Valuing public guarantees in public private partnership projects with real option approach: case of New İstanbul Airport

Each area of life contains certain amount of uncertainty and risk. Due to long lifecyle, infrastructure investments contain demand risk thus It requires high amount of capital. Infrastructure investments, which was traditionally carried out with public funding in the past, are now executed through public-private partnerships globally. The most important success criteria in implementation of public-private partnership is the risk sharing between parties. In this respect, the public sector has offered some public guarantee mechanism to these projects in order to reduce the risk and make project more attractive for private sector. The real options, which is a new valuation method for the influence of uncertainty on the value of investment projects, is an approach that considers the managerial flexibility in the projects valuation. This approach suggests that real option analysis should be used as a complement to traditional methods under certain circumstances and conditions rather than abandoning traditional methods frequently used today. The approach is also now used in the field of capital budgeting and strategic decision making. The purpose of this study is valuing revenue guarantee, presented to public-private partnership projects by public sector, with real option. In this respect, the characteristics of the passenger service fee revenue guarantee provided to private sector partner in New Istanbul Airport project are matched with the real option valuation parameters and the estimating methods for these parameters are determined. Next, a binomial lattice model of the passenger service fee revenue of the New Istanbul Airport project was formed and the passenger service fee revenue according to the created model were calculated without revenue guarantee and discounted. The value of the option is calculated by the difference between the results of discounted passanger service fee revenue with and without revenue guarantee and sensitivity analysis of some parameters affecting the option value is performed. Finally, the impression that was obtained during the analysis are presented and the new areas related to the subject have been pointed out. Key Words: Real Options, New Istanbul Airport, Public-Private Partnership, Government Guarantees