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Combining Capital Grant and Availability Payment to Keep Toll Rates Affordable

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2021
Authors
Queiroz, Cesar
Mladenovic, Goran
Conference object (Updated Version)
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Abstract
In several countries public budgets cannot provide all the funds needed to build priority transport and other infrastructure projects that are economically justified and environmentally and socially sound. Under certain circumstances, projects meeting such conditions can be implemented by involving private financing, through public-private partnerships (PPP), which is a means to get projects completed by leveraging scarce public resources. Priority highway PPP projects may require toll rates above the affordability level of road users, particularly when construction costs are relatively high and traffic volumes are relatively low. The provision of capital grants and/or availability payments to the concessionaire (i.e., the private partner) by the government (i.e., the public partner) would reduce the toll rate required to attract private investors for the project. Such projects, where the sources of revenue to the private partner (or concessionaire) include both the users of the faci...lity and the government, are usually called hybrid PPPs. A key step in assuring that a proposed PPP highway project would attract private investors is to determine whether financial public support would be required, and if so, how much. To this endeavor, this paper reviews and applies a hybrid PPP financial model for highways that facilitates carrying out projects' financial viability by decision makers and practitioners. A numerical case study is used to illustrate applications of the model to conditions deemed representative of Southeastern European countries. The main outputs generated by the model include the project’s internal rate of return, equity internal rate of return, annual debt service coverage ratio, and the present value of the government’s cash flow. A sensitivity analysis carried out shows the impact of key input parameters on the main outputs.

Keywords:
Public-Private Partnership / Capital Grant / Availability Payment / Toll Rate
Source:
Road and Rail Infrastructure VI, Proceedings of the Conference CETRA 2020, 2021
Publisher:
  • Department of Transportation, Faculty of Civil Engineering, University of Zagreb, Croatia

DOI: 10.5592/Co/CETRA.2020

ISBN: 978-953-8168-48-2

ISSN: 1848–9850

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URI
https://grafar.grf.bg.ac.rs/handle/123456789/2588
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  • Radovi istraživača / Researcher's publications
  • Катедра за путеве, аеродроме и железнице
Institution/Community
GraFar
TY  - CONF
AU  - Queiroz, Cesar
AU  - Mladenovic, Goran
PY  - 2021
UR  - https://grafar.grf.bg.ac.rs/handle/123456789/2588
AB  - In several countries public budgets cannot provide all the funds needed to build priority transport and other infrastructure projects that are economically justified and environmentally and socially sound. Under certain circumstances, projects meeting such conditions can be implemented by involving private financing, through public-private partnerships (PPP), which is a means to get projects completed by leveraging scarce public resources. 
Priority highway PPP projects may require toll rates above the affordability level of road users, particularly when construction costs are relatively high and traffic volumes are relatively low. The provision of capital grants and/or availability payments to the concessionaire (i.e., the private partner) by the government (i.e., the public partner) would reduce the toll rate required to attract private investors for the project. Such projects, where the sources of revenue to the private partner (or concessionaire) include both the users of the facility and the government, are usually called hybrid PPPs. 
A key step in assuring that a proposed PPP highway project would attract private investors is to determine whether financial public support would be required, and if so, how much. To this endeavor, this paper reviews and applies a hybrid PPP financial model for highways that facilitates carrying out projects' financial viability by decision makers and practitioners. 
A numerical case study is used to illustrate applications of the model to conditions deemed representative of Southeastern European countries. The main outputs generated by the model include the project’s internal rate of return, equity internal rate of return, annual debt service coverage ratio, and the present value of the government’s cash flow. A sensitivity analysis carried out shows the impact of key input parameters on the main outputs.
PB  - Department of Transportation, Faculty of Civil Engineering, University of Zagreb, Croatia
C3  - Road and Rail Infrastructure VI, Proceedings of the Conference CETRA 2020
T1  - Combining Capital Grant and Availability Payment to Keep Toll Rates Affordable
DO  - 10.5592/Co/CETRA.2020
ER  - 
@conference{
author = "Queiroz, Cesar and Mladenovic, Goran",
year = "2021",
abstract = "In several countries public budgets cannot provide all the funds needed to build priority transport and other infrastructure projects that are economically justified and environmentally and socially sound. Under certain circumstances, projects meeting such conditions can be implemented by involving private financing, through public-private partnerships (PPP), which is a means to get projects completed by leveraging scarce public resources. 
Priority highway PPP projects may require toll rates above the affordability level of road users, particularly when construction costs are relatively high and traffic volumes are relatively low. The provision of capital grants and/or availability payments to the concessionaire (i.e., the private partner) by the government (i.e., the public partner) would reduce the toll rate required to attract private investors for the project. Such projects, where the sources of revenue to the private partner (or concessionaire) include both the users of the facility and the government, are usually called hybrid PPPs. 
A key step in assuring that a proposed PPP highway project would attract private investors is to determine whether financial public support would be required, and if so, how much. To this endeavor, this paper reviews and applies a hybrid PPP financial model for highways that facilitates carrying out projects' financial viability by decision makers and practitioners. 
A numerical case study is used to illustrate applications of the model to conditions deemed representative of Southeastern European countries. The main outputs generated by the model include the project’s internal rate of return, equity internal rate of return, annual debt service coverage ratio, and the present value of the government’s cash flow. A sensitivity analysis carried out shows the impact of key input parameters on the main outputs.",
publisher = "Department of Transportation, Faculty of Civil Engineering, University of Zagreb, Croatia",
journal = "Road and Rail Infrastructure VI, Proceedings of the Conference CETRA 2020",
title = "Combining Capital Grant and Availability Payment to Keep Toll Rates Affordable",
doi = "10.5592/Co/CETRA.2020"
}
Queiroz, C.,& Mladenovic, G.. (2021). Combining Capital Grant and Availability Payment to Keep Toll Rates Affordable. in Road and Rail Infrastructure VI, Proceedings of the Conference CETRA 2020
Department of Transportation, Faculty of Civil Engineering, University of Zagreb, Croatia..
https://doi.org/10.5592/Co/CETRA.2020
Queiroz C, Mladenovic G. Combining Capital Grant and Availability Payment to Keep Toll Rates Affordable. in Road and Rail Infrastructure VI, Proceedings of the Conference CETRA 2020. 2021;.
doi:10.5592/Co/CETRA.2020 .
Queiroz, Cesar, Mladenovic, Goran, "Combining Capital Grant and Availability Payment to Keep Toll Rates Affordable" in Road and Rail Infrastructure VI, Proceedings of the Conference CETRA 2020 (2021),
https://doi.org/10.5592/Co/CETRA.2020 . .

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