BALANCING RISK AND INCENTIVES: INTEGRATING MRG INTO FIXED PAYMENT MECHANISMS ON HOSPITAL PPP STRUCTURES

DOI:

https://doi.org/10.29303/akurasi.v7i2.605

Authors

  • Anton Abdul Fatah IIGF Institute
  • Roihans Muhammad Iqbal IIGF Institute

Keywords:

MRGs, Public-Private Partnerships (PPPs), risk transfer, Fixed payment mechanisms, healthcare infrastructure

Abstract

The success of a Public-Private Partnership (PPP) project relies on the appropriate risk allocation from the government to the private sector. The government employs mechanisms such as Minimum Revenue Guarantees(MRGs) within PPP project schemes. Research on MRGs, however, remains very limited in the Indonesian context. Therefore, this conceptual study proposes the adoption of minimum revenue guarantees into fixed payment mechanisms in PPP projects within the hospital sector and explores how to integrate several principles of minimum revenue guarantees into a fixed payment structure. This conceptual study employs a literature review approach, examining various studies and existing implementations, and synthesizing them for adoption in the Indonesian context. The conceptual study finds that the principles of minimum revenue guarantees can be adapted to fixed payment schemes in PPP projects for the hospital sector, and private entities can optimize their revenue from certain services.

 

Downloads

Download data is not yet available.

References

Ahmad, E., Bhattacharya, A., Vinella, A., & Xiao, K. (2018). Involving the private sector and PPPs in financing public investments: Some opportunities and challenges. In E. Ahmad, M. Niu, & K. Xiao (Eds.), Fiscal underpinnings for sustainable development in China (pp. 123–159). Springer. https://doi.org/10.1007/978-981-10-6286-5_6

Akintoye, A., & Beck, M. (Eds.). (2009). Policy, finance & management for public-private partnerships. Wiley-Blackwell. https://doi.org/10.1002/9781444301427

Ali, M. R. H., Osman, H., Marzouk, M., & Ibrahim, M. (2012). Valuation of minimum revenue guarantees for PPP wastewater treatment plants. In Construction Research Congress 2012: Construction challenges in a flat world (pp. 1600–1609). American Society of Civil Engineers. https://doi.org/10.1061/9780784412329.161

Anderson, M. B., Petrie, M., Alier, M. M., Cangiano, M. M., & Hemming, M. R. (2006). Public-private partnerships, government guarantees, and fiscal risk. International Monetary Fund. https://doi.org/10.5089/9781589064935.058

APMG International. (2016). The APMG public-private partnership (PPP) certification guide. APMG International. https://ppp-certification.com/ppp-certification-guide

Ashuri, B., Kashani, H., Molenaar, K. R., & Lee, S. (2010). A valuation model for choosing the optimal minimum revenue guarantee (MRG) in a highway project: A real-option approach. In Construction Research Congress 2010: Innovation for reshaping construction practice (pp. 1244–1253). American Society of Civil Engineers. https://doi.org/10.1061/41109(373)125

Ashuri, B., Lu, J., & Kashani, H. (2011). A real options framework to evaluate investments in toll road projects delivered under the two-phase development strategy. Built Environment Project and Asset Management, 1(1), 14–31. http://dx.doi.org/10.1108/20441241111143759

Ashuri, B., Kashani, H., Molenaar, K. R., Lee, S., & Lu, J. (2012). Risk-neutral pricing approach for evaluating BOT highway projects with government minimum revenue guarantee options. Journal of Construction Engineering and Management, 138(4), 545–557. https://doi.org/10.1061/(ASCE)CO.1943-7862.0000447

Bae, D. S., Damnjanoic, I., & Kang, D. H. (2019). PPP renegotiation framework based on equivalent NPV constraint in the case of BOT project: Incheon Airport highway, South Korea. KSCE Journal of Civil Engineering, 23, 1473–1483. https://doi.org/10.1007/s12205-019-1444-9

Basabih, M., Prasojo, E., & Rahayu, A. Y. S. (2022). Hospital services under public-private partnerships, outcomes, and challenges: A literature review. Journal of Public Health Research, 11(3). https://doi.org/10.1177/22799036221115781

