Handbook On Public Private Partnerships in Transportation, Vol I

Competitive Government: Public Private Partnerships
Simon Hakim
Robert M. Clark
Erwin A. Blackstone Editors
Handbook
on Public Private
Partnerships in
Transportation, Vol
I
Airports, Water Ports, Rail, Buses, Taxis,
Finance
Competitive Government:
Public Private Partnerships
Series Editors
Simon Hakim, Center for Competitive Government, Temple University,
Philadelphia, PA, USA
Adrian Moore, School of Computing and Information Engineering,
University of Ulster (Coleraine), Coleraine, UK
Robert M. Clark, Environmental Engineering and Public Health Consultant,
Cincinnati, OH, USA
A shift from monopolistic government to a competitive setting is expected to
improve efficient production and stimulate innovation. That shift has typically been
in the form of Public-Private Partnerships (PPP), where each partner contributes its
share of comparatively advantaged resources towards the production and delivery of
the services. The shift to PPP, the types of services, and the methods used in the shift
are increasing and becoming ever more sophisticated. This book series intends to
capture a state of the art of such PPPs and present a guide for the implementation of
such ventures. The book series will present, evaluate, and suggest policy implications
based upon PPP experiences in fields like: police, prisons, courts, water and
wastewater, telecommunications, air and water ports, rail, highways, schools,
garbage collection, postal services, cyber security, foster care and child adoption,
and homeland security management. The audience of this book series are advanced
undergraduate/graduate students in courses on privatization and public finance,
consultants and researchers in both government and the private sector, and members
of think tanks that promote the ideas of more-focused government, competitive
government, and privatization.
More information about this series at http://www.springer.com/series/16085

Simon Hakim • Robert M. Clark
Erwin A. Blackstone
Editors
Handbook on Public Private

Partnerships in
Transportation, Vol I
Airports, Water Ports, Rail,
Buses, Taxis, Finance
Editors
Simon Hakim Robert M. Clark
Center for Competitive Government, Environmental Engineering
Department of Economics and Public Health Consultant
in the College of Liberal Arts Cincinnati, OH, USA
Temple University
Erwin A. Blackstone
Center for Competitive Government,
Department of Economics
in the College of Liberal Arts
Temple University
ISSN 2524-4183 ISSN 2524-4191 (electronic)

Competitive Government: Public Private Partnerships
ISBN 978-3-030-83483-8 ISBN 978-3-030-83484-5 (eBook)
https://doi.org/10.1007/978-3-030-83484-5
© Springer Nature Switzerland AG 2022

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Preface
An important use of Public-Private Partnerships (P3s) throughout the world is for

the investment in, and operation of, infrastructure. In the United States, the American
Society of Civil Engineers (ASCE) has reported that US infrastructure has suffered
years of neglect and needs significant investment, which creates unique opportuni-
ties for collaboration between the private and public sectors.
ASCE has graded the nation’s roads a “D,” bridges a “C+,” transit a “D-,”
and aviation infrastructure a “D.” As the nation’s infrastructure continues to age, the
cost to repair and modernize our transportation system will continue to increase. As
of the writing of this book, President Joesph R. Biden of the United States has pro-
posed a long-needed reconstruction plan to fund highways, ports, airports, and mass
transit systems. Biden’s requested budget is $2.25 trillion.
P3s have been used to fund a range of projects in transportation, including roads,
bridges, parking, terminals in airports, water ports, rail, buses, and taxis. The role of
the public and the private partners is expected to be where each has its comparative
advantage. Public good services that provide communitywide benefits can be con-
tracted out as P3s while government maintains a supervisory role. P3s have the
potential for introducing competition that can yield improved service production,
provide incentives to achieve technological innovations, and yield services that bet-
ter address users’ preferences; a condition that results in what economist’s term
social welfare. This Handbook describes both successful and unsuccessful P3
efforts around the world. When a P3 is unsuccessful, the fault usually lies in the
design of the contract between the public and the private partners.
This volume is the first of two volumes that presents worldwide case studies and
related policy implications of P3s in airports, water ports, rail, buses, and taxis.
Volume two that follows centers on PPPs in roads and parking facilities.
Philadelphia, PA, USA Simon Hakim

Philadelphia, PA, USA Erwin A. Blackstone
Cincinnati, OH, USA Robert M. Clark
v
Contents
Public-Private Partnerships in Transportation—Airports,

Water Ports, Rail, Buses, and Taxis: An Overview �� 1
Simon Hakim, Erwin Blackstone, and Robert M. Clark

Evaluating the Viability of the Ghan Airport Cargo Centre
as a Public-Private Partnership Project�� 15
Isaac K. Arthur, Ernest Agyemang, and Ebenezer G. A. Nikoi

The Role of Individual Actors in Public-Private Partnership
(PPP) Projects: Insights From Madinah Airport in Saudi Arabia�� 31
Mhamed Biygautane

Models, Expectations and Reality in Airport Public-Private
Partnerships�� 51
Carlos Oliveira Cruz and Joaquim Miranda Sarmento

Airport Privatization in the United States�� 69
Robert Puentes and Paul Lewis

Legal Impediments to Airport P3s in the United States�� 85
Peter J. Kirsch and Andrew C. Fischer

Public-Private Partnerships in Port Areas: Lessons Learned
from Case Studies in Antwerp and Rotterdam �� 107
Bart Wiegmans, Niek Mouter, Thierry Vanelslander, and Stefan Verweij

Seaport PPPs in the EU: Policy, Regulatory, and Contractual Issues�� 129
Eric Van Hooydonk

Sustainable Strategies for Mass Rapid Transit PPPs �� 153
Sock-Yong Phang and Bin Chye Tan

Rational Inattention in Non-Profit Public-Private Partnerships:
The Las Vegas Monorail Bankruptcy Case �� 175
L. Bolaños and J. Gifford
vii
viii Contents

Public-Private Partnerships in Denver, CO: Analysis of the Role
of PPPs in the Financing and Construction of Transportation
Infrastructure in the USA �� 195
Sylvia A. Brady, Andrew R. Goetz, and Andrew E. G. Jonas

Governance of Public-Private Partnerships: Lessons
from the Italian Experience in Transportation Projects�� 223
Remy Cohen

Developing Urban Rail Using Public-Private Partnership:
A Case Study of the Gold Coast Light Rail Project�� 243
Tingting Liu and Suzanne J. Wilkinson

For Hire Vehicle Regulation, Misunderstanding, Mismatch,
Control and Capture: The Case of Vehicles for Hire and PPP�� 261
James M. Cooper and Wim Faber

Using History to Develop Future Regulation of TNCs
and Autonomous Taxis�� 285
Ray A. Mundy

Distinguishing Between Demand Risk and Availability
Payment Public-Private Partnerships�� 305
Randal O’Toole

Public Private Partnerships for Airports, Water Ports, Rail,
Buses, and Taxis: A Policy Perspective�� 313
Simon Hakim, Erwin A. Blackstone, and Robert M. Clark
Index�� 333
About the Authors
Ernest Agyemang is a Senior Lecturer at the Department of Geography and

Resource Development, University of Ghana, where he also obtained his doctoral
degree. Dr. Agyemang specializes in the geography of transportation systems with
a focus on transport and the organization of human space/land use, mobilities,
emerging technology-driven transport network services, and road safety.
Isaac K. Arthur is a Senior Lecturer of Geography and Resource Development at

the University of Ghana. He obtained his Ph.D. in Planning and Development from
Aalborg University, Denmark. He is an interdisciplinary researcher and has con-
ducted research in the areas of urban planning and development, the experience
economy, migration, innovation, and entrepreneurship in food-related rural
enterprises.
Mhamed Biygautane is a Lecturer (Assistant Professor) in Public Policy at the

School of Social and Political Sciences, University of Melbourne. He has published
several peer-reviewed studies on public-private partnerships, privatization, modern-
ization and reform of public sector organizations, particularly within the context of
the Gulf Cooperation Council states. His work has appeared in several Q. 1 interna-
tional academic journals such as Accounting, Auditing and Accountability Journal,
International Journal of Project Management, Public Management Review,
Thunderbird International Business Review, Research in the Sociology of
Organizations, among others.
Erwin Blackstone received his B.A. from Syracuse University, where he was
elected to Phi Beta Kappa. He received his Ph.D. in Economics from the University
of Michigan. He has taught economics for over 40 years. Prior to coming to Temple
in 1976, Dr. Blackstone taught at Dartmouth College and Cornell University. His
research areas and publications include the Economics of Industrial Organization,
Health Economics, Antitrust, the Economics of Crime, and Privatization. He has
published on a variety of antitrust topics including mergers, dominance, reciprocal
buying, patents, tying agreements, collusion, and damages and articles on adoption
ix
x About the Authors
of children, private policing, airlines, pharmaceuticals including biologics, physi-

cians, and hospitals. His publications include over 60 articles in major economics
and public policy journals, chapters in books, two edited books, two monographs,
and a book on the electronic security industry. Dr. Blackstone has taught courses
from the introductory to the Ph.D. level. He was given in 1976 the Clark Award for
distinguished teaching at Cornell and at Temple, the Andrisani-Frank Award for
Excellence in teaching in 2001, and the Musser Excellence in Leadership Award for
teaching in 2006.
L. Bolaños currently serves as the Vice Minister of Investment and Competition at

the Government of Guatemala, Ministry of Economy. He received his Ph.D. in Public
Policy from George Mason University, Schar School of Policy and Government in
2019. Dr. Bolaños is also a Professor of Microeconomics at the University of the
Valley of Guatemala and a Professor of Economic Development Strategies at the
School of Government (EdG) in Guatemala. His research interests include industrial
policy, labor policies, and transaction cost economics. Dr. Bolaños received his
B.A. in Economics from Francisco Marroquín University, Guatemala, in 2005 and his
Master of Public Policy degree from the University of Maryland in 2011.
Sylvia A. Brady is a lecturer at Metropolitan State University of Denver in the

Department of Earth and Atmospheric Sciences. She is a recent graduate of the
University of Denver, where she completed her dissertation titled: The changing
role of public-private partnerships in urban transportation: a case study of the rise
of P3s in Denver, CO. Her research interests include sustainable transportation and
mobility, public sector financing of transportation, and urban geography.
Robert M. Clark is currently an independent consultant in environmental engi-

neering and public health. He is an Adjunct Professor in Civil and Environmental
Engineering at the University of Cincinnati and was a member of the National
Research Council’s Committee on “Public Water Distribution Systems: Assessing
and Reducing Risks.” As a consultant, Dr. Clark’s work includes work on homeland
security and protection of critical infrastructure in collaboration with Sandia
National Laboratories, the US Environmental Protection Agency (USEPA), Rutgers
University (Newark Campus), and the University of Cincinnati, among others. He
served as an environmental engineer in the US Public Health Service and the USEPA
from 1961 to August 2002 and was Director of the USEPA’s Water Supply and
Water Resources Division (WSWRD) for 14 years (1985–1999). In 1999, he was
appointed to a Senior Expert Position in the USEPA with the title Senior Research
Engineering Advisor and retired from the USEPA in August of 2002. Dr. Clark was
a member of USEPA’s Water Protection Task Force and was USEPA’s liaison for
homeland security research. Dr. Clark has published over 400 papers and 6 books
and has been professionally active in several organizations, where he served in
numerous leadership positions. He is a lifetime member of both the American Water
Works Association (AWWA) and the American Society of Civil Engineers (ASCE).
Dr. Clark is recognized both nationally and internationally and has received
About the Authors xi
numerous awards for his work. Dr. Clark holds B.S. degrees in Civil Engineering
from Oregon State University (1960) and in Mathematics from Portland State
University (1961), M.S. degrees in Mathematics from Xavier University (1964),
and Civil Engineering from Cornell University (1968) and a Ph.D. in Environmental
Engineering from the University of Cincinnati (1976). He is a registered engineer in
the State of Ohio and is board certified as an Environmental Engineer by the
American Academy of Environmental Engineers and Scientists.
Remy Cohen founder and CEO of Cohen & Co, currently serves as financial
adviser to Italian and foreign institutions, Government entities, International
Organization, contractors, and operators in the field of infrastructure project financ-
ing and Public and Private Partnership. He teaches Infrastructure and International
Finance at LUM G. De Gennaro University in Italy and is Research Fellow at Tel
Aviv University-Alrov Institute for Real Estate Research. He is author of many
publications on topics of infrastructure financing, public-private partnership, and he
has attended, as speaker, many conferences in Italy and abroad on infrastructure,
project finance, and privatization. Cohen has been Board member of Macquarie
Airport Group (Rome, Sydney, Birmingham, and Bristol airports) and Board mem-
ber and Vice Chairman of Rome Airport.Previously, Cohen has also been the Italian
Representative for Bear Stearns and Co. Remy Cohen worked as economist at the
International Monetary Fund, has been CEO of Recchi Finanziaria (a major Italian
construction group) and Director General of Euromobiliare, an Italian investment
bank. Remy Cohen graduated from Bocconi University and followed postgraduate
courses at the University of Rochester and INSEAD.
James M. Cooper has a Masters in Transportation from Cardiff University,

