Resumen de Port capacity expansion under real options approach: a case study in Brazil
Ana Carolina Velloso Assis, Rafael Igrejas Silva, Luiz Flavio Autran Monteiro Gomes, Edson Daniel Lopes Gonçalves
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.
