Efficiency in revenue generation, an important driver of the valuations of both brownfield and greenfield projects, can make PPP financing preferable to traditional financing. Efficient revenue generation may result from reductions in toll collection leakage,9 toll rate increases,10 or increased revenues from other sources, such as rest area concessions.
Based on interviews with analysts familiar with PPP transactions and a review of recent PPP transactions, we assumed that private sector operators could generate 25 percent more in annual gross revenues than public sector operators under similar circumstances. Under this assumption, our comparison of PPP financing to traditional financing for Project Example 1, a 40-year greenfield project, showed the PPP alternative to be preferable, and that its significant increase in the project's gross revenues helped to overcome the public sector's financing cost advantage. The private sector's ability to generate substantially greater toll revenues also contributed to PPP financing being the preferable alternative for the 50-year brownfield project in Project Example 2.
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9 Collection leakage occurs when toll road users evade toll fees.
10 Transportation PPP projects in the U.S. are relatively new and the ability of the private sector entity to maintain a steady increase in toll rates over an extended period remains untested.