Evaluating foreign Build-Operate-Transfer (BOT) projects using the adjusted net present value (ANPV) method : Thailand's Second Stage Expressway (SES)

Abstract

Accurately incorporating country risks in project evaluation is a complicated process. This thesis presents an evaluation framework, based on a variation of the standard adjusted net present value (ANPV) method, that provides better information about the sources of a foreign project's value and integrates country risks into the evaluation process without distorting the project's intrinsic value. The first half of this thesis focuses on the development of an ANPV framework that is suitable for evaluating foreign projects. Specific guidelines are established to determine whether country risks should be reflected primarily in the project's cash flows or in its discount rate. The second half applies this framework to a privately financed toll road project in Thailand, the Second Stage Expressway (SES). The SES is found to be economically viable even under the most pessimistic scenario, attesting to the project's resilience to country risks. More importantly, the ANPV framework reveals the key sources of the project's value, particularly showing its heavy reliance on a government subsidy for site acquisition. This modified ANPV framework serves as a effective screening device for evaluating the economic worth of foreign projects, particularly Build- Operate- Transfer (BOT) projects. Compared to the NPV, the ANPV framework is a preferred method since it avoids the use of a single discount rate which may distort a foreign project's true economic value. The ANPV framework's use of multiple discount rates and consistent approach to accommodating country risks prevent apparently risky foreign projects from being inadvertently rejected.