Abstract: 

This paper develops royalty models for build-operate-transfer (BOT) transportation projects with uncertainties about self-liquidating ratios (SLR), equity return rates (IRRE), annual debt service coverage ratios (DSCR) and patronage. The core logic of the modeling is to maximize public sectors' total discounted royalties while meeting private investors' requirements for IRRE and DSCR. A real case of BOT project is tested under various royalty schemes with sensitivity analyses for some uncertain factors. The policy implications, based on the case-specific results, suggest that the public sectors should adopt two-part or increasingly multi-part royalty schemes rather than uniform-rate or decreasingly multi-part ones. In addition, if the governments attempt to make low SLR transportation BOT projects financially viable, the public sectors should provide subsidy rather than partial investment.