatened
1
HDI is a complex figure used to rank cities/areas in a country by the generic level of "human
development". By the virtue of its function, HDI helps differentiating between developed, developing and
underdeveloped areas. The statistic is calculated on the basis of life expectancy, education and per-capita GNI (Gross
National Income) data collected over a period of time at the national level.
2
VGF is the type of fund offered by the governments to finance such projects where, though the economic
gains are high, enough financial attraction is missing due to contextual limitations, putting off the private investors.
Governments provide VGF for improving the general conditions of the people living in those areas, and uplifting
their economic and living standards.
17
by emerging risks and their cost needs to be worked out in concession awards
(Wirahadikusumah et al., 2014).
The effect of risk is further exasperated due to the time factor; these concessions
are usually very lengthy (25 – 30 years), giving raise to the stochasticity of various
estimates. This warrants for improved estimation of concession period, which is usually
identified by three major elements:
(1) structure,
(2) length and
(3) Incentive scheme (Ye & Tiong, 2003).
The length of concession is a critical issue in the infrastructure development
ventures as it shares and allocates the rights and responsibilities between the public and
privates sectors in the lifecycle of the projects (Zhang & AbouRizk, 2006). The typical
estimation of concession time is as follows;
CT = Tc + To (1.1)
Where CT is Concession Time; Tc is Construction Time and To is Operations
Time. As a general rule;
Tc ≤ Tcmax
To ≤ Toe
NPV1 (1+Rmin) ≤ NPV|T 0 =t≤ NPV1 (1+Rmax) (1.2)
Where Tcmax is latest allowed time for completion, Toe is designed economic
operation life of the infrastructure before justifying for the salvage-type valuation,
NPV1 is the net present value of total cost of the project, Rmin is the minimum rate of
18
return private sector can acquire by investing in the project, Rmax is the maximum rate of
return public sector may allow during project development, NPV|T0 = t is the net present
value of revenues generated from an operation period t. Working out Tcmax can be fairly
easy however the estimation of Toe is the real challenge as it is not only derived from
the inflationary and speculative future value but also involves stochastic behavior and
usage pattern by the commuters. This also has implications on the estimation and fixing
of toll rates which also need to remain in check as an excessive raise will render the
highway cost-unfriendly and thus avoidable (Thomas et al., 2007).
It is evident that in the simplified version, concession period estimation is
terribly easy but in actual projects, the uncertainty amplified by the inherent
stochasticity makes such estimates very erroneous and unreliable. The research impetus
offered here is of prime interest and the same should be banked upon in order to offer
better models and tools for the public and private agencies alike aspiring to venture into
the PPPs for procurement of highways and public-purpose infrastructure projects. In
this regard, the usage of Lifecycle Cost Analysis (LCCA) is proposed in order to
improve the existing concession models.
In this regard, possibly the only work is done by the Minnesota Department of
Transportation in the USA very recently (2013) where the research is gearing up
towards better understanding and planning for forecasting the operations and
maintenance (O&M) costs over the long term (TRS, 2013). Owing to this major
literature and research gap, as well as significant financial implications, this research
aims at not only bridging the said gulf but also helping the public agencies in Pakistan
by offering practical model which can be used to better estimate the concession time.
19
This will involve performing fuzzy-based as well as system dynamics modeling in order
to model the uncertain variables for estimating the lifecycle cost of the construction,
financing, operation and maintenance of the highways for the sake of contractual
decision making.
1.2.4 Systems Dynamics
System Dynamics is a method extending beyond conventional systems approach
to incorporate large-scale complex engineering problems. Dealing with interaction of
various elements of a system in time the Systems Dynamics incorporates the dynamic
concepts such as flows, feedbacks, stock and delays, and hence provide an intuition into
the dynamic behavior of system over time (Tang et al., 2001).
SD can be thought of as an extension of the well-known concepts of systems
engineering (SE) and systems analysis (SA). It gives due consideration to the dynamic
behavior resulting due to delays and feedbacks in systems. Jay W. Forrester,
Management professor at the MIT/Sloan School is considered to be the father of this
new approach to understand and solve the problems in the business and social science
domains. (Anderson et al., 1990)
1.2.4.1 History and Origin
Jay W. Forrester, introduced the concept of Systems Dynamics in 1956. His key
contributions are the design and development of servomechanisms for control of gun
mounts, radar antennas and other military equipment. He applied the mathematical
theory of controls and concepts of feedback and stability leading to the design and
development of the Whirlwind I, the first digital computer designed at the MIT Digital
Computer Laboratory. He also developed the SAGE (Semi-Automatic Ground

20
Environment) air defense system for North America. Development of SAGE was the
key step towards “systems thinking” (Forrester, 1991). Extending use of system
dynamics in the field of business management, he articulated the SD methodology in his
book Industrial Dynamics, published in 1961.
1.2.4.2 Causal loop diagrams
SD uses the logic of causal loop diagrams by representing a system or problem (e.g.,
ecosystem, political system or mechanical system) in form of causal loop diagram. A
causal loop diagram is a simple map of a system with all its constituent components and
their interactions. It captures the interactions and feedback loops to reveal the structure
of a system. Understanding the structure of a system ascertains a system’s behavior over
a time.
SD contains two feedback loops. The positive reinforcement (represented by an arrow
with “+” sign) and negative (or "balancing") reinforcement (represented by an arrow
with “-” sign). Both feedback loops act simultaneously and may have different strengths
at different times.
1.2.4.3 Stock and flow diagrams
A stock is the used for any entity accumulating or depleting over time. A flow is the rate
of change or accumulation of the stock.
Causal loop diagrams helps in qualitatively analyzing the system by providing a
visualization of system’s structure and behavior, and analyzing the system qualitatively.
For performing an in-depth quantitative analysis, a causal loop diagram is transformed
21
to a stock and flow diagram. This model aids in studying and analyzing the system in a
quantitative way; models are usually built and simulated using computer software.
1.2.4.4 Applications
System dynamics is widely used in different areas
like population, ecological and economic systems, interacting strongly with each other.
System dynamics have various "back of the envelope" management applications. SD is
a good tool for:
• Analyzing and comparing the assumptions and mental models
• Gaining qualitative insight into the workings of a system or the consequences of
a decision
Computer software like Vensim®, AnyLogic®, Dynamo® are used to simulate a
system dynamics model of the situation being studied and validate its results. Running
"what if" simulations to test certain policies on such a model can greatly aid in
understanding how the system changes over time. SD being similar to systems thinking,
constructs the same causal loop diagrams of systems with feedback. However, system
dynamics typically goes a step further and uses simulation to study the behavior of
systems and the impact of varying alternative policies.
System dynamics has been used to investigate resource dependencies, and resulting
problems, in product development.
22
1.3 OUTPUTS
1.3.1 Objectives of the Research
• To figure out the factors affecting the length of concession period of PPP
Projects
• To highlight the key factors affecting the length of concession period and hence
helping in more realistic concession period.
• To synthesize the decision making model for concession period using LCCA
• To Bridge the gap between the literature and industry regarding the concession
period of PPP Projects
1.3.2 Relevance to National Needs
This research will be useful for the PPP units of provincial ministries of finance
(MoF) in Punjab and Sindh. It will also benefit the IPDF and IPFF working under the
federal MoF. Lastly, and possibly the most importantly, this research will help NHA in
better planning the financial closure of highway infrastructure projects, ensuring
affective elimination of potential conflict between the prime stakeholders
The decision-making implications of this research deal with donor confidence at
the planning phase as the increased certainty of concession period will encourage other
funding agencies to invest in the infrastructure development of Pakistan. This will also
impact the economic and social sector development indices of the country.
1.3.3 Advantages
• To add into the confidence of funding agencies by working out better concession
agreement which ensures timely recovery of capital as well as interest.
23
• Better estimation the total cost of project during the pre-feasibility phase where
the financial evaluation is performed.
• With this knowledge, the public agencies may better perform the concession
negotiation and set the toll/tariff rules keeping in view not only the present
economic conditions but also estimate the escalations from a lifecycle point of
view.
• The user will benefit from this research in the shape of nominal tariff charges
and improved quality of service as the probabilistic analysis, in the light of
performance curves, will dictate the maintenance and rehabilitation decisions
which will ascertain top-quality condition of highways resulting in reduced
travel time and comfortable journey.
1.3.4 Areas of Application
This research is aimed at studying and investigating the currently prevailed
concession period estimation methods for the highway projects under the PPP
arrangement in the context of Pakistan. So the government as well as the private
contractual arrangements under the PPP delivery method is the major focus area.
24
Chapter 2
LITERATURE REVIEW
2.1 INPUTS
2.1.1 Introduction to PPP
PPP projects raise a variety of concerns as they move from concept through
project delivery. These concerns range from the initial decision to use a PPP
procurement/delivery mechanism through specifics of who has the control over toll
setting (where there are tolls involved), how risks and revenue are shared, and how the
complexities of agreements can be communicated to the public and decision makers
(NCHRP, 2009).
The general trend suggests that risk allocation between the public and private
sectors involved in public-purpose transport investments is an onerous and tricky matter
to resolve owing to opportunistic behavior by the stakeholders committed to the PPP

25
contract in transport concessions (Medda, 2007). Although the allocation of risk
between public and private stakeholders in the PPP construction projects vary from
country to country, a major consensus is found over the assumption of entire financial
risk by the private sector (Ke et al., 2010; Li et al., 2005) undertaking long-term
maintenance and operation responsibilities. Thus, the common contractual forms are
BOT (Build-Operate-Transfer) and DBFOM (Design-Build-Finance-Operate-Maintain).
An exception to this risk sharing is such projects which aim at promoting and/or
developing some underdeveloped and deprived parts of the country. For this purpose,
public planning authorities make use of Human Development Index 3 (HDI) and offer
Viability Gap Fund 4 (VGF) to initiate such PPP ventures. As a concluding thought, it
must be noted that because of being megaprojects, highway infrastructure projects are
threatened by emerging risks and their cost needs to be worked out in concession
awards (Wirahadikusumah et al., 2014).
The effect of risk is further exasperated due to the time factor; these concessions
are usually very lengthy (25 – 30 years), giving raise to the stochasticity of various
estimates. This warrants for improved estimation of concession period which is usually
identified by three major elements: (1) structure, (2) length and (3) incentive scheme
3
HDI is a complex figure used to rank cities/areas in a country by the generic level of "human
development". By the virtue of its function, HDI helps differentiating between developed, developing and
underdeveloped nation. The statistic is calculated on the basis of life expectancy, education and per-capita GNI
(Gross National Income) data collected over a period of time at the national level.
4
VGF is the type of fund offered by the governments to finance such projects where, though the economic
gains are high, enough financial attraction is missing due to contextual limitations, putting off the private investors.
Governments provide VGF for improving the general conditions of the people living in those areas, and uplifting
their economic and living standards.
26
(Ye and Tiong, 2003). The length of concession is a critical issue in the infrastructure
development ventures as it shares and allocates the rights and responsibilities between
the public and privates sectors in the lifecycle of the projects (Zhang and AbouRizk,
2006).
The optimum concession period for any PPP based infrastructure project is very
important and sometimes conflicting; private parties attempt at not only ensuring
payback of capital amount but also getting attractive ROI (profit) thus seeking a lengthy
concession period. However the public entity ensures timely transfer of the constructed
facility/infrastructure all the while assuring customer satisfaction and high quality of
service. To make matters worse, the concession agreements rarely take into
consideration the lifecycle cost of constructing, operating and maintaining the
infrastructure (Chen and Flintsch, 2007).
2.2 TOOLS & TECHNIQUES
2.2.1 Identification of factors affecting concession period
After extensive literature review a total of 59 factors were identified that affect
the concession period of PPP based projects. For searching the related papers and
literature “Science Direct” database and “ASCE” library were used .The searching
process used consisted of both the keywords based and semantic techniques. As a result,
a total of 121 research publications were studied which were published between the
years 2005 – 2015. The lower limit to the study period was set to deliberate only the
recent trends in this area of research. After careful analysis of the published research
papers, articles and journals, a total of 59 concession period affecting factors were
identified. These are shown in Table 3.

