Falling toll revenues

The impact of the widespread recession has certainly been observed on the traffic carried (and revenues generated) on road concessions across Europe.

We have looked at roads across Europe from Ireland to Poland and from Germany to southern Spain, and traffic levels have indeed fallen behind the anticipated levels. However, as my colleague Serbjeet Kohli discussed in a paper he gave to the AET in Glasgow last month, the actual reductions in traffic levels have not always been as significant as we might have anticipated.

We are all hearing news from Spain and elsewhere of different concessions which are falling into bankruptcy. However, our analysis suggests that this often reflects poor management of the concession contract, over-ambitious financial structuring and hopelessly over-optimistic traffic forecasts, which could never have been achieved even if the domestic economy had managed to maintain the overheated growth levels seen in earlier years.

Steer Davies Gleave is working in Greece as part of the advisory team helping the Hellenic Republic Asset Development Fund take forward the herculean task of ‘resetting’ the five road concessions which the government let to international developers in 2005. In each of these concessions traffic has fallen well behind what had been hoped for – but these shortfalls might have been sustainable. The real problems result from the failure both of the concessionaires and of the government counter-party to develop the projects in line with the concession contract. On none of the schemes has the construction work been completed on time – while on two of them (offering important new routes in the north-west of the country) construction work is effectively yet to start.

What we learn from this – or perhaps we relearn as we have certainly seen it before – is that for a PPP concession to succeed, especially in difficult economic times, it relies emphatically on the willingness of all parties to put in place and observe a robust concession contract.