MINIMUM REVENUE GUARANTEE & TRAFFIC REVENUE CAP ON BATANG-SEMARANG AND PANDAAN-MALANG TOLL ROAD PROJECTS

• Main Author: LIDYA MORAASI B., JOICE
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/36171
• Institution: Institut Teknologi Bandung

In executing a toll road construction plan, government resolves to create a Public Private Partnership (PPP) with private sector due to a financially tight budget and chooses Build Operate Transfer (BOT) as its project delivery system. The sole risk existed in this project is revenue risk, which leads to a potential loss private sector may have to suffer from. If the measure of this risk exceeds a certain level that private sector tolerates, then the private sector will most likely withdraw its participation from toll road project, even if the project has a quantitatively great investment value. To solve this constraint and mitigate the risk exposure of the private sector, government offers a Minimum Revenue Guarantee (MRG) to the private sector, and as an act of returning this favor, private sector grants government a right to claim excess revenues with Traffic Revenue Cap (TRC) mechanism. In this study, the valuation model discussed uses the approach of risk-neutral valuation. The author explains the real-option concept of MRG & TRC, the Net Present Value (NPV) model and also mathematical expressions to value the net gain that government and private sector will respectively receive from the toll road project. The author then conducts the constructed model to two different toll road projects: Batang-Semarang and Pandaan-Malang. The model simulation shows that Batang-Semarang toll road project has an increasing NPV value from 1.688 trillions rupiah to 2.019 trillions rupiah (19.62%), while Pandaan-Malang toll road project investment value escalates from 539.62 billions rupiah to 786.08 billions rupiah (45.67%). In addition to this great result, the risk in Batang-Semarang project is drastically reduced from 18.54% to 3.2%. The very same result happens to Pandaan-Malang project, with the risk goes down from 30.21% to 5.75%. From these outcomes, it is safe to conclude that MRG & TRC have significant financial impacts to a toll road project.