27
Table 3: Identified Factors with their references
S/n Factors S/n Factors S/n Factors

1 Social welfare 21 Organizational 41 Constructability
(Maffii and Parolin structure of project (Ferrari et al.,
,2010; Niu and (De Marco et al., 2013;
Zhang, 2013; Hu and 2012;Taylor, Liu and
Zhu, 2015) 2010;Auriol and Wilkinson, 2014;
Picard, 2013) Zhang and Chen,
2013)
2 Service price 22 Site limitation 42 Right project

(Guasch et al., 2008; (Yang et al., 2010; identification
Fairbrother, 2003; Karim, 2011; (Yu and Lam,
Takim, 2009) Ke et al., 2010) 2013;
Karsenty et al.,
2008;
IPDF, 2006)
3 Toll price 23 Political 43 Strength of the
(Rangel et al., 2013; (Yu and Lam, 2013; consortium
de Brux, 2010; Nombela and de Rus, (Cruz and
Ameyaw and Chan, 2004; Marques, 2013;
2015) Chen and Subprasom, Caicedo and
2007) Diaz, 2013;
Ekambaram
Palaneeswaran,
2001)
4 Travel time 24 Promotion 44 Differentiation

(de Brux, 2010; (Sanz, 2014; in guarantees
Niu and Zhang, 2013; Jain, 2014; (Cantos-Sánchez
Rolim et al., 2014) NHA, 2009) et al., 2011;
28
Buffie, 1995;
Ferreira et al.,
2011)
5 Traffic congestion 25 Government 45 Net Present

(Ubbels and Verhoef, effectiveness value
2008; (Hanaoka and Palapus, (Nieto-Morote
Rodriguez-Oreggia 2012; and Ruz-
and Rodriguez-Pose, Albalate et al., 2013; Vila,2012;
2004; Rangel et al., 2013) Verhoef, 2007;
Daniel Albalate, de Lemos et al.,
2015) 2004)
6 Population in area 26 Adequacy of funding 46 Operation

(Caicedo and Diaz, (Willoughby, 2013; revenue in year
2013; Maltby, 2013; (Liu and
Cruz and Marques, Viegas, 2010) Wilkinson, 2014;
2013; Karsenty et al.,
Bao et al., 2014) 2008;
Zhang and Chen,
2013)
7 Construction period 27 Entrepreneurship 47 Income in year
(Zhang and and leadership (Khanzadi et al.,
AbouRizk, 2006; (McCay et al., 2014; 2012;
Santos et al., 2010; Yu and Lam, 2013; Wang and Palli,
Maffii and Parolin, Jolly and Raven, 2014;
2010) 2015) Ambituuni et al.,
2014)
8 Operation period 28 Poorly defined sector 48 Return on
(Hanaoka and policies investment
Palapus, 2012; (Rocha et al., 2006; (Ubbels and
29
Jain, 2014; Takim, 2009; Rangel Verhoef, 2008;
Geraldi et al., 2011) et al., 2013) Takim, 2009;
IPDF, 2006)
9 Project development 29 Lack of clear 49 Traffic count
cost government (Athias and
(Bao et al., 2014; objectives and Nuñez, 2008;
NHA, 2012; commitment Daniel Albalate,
Ferreira et al., 2011) (Anderson et al., 2015; 2015;
Post, 2013; Rangel et al.,
Synthesis, 2013) 2013)
10 Sale price 30 Poor risk 50 Corruption
(Bourguignon, 2013; management (Santos et al.,
Siguaw et al., 2003; (Bray and Mulley, 2010;
Wang, 2015) 2013; Guasch et al.,
Verhoef, 2007 ;Zhang, 2008;
2011) Zawawi et al.,
2014)
11 Discount rate 31 Credibility of 51 Profitability
(Wang and Pallis, government policies (Xu et al.,
2014; (Taylor, 2010; 2012;Carbonara
Baird, 2013; Boeing Singh and et al., 2014;
de Lemos et al., Kalidindi, 2006; Hwang et al.,
2004) Ng et al., 2007) 2013)
12 Market demand 32 Poor transparency 52 Size of
(Albalate and Bel, (Ezzine de Blas and investment
2009; Ruiz Pérez, 2008; (Niu and Zhang,
Bao et al., 2014; Zhang and Chen, 2013;
Geenen, 2014) 2013; Ezzine de Blas
Santos et al., 2010) and Ruiz Pérez,
2008;
Felton et al.,
30
2010)
13 O & M costs 33 Size of project 53 Procurement
(Monios and (Nombela and de Rus, (Boeing Singh
Bergqvist, 2015; 2004; and Kalidindi,
Farnad Nasirzadeh, Bourguignon, 2013; 2006;
2014; G. Maughaqa T. J. Bray and Mulley,
Ross, 2004) Price, 1997) 2013; Zhang and
Chen, 2013)
14 Lack of competition 34 Complexity 54 Strength of SPV
(Rolim et al., 2014; (Cruz and Marques, (Demirag et al.,
Demirag et al., 2011; 2013; 2011; Burke and
Subramanian and Nieto-Morote and Demirag, 2015;
Ramanathan, 2012) Ruz-Vila, 2012; Rossi and
Ameyaw and Chan, Civitillo, 2014)
2015)
15 Economic viability 35 Operational life 55 Investment
(Hanaoka and (Zhang and AbouRizk, attraction
Palapus, 2012; 2006; (Maffii and
Rolim et al., 2014; Ferrari et al., 2013; Parolin, 2010;
Sanz, 2014) Monios and Bergqvist, Wang et al.,
2015) 2014;
Ambituuni et al.,
2014)
16 Construction cost 36 Capital structure of 56 Innovative
(Zhang, 2011; company design
Jain, 2014; (Willoughby, 2013; (De Marco et al.,
Geraldi et al., 2011) De Marco et al., 2012; 2012;
NHA, 2012) Takim, 2009;
Theodor J
Stewarta, 2013)
17 Operation cost 37 Market situation 57 Construction
31
(Ng et al., 2007; Ke (Wang et al., 2014; logistics
et al., 2010; Karim, McCay et al., 2014; (Patel and
2011) Hu and Zhu, 2015) Bhattacharya,
2010; Junge and
Levinson, 2013;
Lopes and
Teixeira Caetano,
2015)
18 Government’s 38 Severity of risks 58 No of partners
interests involved (Ng et al., 2007;
(Baird, 2013; (Carbonara et al., Yang et al., 2010;
Willoughby, 2013; 2014; Ameyaw and
Yu and Lam, 2013) de Lemos et al., 2004; Chan, 2015)
Boeing Singh and
Kalidindi, 2006)
19 Type of project 39 Inflation rate 59 Equity allocation
(Tang et al., 2010; (G. Maughaqa T. J. (Scandizzo and
Kang et al., 2011; Xu Price, 1997; Nombela Ventura, 2010;
et al., 2012) and de Rus, 2004; Yang et al., 2010;
Hwang et al., 2013) Baird, 2013)
20 Revenue stream 40 Construction period
(Siguaw et al., 2003; (NHA, 2009; Viegas,
Maffii and Parolin, 2010; Iseki and
2010; Zhang and Houtman, 2012)
Chen, 2013)
2.2.2 Grouping of the factors
After careful observations, discussion with experts and using the extracted
knowledge of the related literature, these 59 factors were divided into 6 groups .The
classification was done on the basis of both functional and characteristic based criteria:
32
3 groups formulated on the basis of functional attributes while the remaining three
followed the characteristic based classification principle. These groups are shown in
Table 4.
Table 4: Functional and characteristic groups
S/no Functional Groups S/no Characteristic Groups
1 Financial Indicators 4 National Attributes
2 Project’s Executability 5 Consortium’s Attributes
3 Revenue 6 Purchase Power (User)
After Table 4 was developed, the next step was assigning the factors identified
in Table 3 to the functional and characteristics groups. Table 5 shows this classification.
Table 5: Groups with their factors
S/no Group Factors
Discount rate
O & M costs
Inflation rate
1 Financial Indicators Profitability
Net present value
Income in year
Economic viability
Construction cost
33
Operation cost
Project development cost
Construction period
Operation period
Type of project
Size of project
Complexity
2 Project’s Executability Constructability
Size of investment
Procurement
Innovative design
Construction logistics
Site limitation
Severity of risks involved
Service price
Toll price
Sale price
Market demand
3 Revenue Operational life
Equity allocation
Operation revenue in year
Return on investment
34
Market situation
Revenue stream
Traffic count
Project promotion
Government effectiveness
Investment attraction
Poorly defined sector policies
4 National Attributes Lack of clear government objectives

and commitment
Credibility of government policies
Poor transparency
Government’s interests
Political Stability
Corruption
Organizational structure of project
5 Consortium’s Attributes Adequacy of funding
Entrepreneurship and leadership
No of partners
Strength of SPV
Capital structure of company
Right project identification
Risk management maturity
Differentiation in guarantees
Lack of competition
35
Social welfare
6
Purchase Power Travel time
Traffic congestion
Population in area
2.2.3 Areas affected by the factors
In the next step these factor are analyzed against the three main parties i.e. the
concessionaire, the public body and the user, to a PPP based project in order to work out
a concession period based on win-win-win principle for all the three parties. In
analyzing the factors, their effects were studied and noted accordingly based upon the
principle whether they affect the three parties directly or indirectly. The shaded region
shows that the analyzed variable has no effect on the area against which it is analyzed.
The analysis is shown in Table 6 .
Table 6: Areas affected by the factors
Factors Sub factors Area/Domain Affected
User Consortium Public entity

Directly
Indirectly
Directly
Indirectly
Directly
Indirectly
Discount rate ✓ ✓ ✓
O & M costs ✓ ✓ ✓
Inflation rate ✓ ✓ ✓
36
Financial Profitability ✓ ✓
Indicators
Net present value ✓ ✓
Income in year ✓ ✓
Economic viability ✓ ✓ ✓
Construction cost ✓ ✓ ✓
Operation cost ✓ ✓ ✓
Project ✓ ✓ ✓
development cost
Construction ✓ ✓ ✓
period
Operation period ✓ ✓ ✓
Project’s Type of project ✓ ✓
Executability
Size of project ✓ ✓
Complexity ✓ ✓
Constructability ✓ ✓
Size of investment ✓ ✓
37
Procurement ✓ ✓
Innovative design ✓ ✓
Construction ✓ ✓
logistics
Site limitation ✓ ✓
Severity of risks ✓ ✓ ✓
involved
Service price ✓ ✓ ✓
Toll price ✓ ✓ ✓
Sale price ✓ ✓ ✓
Revenue
Market demand ✓ ✓ ✓
Operational life ✓ ✓ ✓
Equity allocation ✓
Operation revenue ✓ ✓
in year
Return on ✓ ✓
investment
38
Market situation ✓ ✓
Revenue stream ✓ ✓
Traffic count ✓ ✓ ✓
Project promotion ✓ ✓ ✓
Government ✓ ✓ ✓
National effectiveness
Attributes Investment ✓ ✓
attraction
Poorly fined
de ✓ ✓ ✓
sector policies
Lack of clear ✓ ✓ ✓
government
objectives and
commitment
Credibility of ✓ ✓ ✓
government
policies
Poor transparency ✓ ✓
39
Government’s ✓ ✓ ✓
interests
Political Stability ✓ ✓ ✓
Corruption ✓ ✓ ✓
Organizational ✓ ✓
structure of project
Adequacy of ✓ ✓
Consortium’s
funding
Attributes
Entrepreneurship ✓ ✓ ✓
and leadership
No of partners ✓ ✓
Strength of SPV ✓ ✓
Capital structure of ✓ ✓
company
Right project ✓
identification
Risk management ✓ ✓ ✓
maturity
40
Differentiation in ✓ ✓
guarantees
Lack of ✓ ✓ ✓
competition
Social welfare ✓ ✓
Purchase Travel time ✓ ✓ ✓

Power (User)
Traffic congestion ✓ ✓ ✓
Population in area ✓ ✓ ✓
Some factors like service price, sale price, toll price and government’s
effectiveness directly affect all the three parties while some factors affect only two or
one of the concerned parties (Hu and Zhu, 2015) .The system diagram, as shown in
Figure 2, explains this phenomenon.
For developing the system diagram, those factors as mentioned in Table 5 which
directly affect an area or areas among the three mentioned areas were used and an effort
was made to show this effect graphically. A factor affecting a particular area will have
an arrow leading from the factor to that area. A factor affecting more than one area will
have multiple arrows corresponding to number of affected areas leading from it and
ending at the areas being affected.
41
Factors like service price, toll price, sale price and government’s effectiveness directly
affect all the three areas and hence three arrows can be seen leaving these factors
towards the areas being affected. On the other hand, factors like credibility of
government’s policies and social welfare affect 2 areas resulting in 2 arrows leaving
them whereas some factors are exclusive to a specific area i.e. traffic congestion affects
the user only and hence only one arrow leaves it. As an example, it can be understood
that increased toll price affects all the three concerned parties: user will have to pay
more and the usage of the project might not be within his purchase power for persistent
use, concessionaire will have a quick recovery of his investment whereas the public
body can have a shorter concession duration and can acquire the project back swiftly
(Rouhani et al., 2013). However, this is not necessarily a win-win-win situation.
42
Social welfare
Credability of govt`s policies
Sale price
Governments` effectiveness
Service price Poor sector policies
Competetion Risk management maturity
Enterpreneurship
Inflation rate
Type of project
Net present value.
Profitability
No of partners Income per year
Complexity Construction period
Figure 2: Systems diagram for areas affected

SPV strength Transperancy
Corruption
Discount rate
Political stability
O & M costs
Area Population ++ -+- + - ++---- -+ + Project Promotion
+
-- -+ +
Travel time - User Concessionaire + Public Body
+- + - Government`s interest
+-
43
- Market demand
Traffic congestion +-- + + +
Construction cost
Traffic count economic viability
Operation cost
Investment size
Development cost
Revenue stream Operation period
Return on investment Size of project
Operational life
Equity allocation
Operation revenue
Constructability Market situation
Procurement Investment attraction
Innovative design
Capital structure of company
Construction logistics
Site limitation
Organizational structure
Right project identification
Funding adequacy
Difference in guarantees
Toll price
Risk severity
Govt`s commitment & objectives
After a link is established between the factors and the areas affected, the next
step was carrying out a frequency analysis for the identified factors. For the sake of
understanding and simplicity the factors are placed in the same 6 groups as previously
S/No Groups Factors Appea Criticalit
rance y (%)
identified and their total appearances are calculated in the 121 research papers. This not
only helps in having an idea about the research trends and focus for the last 10 years but
also helps in finding the number of appearances and calculating the relative importance
or criticality of the involved factors.
For inclusion in the analysis a minimum of 11 appearances out of 121 papers
(10%) is set as lowest limit. The analysis shows the lowest appearance of 11 papers
(10%) out of 121 papers whereas the maximum appearance recorded is 98 (81%).
Different zones can be formulated on the basis of the frequency analysis: high
appearance zone (fourth quartile) or most critical zone contains the factors having an
appearance count of 76 and above, upper normal range (third quartile) and the factors
placed in this range have an appearance count between 54 and 75, lower normal value
(2nd quartile) and the factors placed in this range have an appearance count between 33
and 53 whereas the lowest appearance zone (first quartile) has the factors having
minimum appearance with the lowest count of 11 while maximum limit set is 32.
Table 7: Appearance of factors and their criticality

