Setting the tariff in PPP projects is not an easy task for the public partner

At the training event we just held, we looked at the following case study:

• A PPP project to build a 60km ring road
• ?Design and construction to be completed in 50 months, followed by 16 years of operation
• The private partner's revenue is generated through availability payments based on pre-determined performance standards.
• The private partner is required to implement a toll system and collect the tolls.
• The collected toll revenue will be remitted by the private partner directly to the government.
• The tariff is set by the public partner.

And now it is time for a discussion: what should guide the public partner in setting the tariff?

After a few hours of discussion in groups, here are the answers we received from the participants of our event?

1. The tariff should be reasonable and accessible to users, encouraging them to use the new road
2. The tariff should provide a reasonable return on investment for the government, not only financially, but also in terms of the economic, social and environmental benefits of the new road.
3. The ability to adjust the tariff. The government should be able to adjust the tariff over time in response to changing economic and market conditions.
4. It is imperative that the government partner team that calculates and approves the tariff now passes on their knowledge to the team that comes after them.

It was a revelation to us that the officials involved were not only discussing the immediate situation but were also thinking about how they would go about renegotiating the PPP agreement.

When asked what percentage of PPPs in the transport sector were renegotiated, we quoted from the recently published book Understanding and Mitigating the Fiscal Risks of Infrastructure

"In the transport sector, road PPPs seem to be renegotiated more often than other PPPs. All 13 roads in Peru, all 13 roads in Portugal and 21 out of 25 PPPs in Colombia have been renegotiated".

It seems to me we are witnessing the emergence of a new class of officials who understand PPPs...