Regulating Concessions of Toll Motorways, An Empirical Study on Fixed vs. Variable Term Contracts.

Recent theoretical developments on concession contracts for long term infrastructure projects under uncertain demand show the benefits of allowing for flexible term contracts rather than fixing a rigid term. This study presents a simulation to compare both alternatives by using real data from the oldest Spanish toll motorway. For this purpose, we analyze how well the flexible term would have performed instead of the fixed length actually established. Our results show a huge reduction of the term of concession that would have dramatically decreased the firm’s benefits and the user’s overpayment due to the internalization of an unexpected traffic increase.Toll motorways, privatization, concessions, regulation.

Revenue-Based Auctions and Unbundling Infrastructure Franchises

This paper discusses privatization among investments in infrastructure. The goal of this paper is to present a new auction mechanism that solves many of the problems that have hindered the use of franchises. The first section of the paper discusses least present value of revenue (LPVR) auctions, where the regulator fixes user fees (according to some optimizing criterion) and asks for bids on the present value of revenue from user fees that franchise holders will accept in exchange for building, operating and maintaining the infrastructure. Section 2 of the paper classifies infrastructure projects according to their technological characteristics in order to establish conditions under which franchising is feasible and desirable. In Section 3, the authors discuss several conceptual issues that arise in franchising. Section 4 discusses the shortcomings of fixed-term mechanisms. Section 5 introduces and analyzes LPVR auctions. Section 6 discusses the unbundling of franchises. The authors' conclusions are presented in the final section.Infrastructure & Transport, Private Sector, least present value of revenue (LPVR) auctions, privatization, infrastructure sector

The long and winding path to private financing and regulation of toll roads

Road transport has long been the dominant form of transport for freight and passenger movement throughout the world. Because most road projects require investments with long amortization periods and because many projects do not generate enough demand to become self-financing through some type of user fee or toll, the road sector remains in the hands of the public sector to a much greater extent than other transport activities. But governments throughout the world, including those of many poor African and South Asian countries, are commercializing their operations to cut costs, improve user orientation, and increase sector-specific revenue. There seems to be demand for toll roads in specific settings, but the problems met by many of this"first generation"of road concessions-from Mexico to Thailand-have given toll projects a bad reputation. Many mistakes were made, and tolling is obviously not the best solution for every road. Most of the alternatives aim at improving efficiency (lowering costs). But there are many ways of getting the private sector involved in toll roads, thus reducing public sector financing requirements for the sector. Understanding the context in which toll roads are viable is essential both for their initial success and for effective long-run regulation. The authors provide a broad overview of issues at stake from the viewpoint of both privatization teams and regulators responsible for supervising contractual commitments of private operators and the government, to each other and to users.Urban Services to the Poor,Roads&Highways,Public Sector Economics&Finance,Decentralization,Banks&Banking Reform,Roads&Highways,Toll Roads,Urban Transport,Public Sector Economics&Finance,Airports and Air Services

Regulating privatized infrastructures and airport services

For a World Bank Institute course on transport privatization, the authors cover basic issues associated with the regulation of privatized airport infrastructure and services: 1) Economic characteristics of airport. Three types of activities are carried out in airports: essential operational services (aeronautical and non-aeronautical), handling services (aeronautical and non-aeronautical), and commercial activities. Demand for basic airport services is directly influenced by trip purpose. The two types of airline customers (business and leisure travelers) need different levels of flexibility and tend to travel at different times. Analyzing airport capacity (practical and saturation) under peak demand is essential to airport success. Among other important issues: runway cost, level and volume of service, pollution, congestion, and air traffic control. 2) Recent trends in the airport industry. The movement toward privatization may involve public ownership and private operation, including joint ventures; partial or majority divestiture; management contracts; and BOT (build-operate-transfer) schemes and variants, including BOOT (build-own-operate-transfer) schemes and LDO (lease-develop-operate) schemes. Or it may involve private ownership and operation. 3) Price regulation. Topics covered include traditional pricing policies'price regulation through an RPI-X formula; charges for congestion, noise, and other externalities; investment plans; and design of the regulatory system. 4) Regulation of quality in the industry. Topics covered: regulation of services to passengers (as measured by targets for check-in queues, immigration queues, baggage reclaim queues, concourse crowding, shopping, parking, and so on); fault repair times; average levels of passenger boarding and disembarkation and baggage delivery; safety; and investment obligation. 5) Performance indicators in the industry. Topics covered: strategic indicators and other financial indicators (including revenues), as well as indicators of cost, productivity, and quality of service.Transport and Trade Logistics,Public Sector Economics&Finance,Banks&Banking Reform,Environmental Economics&Policies,Decentralization,Roads&Highways,Airports and Air Services,Public Sector Economics&Finance,Banks&Banking Reform,Transport and Trade Logistics

