There is growing interest in private toll road concessions in the United States following the well publicized transactions involving the Chicago Skyway and Indiana Toll Road and speculation about possible multi-billion dollar deals involving other US toll roads.
As a US concession model evolves, there is increasing scrutiny of the characteristics of European toll road private concessions. Worrall (2006) in a discussion of the evolution of a US concession model notes that typical concession terms for European toll roads are a) between 15 and 30 years (contrasted with 99 years for Skyway and 75 years for the Indiana Toll Road) and b) usually include renegotiation provisions.
No detailed study has been undertaken so far, however, that examines the European experience compared with the recent US experience. The purpose of this paper is to fill this gap in the literature. In particular, this paper analyzes the main features of the Chicago Skyway and Indiana Toll Road concessions in the US and the Autoroutes du Sud de la France (ASF), Autoroutes Paris-Rhin-Rhône (APRR) and Société des Autoroutes du Nord et de l'Est de la France (Sanef) concessions in France.
All five of these toll road entities were converted from public to private ownership in a span of eighteen months in early 2005 to mid 2006. In many respects, these roads and the processes (including the prospective investors) by which they were privatized are similar. There was a dramatic difference, however, in the valuation placed on the US vs. French toll roads; the price paid by the investors for the French toll roads was twelve times current cash flow (earnings before interest, depreciation and amortization, or "EBITDA") whereas investors paid sixty times current cash flow for the U.S. toll roads, as shown in Table 1.
(Insert table 1 around here)
In this paper we will explore two questions: What accounts for the difference in these multiples, and what are the implications with respect to the public interest? This paper does not address the merits of toll road concessions in general, but instead concentrates on the relative outcomes of the US and French approaches in terms of both price and social welfare.
Our analysis of the five US and French concessions allows us to arrive at several conclusions that are useful in evaluating the Chicago Skyway and the Indiana Toll Road concessions with respect to the public interest. For example, we compute what part of the price paid for the Chicago Skyway concession comes from anticipated toll increases. In addition, we compute what part of the concession price comes from efficiency/productivity gains not shared with the users of the Skyway as is the case in the French concessions.
This paper is organized as follows. In Section II, we describe the two concession approaches. In Section III we analyze the bidding parameters in both approaches. In Section IV we study the spread of bids observed in the US and France. In Section V, we look at the relative changes in social welfare that result from the US and French approaches. Finally, we draw the main conclusions from our analysis.