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BITRE | Working paper 74

market since ‘major financial institutions and their clients are expressing increasing

willingness to invest billions of dollars in roads and airports’ (Mineta 2006).

Mineta’s successor, Mary Peters, has upped the ante considerably on use of PPPs,

suggesting that using such partnerships are necessary and not an option:

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Attracting private sector participation and deploying market-based solutions to our

transportation problems is not simply a laudable objective; it’s a necessity. And it

requires us in the Federal Highway Administration to adjust the way we approach our

Federal-aid mission (Yakowenko 2007, Slide 4).

However, there are important trade-offs in policy application and private sector

financial returns in private sector provision, whether that provision occurs through

more traditional private toll roads

The challenge of optimising the

network is increased when PPP

provision is adopted, as it alienates part

of the network and reduces flexibility of

network management.

or whether it be the ‘innovative’ PPP

projects. As we noted with the Dulles

Greenway example, there is a major

issue of applying PPP financing while

also supplying a public amenity with

politically-acceptable tolls. Flat tolls are

one political and regulatory challenge;

a much greater challenge arises when

managing road usage with targeted instruments such as congestion charging. A

specific complication (or sensitivity) is the variable charge, which is naturally set

highest during periods of peak demand.

In this context, the PPP seeks to protect public and private interests. While it may

seem straightforward to create a contract between public and private sectors that

allowed for variable charges, there are a number of difficulties:

• With the cost and performance characteristics of the technology changing so

rapidly, it is extremely difficult to draw up a contract that anticipates the range

of likely outcomes and ensures that benefits of technological developments can

be shared with the community. Few, if any, road authorities are in a position to

confidently anticipate the developments in technology over the period for which

the road segment is held in private hands. While renegotiation of contracts is

always an option, this is invariably costly and not necessarily successful. In fact,

renegotiation of contracts is widely regarded as a sign of failure of the original

negotiation.

• The benefits from congestion charging depend critically on the impact of the

charges on the remainder of the network. If such charges encourage ‘rat running’,

or diverting to uncharged and often lower standard roads, then the community

may be worse off. Optimising network use is quite challenging in itself when

ownership is concentrated. However, the magnitude of the challenge increases

significantly when part of the network has been alienated and is beyond the

direct control of the road authorities. While contracts will usually be written with

a view to ensuring coordination of the network, it is inevitable that all changes in

circumstances cannot be fully anticipated.

A policy issue, therefore, is that the use of PPPs for parts of the road network may

constrain public authorities in adopting an optimal mix of road traffic management

options (including congestion charging).

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