44
1 Discount rate 35 28.92
2 O & M costs 62 51.23
3 Inflation rate 21 17.35
4 Profitability 21 17.35
5 Net Present 79 65.28
value
Financial Indicators
6 Income in year 76 62.80
7 Economic 14 11.57
viability
8 Construction 64 52.89
cost
9 Operation cost 48 39.66
10 Project 12 9.91
development cost
period
Executability
12 Operation 42 34.71
Project’s
period
13 Type of 12 9.91
45
project
14 Size of project 16 13.22
15 Complexity 54 44.62
16 Constructabilit 16 13.22
17 Size of 68 56.19
investment
18 Procurement 75 61.98
19 Innovative 11 9.09
design
logistics
21 Site limitation 42 34.71
22 Severity of 98 80.99
risks involved
23 Service price 16 13.22
24 Toll price 28 23.14

Revenue
25 Sale price 11 9.09
46
26 Market 15 12.39
demand
27 Operational 43 35.53
life
28 Equity 71 58.67
allocation
revenue in year
30 Return on 77 63.63
investment
31 Market 66 54.54
situation
32 Revenue 90 74.38
stream
33 Traffic count 74 61.15
34 Project 30 24.79
Promotion
35 Government 26 21.48
Attributes
effectiveness
National
36 Investment 72 59.50
attraction
37 Poorly defined 12 9.91

sector policies
47
38 Lack of clear 18 14.87
government objectives
and commitment
39 Credibility of 15 12.39
government policies
40 Poor 39 32.23
transparency
41 Government’s 28 23.14
interests
42 Political 73 60.33
Stability
43 Corruption 36 29.75
44 Organizational 11 9.09
45 Adequacy of 72 59.50
funding
46 Entrepreneurs 13 10.74
hip and leadership
47 No of partners 49 40.49
Consortium’s Attributes
48 SPV strength 38 31.40
49 Strength of the 48 39.66

consortium
50 Capital 68 56.19
structure of company
51 Right project 19 15.70

identification
period
53 Differentiation 62 51.23
in guarantees
48
54 Risk 58 47.93
management maturity
55 Lack of 23 19.00
competition
56 Social welfare 18 14.87
57 Travel time 29 23.96

Purchase Power
58 Traffic 11 9.09
congestion
59 Population in 41 33.88
area
Legends
S/No Criteria Range (Appearance)
1 Least Critical 11 - 32
2 Lower Normal 33 - 53
3 Upper Normal 54 - 75
4 Most Critical 76 and above
shows this frequency analysis.
49
50
rance y (%)
2 O & M costs 62 51.23
value
7 Economic 14 11.57
viability
cost
10 Project 12 9.91
development cost
Executability
51
period
Project’s
period
13 Type of 12 9.91
project
17 Size of 68 56.19
investment
design
logistics
risks involved

enue

Rev
52
26 Market 15 12.39
demand
life
28 Equity 71 58.67
allocation
revenue in year
30 Return on 77 63.63
investment
31 Market 66 54.54
situation
32 Revenue 90 74.38
stream
34 Project 30 24.79
Promotion
Attributes
National
effectiveness
attraction
53
sector policies

and commitment
government policies
40 Poor 39 32.23
transparency
interests
Stability
funding
hip and leadership

consortium
50 Capital 68 56.19

identification
period
54
in guarantees
54 Risk 58 47.93
management maturity
55 Lack of 23 19.00
competition

Purchase Power
58 Traffic 11 9.09
congestion
area
Legends
From
55
rance y (%)
2 O & M costs 62 51.23
value
7 Economic 14 11.57
viability
cost
10 Project 12 9.91
development cost
56
period
period
13 Type of 12 9.91
project
Project’s Executability
17 Size of 68 56.19
investment
design
logistics
57
risks involved
26 Market 15 12.39
demand
life
28 Equity 71 58.67
allocation
Revenue
revenue in year
30 Return on 77 63.63
investment
31 Market 66 54.54
situation
32 Revenue 90 74.38
stream
58
34 Project 30 24.79
Promotion
effectiveness
attraction

sector policies

National Attributes
and commitment
government policies
40 Poor 39 32.23
transparency
interests
Stability
funding
hip and leadership

consortium
59
50 Capital 68 56.19

identification
period
in guarantees
54 Risk 58 47.93
management maturity
55 Lack of 23 19.00
competition

Purchase Power
58 Traffic 11 9.09
congestion
area
Legends
60
, a bar chart is developed showing the frequency of the factors as shown in
Figure 3.
Figure 3: Factors appearance frequency chart
61
2.2.4 Yearly distribution of the factors
After the total appearance of the factors was known, year wise study was
performed in order to organize the factors and get a yearly distribution table for the
factors during the study life. This helped in developing the yearly distribution and
addition chart in Figure 3 and Figure 4. Table 8 shows the factors and their year of
identification.
Table 8: Yearly appearance of the factors
Year of appearance
S/No Groups Factors

2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
1. Discount rate ✓ ✓ ✓ ✓
2. O & M costs ✓ ✓ ✓ ✓ ✓
3. Inflation rate ✓ ✓ ✓ ✓ ✓ ✓
4. Profitability ✓ ✓ ✓ ✓
5. Net present value ✓ ✓ ✓ ✓ ✓
6. Income in year ✓ ✓ ✓ ✓
7. Economic viability ✓ ✓ ✓ ✓ ✓
8. Construction cost ✓ ✓ ✓ ✓
9. Operation cost ✓ ✓ ✓
10. Project development cost ✓ ✓ ✓ ✓ ✓
11. Construction period ✓ ✓ ✓ ✓

ty
Executabili
Project’s
12. Operation period ✓ ✓ ✓ ✓ ✓
13. Type of project ✓ ✓ ✓ ✓ ✓
62
14. Size of project ✓ ✓ ✓ ✓ ✓
15. Complexity ✓ ✓ ✓ ✓ ✓
16. Constructability ✓ ✓ ✓ ✓
17. Size of investment ✓ ✓ ✓ ✓
18. Procurement ✓ ✓ ✓ ✓ ✓
19. Innovative design ✓ ✓ ✓ ✓ ✓
20. Construction logistics ✓ ✓ ✓ ✓ ✓
21. Site limitation ✓ ✓ ✓ ✓ ✓ ✓
22. Severity of risks involved ✓ ✓ ✓ ✓
23. Service price ✓ ✓ ✓ ✓ ✓

Revenue
24. Toll price ✓ ✓ ✓ ✓
25. Sale price ✓ ✓ ✓ ✓
26. Market demand ✓ ✓ ✓ ✓ ✓
27. Operational life ✓ ✓ ✓ ✓ ✓
28. Equity allocation ✓ ✓ ✓
29. Operation revenue in ✓ ✓ ✓ ✓ ✓

year
30. Return on investment ✓ ✓ ✓ ✓ ✓
31. Market situation ✓ ✓ ✓ ✓
32. Revenue stream ✓ ✓ ✓ ✓ ✓ ✓
33. Traffic count ✓ ✓ ✓ ✓
34. Project promotion ✓ ✓ ✓ ✓

Attributes
National
35. Government ✓ ✓ ✓ ✓
effectiveness
36. Investment attraction ✓ ✓ ✓ ✓
63
37. Poorly defined sector ✓ ✓ ✓ ✓ ✓
policies
38. Government objectives ✓ ✓ ✓

and commitment
39. Credibility of ✓ ✓ ✓ ✓
government policies
40. Poor transparency ✓ ✓ ✓ ✓
41. Government’s interests ✓ ✓ ✓ ✓
42. Political Stability ✓ ✓ ✓ ✓ ✓
43. Corruption ✓ ✓ ✓ ✓
44. Organizational structure ✓ ✓ ✓ ✓ ✓

of project
45. Adequacy of funding ✓ ✓ ✓ ✓
46. Entrepreneurship and ✓ ✓ ✓ ✓

leadership
47. No of partners ✓ ✓ ✓ ✓ ✓
48. Strength of SPV ✓ ✓ ✓ ✓ ✓
49. Strength of consortium ✓ ✓ ✓ ✓
50. Capital structure of ✓ ✓ ✓

company
51. Right project ✓ ✓ ✓ ✓ ✓

identification
52. Risk management ✓ ✓ ✓ ✓ ✓ ✓

maturity
53. Differentiation in ✓ ✓ ✓ ✓ ✓
guarantees
54. Poor risk management ✓ ✓ ✓ ✓ ✓ ✓
55. Lack of competition ✓ ✓ ✓
64
56. Social welfare ✓ ✓ ✓ ✓ ✓
Purchase Power
57. Travel time ✓ ✓ ✓ ✓ ✓
58. Traffic congestion ✓ ✓ ✓ ✓
59. Population in area ✓ ✓ ✓ ✓ ✓
Initially 5 groups of factors were identified and grouped in literature review: 1)
financial indicators, 2) project’s executability, 3) revenue, 4) national attributes and 5)
consortium’s attributes. Table 9 shows the factors identified in year 2005 and the
assigned groups.
Table 9: Initially identified factors in year 2005
Group S/No Factors
3 Inflation rate
Financial Indicators 5 Net present value
7 Economic viability
16 Constructability
Project’s Executability
21 Site limitation
30 Return on investment
Revenue
32 Revenue stream
36 Investment attraction
37 Poorly defined sector policies
38 Lack of clear government objectives and

National Attributes commitment
39
Credibility of government policies
40
Poor transparency
41
65
Government’s interests
45 Adequacy of funding
46 Entrepreneurship and leadership
47 No of partners
49 Strength of consortium
51 Right project identification

52 Risk management maturity
53 Differentiation in guarantees
54 Poor risk management
55 Lack of competition
These factors are used since a long time for critical decision making in PPP
projects such as estimating the length of concession period.
Considerable attention was given to the users being affected by the PPP projects
and the interaction of traffic and construction machinery in the literature following 2005
which led to the introduction of a new factor i.e. factor 59 population in area. Due to
this addition and some factors that followed, a new group of classification is introduced,
named as “Purchase Power” by the end of 2006.
Similarly other factors like factors 1, 2 and 10 were identified and added to
“Financial Indicators”; factors 12, 13, 14, 15, 18, 19 and 22 were identified and added
to “Project’s Executability”; factors 25, 26, 27, 29 and 31 were added to “Revenue”;
and factor 50 was added to “Consortium’s Attributes”. There were no new factors
identified in “National Attributes”.
66
Due to the larger considerations given to “Financial indicators”, three new
factors were identified an added in the next year i.e. 6, 8 and 9 to this group. Similarly
factor 11 was added to “Project’s Executability” whereas factor 34 was added to
“National Attributes” by the end of 2007. The remaining groups proceeded as they were
with no additions. The trend of financial indicators continued for the next year as well
as substantial considerations were given by researchers to the social welfare aspects and
hence certain critical additions were made to “Purchase Power”. Some additions were
made to groups “Project’s Executability”, “Revenue” and “National Attributes”: factor
17 to “Project’s Executability”; 23 and 24 to “Revenue” and 35 to “National
Attributes”. “Consortium’s Attributes” continued as the previous year with no additions.
After these inclusions research trend started focusing the “National Attributes”
like corruption and political stability in 2009, leading to the addition of factors 42 and
43 to “National Attributes”. The previous trend of “Purchase Power” also continued
with the addition of a new factor i.e. 58 social welfare. The remaining groups stayed
dormant with no additions of further factors for another year. The research trend started
shifting towards the “Project Executability” and “Consortium’s Attributes” in the next
year and one factor was added to the mentioned groups i.e. factor 48 strength of SPV to
“Consortium’s Attributes” and factor 20 construction logistics to “Project
Executability”.
The “Consortium’s Attributes” continued its trend with the addition of a new
factor i.e. 44 organizational structure of the project with no changes to the remaining
groups in 2011. The focal point of the research shifted towards the equity allocation and
its effects on revenue and the list is completed with the addition of a factor i.e. factor 28
67
equity allocation to “Revenue” by the end of 2012. This trend can be observed in Figure
4.
After 2012 till 2015 the groups as shown in Figure 5 had no new additions and
emphasis was laid on the already identified factors and researchers analyzed the effects
and interactions of these factors from different angles. Hence no new factors were
identified but the already identified factors appeared repeatedly. The encircled factors
are the ones added to the groups with time. A trend can be observed in the chart given
below after year 2012 to 2015 in which the encircled factors are the ones periodically
repeating each year.
68
Figure 4: Factors identification chart (2005-2012)
69
Figure 5: Factors repetition chart (2012-2015)
2.3 OUTPUTS
2.3.1 Frequency analysis
This thesis attempts to help in decision making regarding various critical aspects
of PPP projects based on the trends of identified factors and assigned groups for last 10
years i.e. 2005 to 2015. As a result a decision making matrix is formulated based on the
analysis of number of appearances of factors versus the number of areas affected by
them. The area of a factor’s influence relate to user, concessionaire or public body, or a
combination of these.The ranges followed were the same as described in the frequency
70
analysis. The analysis, as shown in Table 10, concludes that a total of 6 factors out of 59
(10.17%) eventually ended up in the red zone, 15 factors (25.42%) ended up in the
upper normal (pink) zone, 13 factors (22.03%) ended up in lower normal (yellow) zone
whereas the remaining 25 factors (42.4%) eventually ended up in the green (non-
critical) zone. It points to a very pertinent conclusion that a large portion of PPP
projects falls into the non-critical or safe zone, an argument that may easily be used in
the favor of these projects. Further, like most traditional works, only a minor
quantitative portion of decision making attributes of PPP projects fall into very critical
zone. These factors may have qualitatively substantial impact on these projects
therefore factors such as severity of risk of PPP projects get the highest attention from
both researchers and practitioners.
Table 10: Frequency Analysis
Red Zone (4th Quartile) Green Zone (1st Quartile)