Blanc-Brude, F. (2013). Risk transfer, self-selection and ex-post efficiency in public procurement: An example from UK primary and secondary school construction contracts. Revue d'économie industrielle, (141), 149–180. https://doi.org/10.4000/rei.5544

Cao, F., & Wang, C. (2022). An empirical study of determinants of pay-for-performance in PPP procurement. Sustainability, 14(19), 12738. https://doi.org/10.3390/su141912738

Carbonara, N., & Pellegrino, R. (2018). Revenue guarantee in public-private partnerships: A win-win model. Construction Management and Economics, 36(10), 584–598. https://doi.org/10.1080/01446193.2018.1467028

Chiara, N., Garvin, M. J., & Vecer, J. (2007). Valuing simple multiple-exercise real options in infrastructure projects. Journal of Infrastructure Systems, 13(2), 97–104. https://doi.org/10.1061/(ASCE)1076-0342(2007)13:2(97)

Cui, C., Liu, Y., Hope, A., & Wang, J. (2018). Review of studies on the public-private partnerships (PPP) for infrastructure projects. International Journal of Project Management, 36(5), 773–794. https://doi.org/10.1016/j.ijproman.2018.03.004

Delmon, J. (2021). Private sector investment in infrastructure: Project finance, PPP projects and PPP frameworks. Kluwer Law International BV. https://ppp.worldbank.org/public-private-partnership/library/private-sector-investment-infrastructure-project-finance-ppp-projects-and-ppp-frameworks-0

Dolla, T., & Laishram, B. (2020). Bundling in public-private partnership projects: A conceptual framework. International Journal of Productivity and Performance Management, 69(6), 1177–1203. https://doi.org/10.1108/IJPPM-02-2019-0086

Fouad, M., Matsumoto, C., Monteiro, R., Rial, I., & Sakrak, O. A. (2021). Mastering the risky business of public-private partnerships in infrastructure. Departmental Papers, 2021(010). https://doi.org/10.5089/9781513576565.087

González, S. R. (2020). Addressing the principal-agent problem in public-private partnerships via mixed-integer bi-level linear programming. https://repositorio.uniandes.edu.co/bitstreams/d7c244df-5f35-4215-ae6b-91042481c5d4/download

Heavisides, B. and Price, I. (2001), Input versus output-based performance measurement in the NHS – the current situation. Facilities, 19(10), 344–356. https://doi.org/10.1108/EUM0000000005533

Higuchi, T. (2019). Natural resource and PPP infrastructure projects and project finance. Springer. https://doi.org/10.1007/978-981-13-2215-0

IIGF Institute. (2022). Penerapan minimum revenue guarantee sebagai instrumen mitigasi risiko pendapatan proyek KPBU pada sektor jalan tol di Indonesia: International benchmarking (Vol. 1). PT Penjaminan Infrastruktur Indonesia (Persero).

Jun, J. (2010). Appraisal of combined agreements in BOT project finance: Focused on minimum revenue guarantee and revenue cap agreements. International Journal of Strategic Property Management, 14(2), 139–155. https://doi.org/10.3846/ijspm.2010.11

Kim, K., Kim, J., Cho, H., & Yook, D. (2022). Determining contract conditions in a PPP project among deep uncertainty in future outturn travel demand. Transportation, 1–25. https://doi.org/10.1007/s11116-022-10354-0

Kokkaew, N. (2015). PPP development in Thailand. In A. Akintoye, M. Beck, & M. Kumaraswamy (Eds.), Public-private partnerships (pp. 333–356). Routledge. https://doi.org/10.4324/9781315686516

Kokkaew, N., & Chiara, N. (2013). A modeling government revenue guarantees in privately built transportation projects: A risk-adjusted approach. Transport, 28(2), 186–192. https://doi.org/10.3846/16484142.2013.803262

KPMG. (2009). Availability payment mechanisms for transit projects. https://www.transit.dot.gov/sites/fta.dot.gov/files/docs/crooks_sd090707.pdf

Lawther, W. C., & Martin, L. (2014). Availability payments and key performance indicators: Challenges for effective implementation of performance management systems in transportation public-private partnerships. Public Works Management & Policy, 19(3), 219–234. https://doi.org/10.1177/1087724X14528476

