Impact of network improvement on revenue performance and bonding costs of toll roads

Abstract

Increased interest in new and alternative methods for delivering projects places special emphasis on agreements for public-private partnerships. In such arrangements, the public sector must conform to a set of contractual obligations and also is responsible for long-term planning of the transportation network and for providing a better service on the existing public infrastructure. In this context, any changes in the initial network structure represent an additional risk element, acting as an externality to the toll road developer. This paper examines the impact of these changes on the price of selected risk measures (that is, the price of the revenue risk minus the cost of debt). An analytical method is developed that relates network improvement decisions to credit risk measures. The method is applied to two networks to examine the behavior of the credit spread when changes occur in the capacities on feeder and competing links. Sensitivity analyses show that a decrease in the capacity on feeder links might have a higher (adverse) impact on the credit spread than an increase in the capacity on competing links. Show more