Asset monetizations (commonly referred to as "brownfield" concessions) are distinct from contracts intended primarily to develop a specific new facility or to add capacity to existing facilities and instead involve a private-sector party acquiring an operating interest in an existing transportation facility (whether currently tolled or not), such as a turnpike, toll bridge, or transit asset, in exchange for the right, for a fixed term, to collect the tolls, fares, or other revenues that the facility generates. For projects with positive net cash flow, such as toll facilities, the agreement typically calls for the private investor(s) to provide an upfront payment (or, less commonly, annual lease payments). The investor assumes the obligation to operate and maintain the facilities to agreed-upon standards and to hand the facility back to the public owner upon lease termination in a specified condition. (See Exhibit 7-2 for examples of recent asset monetizations of transportation infrastructure.)
As with new capacity concessions, in an asset monetization concession the public sector agency retains title to the facility, is relieved of operations and maintenance responsibilities, and benefits from a lump sum of money and/or periodic payments that can be used to fund other infrastructure projects or for other purposes. In exchange, the public sector relinquishes its right to future residual project revenues over the term of the lease. The private investor generally receives the right to collect tolls or other revenues in accordance with a public sector agency-mandated rate-setting mechanism or schedule. In some instances, private investors, by using equity, can form more upfront capital than conventional borrowing from the tax-exempt markets, even from the same toll revenue stream. In addition, where asset monetizations cap the toll rates the private sector can charge over the life of the contract, those capped rates typically permit regular cost-of-living type increases that avoid annual political review.
Transit projects generally are not strong candidates for the asset monetization approach, since they do not recover sufficient funds from farebox revenues to fully cover operating expenses, let alone recover capital costs. These projects nonetheless may be financed cost- effectively through a long-term concession if the private operator's cost structure requires lower subsidies or provides other benefits in comparison to conventional public procurement and operation.10
EXHIBIT 7-2: REPRESENTATIVE U.S. CONCESSION AGREEMENTS FOR SURFACE TRANSPORTATION PROJECTS WITH PRIVATE-SECTOR LONG-TERM OPERATING RESPONSIBILITY: ASSET MONETIZATIONS ("BROWNFIELD") PROJECTS | ||
Project and Location (year of transaction) | Contract Term | Description |
Chicago Skyway (2005) Chicago, IL | 99 years | Acquisition of existing toll bridge. The cash infusion provided by the transaction in 2006 allowed the city to retire debts, set up reserve funds, and earn an improved credit rating. |
Indiana Toll Road (2006) Northern IN | 75 years | Acquisition of existing toll road. The state used the funds to retire all of its debt associated with the Indiana Toll Road and to fund a 10-year statewide capital transportation program. |
Northwest Parkway (2007) Northern Denver Suburbs, CO | 99 years | Lease of five-year-old public toll road. The lease allowed the public- sector sponsor to pay off bonds, avoiding a potential default, and transfer future operations and maintenance costs to the private partner. |
Pocahontas Parkway (1-895) (2006) Richmond, VA | 99 years | Acquisition of six-year-old toll road developed by a non-profit corporation. The transaction allowed the State of Virginia to recoup its investment in the initial project, pay off bonds, save the costs of developing a companion project, and transfer the costs of operations and maintenance to the private partner. |
Sources: Public Works Financing, Project Sponsors.