USING BARGAINING-GAME THEORY FOR
NEGOTIATING CONCESSION PERIOD
FOR BOT-TYPE CONTRACT
Presented by: Alaa Albesher
OUTLINE:

Objective.

Concession Period.

BOT Concession Model (BOTCcM).

Principles of Bargaining Theory.

Bargaining Process.

Critique.
OBJECTIVE:
Concession period is one of the most important
decision variables in arranging a BOT-type
contract.
 This paper introduces a method to enable the
identification of a specific concession period.

CONCESSION PERIOD

The granted period of time by government to
operate the facility and generate revenue.
CONCESSION PERIOD EFFECT:

Short concession period
investor rejects the
contract or increase service fees.
(Investor or Public Disadvantage)

Prolonged concession period
profit.
(Government Disadvantage)
government lose
BOT CONCESSION MODEL (BOTCCM):

The span of the concession period shall protect the basic
interests of both the government and the private investor.
IR ≤ NPV(Tc) ≤ NPV(Tf)
IR: expected return of investment.
NPV(Tc): net present value generated during the concession
period.
NPV(Tf): net present value generated during the project
economic life.
(BOTCCM):
BASIC PRINCIPLES OF BARGAINING THEORY:

Bargaining is a process through which the players try to reach
an agreement by making offers and counteroffers.

Principles:
1.
Rational behavior.
2.
Information sharing.
3.
Bargaining payoff.
4.
Bargaining cost.
5.
Time value (discount factor)
BARGAINING PROCESS:
TC_L ≤ TC ≤ TC_U
FIRST-ROUND OFFER BY THE GOVERNMENT:

Should make a reasonable offer by
analyzing the investor’s position.

This will reduce the chance of
further bargaining.

Counteroffer will cause bargaining
cost and time cost.
Maximum and minimum concession
period values gets closer with
bargaining.

FIRST-ROUND OFFER BY THE INVESTOR:




Should make a reasonable offer by
analyzing the government’s position.
This will reduce the chance of further
bargaining.
Counteroffer will cause bargaining
cost and time cost.
Maximum and minimum concession
period values gets closer with
bargaining.
CRITIQUE:

Positive:
There are only few studies regarding the length of
the concession period.
 Specific agreeable concession period can be
identified by using this method.

CRITIQUE:

Negative:
Bargaining will take longer than if concession time
is specified in the tender.
 Calculations are not easy to follow because of the
symbols used.
 If the maximum value is at the last year of the
project life, this will make a very long time range.

THANK YOU FOR LISTENING
Any Questions!