PPPs provide substantial benefits for facilities that are not congested as well. Private sector participation is possible on projects for which tolls don't cover all costs and even on projects that do not generate revenue. In these circumstances, bidders can compete on the basis of the lowest level of subsidy they will accept from the public sector to carry out the project.
This approach is being used by the Missouri Department of Transportation ("MoDOT") for the Missouri Safe & Sound Bridge Improvement Project.47 The project contemplates a private partner bringing more than 800 of Missouri's lowest rated bridges up to satisfactory condition and keeping them in that condition for 25 years. Many of the bridges to be upgraded are in rural areas where there is not enough traffic to support tolls. The project, which has an estimated capital cost of $600 million to $800 million, will be privately financed and bidders competed largely on the basis of the lowest level of availability payments48 needed from MoDOT to do the work and repay the financing. MoDOT is only required to make the availability payments if the private partner completes the bridge upgrades on time and keeps them in satisfactory condition during the term of the concession.
Missouri expects to dedicate federal bridge replacement funds during the term of the concession to make the availability payments. USDOT approved a PABs allocation of up to $700 million to finance the project.
MoDOT selected a winning bidder on December 20, 2007, made up of Zachry American Infrastructure, Parsons Transportation Group, Fred Weber, Inc., Clarkson Construction, HNTB and Infrastructure Corporation of America. On June 5, 2008, the Director of MoDOT told Congress that despite the difficulty of finalizing the deal in the current credit markets, he is optimistic that Missouri will have an agreement soon and work can begin around the State. This project demonstrates that the public sector can utilize PPPs to save money, accelerate project delivery, transfer risk, and provide innovative solutions to pressing infrastructure problems even if projects are not self-sufficient toll facilities.
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47 The Safe & Sound Bridge Improvement Project's website is: http://www.modot.org/safeandsound/ (last visited July 7, 2008)
48 An availability payment is a periodic payment made to a concessionaire by a public authority for providing an available facility. Payments are reduced if the facility is not available for a period of time or not being maintained in satisfactory condition. Using an availability payment structure eliminates the need for the concessionaire to assume any traffic risk and protects the interests of the public by giving the concessionaire a financial incentive to maintain the facility in satisfactory condition and operating at a specified level of performance.
While an availability payment structure eliminates traffic risk, it does create some risk that increasing costs of operation and maintenance will partially erode the concessionaire's financial margins. See Global Toll Road Rating Guidelines, Fitch Ratings, Global Infrastructure and Project Finance, Criteria Report, March 6, 2007, pp. 2-3.