Li, H., Su, L., Zuo, J., Zhao, X., Chang, R., & Wang, F. (2022). Incentive mechanism for performance-based payment of infrastructure PPP projects: Coupling of reputation and ratchet effects. International Journal of Strategic Property Management, 26(1), 1–14. https://doi.org/10.3846/ijspm.2022.15457

Li, Z., & Wang, H. (2023). Exploring risk factors affecting sustainable outcomes of global public-private partnership (PPP) projects: A stakeholder perspective. Buildings, 13(9), 2140. https://doi.org/10.3390/buildings13092140

Liu, Y., Wilkinson, S., & Li, B. (2016). A framework of performance assessment for public-private partnership projects. In Modern methods and advances in structural engineering and construction (pp. 17–22). https://doi.org/10.1061/9780784479971.003

Liu, T., Wang, Y., & Wilkinson, S. (2016). Identifying critical factors affecting the effectiveness and efficiency of tendering processes in public-private partnerships (PPPs): A comparative analysis of Australia and China. International Journal of Project Management, 34(4), 701–716. https://doi.org/10.1016/j.ijproman.2015.11.006

Lomprakhon, C., Lorenz, P., Serrano, A., & Visesbora, P. How FM supports financing and ensuring a capital investment in hospitals by applying financial solutions. Academia. https://www.academia.edu/5400186/How_FM_supports_in_financing_and_ensuring_a_capital_investment_in_hospital_by_applying_financial_solutions

Matos, N. B., & Gonçalves, A. D. O. (2020). Public-private partnerships: Origin, limitations, and prospects for public sector accounting. REAd. Revista Eletrônica de Administração (Porto Alegre), 26(1), 114–136. https://www.scielo.br/j/read/a/QFx6wzDsVnYzPFybGZpKmrH/?format=pdf&lang=en

Melo, S., De Waele, L., & Polzer, T. (2022). The role of Post-New Public Management in shaping innovation: The case of a public hospital. International Review of Administrative Sciences, 88(4), 1032–1049. https://doi.org/10.1177/0020852320977626

Peterson, K., & Allport, R. (2021). A method to define PPP project contract price premium related to specified operation and maintenance standards. Journal of Infrastructure, Policy and Development, 5(1), 1113–1137. https://doi.org/10.24294/jipd.v5i1.1202

Pellegrino, R. (2021). Effects of the public support for mitigating revenue risk in public-private partnership projects: Model to choose among support alternatives. Journal of Construction Engineering and Management, 147(12), 04021167. https://doi.org/10.1061/(ASCE)CO.1943-7862.0002098

Reeves, E. (2016). The not so good, the bad and the ugly: Over twelve years of PPP in Ireland. In G. Bel, T. Brown, & R.C. Marques (Eds.), Public-private partnerships: Infrastructure, transportation, and local services (pp. 73–93). Routledge. https://doi.org/10.4324/9781315738659

Shang, L., & Abdel Aziz, A. M. (2020). Stackelberg game theory-based optimization model for the design of payment mechanism in performance-based PPPs. Journal of Construction Engineering and Management, 146(4), 04020029. https://doi.org/10.1061/(ASCE)CO.1943-7862.0001806

Shi, L., Li, W., & He, Y. (2020). An incentive analysis of availability payment mechanism in PPP projects. IEEE Access, 8, 106046–106058. https://doi.org/10.1109/ACCESS.2020.2999932

Soliño, A. S., & Carrillo de Albornoz, V. A. (2021). Improving the payment mechanism in transport public-private partnerships. Public Money & Management, 41(3), 246–254. https://doi.org/10.1080/09540962.2019.1684013

Su, L., Cao, Y., & Li, H. (2023). Performance-based payment structural design for infrastructure PPP projects. International Journal of Strategic Property Management, 27(2), 133–145. https://doi.org/10.3846/ijspm.2023.19180

Su, L., Cao, Y., Li, H., & Zhang, C. (2024). Water environment treatment PPP projects an optimal payment mechanism based on a multi-stage dynamic programming model. Engineering, Construction and Architectural Management, 31(2), 866–890. https://doi.org/10.1108/ECAM-04-2022-0291

