Private Capital Rate of Return on Investment in PPP Projects Based on the Perspective of Government Regulation

PPP projects are usually more difficult to implement than other traditional procurement models because of their complexity. Earlier research works on several PPP projects in China showed that a number of problems exist in the project returns and an objective, reliable and practical return assessment model for PPP projects is essential to the successful implementation of PPP projects. The related research on many aspects of PPP projects is numerous; however, actual empirical research studies in this research area are rather limited. The decision-making process, based on the established return allocation principles, such as some floating points based on bank interest rates, requires qualitative judgment and experiential knowledge of construction experts, which is partial, subjective, and implicit in actual application. This paper aims to develop a return on investment evaluation model for determining an equitable return allocation between the government and the private sector based on the perspective of the government regulation. The rate of return within a reasonable range was deduced based on making marginal conversion price equal the rate of return from trading. This novel approach can not only assist the government to transform rate of return on investment into a more usable and systematic quantitative-based analysis, substituting only from the perspective of market cost control in the past, but also help PPP participants make a decision whether to participate in this project.