Annual Privatization Report 2020 — Surface Transportation
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Annual Privatization Report

Annual Privatization Report 2020 — Surface Transportation

Examining trends and developments in public-private partnerships for surface transportation projects.

Long-term public-private partnerships (P3s) for surface transportation projects have been used by governments for the past 60 years.

As documented by José A. Gómez-Ibáñez and John Meyer, the phenomenon began in the 1950s and 1960s, as France and Spain emulated the model pioneered by Italy prior to World War II.1 Italy’s national motorway systems were developed largely by investor-owned or state-owned companies operating under long-term franchises (called concessions in Europe). In exchange for the right to build, operate and maintain the highway for a period ranging from 30 to 70 years, the company could raise the capital needed to build it (typically a mix of debt and equity). The model spread to Australia and parts of Asia in the 1980s and 1990s, and to Latin America in the 1990s and 2000s.

Nearly all the projects in those regions from the 1950s to the 1980s were financed based on the projected toll revenues to be generated once the highway was in operation. Some projects went bankrupt as a consequence of reduced traffic and revenues during severe economic downturns (e.g., the oil price shock of 1974), leading to the nationalization of some companies. In the late 1990s and early 2000s, however, the governments of France, Italy, Portugal, and Spain all privatized their state-owned toll road companies and formalized the toll concession P3 model. Australia has allowed several concession company entities to go through liquidation, with the assets (in each case major highway tunnels) being acquired by new operators at a large discount from the initial construction cost.

Other governments in Europe adopted a different form of highway concession. Generally not favoring the use of tolls, they created the concept of availability payments as a means to finance long- term concession projects.

Other governments in Europe adopted a different form of highway concession. Generally not favoring the use of tolls, they created the concept of availability payments as a means of financing long-term concession projects. In this structure, the company or consortium selected via a competitive process negotiates a stream of annual payments from the government sufficient (the company expects) to cover the capital and operating costs of the project and make a reasonable profit. The capital markets generally find such a concession agreement compatible with financing the project, via a mix of debt and equity. Since no toll revenues are involved, this model applies to a much broader array of transport and facility projects, including rail transit and public buildings. In the highway sector, nearly all long- term concession P3 projects in Canada, Germany, the U.K., and a number of Central and Eastern European countries have been procured and financed as availability payment (AP) concessions.

In a small but growing number of cases—major bridges, as well as highway reconstruction that includes the addition of express toll lanes, for example—governments collect the toll revenues and use the money to help meet their availability payment obligations.3 These cases are called “hybrid” concessions in this chapter.

Eight of the top 10 worldwide P3s that reached financial close in 2019 use availability payments, continuing a growing trend over the last six years. The growing use of AP concessions has enabled P3s for projects that do not generate their own revenues, as well as hybrid concessions (discussed above) in which toll revenues help the government cover the costs of its AP obligations.

Part 1 Overview

Part 2 Private Highway Projects

Part 3 International Surface Transportation Infrastructure
3.1 Largest International Surface Transportation P3s
3.2 Countries Reaching Financial Close On First P3

Part 4 U.S. Highway Concession
4.1 Largest U.S. Highway P3s
4.2 2019 Highway P3s

Part 5 Federal Policy On P3 Concessions
5.1 Overview Of Financing Tools
5.2 A Recent History Of Federal Transportation Policy
5.3 Other Federal Tolling Policy

Part 6 P3 Legislation And Highway Activity By State
6.1 Overview Of State P3 Legislation
6.2 2019 State Legislative P3 Activity
6.3 State Concession Activity

Annual Privatization Report 2020 — Surface Transportation

Other chapters of Annual Privatization Report 2020 are here and past editions of the Annual Privatization Report are available here.

Baruch Feigenbaum is senior managing director of transportation policy at Reason Foundation and lead author of Reason's Annual Highway Report.

Joe Hillman is a transportation policy research intern at Reason Foundation.