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Using bargaining-game theory for negotiating concession period for bot -type contract

Presented by: Alaa Albesher. Using bargaining-game theory for negotiating concession period for bot -type contract. Objective. Concession Period. BOT Concession Model (BOTCcM) . Principles of Bargaining Theory. Bargaining Process. Critique. Outline:.

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Using bargaining-game theory for negotiating concession period for bot -type contract

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  1. Presented by: Alaa Albesher Using bargaining-game theory for negotiating concession period for bot-type contract

  2. Objective. • Concession Period. • BOT Concession Model (BOTCcM). • Principles of Bargaining Theory. • Bargaining Process. • Critique. Outline:

  3. Concession period is one of the most important decision variables in arranging a BOT-type contract. • This paper introduces a method to enable the identification of a specific concession period. Objective:

  4. The granted period of time by government to operate the facility and generate revenue. Concession period

  5. Short concession period investor rejects the contract or increase service fees. (Investor or Public Disadvantage) • Prolonged concession period government lose profit. (Government Disadvantage) Concession period effect:

  6. The span of the concession period shall protect the basic interests of both the government and the private investor. IR ≤ NPV(Tc) ≤ NPV(Tf) IR: expected return of investment. NPV(Tc): net present value generated during the concession period. NPV(Tf): net present value generated during the project economic life. BOT concession model (BOTCcM):

  7. (BOTCcM):

  8. Bargaining is a process through which the players try to reach an agreement by making offers and counteroffers. • Principles: • Rational behavior. • Information sharing. • Bargaining payoff. • Bargaining cost. • Time value (discount factor) Basic principles of bargaining theory:

  9. TC_L ≤ TC ≤ TC_U Bargaining process:

  10. Should make a reasonable offer by analyzing the investor’s position. • This will reduce the chance of further bargaining. • Counteroffer will cause bargaining cost and time cost. • Maximum and minimum concession period values gets closer with bargaining. First-round offer by the government:

  11. Should make a reasonable offer by analyzing the government’s position. • This will reduce the chance of further bargaining. • Counteroffer will cause bargaining cost and time cost. • Maximum and minimum concession period values gets closer with bargaining. First-round offer by the investor:

  12. Positive: • There are only few studies regarding the length of the concession period. • Specific agreeable concession period can be identified by using this method. Critique:

  13. Negative: • Bargaining will take longer than if concession time is specified in the tender. • Calculations are not easy to follow because of the symbols used. • If the maximum value is at the last year of the project life, this will make a very long time range. critique:

  14. Any Questions! Thank you for listening

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