Toll roads financed by the private sector under BOT or BOOT concessions are generally developed where there is a high level of anticipated growth in user demand, usually residential or industrial.
Although rural road infrastructure can significantly boost agricultural activity, at present it seems there is little appetite by private investors for involvement in toll roads other than those located in key urban areas (eg ‘express ways’ to circumvent traffic congestion) or inter-city highways. An overview of toll roads in selected countries follows.
4.6.1 Tanzania
The Integrated Roads Programme of the Government of Tanzania (Section 4.1 above) highlights the range of infrastructure and support mechanisms that need to be put in place to promote agricultural growth in rural economies. This includes not only the aforementioned ‘first 10 miles’ of transportation assets, but also improvements in rural-to-urban trunk roads and rural feeder roads, and strengthening of administration and contractor services. In Tanzania, the private sector is being considered as participants in these activities under various forms of service and management contracts, but no toll roads are being proposed. This situation is characteristic of developing countries with dominant rural economies, ie where the low density of vehicle volumes and the mixed use of road transportation (as both a public service and for agricultural growth) mean that the prospects of road users paying a toll sufficient to attract private finance are severely limited.
The situation is complicated in that most rural road programmes are likely to involve the rehabilitation or upgrading of existing road corridors, with users reluctant to be charged for using the same stretch of road they previously used for free. Greenfield inter-urban highways, and short-distance ‘express ways’ to beat urban traffic congestion present an altogether different market, rarely displacing people from using their traditional routes.
4.6.2 South Africa
There are three major BOT toll roads in South Africa (ie where the private sector provides the finance), all significant transport corridors with vehicle volumes in excess of 3,000 to 3,500 per day, and construction costs averaging US$1 to US1.5 million per km. This includes the cross-border road with Mozambique113.
4.6.3 Indonesia
In Indonesia, 60% of the existing toll road programme has been deemed inappropriate, with urgent needs for donor multilateral or bilateral support. Only one toll road has been attempted with foreign involvement (a 66km section of the Jakarta Outer Ring Road developed by Kværner and financed by HSBC). The deal took eight years to complete, and government had to agree to guarantee the financing and provide revenue assurances. In the late 1990s the economic crisis hit and made the project unviable114.
4.6.4 Malaysia
Malaysia has pursued a BOOT policy for toll road construction since 1983, in part to ‘open up lands areas for development’115 (it is not clear whether this is agricultural land or land for residential or
industrial development, most likely the latter). Again, these are essentially highways, with 13 corridors constructed, totalling 1,200km. Under the Malaysia model, the sector owns the land and assets, and the state provides significant subsidies and inducements, including: soft loans, advances for land acquisition, traffic volume ‘tariff’ guarantees (for the initial few contracts), cross-subsidisation opportunities from commercial development on the land acquired, and compensation for termination of contracts. Foreign equity participation is allowed up to 25%, essentially to bring in expertise or increase capital availability. Although the Malaysian model offers innovation in toll roads, especially the cross- subsidisation opportunities from commercial development, the focus on highways only indirectly benefits smallholder farmers, such as those producing for distant urban markets. The toll roads are more likely to benefit commercial farmers who produce commodities in bulk for export, or wish to export high value,
perishable crops that need to be transported quickly. The same limited benefits for rural agriculture are faced by the toll road programme in the Philippines and Thailand.
4.6.5 People’s Republic of China
In the People’s Republic of China (PRC), the planned investment in road infrastructure in the 10th Five-
Year Plan will increase the overall network by 150,000km116. Between 1998 and 2020, over US$150
billion is needed to complete the National Trunk Highway System (NTHS) with 50% of this coming from user fees and other direct charges. Under the 10th Five-Year Plan, US$20-5 billion in private investment will need to be raised.
Models for increasing private sector participation in toll roads in the PRC include the following.117
Leasing – Leasing arrangements are becoming more popular, where the private investor has control of road asset for a specified period of time without financial public involvement. In the PRC, these arrangements remain negotiated agreements. There is presently no successful experience of the application of longer-term concession-based BOTs or derivatives to the toll road sector. This option, like leasing, has significant potential, but in order to attract international investor interest needs to be open and transparent and strictly based on commercial criteria. Financing is reasonably available in China and a number of operators are moving into this developing market. Use of Securitisation – Securitisation of public companies is another means for provincial
authorities in the PRC to raise funds for toll roads. The Securities Exchange provides sound requirements for listing but the steps to be followed to set up the basic corporate structure are time consuming. Further, while provincial government-controlled companies can manipulate profit to meet these criteria, for private operators it is harder to achieve consistent profit. Increased traffic and increased toll revenues will eventually make this option more attractive to private operators. Debt Financing – Interest rates for domestic loans remain low in the PRC, thus local currency debt
financing of the road sector, particularly revenue-producing projects, may be viable. The same is true with respect to the use of bonds. Issuance of bonds is centrally controlled, with each province given an annual limit to use across all sectors. The roads sector has not taken advantage of this modality to the extent of other sectors, eg industrial and commercial sectors. This is partly explained in that, when original traffic estimates are not realised, the toll revenues shortfall can quickly impact bond repayment. The PRC is moving towards a more open corporate bond market, and this will soon provide for increased flexibility in long-term debt financing.