NCPA - National Center for Policy Analysis


December 28, 2006

Long-term concessions -- privatization of public services through long term leases -- have proved successful for mature, existing toll roads with long traffic histories; but tougher, riskier "greenfield" cases of brand new toll roads are showing promise as well, says the Reason Foundation

The most dramatic case thus far is the new SH 130 segments 5 and 6, south of Austin, Texas. In June, the Texas Department of Transportation (TxDOT) announced that the 40-mile southward extension would be developed as a concession by Cintra-Zachry, a private consortium of engineering, construction and financial firms. The $1.35 billion project would be entirely toll-funded, not requiring any state funding.

The resulting deal has been home run for Texas motorists and taxpayers, says Reason:

  • Not only is Cintra-Zachry coming up with the entire $1.35 billion project cost, it is also paying TxDOT an up-front concession fee of $25 million.
  • In addition, it has agreed to a profit-sharing deal, which over the 50-year term is estimated to give TxDOT another $245 million.
  • Cintra-Zachry is also taking the risks of construction cost overruns, construction delays, and traffic and revenue shortfalls.

Clearly, concessions are going to play a big role in addressing America's need for additional highway capacity, says Reason.  And while it's too early to state that a concession approach can reliably raise double the amount of conventional toll finance, the fact that it can generally raise more for new projects is welcome news.

Source: "How Much Can Long-Term Concessions Pay For?" Surface Transportation Innovations, Reason Foundation, Issue No. 38, December 2006.

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