Appearance
Appearance
Affected
Affected
Areas
Areas
S/No S/No
5 79 2 26 15 2
6 76 2 3 21 2
22 98 3 4 21 1
29 78 2 7 14 2
30 77 1 10 12 2
32 90 1 13 12 1
Pink Zone (3rd Quartile) 14 16 2
71
16 16 1
Areas Affected
Appearance
S/No 19 11 1
23 16 3
24 28 3
2 62 2 25 11 3
8 64 2 34 30 1
15 54 1 35 26 3
17 68 2 37 12 2
18 75 1 38 18 2
28 71 1 39 15 2
31 66 2 41 28 1
33 74 2 44 11 1
36 72 2 46 13 1
42 73 2 51 19 1
45 72 1 55 23 1
50 68 2 56 18 2
52 69 2 57 29 1
53 62 1 58 11 1
54 58 2
S/No 59 47 48 49 43 40 27 20 21 11 12 9 1
Yellow
Zone Appearance 41 49 38 48 36 39 43 34 42 45 42 48 32
(2nd Area 1 1 1 1 2 2 2 1 1 2 2 2 2
Quartile) Affected
72
2.3.2 Decision making matrix
After this analysis, finally the matrix shown in Figure 6 was obtained. The
matrix places the identified factors in various zones based upon the appearances of the
factors in the literature and analyzes them against the number of areas affected by them.
The maximum appearance recorded was 98 out of 121 (81%) while the minimum
appearance and consideration limit was 11 out of 121 (10%).The most appearing factor
i.e. severity of the risks involved ended up at the upper right most corner of the matrix
confirming that it is the most appearing and critical factor on the basis of research trend
followed during the last 10 years. Almost 81% (98 out of 121) papers have given due
consideration to this factor. Similarly all of the factors identified in the Table 9 are
placed in the matrix on basis of their appearance vs the areas affected by them.
The factors ending in fourth quartile (75% and above) are the most critical
factors and require proper considerations during the decision making of the concession
period’s length. The factors in 3rd quartile (50% - 75%) should also be given proper
considerations as these factors can anytime make it into the 4th quartile because of being
the nearest to the most critical zone. The factors in 2nd quartile (25%-50%) should be
watched and observed with proper management techniques being used to keep a check
on them whereas the factors placed in 1st quartile (0-25%) need only observation and no
intensive management effort is required for them. Once the analysis is performed and
the factors are placed in the matrix, different management techniques are required to be
used on these factors. Special considerations are required for the factors ending up in
the 4th quartile; they must either be exploited or extreme care must be taken to mitigate
their negative effects, if any.
73
Figure 6: Factors frequency v/s areas affected
74
Chapter 3
RESEARCH METHODOLOGY
3.1 INPUTS
• Literature Review
• Decision making matrix
• Frequency analysis
3.2.1 Pilot Survey
After the literature review a comprehensive list of factors was developed that
affect the length of concession period of PPP projects.
75
The method of factor identification was mainly focused on literature review. In
the next step a pilot survey was conducted to identify the top 10 factors that affect the
length of the concession period of PPP projects. For the said survey three different paths
were identified and one of them (Shown in red below) was selected.
The main question of the survey was whether or not to carry out a level “0”
screening to reduce the number of factors to the most significant ones only. This led to
two options. In case of “NO”, questionnaire was to be developed for all the 59 factors
and a comprehensive survey would have been carried out. In case of “YES”, we had to
face another critical decision which was the screening panel selection. Two options
were available for that i.e. Pakistani experts only or international experts including
those from Pakistan.
These options led to different questionnaire development.
Selecting only Pakistani experts led to 2 options i.e. taking responses for the top
factors of literature review from Pakistani experts whereas the next option had two
steps:
1) Questionnaire from Pakistani experts to shortlist the top factors
2) Asking detailed questions from international experts on those shortlisted factors.
The other option for panel selection was to seek help of international experts for
shortlisting the top factors affecting the length of concession period of PPP Projects and
carry out a global survey including responses from Pakistani experts. This procedure
was followed as shown in red color in the Figure 7. The screening panel consisted of
authors and field experts having vast experience in PPP projects.
76
Figure 7: Pilot Survey options
3.2.2 Initial Questionnaire
A questionnaire was developed in accordance to the pilot survey which focused
on the simple question of whether a particular factor affect the concession period of PPP
projects or not? Say “Does "Toll price" affect the length of concession period of PPP
projects?”
The respondents included experts from different countries throughout the world.
The distribution of experts is shown in
Table 11.
77
Table 11: Names and Countries of experts
S/No Name Country of Residence

1 Prof. Dr. Roehrich U.K
2 Mr. Tan China
3 Dr. HanaOKA shinya Japan
4 Mr. Taylor Colorado (US)
5 Mr. Tere Lamos Poland
6 Nikola Constantino Mexico (US)
7 Brig. Dr. Nadeem Ehsan Pakistan
8 Dr. Giulio Mangano Italy
9 Prof. Dr. Rickard Bergqvist Sweden
10 Ms. Ana Lopez Portugal
11 Dr. Tei Italy
12 Ms. Kitti Subprasom Thailand
13 Mr. Urjit Patel India
14 Dr. Zhang Hongkong
15 Prof. Dr. Athias France
16 Mr. E. Hoef Netherland
17 Prof. Dr. Amilawa Malaysia
18 Dr. Knittel (MIT) Cambridge (U.S)
19 Mr. Minnery Australia
20 Ms. Ameida Brazil
21 Engr. Kang Taiwan
22 Dr. Khanzadi Turkey
23 Engr. M. Alipour Ireland
24 Mr. Trujillo Spain
25 Mr. Ubbels New Zealand
26 Dr. Yevstafyev Costa Rica (U.S)
The respondents were asked to respond in Yes or No. If their answer was a yes,
they were further requested to assign the factors a quantitative score on the scale of 1 to
10 depending upon the impact of the said factor on the length of concession period.
78
As a result the Table 12 was obtained. The average score in the table refers to
the average of the scores assigned by the respondents to the said factor.
Table 12: Questions from questionnaire and average response score
S/No Questions/Factors Average- Percentage

Score
1 Does "Toll price" affect the length of concession period of PPP 9 90
projects?
2 Does "Operation period" affect the length of concession period 8.884615385 88.84615
of PPP projects?
3 Does "Project development cost" affect the length of concession 8.615384615 86.15385
period of PPP projects?
4 Does "Construction cost" affect the length of concession period 8.461538462 84.61538
of PPP projects?
5 Does "Revenue stream" affect the length of concession period 8.461538462 84.61538
of PPP projects?
6 Does "Market demand" affect the length of concession period of 7.923076923 79.23077
PPP projects?
7 Does "Net Present value of project" affect the length of 7.881656805 78.81657
concession period of PPP projects?
8 Does "Return on investment" affect the length of concession 7.881656805 78.81657
9 Does "Discount rate" affect the length of concession period of 7.769230769 77.69231
PPP projects?
10 Do "Severity of risks involved" affect the length of concession 7.769230769 77.69231
11 Does "Economic viability" affect the length of concession 6.99408284 69.94083
12 Does "Operation cost" affect the length of concession period of 6.99408284 69.94083
PPP projects?
13 Does "Operational life of project" affect the length of 6.816568047 68.16568
14 Does "Sale price" affect the length of concession period of PPP 6.674556213 66.74556
projects?
15 Does "Market situation" affect the length of concession period 6.390532544 63.90533
of PPP projects?
16 Does "Service price" affect the length of concession period of 6.319526627 63.19527
PPP projects?
17 Does "Profitability" affect the length of concession period of 6.313609467 63.13609
PPP projects?
18 Do "O & M costs" affect the length of concession period of PPP 6.142011834 61.42012
79
projects?
19 Does "Operation revenue in year" affect the length of 5.923076923 59.23077
20 Does "Construction period" affect the length of concession 5.822485207 58.22485
21 Does "Size of investment" affect the length of concession period 5.792899408 57.92899
of PPP projects?
22 Does "Income in year" affect the length of concession period of 5.727810651 57.27811
PPP projects?
23 Does "Size of project" affect the length of concession period of 5.597633136 55.97633
PPP projects?
24 Does "Construction period" affect the length of concession 5.597633136 55.97633
25 Do "No of vehicles" affect the length of concession period of 5.597633136 55.97633
PPP projects?
26 Does "Complexity of project" affect the length of concession 5.532544379 55.32544
27 Does "Risk management maturity of concessionaire" affect the 5.337278107 53.37278
length of concession period of PPP projects?
28 Does "Government’s interest" affect the length of concession 5.304733728 53.04734
29 Does "Inflation rate" affect the length of concession period of 5.304733728 53.04734
PPP projects?
30 Does "Political influence" affect the length of concession period 4.914201183 49.14201
of PPP projects?
31 Does "Adequacy of funding" affect the length of concession 4.674556213 46.74556
32 Does "Population in area" affect the length of concession period 4.142011834 41.42012
of PPP projects?
33 Does "Corruption" affect the length of concession period of PPP 4.082840237 40.8284
projects?
34 Does "Type of project" affect the length of concession period of 3.940828402 39.40828
PPP projects?
35 Do "Lack of clear government objectives and commitments" 3.807692308 38.07692
affect the length of concession period of PPP projects?
36 Does "Strength of the consortium" affect the length of 3.609467456 36.09467
37 Does "Equity allocation" affect the length of concession period 3.550295858 35.50296
of PPP projects?
38 Do "Poorly finedde sector policies" affect the length of 3.489230769 34.89231
39 Does "Traffic congestion" affect the length of concession period 3.381656805 33.81657
of PPP projects?
40 Does "Constructability of project" affect the length of 3.142011834 31.42012
41 Does "Lack of competition" affect the length of concession 3.129230769 31.29231
80
42 Does "Capital structure of company" affect the length of 2.849112426 28.49112
43 Do "Difference in guarantees" affect the length of concession 2.692307692 26.92308
44 Does "Credibility of government policies" affect the length of 2.512820513 25.12821
45 Does "Procurement" affect the length of concession period of 2.177514793 21.77515
PPP projects?
46 Does "Strength of SPV" affect the length of concession period 2.082840237 20.8284
of PPP projects?
47 Does "Effectiveness of Government" affect the length of 2.071005917 20.71006
48 Does "Investment attraction" affect the length of concession 2.071005917 20.71006
49 Does "Entrepreneurship and leadership" affect the length of 2.019230769 20.19231
50 Do "Construction logistics" affect the length of concession 1.809230769 18.09231
51 Does "Social welfare" affect the length of concession period of 1.698224852 16.98225
PPP projects?
52 Does "Right project identification" affect the length of 1.513846154 15.13846
53 Does "Site limitation" affect the length of concession period of 1.349112426 13.49112
PPP projects?
54 Does "Innovative design" affect the length of concession period 1.313609467 13.13609
of PPP projects?
55 Do "Number of partners" affect the length of concession period 0.887573964 8.87574
of PPP projects?
56 Does "Poor transparency" affect the length of concession period 0.591715976 5.91716
of PPP projects?
57 Does "Travel time" affect the length of concession period of 0.579881657 5.798817
PPP projects?
58 Does "Project’s promotion" affect the length of concession 0.328402367 3.284024
59 Does "Organization structure of project" affect the length of 0.301775148 3.017751
3.2.3 MODAL Analysis
In the next step MODAL analysis were performed and the agreeing experts’
percentage was calculated. This helped in identification of the top factors that affect the
length of concession period as shown in Table 13.
81
The collected survey responses were 26 in number; hence a factor having a
mode count of 26 means 100% of the experts agree that this factor has a significant
effect on the length of concession period.
Table 13: Modal analysis of responses
S/No Factors Mode Avg Score Standard Deviations Agreeing

