Can Shadow Toll Pricing Be an Alternative to Investment Grants?



Can Shadow Toll Pricing Be an Alternative to Investment Grants?

Authors

B Faivre D'Arcier Laboratoire d'Economie des Transports, FR

Description

Abstract

The development of Public Private Partnership for building new toll roads such as highways could be limited by the difficulties for raising public funding, as the new European rules impose the existence of a financial profitability for each new road trunk. Due to a higher expected rate of return for private funds, the need for public grants will drastically increase at a point that the state and the local communities will not be able to offer such amounts. Based on the results produced by the MEFISTO theoretical simulation model, the paper will discuss in which conditions shadow toll pricing could be a cheaper alternative to grants.

Several parameters have to be taken into account : the expected rate of return for private funds, the length of operation, the level of interest and the length of loans, the expected first-year operation benefit, its growth rate, and its share to cover the debt and the remuneration of private funds.

Two types of calculation are conducted: first to estimate the level of grants which will guarantee the expected profitability of private funds; second the search for the optimal shadow price to avoid investment grants. Simulations show the impact of each parameter and lead to identify which conditions are in favour of a shadow toll based

Publisher

Association for European Transport