General Knowledge
Gregory Fisher, Suman Babbar
The World Bank
Published in
Submitted by
Olim Latipov
Related theme(s)
Finances & Economics
All Regions

Private Financing of Toll Roads

This study provides an overview of the issues and challenges related to private toll road development by considering the experience of eight privately financed toll road projects. The projects selected represent a range of physical and market characteristics, country and concession environments, public-private risk-sharing arrangements, and financial structures.

After reviewing the history of toll roads, the study examines the public policy and financing approaches used to develop private toll road concessions and to mobilize capital for their construction and operation. It analyzes key aspects of private toll road development for each of the eight projects selected, including project economics, country and concession environment, risk sharing between the public and private sectors, and financing structures and sources. The study also discusses the main public policy issues in toll road development and briefly assesses the future outlook for the private toll road industry.

The findings suggest that:
• The economics of toll road projects vary widely depending on their function, physical characteristics, and traffic profile.
• The public sector generally is responsible for right-of-way acquisition and political risk and in some cases shares traffic and revenue risk, while the private sector generally bears primary responsibility for remaining project risks.
• Project economics and the country and concession environment are key factors that influence the level of government support required for a toll road to attract financing.
• Funding for private toll roads is primarily in the form of commercial bank loans and sponsor equity—few facilities
have been able to access public capital markets.
• Large toll road financings in countries with undeveloped capital markets have relied on foreign capital, while
smaller financings and financings in countries with highly developed capital markets generally use local capital.
• Various mechanisms are available to governments to support toll road development, and the value of each mechanism should be weighed against the exposure it creates before committing to a particular arrangement.
• Designing the bidding process for a toll road concession involves tradeoffs between transparency and competitiveness versus flexibility and private sector innovation.

The study concludes that while private toll road development is likely to experience modest growth in the near future, public resistance to tolling, the time and cost of implementing concessions, and other factors will probably limit industry activity.