Estimating general threshold traffic levels of typical build, operate, and transfer toll road projects in Indonesia

Abstract

Applying the adjusted present value method enables the estimation of the general minimum traffic levels for the first year of operation required to make typical Indonesia's build, operate and transfer (BOT) toll road projects financially feasible. To determine the level, both average business risk as reflected by the opportunity cost of capital in the country's toll road industry, and project‐specific risk as reflected by traffic risk in terms of ramp‐up scale, ramp‐up duration and catch‐up extent are taken into consideration. Pessimistic and optimistic estimates reveal, respectively, that 18 000 vehicles per day (vhd) and 18 100 vhd are the minimum traffic levels under a low traffic risk scenario. This level increases particularly for optimistic estimate if traffic risk rises. To relax these high traffic requirements, the government should attempt to minimize traffic risk and average business risk or to provide financial supports. Sensitivity analysis results demonstrate that the threshold traffic levels are very sensitive to base tolls and construction cost.

Keywords:

• Adjusted present value
• build–operate–transfer
• Indonesia
• toll road