Percentage
1 Toll price 26 9 0.848528137 100
2 Operation period 26 8.884615385 1.4512594 100
3 Project development cost 26 8.615384615 1.098250357 100
4 Discount rate 26 7.769230769 2.084374099 100
5 Market demand 26 7.923076923 1.741793947 100
6 Construction cost 26 8.461538462 2.231246633 100
7 Revenue stream 26 8.461538462 1.794007118 100
8 Severity of risks involved 26 7.769230769 1.945408796 100
9 Service price 24 6.846153846 2.633511841 92.30769231
10 Construction period 24 6.307692308 2.97683363 92.30769231
11 Sale price 24 7.230769231 2.470751988 92.30769231
12 O & M costs 24 6.653846154 2.755972535 92.30769231
13 Economic viability 24 7.576923077 2.610334491 92.30769231
14 Operation cost 24 7.576923077 2.548302602 92.30769231
15 Operational life of 24 7.384615385 2.757925642 92.30769231
project
16 Market situation 24 6.923076923 2.726508051 92.30769231
17 Net Present value of 24 8.538461538 2.656776532 92.30769231
project
18 Return on investment 24 8.538461538 2.641677789 92.30769231
19 Government’s interest 22 6.269230769 3.424122571 84.61538462
20 Political influence 22 5.807692308 3.059663129 84.61538462
21 Risk management 22 6.307692308 3.171992822 84.61538462
maturity of
concessionaire
22 Size of project 22 6.615384615 3.175870565 84.61538462
23 Complexity of project 22 6.538461538 3.190370126 84.61538462
24 Inflation rate 22 6.269230769 3.256472844 84.61538462
25 Construction period 22 6.615384615 3.225857072 84.61538462
26 Operation revenue in 22 7 3.322649545 84.61538462
year
27 Income in year 22 6.769230769 3.290078325 84.61538462
28 No of vehicles 22 6.615384615 3.371372695 84.61538462
29 Profitability 22 7.461538462 3.501208583 84.61538462
30 Size of investment 22 6.846153846 3.233478717 84.61538462
82
31 Population in area 20 5.384615385 3.699480213 76.92307692
32 Adequacy of funding 20 6.076923077 3.621304482 76.92307692
33 Strength of the 20 4.692307692 2.83928485 76.92307692
consortium
34 Corruption 20 5.307692308 3.246773546 76.92307692
35 Equity allocation 20 4.615384615 2.980965254 76.92307692
36 Traffic congestion 18 4.884615385 3.73445496 69.23076923
37 Lack of competition 18 4.52 3.417113792 69.23076923
38 Type of project 18 5.692307692 4.212070567 69.23076923
39 Poorly de fined sector 18 5.04 3.645545227 69.23076923
policies
40 Lack of clear government 18 5.5 3.92173431 69.23076923
objectives and
commitments
41 Capital structure of 18 4.115384615 3.011005454 69.23076923
company
42 Constructability of 18 4.538461538 3.51261463 69.23076923
project
43 Credibility of 16 4.083333333 3.843873348 61.53846154
government policies
44 Procurement 16 3.538461538 3.373197524 61.53846154
45 Strength of SPV 16 3.384615385 3.073459589 61.53846154
46 Social welfare 14 3.153846154 3.390484422 53.84615385
47 Effectiveness of 14 3.846153846 3.996921893 53.84615385
Government
48 Entrepreneurship and 14 3.75 3.529379795 53.84615385
leadership
49 Difference in guarantees 14 5 4.373835249 53.84615385
50 Investment attraction 14 3.846153846 3.812529949 53.84615385
51 Construction logistics 14 3.36 3.545889639 53.84615385
52 Site limitation 12 2.923076923 3.762159773 46.15384615
53 Right project 12 3.28 3.769615365 46.15384615
identification
54 Innovative design 12 2.846153846 3.563058323 46.15384615
55 Number of partners 10 2.307692308 3.030105355 38.46153846
56 Travel time 8 1.884615385 3.011005454 30.76923077
57 Poor transparency 8 1.923076923 3.097393445 30.76923077
58 Organization structure of 6 1.307692308 2.478212756 23.07692308
project
59 Project’s promotion 6 1.423076923 2.700712157 23.07692308
83
3.3 OUTPUTS
3.3.1 Top 10 factors Identification
The modal analysis helped us in identification of the top factors from industry
that the field experts gave maximum considerations to throughout the world. Hence we
obtained two tables, one consisting of the factors obtained from literature through year
2005 till 2015 and other from the professionals focusing on the current trends .These are
shown in the Table 14 andTable 15.
Table 14: Top 10 factors from Industry
From Industry
S/No Factors Score Rank
1 Toll price 9 1
2 Operation period 8.884615 2
3 Project development cost 8.615385 3
4 Construction cost 8.461538 4
5 Revenue stream 8.461538 5
6 Market demand 7.923077 6
7 Net Present value of project 7.881657 7
8 Return on investment 7.881657 8
9 Discount rate 7.769231 9
10 Severity of risks involved 7.769231 10
Table 15: Top 10 factors from literature
From Literature
S/No Factors Score Rank
1 Severity of risks involved 8.099 1
2 Revenue stream 7.438 2
84
3 Net Present value 6.528 3
4 Operation revenue in year 6.446 4
5 Return on investment 6.363 5
6 Income in year 6.28 6
7 Procurement 6.198 7
8 Traffic count 6.115 8
9 Political Influence 6.033 9
10 Investment attraction 5.95 10
The results from both the tables show similarities and differences at different
points which are debatable due to the dynamic nature of the construction industry. To
cut it short we obtained 4 common factors among the top 10 factors identified by both
methods: severity of risks involved, revenue stream, NPV and return on investment.
To get a clear picture of the top factors, a cumulative scoring was applied as
shown in Equation 3.1.
Total Factor Score (T.F.S) = L.S x I.S (3.1)
Where:
T.F.S = Total factor score,
L.S = Score from Literature (Frequency on scale 1 to 10)
I.S = Score from Industry.
As a result of the combined score the top 10 factors affecting the length of
concession period, as shown in Table 16, are identified.
85
Table 16: Total score of factors
S/No Factor Literature Score Industry Score Total Score

1 Revenue stream 7.438 8.461538462 62.93692308
2 Severity of risks involved 8.099 7.769230769 62.923
3 Net Present value 6.528 7.881656805 51.45145562
4 Return on investment 6.363 7.881656805 50.15098225
5 Construction cost 5.289 8.461538462 44.75307692
6 Operation revenue in year 6.446 5.923076923 38.18015385
7 Income in year 6.28 5.727810651 35.97065089
8 Market situation 5.454 6.390532544 34.8539645
9 Traffic count 6.115 5.597633136 34.22952663
10 Size of investment 5.619 5.792899408 32.55030178
11 O & M costs 5.123 6.142011834 31.46552663
12 Operation period 3.471 8.884615385 30.8385
13 Political Influence 6.033 4.914201183 29.64737574
14 Adequacy of funding 5.95 4.674556213 27.81360947
15 Operation cost 3.966 6.99408284 27.73853254
16 Risk management maturity 4.793 5.337278107 25.58157396
17 Complexity 4.462 5.532544379 24.68621302
18 Operational life 3.553 6.816568047 24.21926627
19 Discount rate 2.892 7.769230769 22.46861538
20 Poor risk management 3.967 5.337278107 21.17298225
21 Equity allocation 5.867 3.550295858 20.8295858
22 Toll price 2.314 9 20.826
23 Construction period 3.719 5.597633136 20.81759763
24 Capital structure of company 5.619 2.849112426 16.00916272
25 Strength of the consortium 3.966 3.609467456 14.31514793
26 Population in area 3.388 4.142011834 14.03313609
27 Differentiation in guarantees 5.123 2.692307692 13.79269231
28 Procurement 6.198 2.177514793 13.49623669
29 Investment attraction 5.95 2.071005917 12.32248521
30 Government’s interests 2.314 5.304733728 12.27515385
31 Corruption 2.975 4.082840237 12.1464497
32 Profitability 1.735 6.313609467 10.95411243
33 Market demand 1.239 7.923076923 9.816692308
34 Inflation rate 1.735 5.304733728 9.203713018
35 Project development cost 0.991 8.615384615 8.537846154
36 Service price 1.322 6.319526627 8.354414201
37 Economic viability 1.157 6.99408284 8.092153846
38 Size of project 1.322 5.597633136 7.400071006
39 SPV strength 3.14 2.082840237 6.540118343
40 Sale price 0.909 6.674556213 6.067171598
41 Lack of competition 1.9 3.129230769 5.945538462
42 Government objectives & 1.487 3.807692308 5.662038462
86
commitment
43 Construction logistics 2.809 1.809230769 5.082129231
44 Site limitation 3.471 1.349112426 4.682769231
45 Government effectiveness 2.148 2.071005917 4.44852071
46 Constructability 1.322 3.142011834 4.153739645
47 Type of project 0.991 3.940828402 3.905360947
48 No of partners 4.049 0.887573964 3.593786982
49 Poorly defined sector policies 0.991 3.489230769 3.457827692
50 Credibility of government 1.239 2.512820513 3.113384615
policies
51 Traffic congestion 0.909 3.381656805 3.073926036
52 Social welfare 1.487 1.698224852 2.525260355
53 Right project identification 1.57 1.513846154 2.376738462
54 Entrepreneurship and leadership 1.074 2.019230769 2.168653846
55 Poor transparency 3.223 0.591715976 1.907100592
56 Travel time 2.396 0.579881657 1.38939645
57 Innovative design 0.909 1.313609467 1.194071006
58 Project Promotion 2.479 0.328402367 0.814109467
59 Organizational structure of 0.909 0.301775148 0.274313609
project
This trend can also be observed on the 3D cube chart as shown in Figure 8. All
the identified 10 factors end up at the upper right corner referring to the fact that they
are the top most influential factors for PPP Projects. For the sake of understanding one
of the lowest scoring factors i.e. “organizational structure of the project” is also plotted
on the cube and it ends up at the lowest left corner showing that the level of influence it
has.
The x-axis of the cube refers to the response score, the y-axis to frequency from
literature while the z-axis to the mode value. All the scores are normalized and plotted
accordingly.
87
Figure 8: 3D cube showing allocation of factors
3.3.2 Developing an LCCA model for top 10 factors
After identification of the top 10 factors affecting the length of concession
period of PPP projects, LCCA model was developed for the mentioned factors.
The technique followed for the LCCA model is that of NPV analysis. According
to Walls and Smith (1998) as mentioned in USDOT (2010) NPV analysis consists of the
initial construction cost and the corresponding rehabilitation and maintenance costs
discounted through year n as shown in equation 3.2.
88
(3.2)
The Systems Dynamic (SD) models as shown in Figure 9 and Figure 10 use the
NPV analysis concept and incorporates the top 10 identified factors that affect the
length of concession period.
The “+” and “-” signs on the arrow heads show the reinforcing and balancing
natures of the factors respectively. Hence the factors return on investment, salvage
value, the traffic count and revenue stream positively affect and hence support the NPV
analysis whereas the factors construction costs, maintenance costs and rehabilitation
costs balances the analysis (University 2005).
89
Figure 9: Systems Diagram for model
90
Figure 10: SD model for calculating concession period
91
It must be noted that the factors as presented in the model are further comprised
of various sub-factors that asses and ensure proper estimation. Figure 11 shows the
systems diagram for the factor “Revenue stream”. It depends upon the toll price,
service price, traffic count, discount rate, equity, bank loan and costs in such a way that
the first 5 factors enforce it whereas the last two are the balancing factors for revenue
stream.
Figure 11: Revenue stream
Figure 12 shows the systems diagram for the “severity of risks involved”. It can
be observed that this factor is enforced by opportunities whereas the negative nature of
92
risk perception assigns sub-factors like those of planning, implementation, execution,
monitoring and control, and closure related as balancing factors and risks to it.
Figure 12: Involved risk severity
In case of the “NPV” as explained earlier all the benefits and costs related
factors must be considered. Generally factors like toll price, expected usage, revenue,
traffic count, salvage value and other benefits are the enforcing factors for NPV
whereas rehabilitation, routine maintenance, discount rate, construction costs, taxes
and other costs are the factors that balance it out. Figure 13 shows the systems diagram
for NPV.
93
Figure 13: NPV
In case of “return on investment” as shown in Figure 14, the reinforcing factors
are the shares, equity and revenues whereas the costs, taxes and interest rate are the
balancing factors.
The next factor among the top 10 factors affecting the length of concession
period of PPP projects is the “construction cost”. The systems diagram as shown in
Figure 15 demonstrates that the revenues are the balancing sub-factors for it whereas the
costs incurred in form of initial construction costs, maintenance, rehabilitation, service
areas’ construction and additional services construction are the reinforcing sub-factors
for this factor.
94
Figure 14: Return on investment
Figure 15: Construction cost

95
Figure 16 shows that the only balancing sub-factor for “operational revenue in
year” is that of costs; whereas the revenues obtained from toll price, service price, asset
selling and other sources are the reinforcing sub-factors.
Figure 16: Operational revenue in year
In case of “Income in year” as shown in Figure 17, the enforcing factors are
equity, operational areas and services areas revenues whereas the balancing factors are
expenditures, taxes and salaries. Furthermore taxes may be imposed upon the salaries
and other expenditures and the salaries may contain salaries of toll collection staff,
patrolling staff and other employed staff.
96
Service areas revenue
Operational revenues
Salaries
+ +
+
Taxes
Income in year - +
Equity revenues +
- - Expenses
+
Salaries of staff
+
+ Toll collection staff
Expenditures
Patrolling staff
Others
Figure 17: Income in year
The systems diagram for “market situation” as shown in Figure 18 identifies
latest trends, demand and supply, and need for project as the reinforcing sub-factors
whereas the law and order, political factors and other associated risks are the balancing
factors.
In case of the factor “Traffic count” as shown in Figure 19, the balancing sub-
factors are those associated with project location and truck loads whereas the estimated
usage, toll, number of vehicles, service price, and population density are identified as
the reinforcing sub-factors.
97
Figure 18: Market situation
Figure 19: Traffic count
98
The last factor of the top 10 factors i.e. “size of investment” as shown in Figure
20 constitutes of investments, shares, equity and other finances as the reinforcing sub-
factors while the taxes and debts/loans are the balancing sub-factors.
Figure 20: Size of investment
99
Chapter 4
RESULTS AND SYNTHESIS
4.1.1 The gap between the academia and Industry
One of the interesting findings of this research work is the gap between
academia and industry. The score already obtained from Table 16 and questionnaire as
described in the methodology section was used and the deviations were calculated for
both taking absolute values only. Table 17 shows these deviations and the comparison
chart is shown in Figure 21.
Table 17: Deviation table for both scores
S/No Factors Literature Score Industry Score Deviation

