Structuring PPP toll-road contracts to achieve public pricing objectives

Abstract

Although the success of public–private partnership (PPP) contracts is often evaluated on financial terms, an even more fundamental question is whether these contracts achieve the public objectives for which they were designed. The state’s responsibility as contracting agency for public infrastructure gives it a crucial role in defining these goals, which fall into multiple categories and can vary for each procurement. For toll-road PPPs, the category of pricing objectives is a significant component of these broader public goals. Such pricing objectives often include (1) achieving an affordable toll rate, (2) managing congestion and (3) minimizing state subsidy/ maximizing up-front payment from concessionaires. To identify the specific PPP contract elements which support these pricing-related objectives, the method of qualitative comparative analysis was applied.

Through this recently developed approach for evaluating qualitative data quantitatively, patterns of PPP contract strategies which correspond to the three common pricing objectives above were identified through evaluation of 18 projects throughout the world. The analysis indicated, for instance, that PPPs targeting the objective of affordable tolls typically exhibited contracts with downside risk-sharing provisions or longer contract durations, while toll roads which prioritized congestion management used variable tolling but frequently avoided such downside risk-sharing clauses. These results provide a tool to aid public-sector decision-makers in selecting contract strategies which facilitate the achievement of desired pricing objectives for future PPPs.