Monday, December 22, 2014

Financial distress of PPP toll road projects holds lesson for telecom infrastructure

Are US toll roads in crisis? | Jacques Cook | LinkedIn: In a recent article “On the Road: Navigating the twists and turns of US highway P3s” (Dec. 8, 2014), Michael Dunning describes some of the serious financial difficulties facing some of the most important US P3 toll roads. He notes that the Indiana Toll Road, once described as a trend setter in the US P3 market, has declared bankruptcy; while several major projects in California (SR-125), Texas (SH-130), Virginia (I-495 Hot Lanes, Pocahantas Highway) and Illinois (Chicago Skyway) are also in financial distress and in various stages of bankruptcy and restructuring. These are not encouraging signs for the US P3 market. Dunning notes however that there are important lessons to be learned from these transactions.

While each of these projects was funded at different times and under different legal and institutional frameworks, they share one common characteristic—they were being funded entirely with tolls paid by automobiles and trucks.
The experience here can be applied to other costly infrastructure projects like modernizing and building out fiber optic telecommunications networks. Relying completely on user fees for its financing heightens the risk of insolvency.

1 comment:

Doug Dawaon said...

I've studied the toll road situation in detail and draw a very different set of conclusions. First, some of these roads were built where nobody wanted them. For instance, the people in Austin TX are just not willing to pay tolls, and so they have an empty toll road whole I35 is jammed to the gills. And this is due to the real reason for failure. These toll roads were funded by Wall Street or foreign firms who made all of their fees up front and then who don't stick with the project. A year after the project is done they grab their fees and run. My conclusion from this is that infrastructure projects should be under control of an entity that has a vested financial interested in making sure that it keeps paying off. My final conclusion is that you can't fix a broken toll road. If nobody wants to use it you are sunk. But you can always change the marketing on the products sold on fiber until you figure out what works in your area.

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