Subordinated Public Participation Loans for Financing Motorway concessions in Spain.

Abstract

Budgetary constraints are prompting many governments to encourage private financing of transportation infrastructure through concession contracts. The length and complexity of such contracts often force governments to provide fiscal support in order to increase the attractiveness of concessions. This paper deals with a new public support mechanism for concession contracts, called Subordinated Public Participation Loans (SPPLs), which has been implemented in Spain during the last few years. SPPLs are subordinated loans that may be given by the government to the concessionaire if the latter requests them in the tender. SPPLs are defined in such a way that the increase in interest accrued will reflect the traffic level: the larger the traffic the larger will be the SPPL yield. SPPLs have a twofold goal. First, they increase the financial attractiveness, and hence the feasibility, of concessions contracts. And second, they set up a fairer risksharing approach between the public and the private sector. This paper analyzes the implications of SPPLs in motorway concessions by contrasting the theoretical analysis with the empirical results obtained form the tender of five motorway concessions in Spain. Overall we found that the implementation of this mechanism may be considered a success. In spite of that, we propose some measures that may contribute to improving the SPPL performance in the future.