Revenue-risk-sharing approaches for public-private partnership provision of highway facilities

The authors review major revenue risk-sharing approaches developed world-wide that are designed to mitigate concessionaire risk and thus encourage private participation in public-private partnership (P3) arrangements. The authors examine variable availability payments, minimum revenue guarantees (MRG), variable-term contracts, financial re-balancing, and dynamic revenue insurance approaches. The preferred choice among these approaches depends on the level of demand risk, the risk-taking preferences of both partners, and the nature of the project, among others. For instance, highly-flexible tolling regulations help mitigate revenue risk since the private partner can adjust tolls to cope with varying demand, and as a result, riskier approaches such as Least Present Value Revenue (LPVR) or even full revenue risk may become acceptable to the private sector. In addition to these case-specific factors, the authors recommend public agencies follow several general guidelines, including: (i) for MRGs, a collar option (high and low thresholds) performs best since it can preserve the private incentive to increase revenue and performance; (ii) institutional stability can play an important role in the level of guarantees, e.g., Chile could employ P3s with fewer guarantees as a result of stable and well-established P3 programs/legislations; and (iii) P3 partners should also explore alternative options to mitigate revenue risks such as providing flexible pricing, controlling non-compete clauses, and allowing new technology adaption.

Language

  • English

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Filing Info

  • Accession Number: 01678037
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Jul 2 2018 3:58PM