Shadow Tolls and Availability Payments

Direct user fees are not the only way that private concessionaires can be compensated. With shadow tolls the government pays the private partner to operate and maintain the road based on throughput of vehicles on the highway, which means that the private partner shares in the risk of how many people actually use the highway. In the case of availability payments, payments made to the private partner are directly related to performance standards stated in the contract, and all demand risk is allocated to the government. Both options provide incentives for the private operator to maintain the facility to high standards. In the case of the shadow tolls, if maintenance standards decline, fewer cars will use the road and government payments will decline. However, with this model, the private partner also assumes financial risks caused by other declines in demand.

Both methods drive innovation and competitive costs because they allow the private partner flexibility in design and approach. Instead of having to comply with materials standards used by the agency, performance-based specifications focus on the outcome of the end product. Performance specifications are established for each element of the asset and then clearly defined as to the minimum acceptable performance level and response time to fix deficiencies (Abdel-Aziz 2007). Availability payments/shadow toll agreements can also be designed to meet environmental objectives, by rewarding greater mobility and reduced congestion, which minimize emissions and fuel consumption (Replogle 2007).

Shadow tolls are widely used in Europe; however, there are indications of a move to more transparent methods of direct user charges there. Private financing of roads and bridges paid with shadow tolls or availability payments does not provide new revenue and does not create a relationship between who pays for the improvement and who gets the benefit (Jeffers et al. 2006). Shadow toll payments in Europe typically come from general funds.

In British Columbia, Canada, the Golden Ears Bridge will combine real tolls with availability payments. TransLink (public partner) will collect toll revenues that will be used to compensate the DBFO concessionaire through availability payments that have been established by contract. The Port of Miami Tunnel, a 35-year PPP agreement, will be financed through annual availability payments that will be indexed annually for inflation. The availability payment will be reduced if the tunnel is not open to traffic or other major performance measures are not met by the private operator. Although still in the negotiation process, the concession was awarded to the private investors who offered the lowest availability payment of $33 million (in 2007 dollars), compared with the public estimate of $55 million.

As PPPs continue to evolve in the United States, availability payments may become more common, as suggested by more recent deals. The public sector retains the demand risk, and it requires additional performance monitoring that should be accounted for as an additional cost to the public sector.