Investigating the Decision of Adjustment Fund in Highway BOT Projects

BOT projects generally have such features as large quantities,long payback period,and high project risk.In the long period of concession term,highway BOT projects have risks because they are faced with complicated and uncertain economic environment. A regulation fund system has been designed in order to avert market risks and ensure the stable operation of highway BOT projects.The establishment of the independent fund account can absorb fund,improve project stability when there is excessive annual earnings,and supply fund when the annual earning is too low.A project’s market risk can be effectively circumvented through the fund regulation system.However,its upper and lower limits can affect the core interests of the project executing company and government.In the highway BOT project,the project company aims at making investment income on the basis of the design of fund regulation system.It is expected that the upper and lower limits could be maximized.In this way,the company could receive much more funds from fund companies,and at the same time reduce the income turned over to the fund company. The government expects to regulate the upper and lower limits to minimize range in order to increase the attraction of fund to the project,and cut the investment from funds.In the process of negotiating contracts for highway BOT project,unreasonable upper and lower limits of regulation fund may cause the profit loss of all project parties,and even lead to projects failure.From the perspective of sustainable development,low upper and lower regulation fund limits could restrain unreasonable growth of investment returns for project company,and increase social benefits of individual projects in the short term.However,if the level of upper and lower regulation fund limits is too low in the long run,it would result in a reduction of investment returns for the whole industry and the enthusiasm of investors,which in return has an impact on long-term sustained growth of social benefits as well as the sustainable development of infrastructure.High upper and low regulation fund limits could increase the profit acquisition for project executing company,but it would cause a loss to social benefits and even affect the civil recognition of BOT project as well as the development of infrastructure.So it is very important to establish a balance between government and company by regulating the upper and lower limits in a reasonable range. To achieve sustainable growth of social benefit and protect project investors’ reasonable profits,the paper discusses the establishment of the lower limit of regulation fund in accordance with investor’s acceptable minimum reasonable profits.The article also introduces the Social Average Consumer Surplus as the basis of upper limits of regulation fund.By comparing the average income of project’s NPV with the upper and lower limits of regulation fund,and having the mathematical model established,we select the higher one and add it to the lower one.Moreover,the system is verified through an example,and the feasibility and reasonability are analyzed. Regulation fund not only raises project stability,but also makes sure that investors make reasonable profits in BOT Systems.At the same time,it can prevent franchises from making monopolistic profit.Finally,a win-win situation between investors’ interest and social benefit could be realized.