• Revenue Risks. The State of Israel assumed much of the revenue risk for the project, where revenues would be supplemented with Government funds if revenues fell below projections due to lower-than-expected patronage. According to the PPP concession arrangement, the State agreed to pay the consortium 80 percent of the difference between actual and projected revenues whenever a shortfall occurred.
In accepting the downside risk of revenue shortfalls, the PPP concession arrangement allowed the State to share a portion of any "super profits" that resulted when road use exceeded projections. Under this arrangement the State would receive 57 percent of the positive difference between actual and projected revenues from the consortium.
Furthermore, the concession arrangement provided the State the option to acquire up to 49 percent of Derech Eretz, exercisable between construction completion and the end of the concession period.
• Construction Risks. The State acquired the right-of-way parcels required for the entire project. The State also constructed two major interchanges along the highway alignment to expedite the project schedule. All other construction risks were borne by the consortium.
• Project Expansion Requirements and Risks. The concession agreement requires the consortium to enhance the capacity of the highway when certain traffic volume/congestion triggers are reached, with funding for these improvements coming from a dedicated reserve fund derived from excess facility revenues. If the project expansion reserve funds are insufficient to cover the costs of the required capacity improvements, further equity payments are required from the consortium to off-set the difference.
• Toll Collection Risks. Prior to this project, the State lacked the legal authority to allow private sector operators of highways to impose direct user charges collected through tolls, as well as the ability to enforce toll payments by fining those who use the facility without paying the appropriate tolls. This was particularly important for this project since it used an open road tolling approach that eliminated toll booths and relied on electronic toll collection (through the use of transponders in the vehicles for those wishing to use (ETC) or by issuing patrons a bill by mail that included both the cost of the toll and an administrative fee. These follow-up bills are issued to individuals whose license plates identified using photo-recognition technology.
• Financing Risks. Given the unusually large size of the project, major delays were incurred in finalizing the concession when the financial syndicate for the project faced major difficulties raising the funds in the capital markets. This was eventually overcome by diversifying the debt syndication structure for the project and limiting the debt portion of the financing to 90 percent.
• Legal Requirements. Legislation was also required to provide a private sector operator with the power to collect tolls and where necessary to enforce toll payments.