Cymru; and a doctorate focused on the regulation of the taxi industry in small- and
medium-sized UK cities. His work includes the design and delivery of the T2E
Transport to Employment service in the Highlands of Scotland, and a number of
social and community transport projects across the British Isles. Dr. Cooper has
over 30 years’ experience in the assessment of social transport, accessible vehicle
supply, and the Vehicle for Hire industry. He is a former academic, having worked
as head of the taxi research group at Edinburgh Napier University and visiting
Professor of Urban Transportation Regulation at the University of Missouri, St.
Louis, USA. He is widely published in the field of transportation regulation and
regulatory economics and has worked as an advisor to cities and governments
around the world. His work includes econometric models applied to the VFH mar-
ket for the Government of the District of Columbia, Scottish, Northern Ireland and
Irish executives, the Law Society of England and Wales, and numerous city govern-
ments across three continents.
Carlos Oliveira Cruz is an Associate Professor of Construction and Infrastructure

Economics at Instituto Superior Técnico, University of Lisbon, Portugal, and a
researcher at CERIS. He was an advisor to the Portuguese Secretary of State for
Transportation and a visiting scholar at the Harvard Kennedy School, USA.
xii About the Authors
Wim Faber read Political Science and Mass Communications at the University of
Amsterdam, the Netherlands, and followed various diploma courses in
Communications, Marketing, Public Relations, and Audiovisual Media at the
Catholic University of Leuven, Belgium, and the Free University of Brussels,
Belgium. He is one of the few multilingual and truly international taxi, smart mobil-
ity, and public transport experts with over 40 years’ experience in the mobility
industry. Through his work as journalist, senior editor, and publisher of several web-
sites and magazines, he has built up a wealth of expertise specifically in the area of
taxi, paratransit, and smart mobility. From his background in the taxi industry,
journalism and communication Faber developed into a regular specialized contribu-
tor to taxi, paratransit, and general mobility publications worldwide. He works in
his native language Dutch plus German, English, and French. Earlier in his career,
he worked for a host of business and specialized magazines, reporting on the music
industry and on general socioeconomic and political topics in the Netherlands,
Belgium, Great Britain, and Germany. Through his company Challans & Faber
Business Communications, he provides communication and strategic advice to the
taxi and public transport industry, organizes international conferences and events,
lectures on taxi topics at specialized conferences, and publishes data and other pub-
lications on the international taxi, PHV and mobility world.
Andrew C. Fischer graduated from the University of Colorado Law School with
a Juris Doctor and from Hamilton College with a Bachelor of Arts in Government.
He currently works as a Law Clerk and Judicial Assistant to the Honorable Brian
D. Boatright, Chief Justice of the Colorado Supreme Court. He lives in Denver.
Jonathan L. Gifford is a Professor in the Schar School of Policy and Government

at George Mason University, and the Director of the Center for Transportation
Public-Private Partnership Policy. Dr. Gifford’s primary area of expertise is trans-
portation and public policy, with a focus on transportation and infrastructure finance.
His recent research investigates transportation finance and the role of public-private
partnerships.
Andrew R. Goetz is a Professor in the Department of Geography and the

Environment and a faculty associate in the Transportation Institute and the Urban
Studies Program at the University of Denver. He is a co-author of the
book Metropolitan Denver: Growth and Change in the Mile-High City (University
of Pennsylvania Press, 2018) and three other books, as well as numerous journal
articles and book chapters on topics including transportation infrastructure and
urban/economic growth, rail transit systems, transit-oriented development, smart
growth planning, sustainability, high-speed rail, intermodal transportation, transport
geography, air transportation, airport planning, and globalization
Simon Hakim is professor of economics and the director of the Center for
Competitive Government at Temple University. He earned an M.A and Ph.D. degrees
in Regional Science from the University of Pennsylvania. He also earned an M.Sc.
About the Authors xiii
degree in City and Regional Planning from the Technion, Israel Institute of
Technology and a B.A. in Economics at Hebrew University in Jerusalem. His spe-
cial areas of research and teaching are economics of privatization and public-private
partnerships, economics of crime and security, private/public police, and homeland
security. Dr. Hakim published 65-refereed articles in leading economic, criminal
justice, security, and public policy journals. He wrote over 40 professional articles
and edited 20 books. He co-authored a major textbook on the electronic security
industry. He is invited to teach classes on privatization and international economics
in MBA programs worldwide. Dr. Hakim conducted several funded research and
consulting projects on PPP, security, and public finance issues for the US Departments
of Justice and Labor, the Commonwealth Foundation, the Independent Institute, the
Alarm Industry Research and Education Foundation, the private prison industry,
cities like Philadelphia, Newark, and New Castle County, DE, the Philadelphia
International Airport, ADT, Vector Security, law firms, and other leading security
companies. For the complete CV see the Center for Competitive Government, at
http://www.fox.temple.edu/ccg.
Eric Van Hooydonk is a Professor of Law at the Maritime Institute of the

University of Ghent, Belgium, and an attorney-at-law in Antwerp, Belgium. Eric’s
main areas of practice and research fields include: international law of the sea, both
EU and national maritime and seaport law, as well as the law of public undertakings,
together with public-private partnerships. His preferred subjects are maritime regu-
lation in all its aspects and the law of seaports in a broad sense. His doctoral thesis
(1994) offered an in-depth analysis of the legal aspects of port management. From
2000 to 2010, Eric chaired the European Institute of Maritime and Transport Law of
the University of Antwerp, during which time numerous papers and books were
published and successful events organized. In 2007, he was appointed Chair of the
Royal Commission for the Reform of Belgian Maritime Law, which, on his initia-
tive, prepared a new Shipping Code for Belgium. In 2009, he founded Portius, the
world’s first ever international and EU Port Law Center, which is hosted by the
University of Ghent and the College of Europe at Bruges, Belgium, and Natolin
(Warsaw), Poland. In 2014, Eric was appointed Chair of an International Working
Group of the Comité Maritime International, which prepares a restatement of the
general principles of the maritime law or Lex Maritima. Eric is a Titulary Member
of the Comité Maritime International (CMI) and a member of several professional
and scientific associations as well as the editorial boards of legal reviews in various
countries. Since 1995, Eric has run a niche law firm in Antwerp, which handles
major contentious and non-contentious cases for institutional clients including those
in countries both within and outside the European Union. Also, he has been acting
as a legal consultant in Southeast Asia since 1999. Antwerp, Eric’s home base, is
Europe’s second biggest seaport. The University of Ghent, Belgium’s second big-
gest university, is located in a major port city as well. As a recognized expert in port
affairs, Eric has recently also joined the Board of Directors of the port authority of
Ostend, Belgium, and is regularly asked to advise on port heritage and culture and
port city-related urban planning at home and abroad. In the coming years, Eric
xiv About the Authors
wishes to focus on international and European seaport law, on which he is preparing

major English-language manuals, which he intends to use for specialized short-term
training courses in English.
Andrew E. G. Jonas is Professor of Human Geography in the Department of

Geography, Geology and Environment at the University of Hull in the UK. Andy’s
research interests cover various dimensions of the politics of urban and suburban
development in the USA and Europe. He has written a textbook, Urban Geography:
A Critical Introduction (Wiley-Blackwell, 2015), with Eugene McCann and Mary
Thomas. His other books include The Handbook on Spaces of Urban Politics
(Routledge, 2018), The Urban Growth Machine: Critical Perspectives Two Decades
Later (SUNY Press, 1999), Interrogating Alterity (Ashgate, 2010), and Territory,
the State and Urban Politics (Ashgate, 2012).
Peter J. Kirsch is a founding partner of Kaplan Kirsch & Rockwell, dividing his
time between Washington, DC, and Colorado. His law practices focuses on advis-
ing clients on large infrastructure projects with a particular focus on airport devel-
opment, operations, and regulation. He advises on private investment, land use,
revenue use regulation, real estate development, and regulatory compliance issues
and has litigated all of these issues for clients in numerous state and federal courts.
He is a graduate of Oberlin College and the University of Chicago Law School.
Paul Lewis is Vice President of Policy and Finance at the Eno Center for
Transportation. In that capacity, he directs Eno’s policy research programs, includ-
ing paper development and event organization. Lewis regularly gives speeches, pre-
sentations, and participates in events on behalf of Eno to government, industry
groups, and various public forums. He is responsible for the management of the
organization’s finances and has helped build Eno’s policy program from the ground
up, continuing to strategically seek out emerging and challenging issues. Lewis has
led policy projects related to federal policy, transportation planning, and transporta-
tion governance. Lewis has extensive experience in transportation technologies,
automated vehicles, aviation, freight, public transit, pricing, and economic develop-
ment. He received his B.S. in Civil Engineering from Ohio Northern University and
his M.S. in Transportation from the Massachusetts Institute of Technology.
Tingting Liu is a lecturer in construction management at the School of Engineering

and Built Environment, Griffith University, Queensland, Australia. She received a
Ph.D. in Civil Engineering from the University of Auckland, New Zealand, and a
Bachelor of Construction Management from Tianjin University, China. Prior to
joining Griffith University, she worked as an Associate Professor at the School of
Economics and Management, Beijing Jiaotong University, China. Tingting's areas
of research expertise include construction procurement, Public-Private Partnerships
(PPPs), construction supply chain management, and smart cities and infrastructure.
Tingting has published extensively in internationally recognized journals, such as
Journal of Construction Engineering and Management, International Journal of
About the Authors xv
Project Management, Journal of Management in Engineering, and Journal of

Cleaner Production. In the last 5 years, she has secured two competitive external
research grants, including the National Natural Science Foundation of China (NSFC
Research Grant) and three internal grants. Since joining Griffith University, Tingting
has received two seed funding from Cities Research Institute and School of
Engineering and Built Environment. She is now supervising five Ph.D. topics.
Niek Mouter is an assistant professor of Infrastructure Policy Appraisal at TU

Delft’s Transport & Logistics group, with a background in economics (M.Sc.) and
Philosophy of Law (LLM). His research focuses on improving the appraisal of
infrastructure projects and combines insights from various disciplines such as eco-
nomics, philosophy, political science, and urban planning. His current work focuses
on the inclusion of ethical considerations in appraisal models, such as the cost-
benefit analysis, and improving the usability of appraisal models for politicians,
civil servants, and other stakeholders. He has (co)developed new appraisal
approaches such as “willingness to allocate public budget experiments” and
“Participatory Value Evaluation” and is currently editing a book for Elsevier about
Appraisal Methods for Transport Policy and Planning.
Ray A. Mundy, Ph.D. is the Executive Director of the Airport Ground

Transportation Association (AGTA), Professor Emeritus of the University of
Tennessee, Knoxville, and Director Emeritus from the Center for Transportation
Studies at the University of Missouri-St. Louis. Dr. Mundy has authored several
books and numerous transportation articles during his business and academic career.
He has served on the boards of both private and public transportation companies.
Dr. Mundy has been a consultant to over 40 cities, airports, and private industry in
the USA and Canada and is frequently called upon as an industry speaker and expert
witness in cases before the industry. He has served as Executive Director of the
Airport Ground Transportation Association (since 1976) which is an industry trade
group comprising airport ground transportation operators, airports, and suppliers of
goods and services to the industry. Currently, he authors a monthly publication,
AGTA Insights, and a weekly industry summary of current articles of interest to the
industry. The AGTA holds two industry meetings per year.
Ebenezer G. A. Nikoi is a Senior Lecturer in the Department of Geography and

