Let's look at the design features of these regulatory models as a step towards defining what some of the requirements of a robust regulatory framework in the US may include. These models are more than pure financial models in that they allow the regulator to view project financial characteristics from an external project view (economic and specific user impacts) as well as the more traditional internal project view (IRR)
This process allow government to model different regulatory actions and their impact on project IRR and overall "social economics." In addition, government can model the "value" inherent in uncertainty capture by the private sector. For example: financial coverage ratios diminish as traffic and revenue history is gained, so at projected levels it is obvious who captures the benefit of these diminished coverage ratios.
Government can further consider the impact of regulatory instruments including toll rates and structure, the quality of facility service, the quality of the facility at time of reversion to government, the level of investment, the timing of investment (i.e. foregone benefit) and the impact of exclusivity or non compete on overall economic development. Government must be a sophisticated seller of rights which traditionally have been in its purview only.
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Government can focus on balancing projects IRR and the weighted cost of capital by identifying the toll rate structure and regulatory design that will achieve this equilibrium. Government must decide if it is willing to share any excess return generated by the project or fully recapture such value. (It is interesting to note that in a "63-20" type financing [IRS Revenue Ruling 63-20] any "excess" return causes the project debt to be paid off at an accelerated rate and reversion of the facility and capture of the longer term economic benefits to government to be accelerated. Fixed concession periods with no regulatory controls on rate of return do not provide such benefit recapture by the public sector)
A key factor is to structure financial models as a prerequisite to sound regulatory frameworks since they eliminate both the reality and perception of subjective evaluation of competing PPP offers as well as assessment of alternative regulatory actions. Such a rigorous modeling allows government to understand private sector/project needs without foregoing consideration of broader government objectives (i.e., avoid irrevocably forgoing future economic benefits today because of an inadequate understanding of it and an absence of regulatory mechanisms to protect against such an outcome).
Again, the self regulating nature of "63-20" project designs vs. concessions is called out since these structures are unique to the US. These quasi-economic models are particularly important when government subsidies are required
The regulatory model should address the key issue of consistent project evaluation, inherently provide a framework that encourages competition by bona fide players, and withstand the examination of public scrutiny (transparency). This enables government to understand, value and balance the concerns of the operator; availability and accessibility of the developed infrastructure; distribution of economic benefits created; and social and economics redistribution concerns.
Further, this model fosters transparency in concession operations and equally importantly in the regulator. This reduces opportunity for corruption, collusion or real or perceived conflict of interest and provides a tool to explain regulatory decisions, deal restructuring, or delayed realization of infrastructure development or capture of benefits.
Ultimately, this helps define up front data needed by government, and allows a regulatory regime to be structured that considers either asymmetric data availability (i.e., private sector has invested in collecting more than the public sector at the earliest stage) or provides for structured renegotiation as data asymmetry and uncertainty is reduced.