Tallaki, M. and Bracci, E. (2021). Risk allocation, transfer, and management in public-private partnership and private finance initiatives: A systematic literature review. International Journal of Public Sector Management, 34(7), 709–731. https://doi.org/10.1108/IJPSM-06-2020-0161

Tse, R. Y. C., Ganesan, S., & Hu, Y. (2022). Public-Private Partnerships and the Urban Environment: An International Perspective. Palgrave Macmillan. https://doi.org/10.1007/978-3-030-77532-6

Tsukada, S. (2012). Real options approach to the minimum revenue guarantee in public-private partnership projects. International Journal of Project Management, 30(6), 639–651. https://doi.org/10.1016/j.ijproman.2012.01.011

Vecchi, V., Cusumano, N. (2018). Choosing the right PPP model. In V. Vecchi & M. Hellowell (Eds.), Public-private partnerships in health. Palgrave Macmillan. https://doi.org/10.1007/978-3-319-69563-1_2

Verweij, S., & van Meerkerk, I. (2021). Do public-private partnerships achieve better time and cost performance than regular contracts? Public Money & Management, 41(4), 286–295. https://doi.org/10.1080/09540962.2020.1752011

Wang, Y., Li, Z., & Gao, Y. (2015). Minimum revenue guarantee and toll revenue cap optimization for PPP highways: Pareto optimal state approach. The Baltic Journal of Road and Bridge Engineering, 10(4), 365–371. https://doi.org/10.3846/bjrbe.2015.46

Wibisono, S. (2020). An investigation of risks dimension behind the selection of public-private partnership funding mechanism in Indonesia: A stakeholder perspective. Open Education Repository. https://open-education-repository.ucl.ac.uk/619/1/Wibisono%2C%20Satryo.pdf

Wibowo, A. (2006). CAPM-based valuation of financial government supports infeasible and risky private infrastructure projects. Journal of Construction Engineering and Management, 132(3), 239–248. https://doi.org/10.1061/(ASCE)0733-9364(2006)132:3(239)

World Health Organization. (2020). Managing health systems on a seesaw: Balancing the delivery of essential health services whilst responding to COVID-19. Eurohealth, 26(2), 63–67. https://apps.who.int/iris/bitstream/handle/10665/336299/Eurohealth-26-2-63-67-eng.pdf

Yescombe, E. R., & Farquharson, E. (2018). Public-private partnerships for infrastructure: Principles of policy and finance. Butterworth-Heinemann. https://doi.org/10.1016/C2011-0-04354-5

Zhao, J., & Hu, Y. (2021). Optimal PPP contract duration under demand uncertainty and minimum revenue guarantee. International Journal of Production Economics, 240, 108235. https://doi.org/10.1016/j.ijpe.2021.108235

Downloads

Published

2024-12-26

How to Cite

Abdul Fatah, A., & Iqbal, R. M. (2024). BALANCING RISK AND INCENTIVES: INTEGRATING MRG INTO FIXED PAYMENT MECHANISMS ON HOSPITAL PPP STRUCTURES. Akurasi : Jurnal Studi Akuntansi Dan Keuangan, 7(2), 487–506. https://doi.org/10.29303/akurasi.v7i2.605

Issue

Vol. 7 No. 2 (2024): Akurasi: Jurnal Studi Akuntansi dan Keuangan, Desember 2024

Section

Articles

License

Authors who publish in Akurasi: Jurnal Studi Akuntansi dan Keuangan agree to the following terms:

  • Authors retain the copyright of their articles.
  • Authors grant Akurasi: Jurnal Studi Akuntansi dan Keuangan the right of first publication.
  • Articles are licensed under the Creative Commons Attribution-ShareAlike 4.0 International License (CC BY-SA 4.0).
  • This license allows anyone to copy, distribute, display, and adapt the articles for any purpose, including commercial use, as long as proper credit is given to the author(s) and the source, and derivative works are distributed under the same license.
  • All published articles are open access and may be used for educational, research, and scientific purposes.

License: CC BY-SA 4.0 License
This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.