Resource Development at the University of Ghana. His research focuses on health
and migration and the implications of these for socioeconomic development in
Africa. He is particularly interested in the geographies of children’s nutritional
health outcome, as well as the dynamics of migration, security, and development.
Randal O’Toole is a senior fellow with the Cato Institute specializing in transpor-
tation and land-use policy. He has written several books including Romance of the
Rails: Why the Passenger Trains We Love Are Not the Transportation We Need. Prior
to working for Cato, his research on environmental issues led to fellowships or visit-
ing professorships at Yale, University of California, Berkeley, and Utah State
University.
xvi About the Authors
Sock-Yong Phang is Vice Provost (Faculty Matters) and Celia Moh Chair Professor
of Economics at the Singapore Management University. She is author of the follow-
ing books: Policy Innovations for Affordable Housing in Singapore (2018), Housing
Finance Systems (2013), and Housing Markets and Urban Transportation (1992).
She has also published numerous book chapters and journal articles on housing,
transport, economic regulation, and public-private partnerships. Phang has been a
consultant to the World Bank, the Asian Development Bank, GIZ, and various gov-
ernment organizations. She has previously served as a board member of Singapore’s
Urban Redevelopment Authority, Land Transport Authority, Public Transport
Council, and Competition and Consumer Commission. She is currently a board
member of Singapore’s Energy Market Authority.
Robert Puentes is President and CEO of the Eno Center for Transportation a non-
profit think tank with the mission of improving transportation policy and leadership.
Prior to joining Eno, he was a senior fellow at the Brookings Institution’s
Metropolitan Policy Program, where he directed the program’s Metropolitan
Infrastructure Initiative. He is currently a non-resident senior fellow with Brookings.
Before Brookings, Robert was the director of infrastructure programs at the
Intelligent Transportation Society of America. Robert has worked extensively on a
variety of transportation issues, including infrastructure funding and finance, and
city and urban planning. He is a frequent speaker to a variety of groups, a regular
contributor in newspapers and other media, and has testified before congressional
committees. He holds a Master’s degree from the University of Virginia where he
served on the Alumni Advisory Board, and was an affiliated professor with
Georgetown University’s Public Policy Institute. Robert serves on a variety of
boards including the Shared-Use Mobility Center, UCLA’s Institute of Transportation
Studies, and Young Professionals in Transportation. Recent appointments include
the Federal Advisory Committee on Transportation Equity, New York State’s 2100
Infrastructure Commission; the Advisory Council of the West Coast Infrastructure
Exchange, the Metropolitan Transportation Authority’s Transportation Reinvention
Commission; the District of Columbia’s Streetcar Financing and Governance Task
Force; the Northern Virginia Transportation Authority’s Technical Advisory
Committee; and the Falls Church, Virginia Planning Commission, where he lives
with his wife and three sons.
Joaquim Miranda Sarmento is an Assistant Professor of Finance at ISEG—

Lisbon School of Economics and Management, Universidade de Lisboa, Portugal.
He holds a Ph.D. in Finance from Tilburg University, the Netherlands. He was a
chief economic advisor to the President of the Portuguese Republic and has worked
at UTAO (Technical Budget Support Unit at parliament) and for more than 10 years
at the Portuguese Ministry of Finance.
Bin Chye Tan is Director Finance within the High-Speed Rail Group at the Land
Transport Authority of Singapore. He is responsible for the financing of the KL-SG
High-Speed Rail Project (currently in postponement) for the Government of
About the Authors xvii
Singapore. Bin Chye has 15 years of experience investing and financing a range of
infrastructure businesses for Standard Chartered Bank, IFM Investors, and Bechtel.
He has managed investments and participated in notable infrastructure transactions
across Europe and Asia with a combined enterprise value of more than US$10 bil-
lion. Bin Chye holds a Master’s degree in Engineering from Stanford University and
a Bachelor’s degree in Engineering with Business Finance from the University
College London.
Thierry Vanelslander is a professor at the Department of Transport and Regional

Economics. He is currently course coordinator for courses at C-MAT and at the
Faculty of Applied Economics. His research focuses on business economics in the
port and maritime sector and in land transport and urban logistics. He is also the
Chair of the World Conference on Transport Research (WCTR) Special Interest
Group A2 (Ports and Maritime). Equally, he is the Chair of the Freight & Logistics
group within the European Transport Conference.
Stefan Verweij is Assistant Professor of Infrastructure Planning, Governance, and

Methodology at the University of Groningen, the Netherlands. His research focuses
on the design, implementation, and outcomes of collaboration in cross-sector gov-
ernance networks, with a particular focus on public-private partnerships (PPPs) in
infrastructure development and management. He is also specialized in comparative
methods, in particular QCA. He recently published a co-authored book about QCA
and infrastructure project evaluation at Edward Elgar (2018).
Bart Wiegmans is Senior Researcher at the Department of Transport and Planning,

group freight transport, and transport networks at the Technical University of Delft.
He used to be former OTB Section Coordinator of the Research Group Transport
and Infrastructure TU Delft. He completed his undergraduate studies in Regional
and Transport Economics at the Vrije Universiteit, Amsterdam, the Netherlands
(1996). He received his Doctorate in Transport Economics from the Vrije Universiteit
Amsterdam (2003). As a Researcher and Manager, he has worked on numerous
studies concerning, (intermodal) freight transport, infrastructure, ports, and termi-
nals. His main interests are in research and methodologies in efficiencies, cost, and
simulating impacts of new technologies in intermodal freight transport.
Suzanne J. Wilkinson is a Professor of Construction Management and Director of

Postgraduate Studies in the School for Built Environment, Massey University,
Albany Campus. She is also Associate Dean (Research) in the College of Sciences,
Massey University, where she is responsible for research development for over 400
researchers and research strategy for the College. She has a Ph.D. in Construction
Management and a B.Eng. (Hons.) in Civil Engineering, both from Oxford Brookes
University, and a Graduate Diploma in Business Studies (Dispute Resolution) from
Massey University. Prior to working at Massey University, Suzanne spent 23 years
at the University of Auckland, Department of Civil and Environmental Engineering,
starting as a Lecturer and leaving as a Professor and Deputy Head of Department.
xviii About the Authors
Suzanne’s research focuses on construction innovation, resilience, and smart cit-

ies. She is interested in how cities, communities, and organizations rebuild and
recover after disasters and the innovative approaches taken by construction organi-
zations post-disaster. Suzanne has been advisor to organizations on resilience build-
ing and disaster recovery, most recently including Auckland Council, Government
Agencies, and Hunter Water Ltd. in Australia. Suzanne is currently working on vari-
ous government-funded research projects including a 5-year, multi-million dollar
program on improving the capacity and capability of the New Zealand construction
industry. She has published over 300 papers and co-written 3 books, the most recent
being Resilient Post-Disaster Recovery Through Building Back Better (Routledge in
2019), with her colleagues Sandeeka Mannakkara and Regan Potangaroa. Suzanne
is a keen supervisor and has supervised to completion over 30 Ph.D. students.
Public-Private Partnerships
in Transportation—Airports, Water Ports,
Rail, Buses, and Taxis: An Overview
Simon Hakim, Erwin Blackstone, and Robert M. Clark
Abstract There is strong evidence that the need for infrastructure investment will
continue to grow in the future. However, there is also justifiable concern over the
ability to obtain funds to support these investments. One option for obtaining these
necessary funds is the use of public-private partnerships (P3s). This chapter sum-
marizes a series of papers contained in the book entitled Public Private Partnerships
in Transportation, Vol I: Airports, Water Ports, Rail, Buses, and Taxis which discuss
the potential use of P3s to provide these needed funds.
Keyword Transportation · Infrastructure · Public-private partnerships · Airports ·

Rail · Mass transit · Taxis
Abbreviations
ATC Air traffic control

BENEFIT Business models for enhancing funding and enabling financing for
infrastructure in transport
CBA Cost-benefit analysis
CDOT Colorado Department of Transportation
DBFO Design-build-finance-operate
GAO US Government Accountability Office
GDP Gross domestic product
S. Hakim (*)
Center for Competitive Government, Department of Economics, Temple University,
e-mail: simon.hakim@temple.edu
E. Blackstone
Department of Economics, Temple University, Philadelphia, PA, USA
e-mail: erwin.blackstone@temple.edu
R. M. Clark
Environmental Engineering and Public Health Consultant, Cincinnati, OH, USA
e-mail: rmclark@fuse.net
© Springer Nature Switzerland AG 2022 1

S. Hakim et al. (eds.), Handbook on Public Private Partnerships in
Transportation, Vol I, Competitive Government: Public Private Partnerships,
https://doi.org/10.1007/978-3-030-83484-5_1
2 S. Hakim et al.
KIA Kotoka International Airport

MRT Mass rapid transit
MTS Maritime Transportation System
NCPPP National Council for Public-Private Partnerships
P3 Public-private partnership
RTD Denver Regional Transportation District
SWOT Strengths, weaknesses, opportunities, and threats
TNCs Transportation network companies
VFH Vehicles for hire
Introduction
According to a study conducted by Price water house Coopers (PwC, 2015), trans-
port infrastructure investment is projected to increase at an average annual rate of
about 5% worldwide over the period of 2014–2025. However, this growth will be
unequal over various subsectors. It is estimated, for example, that sub-Saharan
Africa will have the fastest average annual growth rate with an increase of over 11%
over this period. Roads will likely remain the biggest area of investment, especially
for growth markets due partly to the rise in incomes and, hence, car ownership in
developing countries. A report by the International Transport Forum at the Office of
Economic Cooperation and Development (OECD), an international organization
with 54 member countries, states that transport infrastructure plays a role as a capi-
tal input into production and wealth generation (OCED, 2013). Transport infra-
structure is clearly a critical ingredient in economic development.
The US Government Accountability Office (GAO) has defined a public-private
partnership (P3) as “a contractual arrangement that is formed between public and
private sector partners”; however, there is no single universal definition of a P3
(GAO, 1999). The National Council for Public-Private Partnerships (NCPPP)
(United States Department of Transportation, 2017) defines a public-private part-
nership as “a contractual agreement between a public agency (federal, state, or
local) and a private sector entity.”
An important potential area for the application of the P3 concept in the United
States is infrastructure. The American Society of Civil Engineers (ASCE, 2021) has
reported that US infrastructure has suffered years of neglect and needs significant
investment, which creates unique opportunities for collaboration between the pri-
vate and public sectors through the use of P3s. The World Economic Forum esti-
mates the global infrastructure deficit as $5 trillion a year. To provide some
perspective, the US gross domestic product in 2019 was about $21.7 trillion. The
annual deficit is very substantial.
P3s have been used for a range of projects in transportation, including roads,
bridges, and parking, and for airports, water ports, rail, buses, and taxis. An attrac-
tive feature of the P3 concept is their ability to save time, money, and effort in the
government procurement process. A key feature of implementing a P3 is the
Public-Private Partnerships in Transportation—Airports, Water Ports, Rail, Buses… 3
importance of managing risk. If the risk is not managed properly, the cost of the
project will increase. Political changes associated with changes in government, laws
or regulations, unanticipated tax increases, or fee impositions are beyond the control
of the private partner. However, construction risks, such as faulty design, delays in
construction, poor performance, and poor quality, are all within the control of the
private sector and can be properly managed or insured by it.
Public-Private Partnerships for Transportation
According to Feigenbaum (2019), the private provision of transit services comes in

