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          DOCUMENT DE TREBALL  XREAP2007-11           COMPARISON OF RECENT TOLL ROAD CONCESSION TRANSACTIONS IN THE UNITED STATES AND FRANCE Germà Bel, John Foote         
   
 
 
 
  
XREAP2007-11 
COMPARISON OF RECENT TOLL ROAD CONCESSION TRANSACTIONS IN THE UNITED STATES AND FRANCE 
  Germà Bel‡and John Foote§    Abstract:   Recent concessions in France and in the US have resulted in a dramatic difference in the valuation
placed on the toll roads; the price paid by the investors in France was twelve times current cash
flow whereas investors paid sixty times current cash flow for the U.S. toll roads. In this paper we
explore two questions: What accounts for the difference in these multiples, and what are the
implications with respect to the public interest. Our analysis illustrates how structural and
procedural decisions made by the public owner affect the concession price. Further, the terms of the
concession have direct consequences that are enjoyed or borne by the various stakeholders of the
toll road.
  Keywords:infrastructures, roads, privatization, regulation and tolls.Transport  JEL Classification:L43, L92, L33   
                                                 *  elgdemtnAnkwos : Germà Bel thanks financial support from the Spanish Commission of Science and Technology (SEJ2006-04985). This paper has been presented at the 75th Annnual Meeting of the International Bridge, Tunnel and Turnpike Association (Vienna, 20007).Comments We have received useful comments and suggestions from Toni Brunet, Rick Geddes, Tony Gómez-Ibáñez and Jordi Graells. †Copyright belongs to the authors. Paper may be downloaded for personal use only.  ‡ acntCo:t Germà Bel. Grup de Recerca en Polítiques Públiques i Regulació Econòmica (PPRE) i Institut de Recerca d’Economia Aplicada (IREA). Universitat de Barcelona, Departament de Política Econòmica, Av. Diagonal 690, 08034, Barcelona, Spain. E-mail:gbel@ub.edu  §oCtnca:t John Foote, Harvard University. E-mail:ud  lle.jhforne25@c   
1. 
 
Introduction
 
XREAP2007-11 
There is growing interest in private toll road concessions in the United States following the well publicized transactions involving the Chicago Skyway and Indiana Toll Road and speculation about possible multi-billion dollar deals involving other US toll roads.
 
As a US concession model evolves, there is increasing scrutiny of the characteristics of European
toll road private concessions. Worrall (2006) in a discussion of the evolution of a US concession
model notes that typical concession terms for European toll roads are a) between 15 and 30 years
(contrasted with 99 years for Skyway and 75 years for the Indiana Toll Road) and b) usually include
renegotiation provisions.
 
No detailed study has been undertaken so far, however, that examines the European experience
compared with the recent US experience. The purpose of this paper is to fill this gap in the literature. In particular, this paper analyzes the main features of the Chicago Skyway and Indiana Toll Road concessions in the US and the Autoroutes du Sud de la France (ASF), Autoroutes Paris-
Rhin-Rhône (APRR) and Société des Autoroutes du Nord et de l’Est de la France (Sanef)
concessions in France.
 
All five of these toll road entities were converted from public to private ownership in a span of
eighteen months in early 2005 to mid 2006. In many respects, these roads and the processes
(including the prospective investors) by which they were privatized are similar. There was a
dramatic difference, however, in the valuation placed on the US vs. French toll roads; the price
paid by the investors for the French toll roads was twelve times current cash flow (earnings before interest, depreciation and amortization, or “EBITDA”) whereas investors paid sixty times current cash flow for the U.S. toll roads, as shown in Table 1.
 
 
(Insert table 1 around here)
In this paper we will explore two questions: What accounts for the difference in these multiples, and
what are the implications with respect to the public interest? This paper does not address the merits
of toll road concessions in general, but instead concentrates on the relative outcomes of the US and
French approaches in terms of both price and social welfare.
 
 
XREAP2007-11 
Our analysis of the five US and French concessions allows us to arrive at several conclusions that
are useful in evaluating the Chicago Skyway and the Indiana Toll Road concessions with respect to
the public interest. For example, we compute what part of the price paid for the Chicago Skyway concession comes from anticipated toll increases. In addition, we compute what part of the concession price comes from efficiency/productivity gains not shared with the users of the Skyway
as is the case in the French concessions.
 
This paper is organized as follows. In Section II, we describe the two concession approaches. In
Section III we analyze the bidding parameters in both approaches. In Section IV we study the
spread of bids observed in the US and France. In Section V, we look at the relative changes in
social welfare that result from the US and French approaches. Finally, we draw the main
conclusions from our analysis.
 
 
2. Description of the Two Concession Approaches
 
Before looking at the particular concession approaches used recently in France and the US, it is useful to review the history of modern toll roads in Europe and the US. This review suggests,
among other things, that the the risks inherent in operating toll roads in the Europe and the United
States are not so different as to be a contributing factor in the difference in prices.
 
2.1. Toll Roads in Europe
 
After World War II European economies grew rapidly and by the 1960s many European countries
were developing plans for networks of motorways. Countries in Northern and Central Europe, as
well as the United Kingdom chose to finance new motorways from their general funds. The
Southern European countries opted for toll financing since funds from the general budget to finance
motorways were scarcer (Bel, 1999), as well as in recognition of the fact that much of the new road infrastructure would be used by non-resident visitors , for example tourists (Gomez-Ibañez and Meyer, 1993). In the case of France and Italy in the 1950’s and 1960’s, concessions were given to
state-owned companies and agencies which were responsible for building and operating the roads.
 
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