A dynamic simulation model for financing strategy management of infrastructure PPP projects

Abstract

Strategic management is vital for significant infrastructure public-private partnership (PPP) projects characterised by a heavy and irreversible investment over a long period. In PPP projects, the financing strategy relates to the capital structure of the project and the coordination of the participants’ requirements. In this paper, a system dynamics (SD) model is described to analyse the impacts of two types of financing strategies on the needs of creditors, the government, and private investors, considering the dynamic and complex characteristics of infrastructure PPP projects. The proposed model has been implemented on a PPP highway project. A number of experiments were conducted over a 33-year strategic planning horizon as a means of assessing the long-term effects of different financing strategies. The experimental results reveal that the model is a useful tool that could support decision-makers in identifying the intervals with different management focus of financing risk and comparing different financing strategies to choose the optimal one. It is especially helpful for the government to select a financing strategy for infrastructure PPP projects with capital limitations.

Keywords

• infrastructure projects
• financing strategy management
• decision-making
• simulation model
• public-private partnership
• capital structure