Recurrent developments in emerging financial markets and the recent credit crisis catalyzed by the US mortgage crisis have so far not dramatically changed the appetite for transport infrastructure projects. Transport infrastructure projects that have significant commercial risk will face ever higher interest rates, with debt premia for political, currency, regulatory, and sectoral risks. They will also face lower equity contributions with some actors unwilling to put more than 5-10% of equity in the PPP, in particular in developing countries.20 The substitution of construction equity for portfolio equity will not suffice. Depending on the particular project, rates of LIBOR plus 6 to 10 percent should not be unexpected. In addition, widely used performance indicators such as Debt Service Cover Ratios have been adjusted, so that previous standards such as coverage of 1.5 times interest payments now are commonly 2.0 times or even higher. As a result, there will be increasing pressure for governments to make become involved as equity holders in these projects or government will be increasingly asked to provide guarantees.
PPP efforts in transport, in particular in developing countries, are shifting from new projects to the privatization, rehabilitation, and expansion of existing facilities. The established track records of many facilities lower perceived risks and also the associated revenue stream from the outset to cover capacity additions have become key elements in transport PPPs.. Efforts to bundle transport projects into PPP "packages" for both revenue diversification and to obtain cash flows from a portfolio to fund specific investments within the package of facilities have also increased over time as obvious ways of minimizing or spreading the risks.
Transport PPPs seem to be in the hands of an increasingly concentrated number of actors, including operators, sponsors, bankers, and investors. In transport, just as in other public utilities, about fifteen to twenty project players have emerged at the aggregate level and even less within each subsector. This group is characterized by large size and large capacity to invest; (relatively) low cost of capital with deep access to financial markets; sophisticated development skills; and strong financial support from their parent companies. It is also an increasingly multinational club with a global presence in competitive and non-competitive transactions. While local investors and others may participate in specific niches, these major organizations have become quite effective at setting the acceptable standards and de facto practices in transport project finance.
As the key actors are increasingly well known and as transport policy and regulatory institutions start to be able to deliver on their mandates, PPPs will become more effective policy tools in developing countries. The road to success has been-and still is--long, simply because governments and their policy advisers have somehow been slow to learn from mistakes. There are enough success stories to be confident about the future of PPPs as an instrument of transport policy. The hopes should however be limited to those activities for which PPP can help (ports, airports and high traffic roads for investment. For some countries with high commercial, institutional or political risks, PPPs are not going to be the optimal option for many of their transport needs. For all the others, ignoring them would be just as bad a policy decision.
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20 See Correia et al (2006)