Toll Road Concession Agreement

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Why leave an asset? Won`t toll rates go up? Isn`t this a terrible time to think about renting infrastructure? In the case of a toll concession, the winning team is responsible not only for financing and building the project, but also for maintenance for 35 to 70 years. It is therefore wise to minimize the cost of acquisition, but the cost of the life cycle. Proper maintenance during the duration of the concession can cost several times the initial construction costs. It`s penny-wise and pound-stupid to build a large highway as cheap as possible, if that means significantly higher maintenance costs over its 50-year design life. But this is what often happens in typical construction-highway (DBB) contracts that are only awarded on the basis of the lowest initial construction costs. No no. Like most other major infrastructures (railways, pipelines, electricity suppliers), toll concession companies finance these projects with a mix of borrowing and equity. Equity is cash that they put directly into the project (like the account on a house), usually about 20% in toll concessions. Debt can be a mixture of yield bonds and bank loans (analogous to the mortgage on a house). In some cases, subordinated loans from the Federal Highway Administration are also used under a program called TIFIA, passed in 1998 by Congress to promote PPP infrastructure. The revenue from the tolls must be reimbursed to all investors and obtain a return on the company`s stake in the capital.

In some mega toll concession projects, the state`s DOT has imposed many costly requirements that can cover the total cost of the project through projected toll revenues. In these cases, the state`s DOT can contribute up to 15-30% of the project budget, often with the toll revenue participation agreement when the project has gone better than expected. Concession companies do not control motorways. The hundreds of pages of a long-term toll concession contract do not give the company « control ». Through the agreement, it must meet a wide range of state and federal requirements, and most of these agreements contain restrictions on the toll rates that can be collected….