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  Channel Tunnel Risk Management

In both developing and developed economies, several governments are considering alternative delivery methods such as design-build (DB), build-operate-transfer (BOT), and build-ownoperate- transfer (BOOT) schemes for multibillion-dollar mega infrastructure projects. These schemes come with various political, financial, and legal risks in both socioeconomic settings. This paper discusses sources of risk in the Channel Tunnel project, one of the most notable megaprojects in the world, and introduces applications of scenario planning and valuation methodologies to manage selected risks in BOT and BOOT schemes by creating scenario-based or dynamic contracts. Such contracts can insulate better the contractor and create enable host governments to provide more favorable conditions for infrastructure systems delivery.

Risk Management

In both developing and developed economies, several governments are considering alternative delivery methods such as design-build (DB), build-operate-transfer (BOT), and build-ownoperate- transfer (BOOT) schemes for multibillion-dollar mega infrastructure projects. These schemes come with various political, financial, and legal risks in both socioeconomic settings. The intent of this paper is to demonstrate how scenario planning methodology can be combined with valuation techniques to manage risks associated with a large-scale civil infrastructure projects procured through alternative delivery methods. The Channel Tunnel is used as a case study. Plausible scenarios are developed to capture the boundary conditions that might occur based on various risk factors, (e.g., on-time project delivery versus delayed delivery, high demand versus low demand, and high inflation versus low inflation), and valuation methods are applied to assess the impacts of these risks on the project value, the net present value (NPV) of the project. In particular, for BOT or BOOT projects, such scenarios can be used to evaluate feasible times for recouping project investments (i.e., the operation period) before the facility is transferred to the owner. The case study analysis shows that the "operate" period would be longer in less favorable conditions i.e. conditions with project delays, low system demand, and high inflation, for example. With a better handle on the impacts of these risk factors on the project value, contracts can be written to address different plausible scenarios that might reasonably occur -- and the scenarios that most closely match the actual outcome of the project can be called into effect to protect both the contractor and government owner of the project. Such scenario-based or dynamic contracts can insulate the contractor better and allow host governments to provide more favorable conditions for infrastructure systems delivery.

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