Toll road, success defined even before the operations begin?

Toll road (or a tollway or turnpike) is a public or private roadway that makes travel easier and more convenient for commuters. A fee (or toll) is charged from the road user to provide this facility. A low government budget, increased demand for roadways to resolve traffic congestion, both on major highways and large metropolitan cities has facilitated the need for tollways. Nowadays, a large number of road projects have been awarded through Public Private Partnership (PPP) mode, under Built-Operate-Transfer (BOT) model. In BOT model, the projects are awarded through BOT-Toll or BOT-Annuity basis.

The state transportation department along with the private players (concerned parties) mainly focus on the assumptions like expected traffic, types of vehicles (LMV, HMV, etc.), toll charges, contractual obligations, including operational and maintenance expenses, payments to government authorities (revenue share), debt obligations and forecasts for revenue and cost.

While demonstrating the proposed project as a feasible and attractive idea, the concerned parties generally take assumptions which can address the minimum profitability requirements, cover future maintenance and expansion plans and more importantly cover their debt service obligations (to be raised for financing the proposed project). Thus, before making the tollway operational, the project is portrayed as a successful venture.

However, as per the industry experience in toll forecasting and the associated recoveries, it has been observed that the project is mostly overestimated and occasionally underestimated. We would certainly like to quote some examples of the tollways found in the US such as Florida's Turnpike Enterprise/Sawgrass Expressway, Harris County Toll Road Authority (Texas)/Hardy, Oklahoma Turnpike Authority/John Kilpatrick, Florida's Turnpike Enterprise/Veteran's Expressway where the average recoveries in the first five years of operations were just about 30-35% of the projected numbers.


Therefore, the need for understanding the project's viability is critical and to get the actual assessment of success and failure of the proposed project is vital. A thorough study of the four major risks associated with the project must be done in a more realistic manner. Generally, these risks include technical risks (feasibility study mainly about accurate traffic projection and alternative route assessment), execution risks (delays in securing the right of way, clearances, issues with EPC contractor, etc.), operational risks (cost and time management), environmental and political risks (government stability, sound legal framework), and funding risks (equity support, debt/equity ratio, interest rate risks and cash flow generation).

Also Read:- Outsourcing in garment manufacturing.
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