the following three forms:
• Privately financed, operated, and maintained services which are limited to loca-
tions in which operating transit services can turn a profit.
• Private service in which the public sector procures a contract with the private
sector to design, build, finance, operate, and maintain service.
• The private sector plans and operates transit service via a competitive service
contract, often called tendered service.
Funding for transit is challenging in most countries. In Europe, Canada, and
Japan, public transit is considered an essential government service and supported
for economic development in dense, urban areas. Tokyo, Hong Kong, and Singapore
have very large private transit systems that have proven to be very successful.
Over the next 20 years, ridesharing companies such as Uber and Lyft are going
to substantially change transit service. Some experts believe that automated ride-
sharing vehicles may be less than 10 years away. In the future, transit agencies will
need to transition from being bus and train operators to mobility providers. It is
clear that transportation in the United States in 2030 will be very different than it is
now. This chapter discusses the manuscripts which are contained in this book, with
a primary focus on the use of P3s for airports, rail, and bus systems and for-hire
vehicles (including taxis) as well as a general discussion of P3 policy.
The Potential for P3s in Airport Construction and Operation
An International Air Traffic Control Association study which found that the Middle
East passenger airlines’ compound annual growth rate for 2013–2017 will be the
highest worldwide at 6.3% (PwC, 2015). This growth will be followed closely by
the Asia-Pacific at 5.7%. Demand from a growing Asian middle class will help
increase total airport investments from $13.2 billion to $18.7 billion between 2015
and 2025. The following manuscripts address the potential for using the P3 concept
in building and operating airports.
4 S. Hakim et al.
Ghana’s Airport Cargo Centre as a P3
Arthur et al. (this volume) evaluates the viability of the Ghana Airport Cargo Centre
located in Kotoka International Airport (KIA) as a public-private partnership proj-
ect. They discuss the implications of building and operating the center using desk
reviews, interviews, air cargo data, and a technique called the strengths, weaknesses,
opportunities, and threats (SWOT) analytical tool. Their study found that the key
strengths of this partnership are safety and security, development of a state-of-the-
art cargo terminal, competitiveness, and local expertise and technology transfer.
Relatively low cargo volumes were found to be a weakness, while potential political
interference, the COVID-19 pandemic, and the competition within the West African
subregion were found to be threats to the success of the partnership. Peace, democ-
racy, and economic stability were also found to be conditions that supported the
project. Their study concluded that the current partnership arrangement, whereby
private equity is substantially high and government simply concentrates on provid-
ing the “enabling environment” and minimal investment, is a good venture that
should be encouraged in Africa.
Insights From Madinah Airport in Saudi Arabia
Bygataune and Al-yahya (this volume) contend that the existing literature on infra-
structure has overstated the mechanistic requirements of P3 projects, the external
pressures like budgetary problems that lead governments to adopt P3. However, it
has overlooked the role of individual parties in shaping and affecting the initiation
and implementation of P3s. This chapter addresses this issue and presents an empir-
ical analysis of the expansion of Madinah Airport in Saudi Arabia using the P3
approach. The authors argue that Saudi Arabia presents an unwieldy institutional
environment that presents unusual barriers to the successful implementation of P3s
based on conventional wisdom. Therefore, the airport’s success represents an
unusual outcome. They argue that, when committed institutional entrepreneurs are
supported by sufficient political power, they can overcome broader barriers that
have traditionally hampered the successful implementation of P3s in developing
countries. The authors believe that the impact of individual actors can play a major
role in the implementation of P3 contracts.
Models, Expectations, and Reality in Airport P3s
Oliveira Cruz and Miranda Sarmento (Chap. 4, this volume) analyze models that
have been used for the development of P3s in airports and reflect on the expectations
of governments in applying these solutions. Both theoretical and empirical evidence
are used to support their analysis. According to Cruz and Sarmento (Chap. 4, this
volume), several governments have been exploring P3s for transportation projects
and have found that airports are particularly attractive because of their strong poten-
tial for delivering high returns. Despite the advantages of using P3 in the airport
sector, governments should also be concerned with the potential pitfalls. Planning,
regulating, and monitoring are essential tasks to be performed by the public sector
in order to assure efficiency gains using private management. It is also essential to
understand the fact that airports are often monopolistic which means that the gov-
ernment should prevent rent-seeking behavior by private companies.
Airport Privatization in the United States
Puentes and Lewis (Chap. 5, this volume) review the policies that govern airport
privatization in the United States, along with some recent history using domestic
case studies, and then explore implications for the future. According to Puentes and
Lewis (Chap. 5, this volume) prior to the COVID-19 pandemic, airport infrastruc-
ture investments, such as new runways, modern terminals, and improved ground
access, were a top priority for governments and the traveling public. Revenues from
parking, concessions, and landing fees have attracted the interest of private sector
investors looking for stable, long-term returns. Although the current economic
slowdown has brought airport operations nearly to a halt, there is an expectation that
they will eventually return to normal. When this happens, there will likely be
increased interest in airport privatization by state and local governments that are
strapped for cash. Governments may be interested in giving airport investment and
management responsibilities to a private company that keeps excess returns and
then invest to attract more air service and passengers. While airports are commonly
privatized outside the United States, only one airport is privatized in the United
States. However, circumstances unique to the United States greatly limit the useful-
ness of privatization in solving airport problems. Privatization may be attractive in
some very specific contexts, and policy makers need to clearly understand the prob-
lem they are trying to solve and then determine whether privatization is the best
approach.
Legal Impediments to Airport P3s in the United States
Kirsch and Fischer (Chap. 6, this volume) discuss the complex financial and regula-
tory structure for airports in the United States. This environment places the Federal
Aviation Administration at the center of a complex and sweeping regulatory scheme
that imposes pervasive oversight over the nation’s airport infrastructure. Airports
are regulated primarily based on contractual agreements tied to federal grants.
These grants have been declining; at the same time, airports are facing a dire back-
log in capital investment in airport infrastructure. As a result, new and creative fund-
ing structures, such as P3s, are gaining traction. However, in the United States,
6 S. Hakim et al.
airport P3 structures are still in their infancy. Airport proprietors who want to take
advantage of creative funding opportunities, such as the P3 approach, face a daunt-
ing task. A changing federal regulatory landscape coupled with myriad state and
local laws will force proprietors and potential investors to navigate a vague, intricate
landscape. These hurdles may cause potential investors to face insurmountable bar-
riers, especially if they are unfamiliar with airport financing.
Water Ports
The economic prosperity in many countries is dependent upon maritime trade. This
has been particularly true in the United States (Tucci, 2017). For example, by vol-
ume, over 90% of the US overseas trade travels by water. Manufactured products,
oil and natural gas, raw materials, and agricultural products move through US ports
every day. While these items are produced in many locations, they move via rail,
truck, or pipeline into ports, where they are loaded onto ships and barges for export
or further domestic transportation. The US Maritime Transportation System (MTS)
includes approximately 360 major ports and over 8000 individual terminals along
all of our coasts, the Great Lakes, and the Western Rivers—the Mississippi, Ohio,
Missouri, and Columbia Rivers, plus their many tributaries. According to the US
Maritime Administration, waterborne cargo and associated activities contribute
more than $649 billion to the US gross domestic product (GDP), sustaining more
than 13 million jobs. Many thousands of vessels, from tugs and barges to ocean-
going ships, complete this system. This same picture is duplicated throughout the
world. The following manuscripts address the potential for using P3s to support
investments in this important area.
3s in Port Areas: Lessons from Case Studies in Antwerp

P
and Rotterdam
Wiegmans et al. (Chap. 7, this volume) reviews three cases of infrastructure invest-
ments in port areas in Belgium and the Netherlands, by application of the BENEFIT
(business models for enhancing funding and enabling financing for infrastructure in
transport) approach. Although the cost-benefit analysis (CBA) has been widely used
for the appraisal of transport projects, criticisms have led to the development of
alternatives such as the BENEFIT approach. The authors have found that differ-
ences in country performance based on internationally accepted indicators can
influence differences in infrastructure investments between countries. Infrastructure
projects with larger revenue generating possibilities will influence the P3 potential
in a positive way. Applying different appraisal methods to the same infrastructure
project might help to arrive at infrastructure project investment approvals that are
well-documented.
eaport PPPs in the EU: Policy, Regulatory,

S
and Contractual Issues
According to Van Hooydonk (Chap. 8, this volume), in many ports controlled by the
European Union (EU), public port authorities routinely award terminal contracts to
private operators who make a substantial capital investment in port superstructure
such as terminal surface layout, handling equipment, and warehouses. This tradi-
tional collaboration can be considered a form of P3. Partnerships where the private
terminal operator also finances the port infrastructure, such as capital dredging,
quay walls or even breakwaters, and locks, are rare in the EU. There are several
reasons for this, including the strong role of the public sector in ports, the availabil-
ity of sufficient public funding sources, and the usually satisfactory functioning of
the classic combination of public infrastructure investment and private superstruc-
ture investment. Generally, setting up of P3s in EU ports does not seem to encounter
major legal obstacles deriving from either unions or national law. However, port
terminal contracts in the EU Member States take different forms. In the few cases of
private infrastructure investment, models are lacking, and there is often experimen-
tation, which entails risks. EU institutions have the potential for issuing a guidance
instrument that offers practical, legal, and financial advice and explains best prac-
tices on both classic and innovative P3s in ports.
Rails and Buses
As road congestion and environmental pollution become an increasing problem

worldwide, railways have become popular, especially high-speed and urban rail
(PwC, 2015). For example, London’s Crossrail is a £14.8 billion train line project
that will increase railway capacity in the capital by 10%. It is expected to carry up
to 72,000 passengers per hour at peak times. There is a great deal of pressure in
many countries, due to increases in urbanization, to find transport solutions. Some
approaches to achieving these objectives are discussed in the following paragraphs.
Sustainable Strategies for Mass Rapid Transit PPPs
According to Phang and Tan (Chap. 9, this volume), mass rapid transit (MRT) P3s
have proliferated in the past two decades. Since MRT systems are inherently large,
unprofitable, and risky projects, P3 design is critical to project success and sustain-
ability. The authors have explored the experiences of MRT P3s in London, Hong
Kong, Singapore, and Beijing in order to understand the factors underlying success
and failure and to arrive at policy recommendations for P3s. Hong Kong’s experi-
ence illustrates that the “Rail plus Property” strategy can facilitate synergies and
cross-subsidization of rail from land value capture. Policy makers need to have
8 S. Hakim et al.
additional governance improvement and risk mitigation measures in place when

tied supply chains are utilized. The authors conclude that appropriate mechanisms
for allocation of revenue risks are key to financial sustainability. They provide a
framework to categories and understand alternative PPP designs. According to
Phang and Tan (Chap. 9, this book), the government should own MRT systems, but
there are benefits of design-build-finance-operate-maintain-transfer PPPs for lines,
private financing of rolling stock, and private sector maintenance of assets and oper-
ation of train services.
The Las Vegas Monorail Bankruptcy Case
Bolaños and Gifford (Chap. 10, this volume) explore the Las Vegas Monorail bank-
ruptcy case. P3s have become popular for funding transit projects because they
allow the US state and local governments to access resources from and share risks
with the private sector. However, in order to attract private resources, the public sec-
tor must address rational inattention—a potential bankruptcy determinant. An anal-
ysis of the Las Vegas project suggests that the bankruptcy arose from stakeholder
inattention since (i) the project’s nonprofit corporation isolated project developers
from consequences and (ii) investors sought seemingly liquid and safe assets (the
project’s insured bonds) as the dotcom bubble burst. The findings suggest that pol-
icy makers should (1) conduct competitive procurements, (2) avoid nonprofit corpo-
rations for future PPPs, (3) perform ex ante stress tests to evaluate debt sustainability,
and (4) conduct analyses to evaluate the costs and benefits of P3 contract
renegotiations.
Public-Private Partnerships in Denver, CO
Brady et al. (Chap. 11, this volume) examine the expanding role of P3s in metro
transportation projects in the Unites States for funding and financing of transit and
highway infrastructure. They draw on research undertaken by the authors on the
recent use of P3s in the Denver Regional Transportation District’s (RTD) Fast
Tracks program. The Fast Tracks program was a 2004 voter-approved $4.7-billion
transit expansion program and the Colorado Department of Transportation (CDOT)
highway expansion. After a funding shortfalls, RTD partnered with several private
consortia to enable the Fast Tracks program to move forward. Therefore, P3s were
utilized in the building of the first commuter rail in Denver, a highway bus rapid
transit project and toll lanes, and refurbishing Denver Union Station, a multimodal
transportation hub. The authors discuss what the Denver experience tells us about
the success of P3s in the context of the US transportation infrastructure financing,
construction, and maintenance. The author found Denver’s P3 projects were rated
favorably by nearly all the surveyed respondents, representing a sample of key
regional stakeholders. The most important benefits of utilizing a P3 delivery model
were accelerated delivery of a project and appropriate allocation of risk. The main
shortcoming identified was that P3s can be complex and opaque, especially to the
general public. Overall, the Denver P3s can serve as a useful model for other transit
agencies seeking to expand their transit infrastructure, and the authors recommend
that agencies follow Denver’s P3 example. Investments in specialized legal and
financial expertise should be made to ensure the inclusion of appropriate safeguards
for project quality. To protect the public interest, agencies should fully integrate P3s
within existing structures of regional collaboration.
Governance of P3s: Lessons From the Italian Experience
Cohen (Chap. 12, this volume) examines the Italian P3 experience in transportation
projects. According to Cohen (Chap. 12, this volume), literature and practice tend to
view P3 as a static exercise by the public sector, often under budget constraints, to
foster infrastructure development by relying on the private sector for financing and
management expertise. However, very little attention is given to governance issues
within the P3 process: from the role of the public sector during and after contract
award in order to best use public funds to ensure proper project completion.
According to Cohen (this book), public authorities should take a dynamic attitude in
pursuing a P3 process. They should rely on more qualified public officials to encour-
age the most efficient participation of the private sector, while minimizing the pub-
lic sector financial exposure, as well as project costs. This would reduce asymmetric
information between the public and the private sectors and its implication for invest-
ment cost reduction, accelerated project delivery, and financing negotiations. The
author discusses a successful P3 case study, the Milan Metro line M4, and an unsuc-
cessful P3 process, the rail link between Terminals 1 and 2 of Milan Malpensa
International Airport.
evelopment of Urban Rail: A Case Study of the Gold Coast

