Sharing Risk and Revenues from PPPs: Perspectives from current practice in the road sector

This research paper examines the allocation of revenue risks and rewards in public-private partnerships (PPPs) for road infrastructure. It argues that optimal risk allocation—where risk is borne by the party best positioned to manage it—maximizes value for money (VFM) and reduces total costs to society. The author analyzes mechanisms for protecting concessionaires from downside revenue risks (e.g., minimum revenue guarantees) and preventing excessive private returns through upside revenue sharing (e.g., revenue caps).

• Optimal risk allocation in PPPs occurs when risk is transferred to the party best positioned to manage it at the lowest cost, which maximizes value for money (VFM).
• Revenue risk sharing protects concessionaires from downside scenarios, such as lower-than-expected traffic, which can make projects more bankable, attract more bidders, and lower financing costs. However, this creates contingent liabilities for the government, which can become a significant fiscal burden, as seen in Portugal.
• Upside revenue sharing mechanisms, such as revenue caps or tiered sharing functions, are used to prevent concessionaires from achieving excessive financial returns that may be socially unacceptable or detrimental to users.
• The paper identifies three primary metrics for calculating returns in revenue sharing: gross revenue (easiest to monitor but ignores operating costs), net revenue (better indicator of cash flow but prone to 'gaming' of operating costs), and Internal Rate of Return (IRR) (the fairest metric as it reflects actual returns, but the most difficult to monitor).
• Different contract durations affect risk: fixed duration contracts have a specified end date regardless of revenue, while variable duration contracts end once a specific cumulative revenue or return on investment is reached, which protects the concessionaire's downside and limits excessive returns.
• International examples illustrate the impact of these mechanisms: the North Carolina Department of Transportation uses a combination of contingent subsidies for downside protection and upside revenue sharing; Chile uses variable contract durations based on the 'least present value of revenues'; and the Netherlands' Wijker tunnel project suffered from a poorly structured shadow toll mechanism that led to unexpectedly high private returns.

APA

Verdouw, W. (2015). Sharing Risk and Revenues from PPPs: Perspectives from current practice in the road sector. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/sharing-risk-revenues-from-ppp-discussion-paper.pdf

Chicago

Verdouw, Wim. Sharing Risk and Revenues from PPPs: Perspectives from current practice in the road sector. International Institute for Sustainable Development, 2015. https://www.iisd.org/system/files/publications/sharing-risk-revenues-from-ppp-discussion-paper.pdf.

Wikipedia

{{cite report |last1=Verdouw |first1=Wim |title=Sharing Risk and Revenues from PPPs: Perspectives from current practice in the road sector |publisher=International Institute for Sustainable Development |date=August 2015 |url=https://www.iisd.org/system/files/publications/sharing-risk-revenues-from-ppp-discussion-paper.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{verdouw2015sharing, author = {Verdouw, Wim}, title = {{Sharing Risk and Revenues from PPPs: Perspectives from current practice in the road sector}}, institution = {International Institute for Sustainable Development}, year = {2015}, month = aug, url = {https://www.iisd.org/system/files/publications/sharing-risk-revenues-from-ppp-discussion-paper.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }