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

The paper examines how to balance the allocation of traffic and toll revenue risks between public agencies and private concessionaires in highway PPPs. It argues that full risk transfer is often suboptimal and suggests a combination of 'downside' protection (to ensure bankability and lower financing costs) and 'upside' sharing (to prevent excessive private returns). The author analyzes different metrics for calculating returns—gross revenue, net revenue, and internal rate of return (IRR)—and provides international examples from the US, Chile, and the Netherlands to illustrate the impact of these mechanisms on value for money (VFM).

• Optimal risk allocation in PPPs occurs when risk is transferred to the party best positioned to manage it at the lowest cost, which typically means the public agency should retain some revenue risk to lower the total net cost to the government.
• Full transfer of revenue risk to a concessionaire can destroy value for money (VFM) because private parties price this risk through more expensive financing or lower concession fees paid to the government.
• Revenue risk sharing (downside protection) can make projects more attractive to bidders and improve financing conditions, but it creates contingent liabilities for the government that can become a significant fiscal burden.
• Upside revenue sharing mechanisms, such as caps or tiered functions, are used to prevent concessionaires from achieving socially unacceptable financial returns due to higher-than-expected traffic growth.
• Different metrics for revenue sharing offer trade-offs between ease of monitoring and accuracy of return measurement: gross revenues are easiest to monitor, while equity Internal Rate of Return (IRR) is the fairest but most difficult to monitor and prone to 'gaming'.
• International case studies show that variable contract durations in Chile mitigate traffic risk and prevent excessive returns, while the use of shadow tolls in the Netherlands' Wijker tunnel project led to unexpectedly high private returns at the expense of taxpayers.

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} }