1 Right project identification 1.57 1.513846154 0.056153846
2 Government effectiveness 2.148 2.071005917 0.076994083
3 Size of investment 5.619 5.792899408 0.173899408
4 Social welfare 1.487 1.698224852 0.211224852
5 Severity of risks involved 8.099 7.769230769 0.329769231
6 Strength of the consortium 3.966 3.609467456 0.356532544
7 Innovative design 0.909 1.313609467 0.404609467
8 Traffic count 6.115 5.597633136 0.517366864
9 Operation revenue in year 6.446 5.923076923 0.522923077
10 Risk management maturity 4.793 5.337278107 0.544278107
11 Income in year 6.28 5.727810651 0.552189349
12 Organizational structure of project 0.909 0.301775148 0.607224852
13 Population in area 3.388 4.142011834 0.754011834
14 Market situation 5.454 6.390532544 0.936532544
15 Entrepreneurship and leadership 1.074 2.019230769 0.945230769
16 Construction logistics 2.809 1.809230769 0.999769231
17 O & M costs 5.123 6.142011834 1.019011834
18 Revenue stream 7.438 8.461538462 1.023538462
19 SPV strength 3.14 2.082840237 1.057159763
20 Complexity 4.462 5.532544379 1.070544379
100
21 Corruption 2.975 4.082840237 1.107840237
22 Political Influence 6.033 4.914201183 1.118798817
23 Lack of competition 1.9 3.129230769 1.229230769
24 Credibility of government policies 1.239 2.512820513 1.273820513
25 Adequacy of funding 5.95 4.674556213 1.275443787
26 Net Present value 6.528 7.881656805 1.353656805
27 Poor risk management 3.967 5.337278107 1.370278107
28 Return on investment 6.363 7.881656805 1.518656805
29 Travel time 2.396 0.579881657 1.816118343
30 Constructability 1.322 3.142011834 1.820011834
31 Construction period 3.719 5.597633136 1.878633136
32 Site limitation 3.471 1.349112426 2.121887574
33 Project Promotion 2.479 0.328402367 2.150597633
34 Equity allocation 5.867 3.550295858 2.316704142
35 Government objectives & 1.487 3.807692308 2.320692308
commitment
36 Differentiation in guarantees 5.123 2.692307692 2.430692308
37 Traffic congestion 0.909 3.381656805 2.472656805
38 Poorly defined sector policies 0.991 3.489230769 2.498230769
39 Poor transparency 3.223 0.591715976 2.631284024
40 Capital structure of company 5.619 2.849112426 2.769887574
41 Type of project 0.991 3.940828402 2.949828402
42 Government’s interests 2.314 5.304733728 2.990733728
43 Operation cost 3.966 6.99408284 3.02808284
44 No of partners 4.049 0.887573964 3.161426036
45 Construction cost 5.289 8.461538462 3.172538462
46 Operational life 3.553 6.816568047 3.263568047
47 Inflation rate 1.735 5.304733728 3.569733728
48 Investment attraction 5.95 2.071005917 3.878994083
49 Procurement 6.198 2.177514793 4.020485207
50 Size of project 1.322 5.597633136 4.275633136
51 Profitability 1.735 6.313609467 4.578609467
52 Discount rate 2.892 7.769230769 4.877230769
53 Service price 1.322 6.319526627 4.997526627
54 Operation period 3.471 8.884615385 5.413615385
55 Sale price 0.909 6.674556213 5.765556213
56 Economic viability 1.157 6.99408284 5.83708284
57 Market demand 1.239 7.923076923 6.684076923
58 Toll price 2.314 9 6.686
59 Project development cost 0.991 8.615384615 7.624384615
Irrespective of the impact on the concession period there are certain factors like
those from serial 1 to 16 in Table 17 to whom both the industry and academia give
equal importance and considerations. These factors show overall deviation of less than 1
in 10 or 10%.
101
Figure 21: Comparison of Academia and Industry
102
In case of factors 17 to 48 in Table 17, there is a variation of 11 to 40 % in the
opinions of academia and industry.
Whereas factors like those from serial 49 to 59 in Table 17 show a variation of
more than 40% in both the streams. The most significant deviation is in case of Project
development cost to which the academia is giving minimum whereas the industry is
assigning maximum scores.
4.1.2 4.2.2 The gap between Academia and Pakistani Industry
In case of Pakistani industry though the overall deviation is a little lesser
comparatively but the deviation has considerably increased for the factors like
Government’s interests, Corruption, Market situation, Market demand, Discount rate,
Government effectiveness, Service price and Sale price. Table 18 shows the deviation of
Pakistani industry and academia.
Table 18: Deviation of Pakistani industry and Academia
Factor Avg score Academia score Standard deviation

Differentiation in guarantees 2.7 2.692307692 0.007692308
Revenue stream 8.4 8.461538462 0.061538462
Poorly defined sector policies 3.4 3.489230769 0.089230769
Site limitation 1.5 1.349112426 0.150887574
Adequacy of funding 4.5 4.674556213 0.174556213
Government objectives & 4 3.807692308 0.192307692
commitment
Investment attraction 2.3 2.071005917 0.228994083
Type of project 3.7 3.940828402 0.240828402
Construction period 5.3 5.597633136 0.297633136
Strength of the consortium 3.3 3.609467456 0.309467456
Profitability 6 6.313609467 0.313609467
O & M costs 6.5 6.142011834 0.357988166
Risk management maturity 5.7 5.337278107 0.362721893
Poor risk management 5.7 5.337278107 0.362721893
103
Right project identification 2 1.513846154 0.486153846
Credibility of government policies 2 2.512820513 0.512820513
Equity allocation 3 3.550295858 0.550295858
No of partners 1.5 0.887573964 0.612426036
Innovative design 0.6 1.313609467 0.713609467
Operational life 6 6.816568047 0.816568047
Net Present value 7 7.881656805 0.881656805
Lack of competition 2.2 3.129230769 0.929230769
Operation revenue in year 6.9 5.923076923 0.976923077
Return on investment 6.9 7.881656805 0.981656805
Size of investment 4.8 5.792899408 0.992899408
Capital structure of company 1.8 2.849112426 1.049112426
Operation cost 5.8 6.99408284 1.19408284
Inflation rate 4.1 5.304733728 1.204733728
Poor transparency 1.8 0.591715976 1.208284024
Constructability 1.9 3.142011834 1.242011834
Operation period 7.6 8.884615385 1.284615385
Construction logistics 3.1 1.809230769 1.290769231
Organizational structure of project 1.7 0.301775148 1.398224852
Severity of risks involved 6.3 7.769230769 1.469230769
Income in year 7.2 5.727810651 1.472189349
Social welfare 0.2 1.698224852 1.498224852
Entrepreneurship and leadership 3.6 2.019230769 1.580769231
Traffic count 7.2 5.597633136 1.602366864
Complexity 3.9 5.532544379 1.632544379
Procurement 0.5 2.177514793 1.677514793
Traffic congestion 5.2 3.381656805 1.818343195
Population in area 2.3 4.142011834 1.842011834
Travel time 2.5 0.579881657 1.920118343
Political Influence 6.9 4.914201183 1.985798817
Toll price 7 9 2
SPV strength 4.1 2.082840237 2.017159763
Construction cost 6.4 8.461538462 2.061538462
Size of project 3.5 5.597633136 2.097633136
Project Promotion 2.5 0.328402367 2.171597633
Economic viability 4.6 6.99408284 2.39408284
Project development cost 5.8 8.615384615 2.815384615
Government’s interests 8.3 5.304733728 2.995266272
Corruption 1 4.082840237 3.082840237
Market situation 2.9 6.390532544 3.490532544
Market demand 4.2 7.923076923 3.723076923
Discount rate 4 7.769230769 3.769230769
Government effectiveness 6 2.071005917 3.928994083
Service price 2.3 6.319526627 4.019526627
Sale price 1.4 6.674556213 5.274556213
104
Figure 22: Pakistani industry vs Academia
In case of global industry vs academia the deviations between the factors like
political influence, market situation, government’s effectiveness and corruption etc. are
105
lesser as compared to Pakistani industry. Figure 22 shows these deviations in graphical
form.
4.24.3 OUTPUTS
4.2.1 4.3.1 The Overall gap between Industry and Academia
After comparison of the top 10 factors from industrial response with their
identification year as stated by academia the conclusion can be made that there is a
difference of around 9 years between the academia and industry. The conclusion is
made by averaging the appearance of the factors and on average most of the factors
appeared between year 2006 to 2007 giving an average value of 8.9 so we can say that
there is a difference of around 9 years between the academia and the industry. The
industry is lagging behind the academia. This deviation can be observed in Table 19.
Table 19: Industrial score and year of identification by Academia
Questions/Factors Average Score Year of identification

Toll Price 9 2008
Operation period 8.884615385 2006
Project development cost 8.615384615 2006
Construction cost 8.461538462 2007
Revenue stream 8.461538462 2006
Market demand 7.923076923 2006
NPV 7.881656805 2005
Return on investment 7.881656805 2005
Discount rate 7.769230769 2006
Severity of involved risks 7.769230769 2006
4.2.2 4.3.2 Developing the equation for Concession period Improvement
Among the top 10 factors we have the factors Income in year, Return on
investment and Operation revenue in year that can be represented by a single variable
106
“Project income”. Also the factors Construction cost and traffic count are intrinsically
included in the factor NPV, so these can be represented by single factor “NPV”.
R.S ∝ (4.1)
Revenue stream is inversely proportional to the length of concession period
(Karim 2011).The more smoother and increased revenue stream will ultimately help in
quick recovery of the invested money and hence the concession period must be reduced
proportional to the increase in the revenue stream as shown in equation 4.1.
S.I.R ∝ (4.2)
More the severity of the involved risks in projects more will be the concession
period as indicated by Albalate (2013). The severity of risks demand for added time to
the concession length in order to cope with any unexpected surprise and risks. So there
is a direct relation between the severity of involved risks and length of concession
period as shown in equation 4.2.
P.I ∝ (4.3)
Tan (2012) indicated that the income from project inversely affects the length of
concession period of PPP projects. Hence a project offering more income will
intrinsically call for a lesser concession period .The relation is shown in equation 4.3.
M.S ∝ (4.4)
107
The better the market situation the lesser must be the concession period as quick
recovery of the investment is ensured (Wang 2015).So the market situation is inversely
proportional to the concession period as expressed in equation 4.4.
I.S ∝ (4.5)
The recovery of larger sized investment calls for a longer concession period as
suggested by Erick (2006).So there is a direct proportionality between the investment
size and the concession period as the larger investment will intrinsically need larger
time for its recovery under normal circumstances. The relation is shown in equation 4.5.
NPV ∝ (4.6)
The greater the net present value, lesser should be the minimum concession
period (Zhang, 2011). Though this is highly debatable due to the dynamic nature of the
factors constituting the NPV in itself but overall from decision making point of view the
minimum concession is the point at which NPV=0 whereas the increase in this depends
upon the acceptable level of IRR to both the parties so generally we can say that there is
an inverse relation between the NPV and concession period as shown in equation 4.6.
Using the Top 10 factors an equation can be developed for the modification of
the concession period of PPP projects as shown in equation 4.7.
M.C.P = K x C.P0 (4.7)
Where:
M.C.P = Modified concession period
C.P0 = originally sought concession period based upon NPV calculation.
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(4.8)
Just like the FIDIC’s price adjustment formula (2009), the value of K is
comprised of fixed as well as adjustable portion.0.29 out of 1 or 29% of the value is
fixed for NPV analysis. The NPV is highly subjective to the understanding of both the
parties upon the acceptable IRR value and payback period hence an acceptable
concession period is proposed by the lending authority.
The coefficients a, b, c, d, e must sum to 0.71 or 71% constituting the adjustable
portion of the formula. The value for k will be 0.01 to 1.99 with 1 as the normal value in
exactly the same as expected circumstances. Further exploratory study expressed the
relations between the factors and Concession period as follow:
The 29% effect due to NPV will always be fixed while the remaining 71 % will
vary depending upon the conditions keeping the equations 4.1 to 4.6 in mind.
The NPV will decide the CP0 and is hence given a fixed portion of 29% in the
value for K whereas the rest of the coefficients and corresponding factors are highly
subjective to the opinions of the experts deciding the concession length. Hence the said
formula is aimed at policy making and is aimed at helping the policy makers and
decision makers.
For evaluation purposes the response score was incorporated in the formula by
using total score obtained from equation 3.1 and its % effect was calculated by dividing
the score of individual factor by total cumulative score for all factors hence the values
as shown in Table 20.
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Table 20: Table for % effect
S/No Factor Total Score % effect

1 Revenue stream 62.93692308 0.140484203
2 Severity of risks involved 62.923 0.140453125
3 Net Present value 51.45145562 0.114846999
4 Return on investment 50.15098225 0.111944157
5 Construction cost 44.75307692 0.099895261
6 Operation revenue in year 38.18015385 0.085223558
7 Income in year 35.97065089 0.080291631
8 Market situation 34.8539645 0.077799028
9 Traffic count 34.22952663 0.076405193
10 Size of investment 32.55030178 0.072656924
Project Income = 50.15098225+38.18015385+35.97065089 or effect of
0.111944157+0.085223558+0.080291631 =0.28
Also the factors Construction cost and traffic count are intrinsically included in
the factor NPV , so the NPV can also be expressed as the combined sum of 0.29
calculated as before. These calculations are shown in Table 21.
Table 21: Modified % effect table
S/No Factor Code Total Score % Effect

1 Revenue stream R.S 62.93 0.140484203
2 Severity of risks involved S.I.R 62.923 0.140453125
3 Net Present value NPV 130.42 0.29
4 Project Income P.I 124.39 0.28
5 Market situation M.S 34.85 0.077799028
6 Size of investment I.S 32.55 0.072656924
110
Furthermore the values for the factors should always be used in portion of 1 and
added or subtracted to 1 depending upon the relations shown in equations e.g. in case of
a project being 20% more risky than normal, the R.S value will be 1+ ( )x1=1.2
Similarly in case of the expected project income being 20% more the P.I value
will be 1-( ) x1=0.8
In case of a project having 25% more risks, acceptable NPV value, and almost
same income as the project to which it is compared and an increased Investment size of
about 30 percent, the calculations would be as follow:
The original concession proposed/sought is of 20 years based upon NPV
analysis.
Factor Increase Decrease Overall score

R.S 20% - 0.8
S.I.R 25% - 1.25
NPV - - 1
P.I - - 1
M.S - 25% 1.25
I.S 30% - 1.3
As
Putting the values we get,

So
K=
K=1.135
And
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M.C.P = 1.135 x 20
M.C.P = 22.7 years
So in these conditions the concession period must be revised and increased to
22.7 years to incorporate the additional risks and worst market situation.
4.2.3 Synthesis
For synthesis of the equation and in order to validate it, Vensim PLE ® software
was used. Vensim PLE ® is software designed for modeling one or more quantities that
change over time. The software uses the concepts of systems dynamics.
The diagrams shown in Figures 9,10,11,12,13,14,15,16,17,18,19 as well as the
model in Figure 10 are drafted using Vensim PLE ® .
For the synthesis and validation of the prosed equation and the model various
iterative studies were conducted using Vensim .The conditions used are the worst,
normal and best conditions and comparative charts are formulated.
Under normal conditions we have a graph as shown in Figure 23. Now if on a
project we have 99 % more risks and the rest of the factors are kept as normal, we will
end up having the graph as shown in Figure 24.
We can clearly see the effect of increasing risks on the length of the concession
period and the concession length is considerably increased as evident from the figure.
Under the worst conditions i.e. using the worst possible values for all the factors,
we get a graph as shown in Figure 25.
It is evident from the comparative graph that the concession period will be
increased up to as long as 62 years if the initial concession period is kept to 20 years but
to get the same results as that of 20 years effect, we can use a concession of 34.1 years.
112
Figure 23: Normal behaviour for Concession period
22.7
Figure 24: If only risks are increased
Similarly for best ever conditions, as shown in Figure 26, the concession period
becomes 5.94, meaning that there is no need of reconsidering the concession period on
behalf of the concessionaire but rather the public entity or decision makers have made a
serious mistake and they should revise the concession.

