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Article

Optimizing Risk Allocation in Public-Private Partnership Projects by Project Finance Contracts. The Case of Put-or-Pay Contract for Stranded Posidonia Disposal in the Municipality of Bari

1
Amiu Puglia spa, Bari Viale Francesco Fuzio, 70132 Bari, Italy
2
Department of Mechanics, Mathematics and Management, Polytechnic University of Bari, Via Orabona 4, 70125 Bari, Italy
3
Department of Innovation and Engineering, Università del Salento, 73100 Lecce, Italy
*
Author to whom correspondence should be addressed.
Sustainability 2020, 12(3), 806; https://doi.org/10.3390/su12030806
Received: 23 December 2019 / Revised: 20 January 2020 / Accepted: 20 January 2020 / Published: 22 January 2020
(This article belongs to the Special Issue Real Option Valuation for Business Sustainability under Uncertainty)
This paper investigates the impact of the adoption of public support on the performance of public–private partnership (PPP) projects as perceived and measured by the different actors involved. In particular, the public support investigated by this study is put-or pay contracts, which are often used in PPP projects financed through project finance to optimize risk allocation. In order to quantify the benefit gained by each party with and without the put-or-pay contract, cash flows of the project have been modeled by using the concept of real option, defined as the right without the obligation to make an action if it is convenient to do so. This concept enabled us to model and quantify the inner flexibility mechanism of put-or-pay contracts. With a put-or-pay agreement signed between the municipality, a (private) owner, and operator of a disposal facility, the owner of the facility has the faculty, without any obligation, to require the payment of penalty, if the municipality fails to meet its obligations. This means that the owner of the facility holds a series of European put options that can be exercised if it is convenient for the holder. The developed model has been used for studying the effectiveness of put-or-pay contracts for financing the treatment plant of a special dispose through project finance, i.e., the plant for disposal of marine plant posidonia. View Full-Text
Keywords: waste management; public private partnership; project finance; risk allocation; real option theory waste management; public private partnership; project finance; risk allocation; real option theory
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MDPI and ACS Style

Lomoro, A.; Mossa, G.; Pellegrino, R.; Ranieri, L. Optimizing Risk Allocation in Public-Private Partnership Projects by Project Finance Contracts. The Case of Put-or-Pay Contract for Stranded Posidonia Disposal in the Municipality of Bari. Sustainability 2020, 12, 806. https://doi.org/10.3390/su12030806

AMA Style

Lomoro A, Mossa G, Pellegrino R, Ranieri L. Optimizing Risk Allocation in Public-Private Partnership Projects by Project Finance Contracts. The Case of Put-or-Pay Contract for Stranded Posidonia Disposal in the Municipality of Bari. Sustainability. 2020; 12(3):806. https://doi.org/10.3390/su12030806

Chicago/Turabian Style

Lomoro, Antonella, Giorgio Mossa, Roberta Pellegrino, and Luigi Ranieri. 2020. "Optimizing Risk Allocation in Public-Private Partnership Projects by Project Finance Contracts. The Case of Put-or-Pay Contract for Stranded Posidonia Disposal in the Municipality of Bari" Sustainability 12, no. 3: 806. https://doi.org/10.3390/su12030806

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