Broad roads in a thin country - infrastructure concessions in Chile

To increase investment in infrastructure, in the early 1990s Chile's government introduced private capital into the transport infrastructure sector, covering roads and highways, bridges, tunnels, and airports. The chosen mechanism: a concession scheme through which private firms would finance and build a given project and then operate the infrastructure for a set of number of years, recovering their investment by collecting tolls from users. Among the lessons learned from the experience: 1) As much as possible, avoid concessioning roads for which there are convenient alternative freeways nearby. 2) Choose the right variable for awarding a concession. Avoid mechanisms that (by promoting large payments to the state or short-term concession periods) encourage high tolls, and if you choose to award a concession to the firm charging the lowest tolls, place a floor and ceiling on possible bids. The floor is to guarantee the concession's financial viability; the ceiling is to prevent inefficient traffic diversions. Ties at either end should be resolved by a second variable, such as the level of transfers between the state and the firm. 3) Allow downward toll flexibility so that the concessionaire can react to unexpectedly low traffic flows, especially for certain types of vehicles. 4) Pay special attention to the tendering mechanism and to the general incentive structure. There are limits to the pure least-present-value-of-revenue (LPVR) auction, but income guarantees do enhance liquidity. In fact, a minimum-income guarantee through an LPVR auction is an instrument for credit enhancement, not income support. Alternatively, some form of financial innovation should be encouraged to make debt service commitments more flexible. 5) If concessions are tendered by traditional methods and income guarantees will be given, cover only a fraction of the concessionaire's expected income stream, to reduce the state's financial exposure and to improve the incentives to the concessionaire. 6) Make the contracts as complete as possible but allow for later modifications or renegotiations, and include a well-designed dispute resolution mechanism.Banks&Banking Reform,Roads&Highways,Decentralization,International Terrorism&Counterterrorism,Public Sector Economics&Finance,Public Sector Economics&Finance,Roads&Highways,Airports and Air Services,Banks&Banking Reform,Toll Roads

Bidding for concessions

Privatization of infrastructure ventures in sectors such as energy, telecommunication, transport, and water has become popular over the last decade. Often- for good or bad reasons - private firms are given monopoly franchises under some type of long-term concession agreement, for example"Build-Operate-Transfer"schemes. The article surveys the issues arising in designing specifications as well as incentive and risk-sharing parameters comprehensively and consistently both to achieve efficient performance by the concessionaire and to minimize post-award renegotiations. Concession award should as a rule be made competitively, unless special requirements of speed, innovation, or excessive transaction cost argue otherwise. Typically, competitive concession award is made by first price sealed bids. There are strong arguments, however, to consider open auctions more seriously in a number of cases. Auctions may also be re-awarded by way of auction. However, somewhat arbitrary bid preferences may have to be set. Auctioneers for complex concession contracts should operate at arms-length from all interested parties, including politicians. It may be sensible to let independent agencies that regulate the concession scheme run the auction.Decentralization,Environmental Economics&Policies,Markets and Market Access,International Terrorism&Counterterrorism,Economic Theory&Research,International Terrorism&Counterterrorism,Environmental Economics&Policies,Access to Markets,Markets and Market Access,Economic Theory&Research

The highway concession system in Italy : history, regulation and politics

This paper contains a critical discussion of the opening of the highway concession to the private sector in Italy over the past 20 years. It describes the political context, legal mechanisms and regulatory settings; offers an analysis of the changes in the equity composition of concessionaires after the introduction of public-private partnerships, quality standards, and tariff dynamics; and provides some examples. The Italian experience reflects the typical problems of the"build-now-regulate-later"approach recognized in the highway public-private partnership literature. The Italian model is also characterized by the existence of an overly complex regulatory framework, as well as the lack of a single agent in charge of contract enforcement and independent data collection.Transport Economics Policy&Planning,Debt Markets,Roads&Highways,Infrastructure Economics,Bankruptcy and Resolution of Financial Distress

A multi-agent system with application in project scheduling

The new economic and social dynamics increase project complexity and makes scheduling problems more difficult, therefore scheduling requires more versatile solutions as Multi Agent Systems (MAS). In this paper the authors analyze the implementation of a Multi-Agent System (MAS) considering two scheduling problems: TCPSP (Time-Constrained Project Scheduling), and RCPSP (Resource-Constrained Project Scheduling). The authors propose an improved BDI (Beliefs, Desires, and Intentions) model and present the first the MAS implementation results in JADE platform.multi-agent architecture, scheduling, project management, BDI architecture, JADE.

Regulating Concessions of Toll Motorways, An Empirical Study on Fixed vs. Variable Term Contracts

Recent theoretical developments on concession contracts for long term infrastructure projects under uncertain demand show the benefits of allowing for flexible term contracts rather than fixing a rigid term. This study presents a simulation to compare both alternatives by using real data from the oldest Spanish toll motorway. For this purpose, we analyze how well the flexible term would have performed instead of the fixed length actually established. Our results show a huge reduction of the term of concession that would have dramatically decreased the firm’s benefits and the user’s overpayment due to the internalization of an unexpected traffic increase