D
Light Rail Project in Australia
Liu and Wilkinson (Chap. 13, this volume) examine the application of the design-
build-finance-operate (DBFO) model in the urban rail sector and examine its suit-
ability for urban rail transit projects. Strategies are recommended for the improved
use of DBFO models. Urban rail development plays an important role in fostering a
region’s social and economic development. P3s as innovative procurement method-
ologies have been used for urban rail projects around the globe. Among the various
P3 models, DBFO is a commonly used model for urban rail projects. However, it
remains unclear whether this model is suitable for urban rail development. The Gold
Coast Light Rail was selected as a case study to examine this concept. Document
analysis was used as the main data collection method. This research shows that the
use of P3 delivers good social and economic impacts, but the use of the DBFO model
10 S. Hakim et al.
exhibited both benefits and limitations. Results from the research suggests that in
order to better use the DBFO model, equitable risk allocation, flexible contract
design, and extensive community engagement and public consultation are required.
Results from this research provide a useful reference for the public sector on the
selection of procurement model for urban rail projects. The research also offers prac-
tical guidance on how to plan and structure a P3 project for urban rail development.
For-Hire Vehicles
One option of addressing the potential for the reduction of congestion in urban areas
is the use of for-hire vehicles. This concept and the potential for implementing the
P3 concept to achieve these goals will be discussed in the following paragraphs.
Query: How will for-hire vehicles reduce congestion?
The Case of Vehicles for Hire and P3
Cooper and Faber (Chap. 14, this volume) explore the use of P3s as applied to vehi-
cles for hire (VFH). The use of P3 for developing taxi and other vehicles for hire may
appear to differ from more common examples of the concept. Even in the public
transport arena, the taxi plays a distinct role in personal on demand transport that falls
outside the most common examples of P3. This should not detract, however, from the
role that the taxi mode can, and does, play considering revolutionary changes in the
market and shifts in regulation that have accompanied the arrival of transportation
network companies (TNCs). The historic evolution in transport partnerships, as
exemplified by the provision of social and specialist transport under contract to an
authority, has been replaced by a more revolutionary approach of shared risk and
private operator investment that would not follow from the basic operation of the taxi
service alone. Service innovation is also apparent, building on the booking systems
synonymous with new market entrants, significantly improving fleet efficiencies and
rebalancing the opportunities for P3s. New and updated examples where partnerships
are likely including education, health, and a range of transit supporting services; first
and last mile; and fill-in and replacement transport, to the extent that falls within
what, may be tolerated alongside or be subject to new regulatory control.
sing History to Develop Future Regulation of TNCs

U
and Autonomous Taxis
Mundy (Chap. 15, this volume) explores the need to develop regulations for trans-
portation network companies (TNCs). With the advent of ridesharing or transporta-
tion network companies, TNCs, as they are legally labeled by the State of California,
there have been considerable discussion, legislative actions, and lawsuits regarding
their operation without being subject to local taxi, sedan, limousine, or private-for-
hire regulations. Across almost every continent, Uber and Lyft, the two largest
TNCs, disregard some local city and airport rules and regulations established for all
commercial ground passenger transportation carriers and have been successful in
changing state laws that would permit them to use a more flexible business model.
TNCs successfully argued that they were not a transportation company, but rather a
technology company, so not subject to the commercial vehicle regulations.
As a result, fierce and expensive legal and legislative battles were fought bitterly
and expensively. However, as of 2020, most of these legal battles for operating
authority in North America have been settled in favor of greater flexibility of TNCs
to use personal automobiles and self-vetted drivers. Thus, regulations for TNCs or
ridesharing companies, as they are called in different states, are regulated primarily
at the state level with limited flexibility relegated to municipal or airport regula-
tions. These legal proceedings rarely address just why we have regulations for
commercial-for-hire vehicles and their drivers. An understanding of past attempts to
regulate commercial coach and taxi services at the local level and the state-wide
regulation of TNCs can assist us to determine what will be the appropriate level of
regulations to ultimately apply to TNCs and the emergence of autonomous taxis and
personal automobiles as they enter the marketplace in the coming decades.
Policy Issues and the Application of the P3 Process
The proper legislative, judicial, institutional, financial, fiduciary, and technical insti-
tutions should be in place for P3s to work. Laws that allow private participation to
occur and the necessity of establishing proper regulatory frameworks are discussed
in the following section.
istinguishing Between Demand Risk

D
and Availability-Payment P3
O’Toole (Chap. 16, this volume) explores the need to understand the differences
between demand risk and availability payments in P3s. According to O’Toole, popu-
lar accounts of public-private partnerships fail to distinguish between two very differ-
ent types of partnerships. In one, known as demand risk, the risk of cost overruns and
demand shortfalls is borne by the private party. This type of P3 has been successfully
used to build many roads and bridges in Europe and elsewhere at little or no cost to
taxpayers. In the other, known as availability payment, the risk is borne by the public.
In contrast with the demand risk P3, there is little evidence that the availability pay-
ment P3 saves taxpayers money or provides any useful benefits other than allowing
public agencies to sidestep legal debt limits. Public officials and members of the pub-
lic should take care not to confuse these two very different financial tools.
12 S. Hakim et al.
Public-Private Partnerships: A Policy Perspective
Hakim et al. (Chap. 17 this volume) describe, analyze, and suggest policy implica-
tions for Public-Private Partnerships (P3s) applied to airports, taxicabs, buses, rail,
and water ports. It provides the history of P3s, the advantages and disadvantages as
reflected in the worldwide case studies analyzed in the Handbook on Public Private
Partnerships in Transportation, Vol I: Airports, Water Ports, Rail, Buses, Taxis,
Finance. In general, P3s combine efforts and risk sharing of public and private enti-
ties where each provides its comparative advantage. An advantage of P3 is reducing
investments in “white elephants” requiring avoidance of availability payments.
Currently, governments, mostly for historical reasons, provide services that could
be privately provided where users fees are possible with low transaction costs attrib-
uted to recent technological innovations. Government could shift most transporta-
tion services from a monopolistic provider to a small number of experts that oversee
the contracts of P3s in the public interest. Noteworthy, transportation services are
interrelated. For example, P3s in rail would increase available resources, improve
services to distant airports, thereby decrease current regional airport monopolies,
and raise competition among them. Similarly, autonomous vehicles could reduce
rail, bus, and taxicab monopolies, leading to greater competition among them and
productivity gains.
Summary and Conclusions
Infrastructure investment in transportation systems is critically important to the

proper functioning of national economic activity. However, the lack of financial
resources is an important constraint. A public-private partnership which is a con-
tractual arrangement formed between public and private sector partners might be a
solution. Under such arrangements, an agency may retain ownership of the public
facility or system, but the private party generally invests its own capital to design
and develop the properties. Public-private partnerships can help fill the void between
typical annual government accounting and capital budgeting. P3s include both
existing facilities and new-capacity facilities, and a commonality among the differ-
ent types of P3s is the need for a dedicated revenue stream.
The goal of this book is to discuss the potential for the use of P3s to encouraging
major infrastructure investment in airports, water ports, rail, buses, and taxis.
Clearly, there is great potential for P3s to help achieve this goal. Hopefully, the
information presented in this book will assist decision makers in making these
important decisions.
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private-sector-participation/national-council-public-private
Evaluating the Viability of the Ghan
Airport Cargo Centre as a Public-Private
Partnership Project
Isaac K. Arthur, Ernest Agyemang, and Ebenezer G. A. Nikoi
Abstract This chapter evaluates the viability of Ghana Airport Cargo Centre as a
public-private partnership project and discusses its implications using desk reviews,
interviews, air cargo data, and the strengths, weaknesses, opportunities, and threats
analytical tool. The study found that safety and security, development of a state-of-
the-art cargo terminal, competitiveness, and local expertise and technology transfer
were key strengths of the partnership. Relatively low cargo volumes were found to
be a weakness. Peace, democracy, and economic stability were also found to be
opportunities, while potential political interference, the COVID-19 pandemic, and
competition within the West African subregion were found to be threats of the part-
nership. The study concluded that the current partnership arrangement, whereby
private equity is substantially high, and the government simply concentrates on pro-
viding the “enabling environment” and minimal investment, is a good venture that
must be encouraged in Africa.
Keywords Public-private partnership · Joint venture · Ghana Airport Cargo

Centre · Strengths weaknesses opportunities and threats analytical tool · Viability
Abbreviations
AFGO African Group Operations

AGL Air Ghana Limited
ECOWAS Economic Community of West African States
GACC Ghana Airport Cargo Centre
GACL Ghana Airport Company Limited
ICAO International Civil Aviation Organization
KIA Kotoka International Airport
I. K. Arthur (*) · E. Agyemang · E. G. A. Nikoi

Department of Geography and Resource Development, University of Ghana, Legon,
Legon, Accra, Ghana
e-mail: ikarthur@ug.edu.gh; eagyeman@ug.edu.gh; enikoi@ug.edu.gh

https://doi.org/10.1007/978-3-030-83484-5_2
16 I. K. Arthur et al.
LED Light-emitting diode

NEBOSH National Examination Board in Occupational Safety and Health
PPP Public-private partnership
SARPS Standards and Recommended Practices
SWOT Strengths, Weaknesses, Opportunities, and Threats
TSA Transportation Security Agency
Introduction
Public-private partnership (PPP) is defined as a “contractual arrangement between a

public entity and a private sector party with a clear arrangement on shared objec-
tives for the provision of public infrastructure and the services traditionally pro-
vided by the public sector” (GoG, 2011, p. 2). In recent decades, the PPP model has
been widely accepted as a significant and efficient approach to procure public works
with less public financial input and more private participation (Liang & Wang,
2019). PPP projects have been implemented in many African countries, including
the Platinum Highway in South Africa, Lekki Expressway in Nigeria, and Rift
Valley Railways in Kenya-Uganda (Gutman et al., 2015.) Yescombe (2017: 3)
argues that “despite the projects’ varied sectors and geographical locations, there is
much in common in the policy issues that occur in them.”
A plethora of literature identifies various types of PPPs depending on the extent
of involvement and risk taken by the private party (World Bank, 2016; Grimsey &
Lewis, 2004). In Ghana and many African countries, joint ventures are a common
type of PPP arrangement and forms the basis for our empirical analysis (Oguji et al.,
2018). According to Grimsey and Lewis (2004, p. 3), joint ventures occur “when the
private1 and public sectors jointly finance, own, and operate a facility.” They are also
formed for purposes such as sharing profits between partners or remunerating each
party for specific services provided. Such partnerships become necessary when the
contracting authority may be required to have an equity stake in a project company,
where shares in a government enterprise are divested to the private sector or a new
holding company is established with a joint ownership structure (World Bank,
2016). Joint ventures involve legal agreements between the partners to work within
a stipulated time frame, sharing risks and rewards (Norsyakilah et al., 2016), and the
delegation of construction and operation and maintenance to the private sector party
operator through subcontracts (World Bank, 2016.) The government usually serve
as regulator under the venture, safeguarding public needs and interests (Bennett
et al., 2000). In Ghana’s PPP policy framework, the public sets up guiding princi-
ples including value for money; risk allocation, which incorporates the protection of
society’s interest; ability to pay for services rendered by the end user; and local
content and technology transfer (GoG, 2011).
1
The private sector could be foreign or local and in some cases a combination of both.
Evaluating the Viability of the Ghan Airport Cargo Centre as a Public-Private… 17
The exchange of technology and asset sharing between the parties can encourage
innovations and boost competitiveness, leading to the financial viability of investments.
However, “PPP arrangements are not entirely perfect and mostly face challenges”
(Alidu, 2018, p. 15), which can threaten their viability and even worse, result in the
termination of contracts. Challenges that threaten the viability of joint ventures include
disputes and the dissatisfaction between partners (Norsyakilah et al., 2016; Atkins,
2014), politics, and lack of knowledge and negotiation skills (Alidu, 2018). Economic
challenges emanating from internal and external factors are also key to undermining
the viability of joint ventures. The external factors may include taxes imposed on the
venture, unstable currency exchange rates, legal conditions, and labor market legisla-
tions, while the internal factors include an ambiguous agreement to distinct joint ven-
ture equity, amendments of business strategy in the middle of the joint venture, uncertain
profit loss shared in the contract, and ineffective risk mitigation plan (Norsyakilah
et al., 2016). Despite the challenges associated with joint ventures, the government of
Ghana recognizes its significance as the nation will need at least $1.5 billion annually
until 2030 to address its infrastructure and service deficits (GoG, 2011).
Ghana’s aviation is a critical sector that requires infrastructure expansion to make
it globally competitive. Consequently, recent projects such as the Accra Airport City
project (Arthur, 2018), Terminal 3, and Ghana Airport Cargo Centre (GACC) of
Kotoka International Airport (KIA) and are noteworthy examples. These projects
have been provided with the aim of harnessing economic growth through interconti-
nental and intracontinental trade integration and promoting investments and employ-
ment opportunities for Ghanaians (Jedwab & Moradi, 2011). Ghana is also seeking
to prove itself as an aviation hub within the West African subregion and a preferred
option for travelers and air freight transport activities (GoG, 2008). To achieve this
goal, the government seeks to create the appropriate environment for the private sec-
tor to participate in the infrastructure of the aviation sector (Ministry of Aviation, 2018).
Since the completion of the GACC project in 2016, there has been little attempt
to evaluate the project’s performance and to assess its viability. Earlier studies on
transport and development have focused more on mobility and travel behavior,
especially on motorized transport (e.g., Acheampong & Siiba, 2020; Agyemang,
2020; Aidoo et al., 2013; Abane, 2011). The literature is now focusing attention on
transport infrastructure financing. For example, Oppong-Peprah et al. (2016) have
examined the challenges associated with financing transport infrastructure via PPPs
in Ghana and proposed some remedies. However, the focus appears to be generic
and not focused on specific transport infrastructure projects such as an air cargo
center. Other works have similar gaps as they only identified obstacles to the suc-
cessful delivery of PPP projects in Ghana (Osei-Kyei & Chan, 2017).
The purpose of this chapter is to evaluate the viability of the GACC as a case
study to understand the implications for PPP projects in Ghana and by extension
other emerging economies that share similar characteristics. In the context of this
paper, the concept “viability” includes security, innovativeness, competitive advan-
tage, local content, and technology transfer (GoG, 2011). The chapter is organized
as follows: First, we describe the nature of GACC’s PPP and the survey conducted.
Second, the costs and benefits accruing to partners in the project are discussed. This
will be followed by the presentations of our major findings and policy implications
for Ghana and West African nations.
he Nature of Public-Private Partnership in the Ghana

T
Airport Cargo Centre Project and the Survey Conducted
The construction of the GACC Project began in 2014 and was completed in 2016.
The facility occupies about 20,000 m2 of space, comprising 10,000 m2 of warehouse
capacity with fully automated cargo handling systems, and 10,000 m2 of modern
office space. With this volume of warehouse space, the KIA now has the capacity to
handle annually 70,000–100,000 tons of cargo, compared to the previous 50,000 tons
capacity (Boadu & Boateng, 2016). The cargo terminal was transformed into a
state-of-the-art facility to speed up cargo clearance. Aviance Ghana Limited, for-
merly African Group Operations (AFGO) Limited, which had handled air cargo
since 1994, lacked modern facilities and equipment to deal with the growing vol-
ume of air cargo in Ghana.
To address these challenges, the $50 million GACC project was established in
2012. As the first joint venture PPP of its kind in Ghana’s aviation industry, the
project is a partnership between Ghana Airport Company Limited (GACL), which
is a state-owned agency, and Air Ghana Limited (AGL), a privately owned Ghanaian
air cargo and logistics company established in 1993. The GACL is mandated to
plan, develop, manage, and maintain all airports2 in Ghana in accordance with the
best international practices (GACL, 2016). Although there is some suggestion that
the GACL could have entirely financed the project because of its long experience
and financial capacity, the prevailing aviation management trend across the globe is
such that government-employed airport managers are less inclined to engage in
huge infrastructure investments (Arthur, 2018). In this PPP, the GACL provided
18% equity in the form of a 4.5-acre land space. The AGL, on the other hand, con-
tributed 82% equity to build the center (Boadu & Boateng, 2016; Air Cargo News,
2016). The center is managed by the GACC board which is made up of representa-
tions from GACL and members of the board of AGL, based on the shareholding
structure that established GACC. This partnership is expected to last 25 years, sub-
ject to renewal. However, it is unclear what detailed arrangements exist beyond the
expiration of the current partnership. It is our expectation that, all things being
equal, the AGL will continue to keep its assets and renegotiate with GACL in the
future. Since 2015, the GACC has contracted, at an undisclosed amount, Swissport
Ghana Limited to facilitate its day-to-day operations. Specifically, Swissport Ghana
Limited offers cargo warehousing and ramp handling services at the GACC ware-
house (Air Cargo News, 2015).
To evaluate the viability of this multimillion-dollar investment, we combined a
desktop review on PPP, analysis of relevant administrative data, and in-depth key
informant interviews. The informants were purposively selected due to their depth
of knowledge of the PPP arrangement that went into the GACC. The desk review of
relevant documents on PPPs in general, and particularly in Ghana, enabled the
2
In Ghana, all airports are owned by the state.
development of an in-depth interview protocol that was used to elicit information

from the key informants.
We personally carried out in-depth interviews involving three key informants
drawn from GACL, Swissport Ghana Limited, and AGL. Interviews were flexible
and focused on the background of the PPP, key players, strengths, weaknesses,
opportunities, and threats to the project. Although one informant declined to be
recorded, citing the sensitive nature of their operations, others granted permission
for the interview to be electronically recorded. These interviews lasted between 40
and 60 min. Brochures, fliers, and available data on cargo volumes, as well as infor-
mation on the websites of the organizations involved in the partnership, were also
obtained and utilized. The strengths, weaknesses, opportunities, and threats (SWOT)
analysis tool was used to assess the joint venture arrangement. The SWOT analyti-
cal tool has been variously used in investor decision-making, at the personal and
organizational levels, and is widely accepted by researchers in various fields of
study (Agyekum et al., 2020). Despite limitations that include an inability to proffer
alternative solutions or decisions and prioritize issues, several strengths of the
SWOT analysis tool, including ease of use and the ability to help researchers focus
on the critical factors for smooth implementation, make it appealing for this study.
The study was sensitive to the vulnerabilities of the key informants given the
nature of the PPP arrangement. It was particularly deemed necessary to protect the
identity of key informants and the organizations where they were employed. In all
cases, ethical issues were strictly observed regarding informed consent and guaran-
tees of anonymity and confidentiality. Also, each interview began with an explana-
tion of the purpose of the study and request for permission to electronically record
the discussions. To protect the identity of the key informants due to their expressed
request for anonymity, the discussions in the results section used pseudonyms and,
in many cases, left out the position of the key informant.
Costs and Benefits Accruing to Each Partner
Beyond the land contribution for the infrastructure, there was no hard-financial
investment on the part of GACL for the 18% representation in the GACC project.
AGL on the other hand financed the total cost of the building while drawing support
from the Finnish Fund for Industrial Development Limited, and Access Bank Ghana
Limited (“Finnish Fund for Industrial Development Limited (FINNFUND)”, 2015).
Much of the direct benefits to the investing parties remain outside of the public
domain. However, in exchange for the capital injection, it is reasonable to expect
that AGL will recoup its investment and possibly make profits in the concession
period. Rents accruing from several prominent cargo and logistics companies and
other service providers who occupy offices at the cargo center are paid to AGL. In
addition, AGL obtains 82% of all profits and liabilities of the joint venture. Besides,
there is a high possibility of AGL getting a renewal of the contract when the current
concession ends. On their part, GACL maintains 18% of profits and liabilities as
well as 15% rent from AGL for using the land.
In other ventures, Swissport Ghana pays 15% royalty on the income generated to
GACC and enjoys a monopoly on cargo warehousing and ramp services at the cen-
ter for several large carriers including Cargolux, SN Brussels, DHL, Turkish Airlines
and KLM Cargolux, KLM, Air France, DHL, and Qatar Airways.
Findings and Policy Implications
This section presents a SWOT analysis on factors considered in this study. The
framework for the evaluation is shown in Table 1 which will be discussed in detail
in the subsequent sections.
Strength Analysis
Safety and Security
Following the terrorists’ attacks in the United States on September 11, 2001, and
similar events in other parts of the world, airport authorities have been compelled to
invest extensively in safety and security (Enoma et al., 2009; Arthur, 2018). In
Ghana, high safety and security procedures informed by both local and international
standards at the KIA are recognized as major factors enabling the smooth and swift
operations of the GACC. According to key informant 1:
“Every airport has safety and security as their main and major focus and does well on that
because these are the two key things that will make anyone across the globe want to do
business with you.”
Pointing to security challenges in the Economic Community of West African States

(ECOWAS) and Ghana’s geographical advantage, key informant 1 further noted:
“In Nigeria, there is Boko Haram. So, because of this, a lot of people would like to do busi-
ness with us. You know, Ghana is also the centre of the world so it’s part of our attraction,
who then would not want to work with the centre, close to the equator.”
Table 1 SWOT analysis on the viability of GACC

