KSCE Journal of Civil Engineering

, Volume 23, Issue 4, pp 1473–1483 | Cite as

PPP Renegotiation Framework based on Equivalent NPV Constraint in the Case of BOT Project: Incheon Airport Highway, South Korea

  • Deog Sang BaeEmail author
  • Ivan Damnjanoic
  • Dong Hun Kang
Construction Management


The contractual type of Build-Operate-Transfer (BOT) is becoming a more common delivery method of Public-Private Partnerships (PPP) for infrastructure projects. However, their implementation is not seamless due to a number of factors including uncertainty in future demand, which discourages participation of private investors. In response, governments often provide Minimum Revenue Guarantee (MRG) which is a contractual clause that can be invoked if project revenue falls below the guarantee threshold. While MRG does not provide an upfront subsidy such as a grant, it exposes the governments to significant financial liability. In 2001, the South Korean government partnered with a consortium of private investors to deliver the Incheon Airport Highway using the BOT framework. The MRG clause was also an integral part of the BOT contract with the total net additional liability to the government exceeding $1.5 billion. This case study paper presents a renegotiation framework that is based on the equivalent NPV constraint condition. The implementation results show that the partners can find a set of alternative solutions that reduce government financial exposure while maintaining the private sector’s NPV.


renegotiation public private partnership minimum revenue guarantee enumeration build operate transfer 


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Copyright information

© Korean Society of Civil Engineers 2019

Authors and Affiliations

  • Deog Sang Bae
    • 1
    Email author
  • Ivan Damnjanoic
    • 2
  • Dong Hun Kang
    • 3
  1. 1.Risk Management OfficeHanwha Investment & SecuritiesSeoulKorea
  2. 2.Zachry Dept. of Civil EngineeringTexas A&M UniversityCollege StationUSA
  3. 3.Mobility Analysis DivisionTexas A&M Transportation InstituteCollege StationUSA

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