Valuing the Right to Operate: An Economic Perspective on Concession Disputes

In this insight piece for Oxera, author Antonio Forcina considers the valuation challenges that arise in concession disputes involving infrastructure assets. Such disputes sit at the intersection of economic regulation, public law and financial valuation, with concessions typically involving natural monopolies, government authorities, regulated revenues and finite operating periods.

Forcina explains that a concession grants a private party the right to develop, operate or maintain public infrastructure in return for revenue over a defined period. Because the concessionaire’s commercial position is closely tied to the regulatory framework, disputes can involve investor-state claims, contractual breaches and post-M&A disagreements.

The article examines three principal valuation approaches: discounted cash flow, market-based valuation and cost-based methods. DCF is generally preferred for operational concessions, while market and cost approaches can provide useful cross-checks or serve as primary methods where a concession is still pre-operational. Forcina also highlights that the regulatory asset base should generally not be treated as the concession’s economic value because it does not capture the value of the exclusive operating right.

Particular care is required when accounting for a concession’s finite life, regulatory revenue mechanisms, discount rates, volume risk and the counterfactual scenario. Unlike conventional businesses, concessions do not generally have a perpetual terminal value, while regulatory changes and unforeseen events must be reflected appropriately in damages calculations. Forcina concludes that reliable valuations must consistently account for the contractual, regulatory and commercial realities of this distinctive asset class…

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