Municipal solid waste (MSW) is increasing rapidly due to the global economic growth and worldwide mass urbanization, and according to the report published by the World Bank, there are 1.3 billion tons of MSW produced per year at 2012 and will increase to 2.2 billion tons by 2025. Waste-to-Energy (WTE) incineration is an effective way to treat MSW, decrease the volume of MSW and generate electricity, which has been widely used in many countries, such as Japan, China and Denmark.

The Public-Private Partnership (PPP) is regarded as an effective mechanism to attract investment from the private sector to provide infrastructure and public services with improving efficiency in the delivery of such works and services, especially in emerging markets. In PPP arrangement, the private sect...[ Read more ]

Municipal solid waste (MSW) is increasing rapidly due to the global economic growth and worldwide mass urbanization, and according to the report published by the World Bank, there are 1.3 billion tons of MSW produced per year at 2012 and will increase to 2.2 billion tons by 2025. Waste-to-Energy (WTE) incineration is an effective way to treat MSW, decrease the volume of MSW and generate electricity, which has been widely used in many countries, such as Japan, China and Denmark.

The Public-Private Partnership (PPP) is regarded as an effective mechanism to attract investment from the private sector to provide infrastructure and public services with improving efficiency in the delivery of such works and services, especially in emerging markets. In PPP arrangement, the private sector usually takes the responsibilities of financing, design, construction, and operation of the WTE incineration project, and also the private sector will repay loans, recover the initial cost, and receive reasonable profits by processing the MSW, generating and selling power within a concession period.

A number of WTE incineration projects have been developed through PPP arrangement, such as the Dublin WTE project in Ireland and the Cornwall energy recovery center project in UK, etc. In China, as of 2008, more than 70% of the WTE incineration projects have been developed through the PPP arrangement. Also, the Ministry of Finance (MOF) in China had issued 752 pilot PPP projects in the sectors of waste, transportation, water, etc. in 2014, 2015 and 2016, of which 36 are PPP WTE incineration projects. However, due to the large construction cost, technical difficulties in construction and operation, and the long concession period commonly associated with the PPP arrangement, many serious risk events or even project failures have occurred in PPP WTE incineration projects.

The purpose of this research is to make an original contribution to the knowledge of public-private partnerships (PPPs) in infrastructure development, especially in the sector of WTE incineration. Specific research objectives include (1) identifying the critical risk factors for PPP WTE incineration project; (2) investigating the causal relationships of risk factors in PPP WTE incineration project; (3) developing a hierarchical structure of risks based on causal relationships between risk factors; (4) estimating the risk occurrence probability in PPP project using Bayesian updating approach; (5) identifying the key issues in transfer stage of PPP project; and (6) determining the value of Standby Letter of Credit (SLOT) in transfer stage of PPP project to control concessionaire’s opportunistic behavior.

There are 21 critical risk factors have been identified for PPP WTE incineration project through literature review and the significance of each risk factor has been analyzed based on questionnaire survey. Through case study, the causal relationships between risk factors have been identified and analyzed in detail, and also a hierarchical structure of risk factors has been developed using Interpretive Structure Modeling (ISM) based on the causal relationships between risks. An improved risk probability forecasting model has been developed using Bayesian updating approach, which could combine the experts’ subjective judgments and the historical data to give a better estimation on risk probability. Through case study, several key issues in the transfer stage of PPP project have been identified and discussed in detail. One of the key issues in the transfer stage is the concessionaire’s overusing the project facilities without proper maintenance to pursue maximum profit. A principal-agent model is developed in this study to determine the appropriate volume of Standby Letter of Credit at Transfer stage (SLOT) in a bid to control this concessionaire’s opportunistic behavior.

Because of the data available and convenient in conducting interviews and visiting project cases, this research is implemented in the background of China market. However, the characteristics and arrangement of using PPP approach to the development of WTE incineration project is almost same all over the world, Although the analysis and findings are based on PPP WTE incineration project in China, outputs of this study could be used a reference for risk management in projects in other sectors (such as transportation, water and wastewater, airports, ports, and healthcare) and also in other countries and regions.