Abstract：This article describes the principles and methodology used to design the minimum revenue guarantee (MRG) mechanism to improve revenue risk allocation for toll road PPP projects. A literature review shows five critical principles for MRG design which are used in a stochastic model to find the optimal upper and lower revenue thresholds. A case study shows the application and effectiveness of this methodology. This research shows that a minimum revenue threshold determined by the target capital structure significantly reduces the bankruptcy probability of the project company. A maximum revenue threshold jointly determined by a target rate of investment return and a bidding process will prevent the private sector from obtaining excessive profits from the PPP project. These method and models will help with quantitative evaluations of the impacts of an MRG on a PPP project's financial status and the government's contingent liabilities to further improve project evaluations and fiscal sustainability assessments as well as budgeting for PPPs.
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2017, Vol. 57 
