Since the infrastructure facilities often are monopolies, the private sector can raise charges as much as they wish on consumers who end up disadvantaged by PPPs.
This is a complicated issue because historically political considerations have often meant that increases in user fees did not keep pace with the rate of inflation for toll roads and other public infrastructure and their associated operational and maintenance costs. This gap contributes to funding shortfalls and deferred maintenance. One goal for many governments in using PPPs-whether explicit or implicit-has been to move the issue of fee increases away from the political realm so that market, rather than political, considerations can guide fee increases.
That said, governments have several options to limit excessive fee increases and protect consumers of the infrastructure. First, fee increases can be limited by contract to the rate of inflation or some other predetermined rate, a common practice for toll road projects, or the government can retain the power to set rates based on objective criteria.
Second, private investment presupposes a revenue stream from which the private investor can earn a return. The revenue stream, however, does not have to consist solely of an interest in tolls or other fees imposed directly on users of the project. In cases where governments want a toll lower than what is needed to service/repay project debt, they can pay an "availability fee" to the private sector to make up for the difference. Great Britain likewise has used "shadow tolling" to support its PFI program.
Governments can also link the payment for the use of the infrastructure to the user's ability to pay. To offset the hardship that particular groups might experience from toll charges, for example, public officials can consider transportation vouchers or other mechanisms, like subsidies, to ease the financial burden, understanding that this will bring in less revenue.
Table 2. Types of Financing | ||||
| Category | Financing Type | Characteristics |
|
User fees, | Tolls | Tolls (or similar user charges for use of a facility) are considered a revenue source for a project, thereby providing a stream of payments that the bidders can use to determine their return on investment and to obtain financing. | ||
| Shadow tolls | Shadow tolls are typically a means by which the government sponsor can make payments, based on usage of the facility, to the private sector operator. | ||
| Availability payments | Availability payments are financial payments from the government to the private partner stipulated in a transaction to make up the difference between the government-imposed user fee (if any) and the cost of usage of the delivered service. Such payments can be in the form of tranches or in one lump sum (such as at the successful completion of the facility or for the agreed-upon maintenance requirements of the facility). | ||
Source: Deloitte Research | ||||
For sectors where future needs are less certain, like water and waste, the public sector can enter into an arrangement where it buys back the facility from the private partner immediately after it is completed. The public sector can then enter into a long-term leasing agreement with the private sector to operate the facility and sell water to customers at a fixed price. Both the public and the private sector gain from this arrangement and the customer is not adversely affected. The public sector gains ownership of the facility without having to make upfront capital investments; the private sector gains more certainty about its future revenue.76