Strengths Weaknesses Opportunities Threats
Safety and security Relative low cargo Peace Political interference
State of the art cargo volumes Democracy Potential competition within
terminal Lack of full utilization Economic the West African subregion
Competitiveness of office space stability COVID-19 pandemic
Local content
Technology transfer
Source: Authors’ construct (2020)
The above suggests that the GACC’s ability to attract clients to guarantee its suste-
nance depends on the available safety and security measures installed to protect
cargo, airlines, and human lives. Since airport safety requires a coordinated effort
among the interest groups and the government (Enoma et al., 2009), Swissport
Ghana provides trained security personnel at the cargo center to complement the
government’s security arrangement. As part of enhancing security at the airport,
GACL introduced pre-departure screening among other measures at the International
Departure Terminal at KIA and an extensive security audit of all facets of security
by the Transportation Security Agency (TSA) certified by KIA as compliant with
established security measures and procedures (GACL, 2016 Annual Report and
Financial Statements). Furthermore, and in compliance with GCAA and International
Civil Aviation Organization (ICAO) regulations, GACL successfully executed a
full-scale simulation of an emergency at the end of Runway 21 dubbed “Abronoma”
in 2016 (GACL, 2016, Annual Report and Financial Statements).
Indeed, the government’s commitment to aviation safety and security is captured
in two awards it received in 2019 from the ICAO at the 40th Triennial Assembly of
the United Nations Aviation Agency in Montreal, Canada. For security, the award
acknowledged Ghana’s progress in resolving aviation security and oversight defi-
ciencies and the country’s commitment to the effective implementation of its
Standards and Recommended Practices (SARPS). For the safety award, it was about
Ghana’s efforts made in 2018 toward the resolution of safety oversight deficiencies
and improvement in the effective implementation of related ICAO SARPs (Ghana
Civil Aviation Authority, 2019). However, it is important to note that efforts by non-
state security agencies operating within the airport and its environs cannot be over-
looked. It remains unclear the role of GACC toward these international security and
safety recognition, but one can certainly argue that the PPP benefits from the safe
and secured environment created by the state.
State-of-the-Art Cargo Terminal
According to El-Houry (2018), most African countries are noted for outdated air-
port infrastructure which is not able to serve the growing volume of passengers or
cargo. Undoubtedly, such countries lack competitiveness in the aviation market.
The establishment of GACC seems to have overcome this challenge in cargo han-
dling with the construction of a modern state-of-the-art cargo terminal equipped to
meet International Security directives. The high standards of operations aided by
the most modern equipment in at least West Africa is a source of attraction to
GACC’s clients which are mostly airlines from rich countries in Europe and
America. As key informant 3 puts it:
“… It is still the most modern. So that is what still attracts a lot of people ….For instance,
the waiting time is unbelievable, very short, so once the cargo planes are here, offloading
and reloading is very much easier … and even when you are in to clear your goods, the
waiting time is unbelievably short compared to other places …”
The sophisticated nature of the facility demonstrates GACC’s strength over other
cargo handling companies operating at the KIA and many air cargoes centers within
the West African subregion. It is therefore not surprising that air freight in KIA
improved marginally from 47,748.29 tons in 2016 to 52,464.39 tons in 2018.
Competitiveness
Although GACC was commissioned for full-fledged operations in 2016, in just

2 years, it has become a market leader in Ghana handling 47% of the cargo at the
KIA. This is intriguing because its local competitors such as Aviance and AHS
Menzies that have been in operation for over 20 years at KIA have not performed
that well. The company’s current performance resonates with a feasibility study
conducted between 2013 and 2014, which suggested that the project will be viable.
This is further confirmed in the views of key informer 3 that the current perfor-
mance of GACC indicates that the PPP arrangement between GACL and its private
partners is a viable venture and expected to perform better over time.
AGL contributes significantly to GACC’s competitive advantage as it uses its
position as the only cargo handling company in Ghana owning aircraft to source
more cargo volumes for handling through the GACC. This gives GACC an edge
over local competitors as key informant 3 indicated:
“… We have another [Boeing] 757 which is flying from Brussels to Accra, and then we use
our aircrafts to redistribute the cargo and other logistics to the subregion, i.e., to Nigeria and
Cote d’Ivoire. All other places are mostly by cargo trucks …”
Augmenting the attractiveness of the cargo terminal are representative office spaces
equipped with air conditioning, panoramic lifts, energy-saving light-emitting diode
(LED) lighting, on-site banking facilities, full high-speed fiber Internet, solar water
heaters, and an in-house water filtration plant (Air Cargo News, 2016). In our
assessment, the environmental quality attributes of the offices and accompanying
cost-saving benefits appeal to environmentally conscious tenants. Indeed, these
qualities and the offices’ proximity to the airport have made them more appealing to
airport ancillary services providers as well as the Customs and Immigration ser-
vices. As key informant 3 puts it:
“You are better placed being in the building than to be elsewhere, which is possibly a bit far
from the airport … The building itself is actually modern. For instance, the building is fully
LED and if you are in the building, you are paying the lowest utility by way of electricity
per square metre. You cannot find that anywhere within even Accra and with electricity
Accra pays the highest rate and we are the lowest … If you are in the building for instance
you do not pay for water and the building is designed such that you can have the smallest
office space as possible, nobody else offers 30 square metres of space.”
Fundamentally, the offices provide rents to complement revenues from the cargo
section, which we consider important toward the viability of the investment.
Local Content and Technology Transfer
A key guiding principle of Ghana’s PPP policy framework is the consideration of

local involvement—all viable PPP arrangements are expected to have Ghanaian col-
laborators. In the interviews, it was found that this expectation has been met in the
GACC project, as seen in the comment below:
We entered into a 7-year partnership arrangement with a local partner, the Ghana Airport
Cargo Centre … GACC has the [Air carrier] licence to operate the cargo centre but lacks
adequate resources. That is where we come in to assist [as a special purpose vehicle] with
the technical know-how to develop a cargo centre. (Key informant 2)
Another important requirement of the PPP policy framework is that the special pur-
pose vehicle should make it possible for local employees to acquire on-the-job skills
and competencies. The objective is to strengthen the capacity of locals to manage
the infrastructure in the future. It was revealed that GACC has put in adequate mea-
sures to train and enhance the capacity of local Ghanaian staff through an upgrade
of the trainers’ program, as illustrated in the comment below:
Our resolve to stay and operate in Ghana in the long term is reinforced by constant improve-
ment of local capacity and technology transfers. We have employed 88 staff ….We put them
through rigorous training and tooling. Quite recently, we took some Ghanaian staff of ours
through the National Examination Board in Occupational Safety and Health (NEBOSH)
certification programme in Health, Safety and Environmental risk management for profes-
sionals. The idea is to transfer the knowledge gained to train other staff when we set up our
Academy next year. (Key informant 2)
Meeting the requirements for local content and technological transfer in the GACC
project as prescribed in the PPP policy framework provides a positive sign of viabil-
ity. Specifically, their absence could result in local resentments and agitations as
exemplified by conflicts in mineral-rich communities in Africa (Alao, 2007; Brown
& Keating, 2015).
Weakness
Relative Cargo Volumes
West Africa is marked by the demise of several regional airlines including Ghana
Airways (Bofinger, 2009), making it one of the aviation corridors that attracts low
air transport volumes in Africa (Bofinger, 2018). This phenomenon is felt in Ghana,
where air transport volumes are small compared to countries such as Kenya, South
Africa, and Ethiopia. According to key informant 1, among the aims of setting up
the GACC was to attract airline traffic and businesses. Indeed, the construction of
Terminal 3 at KIA was to serve that purpose as it is expected to receive 5 million
passengers annually (Arthur, 2018). In addition to passenger flows, there were
expectations of high volumes of accompanying freight, which would be handled by
the GACC. Although Ghana’s aviation industry has seen a remarkable growth in
recent years, exemplified by increase in airfreight movement by 5.9% (African

Aerospace, 2020), GACC as the leading cargo handler in the country is unable to
attract more aircraft volumes as expected.
The challenge of inadequate airline traffic and accompanying cargo suggests that
the investment is not operating at its optimum capacity despite the sophisticated
nature of the equipment installed at GACC which is expected to handle over
70,000 tons of cargo per annum. This confirms the claim that infrastructure capacity
is not generally a problem in sub-Saharan Africa (Foster & Briceno-Garmendia,
2010). As key informant 1:
“There is too much capacity, because currently, we are doing about two million passengers
every year, but our capacity is five million, and about 52,000 tons of cargo, but it can be
double.”
GACC currently handles the majority of air cargoes at KIA. However, the inability
to attract more inflows of aircrafts raises much concern about the viability of the
investment in GACC. This remains to be seen particularly in the long term where
the company may have to compete with potentially greater number of local and
international air cargo handlers. This situation is coupled with the company’s inabil-
ity to attract more clients to fill up all its office spaces. According to key informant
3, total occupancy in the building was close to 68% prior to the emergence of the
COVID-19 pandemic, which has negatively affected businesses including their ten-
ants. Although GACC considers itself as doing better in attracting tenants, we
observed that empty office spaces constitute a substantial loss of revenue. In our
view, this calls for some ingenious marketing strategy to improve occupancy and
contribute to advancing the viability of the company’s investment.
Opportunities
Peace, Democracy, and Economic Stability
Political instability has been a bane of many African countries since the 1950s. In
recent years, terrorist attacks have occurred in the West African countries of Burkina
Faso, Nigeria, Mali, and the East African countries of Kenya, Tanzania, and Somalia.
These unfortunate events directly or indirectly affect socioeconomic development
of affected countries, particularly in attracting business and foreign investments
(Dalyop, 2019). It is therefore suggesting that Ghana’s higher levels of peace and
democratic credentials provide a significant opportunity for the sustenance and
financial viability of GACC. This is reiterated in the view of key informant 1:
“Several factors make Ghana attractive for business, including the country’s security, which
is key. Ghana has enjoyed a peaceful and stable democracy, and unlike several African
countries has not experienced any major political upheavals in recent times.”
Key informant 1 underscores further that the GACC has an enormous opportunity
to thrive against the backdrop of terrorism threats in neighboring countries such as
Nigeria (Boko Haram) and Burkina Faso (al-Qaeda and ISIL (ISIS) groups). In
other words, Ghana would become a preferred location for businesses relative to
conflict countries in the region. Furthermore, the major factors underpinning the
participation of private actors in the establishment and operations of GACC include
Ghana’s stable economy and the ease of banking and managing risk. The state of
Ghana’s economy reveals a continuous expansion and favorable trade conditions of
the nation’s three main export commodities—oil, gold, and cocoa—resulting in a
trade surplus of 2.8% of GDP (World Bank, 2019). The continuous
improvements of the Ghanaian economy in the light of increases in exports and
imports for productive business ventures will provide a better opportunity for the
success of GACC in both short and long terms.
Threats
Political Interference
The continuity of PPP projects can be susceptible to changing political situations

(Ayee & Crook, 2003; Alidu, 2018), since individuals and private companies that
are awarded PPP projects could have their licenses not renewed or contracts termi-
nated in the event of a change in government. Terminated contracts are sometimes
justified under the guise of ensuring transparency and value for money (Asare &
Frimpong, 2013). In 2019, for example, on the instruction of the President of Ghana,
a concession agreement with Power Distribution Services (PDS), was dissolved
after the government discovered breaches of PDS’s obligation in the provision of
Payment Securities (Africa Energy Portal, 2019). Although GACC has performed
well in the delivery of cargo handling so far, following the above argument on politi-
cal interference, one could speculate that the future of private actors in the GACC
project may not be guaranteed as it is underpinned by the decision of a ruling politi-
cal party.
COVID-19 Pandemic
Conventional wisdom suggests that the global aviation industry has been affected
severely by the COVID-19 pandemic. In Ghana, it has a major impact on the air
cargo business in the country (Tamakloe, 2020). This is captured aptly in a state-
ment made by the Country Manager for Swissport Ghana:
We are estimating at this point a 20–25 per cent decline in our import volumes following the
travel restriction3. We are yet to calculate the actual figures on the revenue side. But it is
3
In reference to travel restrictions on commercial flights imposed by the Government of Ghana as
part of its effort to control the spread of the COVID-19 in Ghana.
substantial, but we are managing the situation and we need to run operations, because we
need the cargo to come in because …” (cf. Tamakloe, 2020)
Given Swissport Ghana’s partnership with GACC, it is evident that declines in

import freight volumes are affecting GACC, raising concerns about its future as the
pandemic prolongs. Currently, GACC is fortunate to be handling high volumes of
imported medical supplies to support the nation’s health sector including combating
the COVID-19 pandemic. We consider revenues from this operation as key in the
face of a global crisis, yet the question is to what end? What about other in and out
cargo flows that are on hold because of the COVID-19 pandemic? GACC is also
facing the challenge of maintaining tenants due to the pandemic. As key informant
3 puts it:
… some tenants have been hardly hit by the pandemic and wanting to exit because possibly
the rental charges are high. Just this morning I had to be in a meeting where a very big client
or customer of ours is wanting to leave so, we had to renegotiate that, do some rebate here
and there for them. So, for the pandemic, yes, it’s really hitting hard as the day goes by
because most of the clients are hit by the pandemic and are asking for rebate here and there
and if you’re not flexible they leave the building …
The above situation again raises concern about revenue generation for GACC and to
some extent, its sustenance in the future. To what extent can the company continue
to be flexible and rebate tenants’ rents at its expense? This implies that until the
impacts of COVID-19 on the global aviation sector is minimized, the pandemic’s
threat to GACC’s viability will continue unabated.
Local and Potential Competition Within the West African Subregion
Accra’s urban morphology is changing due to increasing constructions of ultra-

