How will upswings in price inflation and interest rates change toll road risk profiles? A study of developing East Asian economies with broader implications

The resurgence in private sector involvement in toll roads since the 1980's coincided with secular decreases in price inflation and interest rates. Recently, these decreases have started reversing and in accordance the Kondratieff Wave (long-wave business cycle) are expected to increase. With a primary focus on developing East Asian economies, the likely implications of such changes were tested using Monte Carlo risk simulation: combining economic scenarios with construction and operations costs, plus traffic and revenue for a simple, notional toll road case, linked with a financial model. This concluded that there would be a significant change in the nature and extent of project finance risks in response to increasing price inflation and interest rates. Whilst the increased demand associated with increasing price inflation (competition for commodities) and interest rates (competition for capital) would on average increase likely toll road returns, there was also an increased chance of project bankruptcy, i.e. both upside and downside risk increased. These results were compared against data from practitioner questionnaires regarding inter alia expectations of the future, identifying gaps between expectations and likely outcomes. Moreover, these surveys also supported literature review evidence of the prevalence of bias and serial error in toll road forecasting, which in fact could exacerbate some of the down-side risks.

• Record URL:
  • http://www.atrf.info/papers/index.aspx
• Authors:
  • Di Bona, R
• Conference:
  • Australasian Transport Research Forum (ATRF), 34th, 2011, Adelaide, South Australia, Australia
• Publication Date: 2011-9

Language

• English

Media Info

• Pagination: 36p
• Serial:
  • Volume: 34
  • Issue Number: 0021

Subject/Index Terms

• TRT Terms: Developing countries; Economic analysis; Forecasting; Risk analysis; Toll roads
• Geographic Terms: Asia; East Asia
• ATRI Terms: Competition; Developing countries; Economic analysis; Forecast; Risk analysis
• ITRD Terms: 263: Economics of transport; 132: Forecast; 9150: Risk
• Subject Areas: Economics; Highways; I10: Economics and Administration;

Filing Info

• Accession Number: 01369503
• Record Type: Publication
• Source Agency: ARRB
• Files: ITRD, ATRI
• Created Date: May 3 2012 10:45AM