Research On Price Adjustment Mechanism Of PPP Project

Concession price is the core issue of PPP project concession contract negotiations, and it has been highlighted in public utilities’ financing fields and theoretical field. However, there are still lots of failure cases due to improper pricing in practice. One reason is that the agreement price adjustment methods are too limited, because only the economic factors are considered. The second reason is the lack of the external environment, such as operation monitoring and legal policy in the process of the implementation of price adjustment. Therefore, this paper argues that a scientific system of price adjustment should include the factors below: mechanism, the principle of price adjustment, price start conditions, price adjustment period or timing, price adjustment model, the external security environment(This environment includes four aspects: establishment of the PPP prices management legal system, of an independent regulator, of the performance evaluation system, and of the system of public participation, moreover, the whole process of information into the open.).Price adjustment model is the core content of price adjustment mechanism. The previous PPP price adjustment models tend more to consider the interests of investors, but not the public ones. But PPP project has public welfares, this paper argues that the price adjustment should comply with the principle of fairness, efficiency, balance the interests of all aspects. Based on the principle, this paper will analyse the factors which influnce the price adjustment through the stakeholders. This paper will also argue the purpose of PPP project price adjustment which has high degree of monopoly is to improve productivity and service levels, and adopts the improved model based on RPI-X. The competitive PPP project should analysis the interaction between price and demand, fully considering the users’ willingness to pay, using system dynamics method or game theory to establish the price adjustment model.Finally, taking the competitive environment of the PPP toll road project as an example, we suggest the principle of price adjustment to ensure a reasonable return on investment. At the same time, interests of users should be considered. Then, we will analysis the influences from the perspective of the project investors, as well as road users, according to the interaction relations of these factors(price, traffic volume, traffic allocation rate, users’ willingness to pay etc.), using Vensim software to set up a system dynamics model of price adjustment mechanism. In order to control the project profitability, we use this model to adjust the price, basing on the price adjustment policy advice. We will also describe the external security environment of highway PPP project and the price adjustment process.