Subordinated Public Participation Loans for Financing Toll Highway Concessions in Spain

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 to increase the attractiveness of concessions. This paper deals with a new public support mechanism for concession contracts, called a subordinated public participation loan (SPPL), which has been implemented in Spain during the past 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 structured such that the increase in interest accrued will reflect the traffic level: the greater the level of traffic, the larger the SPPL yield. SPPLs have a twofold goal. First, they increase the financial attractiveness and, hence, the feasibility of concessions contracts. Second, they establish a more fair risk-sharing approach between the public and the private sector. This paper analyzes the implications of SPPLs for highway concessions by contrasting theoretical analysis with empirical results obtained from the tender of five such highway concessions in Spain. Overall, the authors have found that the implementation of this mechanism can be considered a success. However, some measures that may contribute to improving SPPL performance are proposed.