PPP Renegotiation Flight Simulator: A System Dynamics Model for Renegotiating PPPs after Pandemic Crisis

The aftermath of the COVID-19 pandemic is triggering an extraordinary increase in governments’ fiscal pressure and debt as public expenditure increases and taxes decrease simultaneously. Given that annual payment to road Public–Private Partnerships (PPP) is one of the several significant burdens on government budgets, multiple PPP renegotiations are likely to tackle revenue underperformance due to traffic or toll tariff reductions produced in the next few years by the aftermaths of the pandemic. The current study develops a flight simulator relying on a System Dynamics (SD) model to improve the understanding of decision-makers about the complex relationship between project sources (i.e., revenues and government’s subsidies) and uses [i.e., capital expenditure (CAPEX), operational expenditures (OPEX), and financial costs] through the concessionaire’s perspective. The proposed simulator helps increase the understanding of decision-makers about suitable alternatives for balancing revenues underperformance in the operation phase without increasing public subsidies. Furthermore, this simulator allows exploring policies by renegotiating the debt conditions or the OPEX for guaranteeing the life-cycle financial sustainability of PPPs. Results demonstrate that extending the debt’s repayment period should be the preferred renegotiation alternative for balancing significant revenue underperformance. This time extension must occur after the construction phase is finished because it must not affect the project service levels, public subsidies, or bank’s rate of return.