A managerial and financial study on the involvement of private sector companies in the development, construction, operation, and ownership of infrastructure projects.

The ability of governments to operate, maintain and finance infrastructure is increasingly being questioned. Many facilities have been inefficiently operated and inadequately maintained, social needs have been neglected, and governments have been spending more on infrastructure than they can manage. The private promotion of infrastructure projects is a key mechanism for providing new facilities that has advantages for the public and private sectors. This study focuses on the participation of private-sector companies in the development, financing, construction, operation, and ownership of infrastructure projects. It provides a through discussion of the essential issues and concepts involved in the promotion of projects via concession arrangements or privatization. Questionnaires were sent to 15 renowned experts to gather information about the desirable attributes of promoting companies and projects. As a result, a multiattribute additive hierarchical model, called the Desirability Model, has been developed to evaluate (i) the capability of companies to participate in the promotion of projects and (ii) the feasibility of projects to be pursued by private promotion. A total of 23 attributes have been identified as able to characterize the quality level of companies and projects. Validation was performed and the results indicate that the model closely captures the preferences of the respondents. A mathematical formulation for determining the value of debt and equity as well as the optimal financial structure for privately-promoted projects is also presented. The main decision facing the prospective one-project company is how much to borrow, how much to infuse from the promoters' own funds and how much to raise from outside investors. Typically, such projects must repay any debt obligations through their own net operating income, as they do not provide the lenders with any other collateral (off-balance-sheet financing). Thus, the possibility of a costly bankruptcy becomes much more likely. It is shown that under these circumstances, the maximum amount of debt that a project can service (its debt capacity) is less than 100% debt financing. Furthermore, the amount of debt that maximizes the promoters' return on investment is always less than the project's debt capacity. Finally, it is demonstrated that both debt levels as well as the promoters' return increase through the provision of either production or minimum-revenue guarantees.PhDApplied SciencesCivil engineeringFinanceManagementSocial SciencesUniversity of Michigan, Horace H. Rackham School of Graduate Studieshttp://deepblue.lib.umich.edu/bitstream/2027.42/129437/2/9513338.pd