Port capacity expansion under real options approach: a case study in Brazil

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Ana Carolina Velloso Assis
Rafael Igrejas Silva
Luiz Flavio Autran Monteiro Gomes
Edson Daniel Lopes Gonçalves
صندلی اداری


Investments in port container terminals are sensitive to uncertainties. Public investments in infrastructure have been significantly reduced in the last decade in developing countries. The Brazilian government infrastructure investment was only 1.85 % of GDP in 2019, representing the lowest level in the last fifty years. Nonetheless, the regulatory framework of the port sector in Brazil has undergone significant changes over time, increasing the number of private port container terminal leases. The expansion capacity of the private port facilities is strongly linked to the demand uncertainty, which impacts the financial return to the long run. In this scenario, the uncertainty of global cargo transportation can discourage infrastructure investments in this class of project in Brazil. To overcome these issues, the financial modelling applying real options approach is better suited than the traditional valuation methods based on Discounted Cash Flow (DCF) analysis. The present study aims to value flexibilities of anticipating, or postponing, or interrupting investments of an existing operational port terminal in Brazil with expansion capacity under the demand uncertainty. The financial decision to invest in a port expansion is modeled by an American option. The results demonstrate that the investor adds significant value to the project by having the possibility to postpone investments. The proposed model presents the contribution of optimizing the decision of sequential expansions of capacity in port terminals, at any time and according to scenarios' revelation. In addition, the model allows the government authorities to review lease contracts, considering the relevance of timing to invest in project expansion decisions. The proposed model can also be extended to other infrastructure projects in emerging economies.


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Author Biographies

Ana Carolina Velloso Assis, National Bank of Economic and Social Development (BNDES)

Ana Carolina Velloso Assis holds MSc in Business Administration (Ibmec University Center-RJ). She is senior professional at the Department of Transports and Logistics at National Bank of Economic and Social Development (BNDES), Brazil, since 2012. Her main areas of interest: transport's infrastructure economics, financial modeling, negotiation and governance. E-mail address: carolina.assis@bndes.gov.br.

Rafael Igrejas Silva, IBMEC University Center

Rafael Igrejas is a Professor of the Ibmec School of Business and Economics in Rio de Janeiro (Ibmec University Center-RJ). He received his Doctor degree in Business Administration from the Pontifical Catholic University of Rio de Janeiro (PUC-Rio). He has taught, served as dissertation advisor and researcher in real options theory for the last 4 years. His current research includes financial modeling for energy and infrastructure and applications of Decision Analysis to Business Administration. E-mail address: rafael.isilva@professores.ibmec.edu.br.

Luiz Flavio Autran Monteiro Gomes, IBMEC University Center-RJ

Luiz Flavio Autran Monteiro Gomes is a Professor the Ibmec School of Business and Economics in Rio de Janeiro (Ibmec University Center-RJ). He received his Doctor of Philosophy degree in Engineering from the University of California, Berkeley. His main areas of interest are Multiple Criteria Decision Analysis and applications of Management Science to Business Administration. E-mail: luiz.gomes@professores.ibmec.edu.br.

Edson Daniel Lopes Gonçalves, Center for Studies in Regulation and Infrastructure at Fundação Getulio Vargas (CERI)

Edson Daniel Lopes Gonçalves received his Doctor of Philosophy degree in Economics from Getulio Vargas Foundation (EPGE-FGV). He is a senior researcher at the Center for Studies in Regulation and Infrastructure at Fundação Getulio Vargas (CERI). He is also professor at the School of Economics and Business Administration of Fundação Getulio Vargas, Brazil, since 2014. His current research includes energy economics, infrastructure economics, risk modeling, finance and governance. E-mail: edson.goncalves@fgv.br.


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