Privatizing Transportation Systems Highways, Buses, Rail, water and airports: Literature Review The Problem with Highway funding
Highways, Buses, Rail, water and airports: Literature Review
PPPs have been widely recognized over the last several years as an innovative approach to transportation funding and procurement that can reduce project costs, accelerate project delivery, transfer project risks to the private sector, and provide valuable, high-quality projects; but these benefits alone do not explain the growing number of PPPs that are being procured in the United States.
PPPs are being utilized at a record pace because:
A good example is the Miami Port Tunnel project. The planners calculated $68M a year payments by FLDOT for design, construction, operation, and maintenance. The bidder selected required annual payment of just $33M.
A good example is P3 of VIDOT for I-95/Capitol beltway corridor where the concessionaire assumed the financial, technological and operational risks of implementing a variable toll rate based on congested (peak time) system. It assumed the risk for the expected return if the project is successful.
The concession for improving 800 bridges in Missouri was assigned to one private partner per bridge. It will take 5 years instead of 20 years to the public sector.
Description: 1st LT concession of existing toll road in US. 7.8 miles. Connecting the Dan Ryan EXPWY in south Chicago with the Indiana toll road. Private consortium includes Spanish Cintra and the Australian Macquarie. Both toll roads developers.
Terms: The Concessionaire paid upfront the City of Chicago $1.8B and will operate and maintain the toll road for 99 years, collect all revenues for the 99 years. Revenues will be used for operations, and maintenance, repay debt, and contribution to equity. Annual toll prices were preset through 2017, and capped thereafter at the greater of 2%, CPI, or Per Capita GDP. Chicago used the proceeds to fund several programs.
Description: Competitive bidding to operate and maintain the east-west 157 miles road connecting the Chicago Skyway and the Ohio Turnpike. Again, Cintra and Macquarie won the contract.
ITR (cont. )
The concessionaire paid upfront $3.8 B. Again, BOT for 75 years. Unlike Chicago, Indiana invests all in the 10 years road improvement projects, and transportation projects for the IN counties.
No proven customer base for a large upfront pay by concessioner. 9 miles bypass, southeast of Richmond VI connecting I-95 with I-295. State funded through a non-for-profit entity that issues construction bonds. When opened no sufficient toll revenues to pay the debt. Vi decided to convert from non-profit to LT concession type P3.
Terms: 99 years concession with an Australian toll road operator. Price Included debt, maintenance and repairs by VDOT and the transaction costs. Prices capped to provide necessary returns. If excess revenues result then shared with VDOT.
Texas, Virginia and Florida lead in P3 for new and capital improvements. TXDOT initiated the innovative Trans-Texas Corridor (TTC) projects. TTC is a proposed network of super-highway corridors that could include separate lanes for passenger vehicles, and large trucks, freight and high speed commuter railways, water lines, oil and gas pipelines, electricity and communication services.
TTC must be built with P3. Principles of TxDOT:
For each segment: 1. A competitive bidding. 2. The consortium provides a master development and financial plans. 3. Development of 1st facilityunder a separate facility agreement.
Toll revenues will finance $1.4B of the $1.8B expected cost. $588M loan from USDOT, $589M private bonds, and $350M consortium equity, and $409M of state sources.
LT Toll concession (or lease, franchise) agreements where private consortium design, finances, builds, and maintains a toll project for 35-99 years in exchange for toll collection.
Advantages: pool risks and deploy expertise across multiple countries. Innovations in toll collection eliminate any congestions at the booths.
1. Investment of private capital frees public sources of revenues and debt to other transportation projects.
2. Possible packaging in P3 procurements various return and risk projects. Used in Mexico for toll roads and bridges.
3. Bidding on the lowest subsidy for non-profitable projects. Example, the Port of Miami Tunnel or the Oakland Airport Connector for design, construct and operate.
1. Concession agreements for toll facilities often set ceiling limits. Hikes are allowed for inflation, changes in GDP per capita, a fix percentage etc. In case of congestion pricing, allow operator to vary tolls based on demand price elasticity.
2. Failure to comply lead to shift control to the public authority.
3. Setting toll rates is important in a constrained or monopolistic market. Prices should not exceed marginal social cost. In a constraint market with monopolistic power, shadow tolls can be established and the revenues are paid by the public authority. Thus, the concessionaire efficient performance is reflected in the amount of traffic generated while shadow tolls are paid by the public authority.
4. Another option is a regulator that approves private charged rates. For Dullas Airport the regulator is allowed by State law to approve the higher price of the three for the period 2013 through 2020: 1. The increase of CPI plus 1%. 2. The increase of GDP. 3. 2.8%.
5. Revenue sharing to regulate the private partner’s return on investment. Limits private partner’s incentives to develop innovations since the public partner can reap extra profits. Can encourage the private partner to “overcapitalize” the project in order to increase revenues without reaching the maximum rate of return. Best is to protect consumers by regulating prices without hurting incentives to innovate. Price regulation rather than regulation of rate of return.
1. On such toll roads, traffic is diverted from peak to off-peak times and NOT to other roads.
2. Diverts traffic from other roads to toll roads because of time saving and certainty.
3. Managing demand on freeways by congestion pricing during peak time improves traffic flow.
4. Congestion pricing can divert traffic to transit, which leads to increase net benefits.
Price adjustment raises the efficient use of lanes. Example, tolled R. 91 is 1/3 of the entire lanes but carries ½ of rush hour total traffic because of its free flow flexible pricing (1).
Research in Ontario, Canada related to the 407 Express Toll Route revealed 3 reasons:
reserve funds since all the capital is under debt that must be met. Provider of equity can deny dividends when revenues are tight for years. Thus, concession toll road funded by a mix of equity and debt can better survive during years of low revenues.
Occurs approx. every 7 years).
Works well for large scale hwy, bridge and tunnel projects. Reasons: