At the TRB P3 Subcommittee meeting on January 12, 2015, among the topics discussed is the growth in the U.S. P3 market of the availability payment approach and less use of toll concessions. Availability payment contracts have the advantage of lowering financing costs, incentivizing high quality performance and keeping toll setting authority with the public owner. However, there may be a limit to the amount of annual payments a public agency is willing to commit itself to make. Toll concessions shift demand and revenue risk to the private sector and interest particularly among private lenders in such projects has waned since the Great Recession.
The discussion evolved into whether there is a feasible way of crafting a hybrid P3 contract where some portion of the private developer's payments would be subject to demand and revenue risk. This hybrid approach has been used on a limited basis in other countries. The challenges in putting such a transaction together are daunting:
- What portion of the payments should be subject to risk?
- How do you structure the deduction regime?
- How much construction and project O&M risk could be shifted to the private sector?
- How would user fees be set?
- What would be the impact on financing costs and equity requirements?
It seems worth exploring this combined approach if the answer to these and other questions can produce benefits beyond employing just one or the other.
For more than 30 years, clients have relied on Barney Allison for practical and strategic guidance in the public finance and infrastructure fields.
Barney offers public agencies unique expertise with specialized finance issues in ...
Nossaman LLP’s 30-plus infrastructure attorneys offer clients, colleagues, strategic partners, and industry media a wealth of practical experience, insider insight, and thoughtful analysis here on Infra Insight. We blog about what we know best, from industry-leading procurements to local and national policy developments that affect the market and our clients.