Importance To mitigate a commercial risk and enhance the protection of investors' property interests, concession agreements may provide for a minimum income guarantee and distribution of excess income among private and public partners. When embedded instruments for regulating operating income risk are in place, it stabilizes the net present value of the infrastructure project and increases the investment potential of public private partnerships. As seen in global practices, revenue risks arising from concession projects are mainly shared using static models and dynamic models, though to a lesser extent. However, the latter class of models is supposed to better ensure the balance of interests of parties to concession agreements in a volatile macroeconomic environment, owing to their flexibility. Objectives The objective of the research is to summarize and systematize dynamic models for revenue risk sharing, as well as to analyze their advantages in comparison with static models. The evaluation criteria constitute the net present value of the project, discounted guarantee of minimum income and the public partner's premium from its interest in excess revenue the project generates. Methods To comprehensively analyze what effect revenue risk sharing models may have, we formalized the public partner's cash inflow from the current activities. Drawing upon the real options theory, we develop a base for Monte-Carlo simulation modeling. Results Following the research and relying upon a real infrastructure project, we note that dynamic models that imply pro-rata alignment of the public partner's income and reduction of the guarantee period, will allow alleviate budgetary burden, with the net present value slightly decreased. Conclusions and Relevance The results may be useful for specialists working for financial and economic structures of the executive branch to initiate concession projects. It also may prove helpful for managing companies and institutional investors.
Keywords: concession agreements, revenue risk regulation, net present value, minimum income guarantee, excess revenue sharing, real options theory, Monte Carlo simulation
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