Reliability of Public Private Partnership Projectsunder Assumptions of C Cash Flow Volatility

This paper focuses on dynamic financial modelling of recurring cash flow items in PPP projects inoperating stage and on risks associated with the volatility of these cash flows. As we concentrate onso-called government-pays schemes, only cash-outflows are considered, such as operating costs, repairsand maintenance expenses, and administration costs, whereas the revenue side is considered tobe not at risk.We show different approaches to modelling the uncertainty of recurring operating expenses and explainhow to interpret the results. Our analysis is based on the mathematical framework of stochasticprocesses, which, in finance, are particularly used to describe price series evolutions in capital markets.We apply them to generate variable trajectories of operating costs and integrate them into a stochasticsimulation of the financial model.