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Title: Perception of residual value risk in public private partnership projects : critical review
Authors: Yuan, J
Chan, APC 
Xiong, W
Skibniewski, MJ
Li, Q
Issue Date: 6-Sep-2013
Source: Journal of management in engineering, 6 Sep 2013, v. 31, no. 3, 04014041
Abstract: Given the increased demand for public facilities and the lack of funds and skills to maintain, repair, and replenish the existing facilities, Public Private Partnerships (PPPs) have been adopted widely and they have contributed significantly to the development of new built infrastructures throughout the world. However, as many PPP projects will be transferred back to the host governments upon expiry of the concession period, problems related to the subsequent management of PPP projects have not been studied thoroughly to date. Residual Value Risk (RVR) is a critical issue when the projects revert back to the public sector. Through an extensive literature review and an open-ended questionnaire survey, the perception of RVR in PPP projects is elaborated in this paper which aims at presenting a precise definition and meaning of RVR in PPP projects. The survey results indicate that RVR is viewed as an important issue by professionals and academics. The definition of RVR can be phrased as “the risk that on expiry or earlier termination of the services contract, the asset (tangible or intangible) is not in accordance with the value originally estimated by government, at which the private party agreed to transfer it to government, where public sectors could suffer loss of the residual value, and the private sector partner also could suffer a loss of compensation from the government due to different residual value”. Six critical risk factors leading to RVR are identified in this paper, namely, (1) Downfall of product or service performance; (2) Functional problems; (3) Decrease of profitability and low possibility of refinancing; (4) Deterioration of maintainability; (5) Decline in operability; (6) Failure of sustainability. On the basis of the proposed RVR model, the cumulative effects of the interaction of different risk factors are identified. The proposed RVR definition and its associated RVR risk factors in PPP projects can be considered for use by the public sector to better regulate and manage PPP projects and facilitate the development of PPP projects from the regulatory and financial planning perspective.
Keywords: Public Private Partnerships (PPPs)
Residual Value Risk (RVR)
Risk identification
Cumulative effects of risk categories
Key Risk Indicators (KRIs)
Publisher: American Society of Civil Engineers
Journal: Journal of management in engineering 
ISSN: 0742-597X
EISSN: 1943-5479
DOI: 10.1061/(ASCE)ME.1943-5479.0000256
Rights: Copyright 2013 by the American Society of Civil Engineers
This is the author’s version of a work that was accepted for publication in Journal of Management in Engineering. The open URL of the article: http://dx.doi.org/10.1061/(ASCE)ME.1943-5479.0000256
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