Transportation PPPs: Challenges and Solutions

Challenges

Cost containment. This is hugely important given the generally high capital value of transport PPPs.

Competitive markets. In developing PPP markets, only a small group of companies may have the financial capability to deliver cost-effective PPP projects. The range of complex financial arrangements required for transport PPPs and the relative lack of expertise in such matters also narrow the scope of potential partners.

Demand forecasting. Accurate traffic demand forecasting can be tricky for new roads and other forms of transport, complicating financing arrangements that often are predicated on a certain level of toll revenues.

Solutions

Because the transportation sector is the most advanced in the use of PPPs, several solutions to these challenges have already been tested. For example, "shadow tolling" and availability based payments have been used in situations where demand uncertainty about road use makes pulling a financing package together difficult. The public sector pays "tolls" to the private partner based on the availability of the asset to users and on service levels, such as the condition of the roads, thus transferring the demand risk to the public sector and allowing the project to go forward under conditions of uncertainty.