113
34.1
Figure 25: Worst ever possibilities for 20 year CP0
Using the data obtained from the response and as obtained from the example
solved above, it can be evidently observed in Figure 27 that there is a need of extending
the concession period.
5.94
Figure 26: Best possible conditions
114
20.96
Figure 27: Data from responses
4.2.4 Case Projects
In order to validate the proposed methodology, a number of case studies are run.
For the sake of overarching effect, the case projects encompass completed, running and
under-procurement projects. This allows studying and understanding the pros and cons
of proposed model. In the following sections detailed analysis and discussion pertaining
to real projects are presented.
1) Completed Projects
a. Lahore-Sheikhopora-Faisalabad Dual Carriage Way
This project was constructed during 2003 to 2005 and became operational in
2005. It involved the renowned construction firms like Frontier Works Organization
(F.W.O), Sachal Group and National Highways Authority (N.H.A) Pakistan. The
carriage way was basically the extension of the already existing route and the source of
major income was that of the tolling. An SPV was developed for the project by the
name of LAFCO. The original concession period sought and agreed upon was 25 years.
The data reported in Table 22 was obtained from the project stakeholders.
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Table 22: Data from Lahore-Sheikhopora-Faisalabad Dual Carriageway

R.S 11% - 0.89
S.I.R - - 1
NPV - - 1
P.I 10% - 0.9
M.S - - 1
I.S - - 1
As

So
K=
K=0.9566
And
M.C.P = 0.9566 x 25
M.C.P = 23.915 years
As per the calculation, it seems that the project would have been justified even if
the concession period of 24 years was committed under the existing conditions. The
reduction in the concession period is due to the following reasons:
• There was an average growth of 30% in number of vehicles or transportation
means during years 2003 – 2005.
• No route promotion was required to attract new traffic as the route was already
well established.
• High tolling was available during the years of concession.
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• The companies involved in construction had high expertise in field of highway
construction.
So a recommendation for futuristic construction considerations can be that if the above
conditions are prevailing, the concession period can be shortened.
In the current form, the concessionaire seems to have been incentivized for committing
to the project. It must be appreciated but not at the cost of opportunities for public
revenue generation.
b. Habibabad Project
Started operating in 2009, this project is one of the most successful BOT projects in
PPPs of Pakistan. Though it was initially given a concession of 10 years (to be
transferred back to NHA by 2019), virtually the payback was achieved in half of
that time. The feasibility studies revealed an interesting pattern of recovery and
hence it was made in 5 years only. The project was transferred back to the public
party in 2014 on the initiation of concessionaire. The data obtained is as follow:

R.S 50% - 0.5
S.I.R - 70% 0.3
NPV - - 1
P.I 70% - 0.3
M.S 50% - 0.5
I.S - 20% 0.8
As
117
So
K=
K=0.5829
And
M.C.P = 0.5829 x 10
M.C.P = 5.8 years
The calculation only strengthens what is already known in this scenario. As per
the proposed equation, the project would have been feasible even if the concession had
been reduced to 6 years and the study confirms it. The officials quoted that the
concession was ended by the contractor himself as a gesture of good well after 5.5 years
and transferred it back to NHA.
The key factors leading to the success of the mentioned project were its huge
payback in form of tolling due to existing higher traffic volume. Further, owing to
positive socio-political support, the market was desirable and supportive. Furthermore
the feasibility studies of the project predicted a huge success. Also the smaller project
size, the less complicated nature, brownfield construction and easy access approach due
to non-proximity with any urban area aided to the huge success of this project.
2) Ongoing Project :
a. Lahore Islamabad Motorway (M-2) Overlay and Rehabilitation Project
M-2 Motorway joins Islamabad to Lahore and has a span of around 358 km. The
rehabilitation project started in 2014 and currently is in progress since almost a year.
The companies involved in this project are FWO, Bin Nadeem Associates (BNA) and
118
Zeeruk International. The concession sought for this project is of 20 years and the SPV
is known as Motorway Overlay and Rehabilitation Engineering Company (MORE). The
data as shown in Table 23 was obtained from the deputy project manager’s office.
Table 23: Data Obtained from Lahore Islamabad Motorway (M-2) Overlay
and Rehabilitation Project

R.S - 5% 1.05
S.I.R 15% - 1.15
NPV - - 1
P.I - - 1
M.S - - 1
I.S 10% - 1.10
As

So
K=
K=1.0353
And
M.C.P = 1.0353 x 20
M.C.P = 20.706 years
So based upon the current situation the concession length must be increased to
21 years to incorporate the additional risks and decreasing revenue stream. Keeping in
119
mind that just one year has passed since the construction has started, the situation seems
very alarming and steps are required to be taken to keep the concession in check.
The project income and market situation balance each other out because of the
soon to be constructed interchanges and hence more toll production so overall there will
be no change in expected motorway usage.
The main reason for the increase in the concession period can be linked to:
• Lack of coordination and communication between the stakeholders as quoted by
the DPM office.
• The increased risks of rework due to poor quality management and rushing
through the work.
b. Lahore Sialkot Motorway

The Lahore Sialkot motorway project is currently ongoing. Due to the risky nature
of the project, prequalification technique is used for shortlisting the potential
contractors. The project’s income is supposed to be following the tolling stream as
well as the Government of Pakistan (GOP) will be providing the required subsidy
for the project as tolls are not expected to meet the contractor’s expenses by 100%.
The following data as shown in Table 24 was obtained for this project.
Table 24: Data of Lahore Sialkot Motorway Project

R.S - - 1
S.I.R 30% - 1.3
NPV - - 1
P.I - 15% 1.15
M.S - 8% 1.08
I.S 10% - 1.10
120
As

So
K=
K=1.0975
And
M.C.P = 1.0975 x 25
M.C.P = 27.44 years
The concession length must have been around 28 years to incorporate the
additional financial risks associated with this project. Furthermore the project is a green
field construction on virgin land so the risks intrinsic to this project are of varying
severity.
3) Under-Planning Project:
a. Motorway M-9
A very ill-fated and highly convicted project, the M-9 can be considered as a bad
example of the project execution. The project faced failures in each of the last 3
attempts to be started. The main reasons for the unsuccessful startup of the project
can be linked directly to the political interests and will of the prime stakeholders.
The socio-political complexity in the form of land acquisitions and riots has been
one of the primary issues of this inauspicious project. As a result the government
has awarded the project to the armed forces of Pakistan to be executed by its
121
premium construction services organization FWO. The data as shown in Table 25
was obtained for this project.
Table 25: Data of M-9 Project
Factor Increase Decrease Overall

score
R.S - 20% 1.2
S.I.R 40% - 1.4
NPV - - 1
P.I - 10% 1.10
M.S - 30% 1.30
I.S 10% - 1.10
As

So
K=
K=1.1424
And
M.C.P = 1.1424 x 25
M.C.P = 28.56 years
So the above conditions force the decision makers to revise the concession
length. In case these conditions prevail, the calculation demonstrates that the concession
has to be increased to 29 years for incorporating the increased risks and poor market
situation.
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4.2.5 Discussion
From these demonstrations, it can be seen that in most of the projects the
proposed methodology has advocated revisiting the original plans and increasing the
concession period. The inability to do so may result not only in failure of specific
projects but will paint a negative picture of entire PPP procurement capability of the
concerned authorities. Such negative image will discourage the investors who may
otherwise be agents of running the engine of economy and uplifting the social standards
by providing jobs and better infrastructure. Therefore, the PPP procurement agencies
will need such a mechanism where the concession agreement of a running or under
operations project can be revisited and the improved concession lengths can be
incorporated.
It is a general rule that a concession length longer than 30 years may not be
agreed. Preserving the logic behind such limitation, it can be argued that every project
may not be cast into such rigid policy lines. As mentioned above, the revision
mechanism along with incorporating the strategy offered by this study may help
rationalize the concession lengths and the 30-year rule may be localized with respect to
each project. This may result into increased level of confidence to investors and
concessionaires along with the public agency. The elated confidence is aimed at
boosting the infrastructure procurement resulting in better and economic infrastructure
facilities to users.
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Chapter 5
CONCLUSIONS AND RECOMMENDATIONS
5.1 INPUTS
5.1.1 Literature review
Literature review consisted of 131 research papers, online materials and various
journals and magazines. The study period was restricted to the last decade i.e. 2005-
2015 .A total of 59 factors were identified that affect the length of concession period of
PPP projects which were further divided into 6 categories. Frequency analysis was
performed on these factors to find out the most frequent factors amongst the identified
ones. As a result a list of factors along with their frequency was obtained which was
used for further analysis and shortlisting.
Furthermore an attempt was made to classify the papers on the basis of their
year of appearance in order to know the trends being followed in the research.
124
5.1.2 Methodology
In the methodology section, a global survey was conducted from industrial
experts and the scores obtained were compared to the scores from literature. After the
comparison a combined score was developed using the modal analysis and scores from
both streams. Using the principles of System Dynamics a model was developed which
was later on synthesized using Vensim® software. The synthesis helped in validating
the model and formulating an equation for concession period improvement.
5.1.3 Results
The model developed was tested for ideal, worst and best possible conditions
and some case projects were analyzed to get the results. This led to the validation of the
proposed equation.
5.2 TOOLS & TECHNIQUES
5.2.1 Achieving the objectives
Table 26 shows the different objectives and the methodology of achieving them.
A reference section has also been provided in the table in order to simplify the searching
procedure.
Table 26: Achieving the objectives
S/No Objectives Methodology Status Reference

1 To figure out the factors affecting the Literature Review Achieved Table 3
length of concession period of PPP
Projects
125
2 To highlight the key factors affecting the Literature review Achieved Table 16
length of concession period and hence vs Industrial S/No 1 to 10
helping in more realistic concession review
period. (Questionnaire
Response)
3 To Bridge the gap between the literature Literature review Achieved Table 18 ,
and industry regarding the concession vs Industrial Figures 20 &
period of PPP Projects review 21
4 To synthesize the decision making model Making a system Achieved Figures 1 to
for concession period using LCCA dynamics model 19 ,
for application of Equations 4.1
LCCA to 4.8
5.2.2 Concluding the Objectives
1) To figure out the factors affecting the length of concession period of PPP
Projects
An extensive literature review consisting of 130 published papers and various
online materials was performed to figure out the factors affecting the length of the
concession period of PPP projects. As a result a total of 59 factors were identified that
affect the concession period length. These factors along with their sources are shown in
Table 3. In order to streamline the research further, an attempt was made to classify
these factors and as a result 6 groups have been formulated based upon both functional-
and characteristic-based criteria.
2) To highlight the key factors affecting the length of concession period and hence
helping in more realistic concession period.
In order to further highlight the key factors among the already identified ones,
an international survey was carried out. The factors obtained from literature were
126
compared to the responses obtained through the survey. Numerical scoring was
performed and as a result top 10 factors were identified that affect the length of
concession period as shown in Table 16 (S/No 1 to 10).
3) To bridge the gap between the literature and industry regarding the concession
period of PPP Projects
In order to bridge the gap between academic and industry, it was imperative to
first find out the lack of alignment between the two sources. The results of literature
review and international survey were compared as shown in Table 18 and Figures 20 &
21. The scores for Pakistani industry and academia were also compared and can be
observed in the aforementioned tables and figures.
The key conclusion that can be drawn from observing the figures is that there is
a gap of around 9 years between the academia and industry on a global scale.
4) To synthesize the decision making model for concession period using LCCA
For synthesizing a decision support model and tool the principles of LCCA and
System Dynamics were used and as a result a model as shown in Figure 9 was
developed. Using Vensim®, synthesis was carried out on the proposed model. Then
using the concept and logic of the proposed model and the top 10 factors, an equation as
shown in 4.8 was developed to help the decision makers while deciding the concession
period initially as well as its revision at any point within project life cycle.
127
5.3 OUTPUTS
5.3.1 Summarizing the conclusions
• The proposed model contributes to a more transparent concession system through the
introduction of the formula for modifying the concession period that can help the
three parties to perceive and achieve their own goals.
• The model aims at providing a win-win-win scenario for all the concerned parties.
• Concession period is dependent upon various dynamic factors like project income,
toll price, severity of involved risk, market situation, other revenues etc. And hence it
must also be treated as a dynamic variable and therefore must be revised from time to
time within the life of the project.
• There is a gap of almost 9 years between the academia and industry when it comes to
concession period of PPP projects. The industry lags behind the academia and needs
to upgrade their planning and decision making capabilities in order to achieve
overall success.
• Decision makers tend to rely more on the historical data. Undoubtedly this is a useful
source of information, but it sometimes oversees the unique nature of projects. As a
result unrealistic or overambitious concession periods may be proposed.
5.3.2 Recommendations
• Concession period is of dynamic makeup as it is dependent upon factors with
varying nature. Hence it must be revised from time to time within the project life
cycle. There must be some mechanism put in place which allows for revising the
concession period after each year of work as the inflation and budget for the next
year are determined. For Pakistan the recommendation would be to revise it after
128
every 5 years where the new government tends to set its own rules and goals. The
incorporation of this formula should be somewhere in the midst of the
government`s tenure. By doing so a taste of the previously adopted policies can be
acquired and the ground will be set for successful implementation of the proposed
formula. Also doing the analysis every year may be more resource consuming and
costly.
• There is an increased need of incorporating the top factors identified in this study
in the decision making of concession period.
• Steps must be taken to enforce the considerations of the key factors that affect the
length of concession period and make the estimation process more realistic rather
than dependent upon historical data. The proposed formula can be adopted and
modified to suite the national needs and must be consulted when deciding or
revising the concession period.
• Regular meetings and seminars must be conducted inviting both the industrial and
academic experts so as to bridge the knowledge gap between the academia and
industry.
5.3.3 Recommendations for further research
• The current study is the first step in wider analysis of the arrangement of available
literature on the PPP projects and the decision making criteria. Further assessment
is required for the identified factors along with finding other important factors by
enhancing the search criteria followed in this paper. Proper management techniques
must be applied on these identified factors and their effects should be observed.
129
• A critical point in the decision making efficiency is connected with the difficulty in
collecting data referring to the internal organization of the 3 involved parties. A
chance tofill this information gap could easily be achieved incentivizing the
concessionaire of the terminal area to release all the needed information due to the
new proposed link between the identified factors on the concession period and
performance achievements.
• An interesting evolution of the presented work considers the evaluation of the
effects of the social welfare and the user expectations on the length of concession
period in order to better understand the impact of the proposed methodology in
different PPP projects.
• This study uses LCCA and NPV techniques as its basis. Other financial techniques
like IRR could be explored for evaluating the same phenomenon.
• Furthermore the proposed study uses the methodology of Systems Dynamics and
there is a need of reevaluating the proposed formula by other statistical techniques
as well as some graphical techniques like Structural Equation Modeling (SEM).
• The proposed methodology appears as afirst approach in order to set a conceptual
framework; in this context future studies and research will work on the above
mentioned considerations in order to enrich the potential application of the
proposed methodology.
130
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141
APPENDIX 1
Factors affecting the concession period of PPP Projects
This form assesses the effects of various factors on the concession period of PPP based
Highway Projects.
Please select Yes or No
If yes please assign a score out of 10 depending upon its impact on the length of
concession period.
Where 1=lowest influence, 10= highest influence
Your Name: ______________________
Country of residence: __________________
S/No Questions/Factors Yes /No Score

1 Does "Toll price" affect the length of concession period of Y / N 1 2 3 4 5 6 7 8 9 10
PPP projects?
2 Does "Operation period" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10
3 Does "Project development cost" affect the length of Y / N 1 2 3 4 5 6 7 8 9 10

4 Does "Construction cost" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

5 Does "Revenue stream" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

6 Does "Market demand" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

7 Does "Net Present value of project" affect the length of Y / N 1 2 3 4 5 6 7 8 9 10

8 Does "Return on investment" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

9 Does "Discount rate" affect the length of concession period Y / N 1 2 3 4 5 6 7 8 9 10

of PPP projects?
10 Do "Severity of risks involved" affect the length of Y / N 1 2 3 4 5 6 7 8 9 10

142
11 Does "Economic viability" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10
12 Does "Operation cost" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

13 Does "Operational life of project" affect the length of Y / N 1 2 3 4 5 6 7 8 9 10

14 Does "Sale price" affect the length of concession period of Y / N 1 2 3 4 5 6 7 8 9 10

PPP projects?
15 Does "Market situation" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

16 Does "Service price" affect the length of concession period Y / N 1 2 3 4 5 6 7 8 9 10

of PPP projects?
17 Does "Profitability" affect the length of concession period Y / N 1 2 3 4 5 6 7 8 9 10

of PPP projects?
18 Do "O & M costs" affect the length of concession period of Y / N 1 2 3 4 5 6 7 8 9 10

PPP projects?
19 Does "Operation revenue in year" affect the length of Y / N 1 2 3 4 5 6 7 8 9 10

20 Does "Construction period" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

21 Does "Size of investment" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

22 Does "Income in year" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

23 Does "Size of project" affect the length of concession period Y / N 1 2 3 4 5 6 7 8 9 10

of PPP projects?
24 Does "Construction period" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

25 Do "No of vehicles" affect the length of concession period Y / N 1 2 3 4 5 6 7 8 9 10

of PPP projects?
26 Does "Complexity of project" affect the length of Y / N 1 2 3 4 5 6 7 8 9 10

27 Does "Risk management maturity of concessionaire" affect Y / N 1 2 3 4 5 6 7 8 9 10

the length of concession period of PPP projects?
143
28 Does "Government’s interest" affect the length of Y / N 1 2 3 4 5 6 7 8 9 10
29 Does "Inflation rate" affect the length of concession period Y / N 1 2 3 4 5 6 7 8 9 10

of PPP projects?
30 Does "Political influence" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

31 Does "Adequacy of funding" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

32 Does "Population in area" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

33 Does "Corruption" affect the length of concession period of Y / N 1 2 3 4 5 6 7 8 9 10

PPP projects?
34 Does "Type of project" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

35 Do "Lack of clear government objectives and Y / N 1 2 3 4 5 6 7 8 9 10

commitments" affect the length of concession period of PPP
projects?
36 Does "Strength of the consortium" affect the length of Y / N 1 2 3 4 5 6 7 8 9 10
37 Does "Equity allocation" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

38 Do "Poorly defined sector policies" affect the length of Y / N 1 2 3 4 5 6 7 8 9 10

39 Does "Traffic congestion" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

40 Does "Constructability of project" affect the length of Y / N 1 2 3 4 5 6 7 8 9 10

41 Does "Lack of competition" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

42 Does "Capital structure of company" affect the length of Y / N 1 2 3 4 5 6 7 8 9 10

43 Do "Difference in guarantees" affect the length of Y / N 1 2 3 4 5 6 7 8 9 10

44 Does "Credibility of government policies" affect the length Y / N 1 2 3 4 5 6 7 8 9 10

of concession period of PPP projects?
144
45 Does "Procurement" affect the length of concession period Y / N 1 2 3 4 5 6 7 8 9 10
of PPP projects?
46 Does "Strength of SPV" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

47 Does "Effectiveness of Government" affect the length of Y / N 1 2 3 4 5 6 7 8 9 10

48 Does "Investment attraction" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

49 Does "Entrepreneurship and leadership" affect the length of Y / N 1 2 3 4 5 6 7 8 9 10

50 Do "Construction logistics" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

51 Does "Social welfare" affect the length of concession period Y / N 1 2 3 4 5 6 7 8 9 10

of PPP projects?
52 fication" affect the length of

Does "Right project identi Y / N 1 2 3 4 5 6 7 8 9 10
53 Does "Site limitation" affect the length of concession period Y / N 1 2 3 4 5 6 7 8 9 10

of PPP projects?
54 Does "Innovative design" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

55 Do "Number of partners" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

56 Does "Poor transparency" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

57 Does "Travel time" affect the length of concession period of Y / N 1 2 3 4 5 6 7 8 9 10

PPP projects?
58 Does "Project’s promotion" affect the length of concession Y / N 1 2 3 4 5 6 7 8 9 10

59 Does "Organization structure of project" affect the length of Y / N 1 2 3 4 5 6 7 8 9 10

145
APPENDIX 2
Improving the decision making for the length of Concession period of

PPP Projects
Respondent’s Name: _______________________________________
Designation: ______________________________________________
Organization: _____________________________________________
Project’s Name: ___________________________________________
Original Concession period: __________________________________
Have you used/considered the NPV technique for the concession period
estimation (Yes/ No): _______________________________________________
Please fill the following table in accordance to your project:
S/No Factors Considered Increase Decrease %

(Yes/No) Increase/Decrease
1 Revenue Stream Yes No
2 Project Income Yes No
3 Market Situation Yes No
4 Severity of Yes No
involved risks
5 Investment size Yes No
146
Modified Concession Period 23.915 20.706
K value 0.9566 1.0353
Effect 1 1.1
Investment size No change 10% Increase
Effect 1 1.15
Severity of involved risks No change 15% Increase
Effect 1 1
Market Situation No change No change
Effect 0.9 1
Responses
Project Income 10% Increase No Change
147
Effect 0.89 1.05
Revenue Stream 11% Increase 5% Decrease
Orignal Concession Period 25 20
(Years)
NPV Technique Used Yes Yes
Project’s Name Lahore-Sheikhopora-Faisalabad Dual M-2 Overlay and Rehabilitation
Carriage way
Organization PMO NUST FWO
Designation DD Construction DPM
Respondent’s Name Col .Khalid Baig Maj.Jawad
S/No 1 2
5.829 27.4365 28.56
0.5829 1.09746 1.1424
0.8 1.1 1.1
20% Decrease 10 % Increase 10% Increase
0.3 1.3 1.4
70% Decrease 30% Increase 40% Increase
0.5 1.08 1.3
50% Increase 8% decrease 30% decrease
0.3 1.15 1.1
70% Increase 15% decrease 10% decrease
148
0.5 1 1.2
50% Increase No change 20% decrease
10 25 25
Yes Yes Yes
Habibabad Project Lahore Sialkot Motorway M-9 Motorway
NHA NHA NHA
Director PPP Director PPP Director PPP
M.Azeem M.Azeem M.Azeem
3 4 5
149

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Estimating Concession Period for Public Private

Partnership (PPP)-based Infrastructure

Engr. Fahim Ullah

Department of Construction Engineering and Management

Estimating Concession Period for Public Private Partnership

Engr. Fahim Ullah

has been accepted towards the partial fulfillment

Dr. M. Jamaluddin Thaheem

colleagues and my respected teachers!

I would like to pay debt of gratitude to my supervisor Dr. M. Jamaluddin

Thaheem (HoD, CE&M), for his profound guidance and encouragement, to

and personal support accorded by him. I am also extremely grateful to the

honest gratitude to my family especially my parents for their unconditional support,

encouragement, prayers and patience.

Public-Private-Partnership (PPP) is a widely adopted delivery method for

concession period have always presented complexities to decision makers. The

constructed facility/infrastructure all the while assuring customer satisfaction and

maintaining the infrastructure. In order to reconcile this critical conflict of interest,

the proposed research aims at improving the concession period estimation by

incorporating the probabilistic LCCA as well as System Dynamics.

financial implications of their undertaking: the private parties may ensure

otherwise have trepidation regarding the extension of concession, causing either

long-term investment policies and exposing optimum levels of portfolio. The

The decision-making implications of this research deal with donor

win-win decision making process for considering the significant factors by

formulating a decision making equation. It further classifies and arranges these

maximum frequency. The practical implications of this matrix facilitate the

estimating the concession period as reported in the literature.

List of Abbreviations .....................................................................................x

List of Figures .............................................................................................. xi

List of tables ............................................................................................... xiii

LITERATURE REVIEW ............................................................................25

RESULTS AND SYNTHESIS ..................................................................100

4.1 Tools and Techniques ......................................................................100

CONCLUSIONS AND RECOMMENDATIONS ....................................124

PPP = Public Private Partnership

EPA = Environmental Protection Agency

GOP = Government of Pakistan

NHA = National Highways Authority

GDP = Gross Domestic Product

HSE = Health, Safety and Environment

FWO = Frontier Works Organization

ISO = International Organization for Standardization

HDI = Human Development Index

NPV = Net Present Value

IPO = Input Process Output

PMBOK = Project Management Body of Knowledge

BOT = Build Operate Transfer

VGF = Viability Gap Fund

Figure 1: Sketch of NPV approach ..............................................................11

Figure 2: System diagram for areas affected ...............................................43

Figure 3: Factors appearance frequency chart .............................................61

Figure 4: Factors identification chart (2005-2012) ......................................69

Figure 5: Factors repetition chart (2012-2015) ............................................70

Figure 6: Factors frequency v/s areas affected ............................................74

Figure 7: Pilot Survey options .....................................................................77

Figure 8: 3D cube showing allocation of factors .........................................88

Figure 9: Systems Diagram for model .........................................................90

Figure 10: SD model for calculating concession period ..............................91

Figure 11: Revenue stream ..........................................................................92

Figure 12: Involved risk severity .................................................................93

Figure 13: NPV ............................................................................................94

Figure 14: Return on investment..................................................................95

Figure 15: Construction cost ........................................................................95

Figure 16: Operational revenue in year .......................................................96

Figure 17: Income in year ............................................................................97