modern buildings in the city (Yeboah et al., 2020). According to key informant 3,
many of these buildings, particularly those within the vicinity of KIA, are a major
threat to GACC as they compete for tenants. Ghana has since its independence
served as an example for economic growth and social transformation in sub-Saharan
Africa. It therefore stands to reason that with the establishment of GACC, many
countries in the subregion will emulate and eventually compete with GACC for
cargo. This may require continuous innovation and investment to stay ahead of the
competition.
Policy Implications
In terms of policy implications arriving from the above findings, a key tenet of
Ghana’s PPP policy is the provision of an enabling environment by the government.
With respect to the GACC project, this enabling environment lies in the arena of
safety and security, innovativeness, competitiveness, and local content and technol-
ogy transfer. For instance, by virtue of its geographical location within the KIA
security zone, GACC enjoys the security and safety procedures generally provided
at the airport. This includes the presence of the police, national security, and mili-
tary personnel who are stationed there by the state. GACC complements this secu-
rity arrangement through the hiring and training of its internal security officers, as
well as the installation of security devices. This cost-saving benefits security alone
directly and indirectly affects the operations and viability of GACC.
With respect to future PPP ventures in Ghana and other West African countries
which share similarities with Ghana, the implications are manifold. First, our find-
ing of safety and security as a key ingredient for the viability of GACC demon-
strates the critical need to relook the existing government of Ghana PPP policy
framework. We propose a clearer articulation of safety and security issues in the
existing framework to harness the viability of future PPP projects. For instance, the
innovativeness of the company, as seen in the installation of modern equipment, has
impacted positively on the ability to attract more clients in the first three years of
operation. This confirms the conventional wisdom that innovation is essential to a
company’s success and survival on the market. Compliance with the local content
and technology transfer provision secures the long-term viability within the legal
framework of the national policy on PPP (GoG, 2011).
Second, the main weakness, which requires the attention of both policy makers
and investors, is the reduced capacity to attract more airlines into the country.
Ghana’s national air carrier needs to be revitalized. In addition, the macroeconomic
structure of the country needs to improve. Thus, as Ghana’s economy continues to
witness steady growth through the intensification of industrial and export-led activi-
ties, GACC’s operations will expand correspondingly. In the same vein, GACC is
expected to continue to strengthen its capacity to attract more cargo airlines through
aggressive marketing and visibility.
Third, as has been amply demonstrated in our study, the long-term viability of
the air cargo handling sector in West Africa generally is premised on the continuous
maintenance of law and order and empowered democracies in the subregion.
Ghana’s relative peace and democratic credentials in the past three decades coupled
with its positive economic performance makes it an attractive destination for busi-
nesses and investments, which could impact the performance of GACC over time.
Thus, it is imperative for West African countries to ensure peace and stability to
attract more PPPs. Efforts at reducing regional and local conflicts must be intensified.
Notwithstanding the goodwill AGL presently has with the Ghanaian govern-
ment, there is always some apprehension of investors with respect to changes in the
political administration of the country. A new government in power, for instance,
may review and revoke the operating license of the existing operators. Thus, the
PPP policy must be framed to respect the sanctity of existing contracts.
Despite the usefulness in exploring the viability of the GACC project through
SWOT analysis, it has a limitation of boxing the analysis in the sense that some
points could overlap into others. For example, the security threats in Ghana’s neigh-
boring countries have become an opportunity for GACC as some cargo meant for
these conflict areas are routed through Ghana. However, as these conflicts intensify,
Ghana could experience a spillover effect as cargo inflows will decline. Another
limitation to our study was the lack of some critical data to help fine-tune the analy-
sis. Furthermore, the study could have benefitted from end user inputs including
members of the Ghana Freight Forwarders Association with respect to issues of
affordability which is one of the cardinal guiding principles of the governments’
PPP policy framework. The study focused attention on a case study that represents
what may be considered as a success story in Ghana. Going forward, it will be inter-
esting to take a closer look into other PPP arrangements which suffered setbacks to
draw useful policy implications. We are also of the opinion that the current GACC
PPP arrangement, whereby private equity is substantially high, and government
simply concentrates on providing the “enabling environment” and minimal invest-
ment, is a good venture that must be encouraged in Africa.
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The Role of Individual Actors
in Public-Private Partnership (PPP)
Projects: Insights From Madinah Airport
in Saudi Arabia
Mhamed Biygautane
Abstract The existing literature on infrastructure public-private partnership (PPP)

has overstated the mechanistic requirements of PPP projects, the exogenous and
isomorphic (i.e., coercive, mimetic, and normative) pressures that lead governments
to adopt PPPs, and the importance of PPP-enabling organizational fields. This lit-
erature, however, has overlooked the role of individual actors in shaping and affect-
ing the initiation and implementation of PPPs. This chapter addresses this gap in the
literature and presents an empirical analysis of the expansion of Madinah Airport
via the PPP route in Saudi Arabia. In the face of an unwieldy institutional environ-
ment that lacked the prerequisites considered critical by existing PPP literature, the
airport’s success through PPP represents an unusual outcome. The chapter argues
that, when committed institutional entrepreneurs are supported by sufficient politi-
cal power, they can overcome broader barriers that have traditionally hampered the
uptake of PPPs in developing countries. These results accentuate the impact of indi-
vidual actors in the implementation of PPP contracts.
Keywords Public-private partnerships · Critical success factors · Individual actors

· Institutional entrepreneurship · Saudi Arabia
Abbreviations
BTO Build-transfer-operate
CSF Critical success factors
EBITDA Earnings before interest, tax, depreciation, and amortization
EPC Engineering, procurement, and construction
GACA General Authority for Civil Aviation
M. Biygautane (*)
School of Social and Political Sciences, The University of Melbourne, Parkville, VIC,
Australia
e-mail: Mhamed.Biygautane@unimelb.edu.au

https://doi.org/10.1007/978-3-030-83484-5_3
32 M. Biygautane
GTPL Government Tendering and Procurement Law

IFC International Financial Corporation
MoF Ministry of Finance
MTRs Minimum Technical Requirements
PPP Public-private partnerships
TAV Tepe Akfen Vie
Introduction
Despite the rapid surge in the scholarly PPP literature since the early 1990s (Hakim
et al., 1996a, 1996b; Hakim & Blackstone, 2009; Warsen et al., 2019), we still know
much less about how the institutional environment surrounding PPP projects affects
their outcomes (Jooste et al., 2011; Matos-Castaño et al., 2014). Exploring how
institutional environments influence the implementation of PPP projects is a timely
endeavor. It can potentially broaden the analytical scope of the PPP literature and
shift its focus from the project and policy levels into a more fruitful examination of
how institutional dynamics operating at the individual, organizational, and societal
levels either lubricate or encumber the initiation and implementation process of PPP
projects. For the purposes of this chapter, PPPs are defined as “cooperative ventures
between governments and private entities to develop or improve public-purpose
infrastructure” (Payson & Steckler, 1991, p. 33). PPPs involve “project initiation
and planning, design, financing, construction, ownership, operation, and revenue
collection” (Hakim et al., 1996b; Payson & Steckler, 1991, p. 33).
This research aims to shift focus from the “mechanistic” view of using critical
success factors (CSFs) as the sole requirements for the successful implementation
of PPPs, and proposes the integration of more recent developments in neo-
institutional theory. Such shift that can potentially provide opportunities to scruti-
nize the multidimensional approach through which actors interact with their
institutional environments (Sheppard & Beck, 2016; Verhoest et al., 2015). This
approach is particularly useful because it portrays individual and organizational
actors not only as helpless pawns whose choice to implement PPPs are imposed
upon them by external forces operating within their institutional environment
(Oliver, 1991). But rather, they are reflexive, intelligent, and capable actors
(Lawrence et al., 2009a, 2009b) who affect their institutional environment either by
disrupting and changing (Lawrence & Suddaby, 2006) an existing form of project
organizing (such as engineering, procurement, and construction—EPC) and replac-
ing it with a new form such as PPP. Individuals who strive to implement PPPs in an
institutional environment where they are not the institutionalized form of project
delivery are labeled as institutional entrepreneurs (Battilana, 2006; Battilana &
D’Aunno, 2009). Ultimately, this chapter seeks to answer the following central
research question: How do institutional entrepreneurs implement PPP projects in
contexts that lack the key CSFs essential for the success of PPPs?
The Role of Individual Actors in Public-Private Partnership (PPP) Projects: Insights… 33
This chapter empirically explores the implementation of a PPP project in the

Kingdom of Saudi Arabia, a country which, at first glance, appears to be conceptu-
ally unsuited for PPPs. Its vast oil revenues render the government a sole provider
of all infrastructure projects, which justifies the absence of private finance. By ana-
lyzing how the Madinah Airport PPP project was successfully delivered, this chap-
ter contends that, when devoted institutional entrepreneurs have access to sufficient
political power, the absence of CSFs is not an obstruction to the successful imple-
mentation of a PPP project.
heoretical Background: Prevalence of a Mechanistic

T
Approach in Suggesting Requirements for PPPs
PPP research is often criticized for adopting a rather “mechanistic approach…[that]

is largely confined to examining the logistics and typology of PPPs” (Miraftab,
2004, p. 89), and this has resulted in a plethora of studies that overstate the exoge-
nous requirements for making PPPs work. A considerable portion of the PPP litera-
ture, particularly within engineering, construction, and project management
journals, studies PPPs at the project or program levels (Jooste & Scott, 2012). This
literature emphasizes the significance of CSFs for the effective implementation of
PPPs (Osei-Kyei & Chan, 2015).
These CSFs take the form of legal requirements, such as PPP laws, regulatory
frameworks (Payson & Steckler, 1991; Queiroz & Martinez, 2013), and contractual
forms (Wang et al., 2018; van den Hurk & Verhoest, 2016; Warsen et al., 2019).
They also include necessary organizational support in the form of specialized PPP
units (Tserng et al., 2012; van den Hurk et al., 2016), technical requirements (Bogan,
1991; Delmon, 2011; Carpintero & Petersen, 2015; Petersen, 2011) and sophisti-
cated managerial practices to ease and lubricate collaboration between public and
private partners (Craig, 1991; Koppenjan, 2005, 2008). Equally important is the
existence of robust financial markets with sufficient liquidity and easily accessible
loans (Grimsey & Lewis, 2004), as well as ample considerations for proper evalua-
tion and assignation of all project-associated risks to the party that can best handle
them (Grimsey & Lewis, 2000).
Such generic prescriptions for the successful adoption of PPPs within much of
the literature assume receptive environments when they propose universal solutions
(Common, 2000; Petersen, 2010; Scott, 2014) and often fail to discuss the impact of
diverse local institutional environments on infrastructure projects. Authors examin-
ing the implementation of PPPs—mostly from Anglo-Saxon and European perspec-
tives—tend to generalize the applicability of CSFs across other national boundaries
(Angerer & Hammerschmid, 2005) and often overlook the unique contextual
dimensions of host countries. It is essential, however, to take into account that, as is
the case with any other innovative policy instrument, when the PPP phenomenon
extends in both theory and practice to cultural contexts that have not readily
34 M. Biygautane
succumbed to liberal-democratic values (Manning, 2008; McCourt, 2008), the

promised efficacy of CSFs, and PPPs as a whole, become questionable (Pollitt,
2015). In other words, there is often an assumption of an automatic and positive
relationship between CSFs and the successful implementation of PPPs, without tak-
ing into consideration broader issues related to the receptivity of PPPs in different
cultural contexts.
Conceptual Framework: Institutional Entrepreneurship
Agents of change, who are labeled “institutional entrepreneurs,” have attracted

interest in a growing body of research that examines how these actors—which can
be organizations (Garud et al., 2007) or individuals (Fligstein, 1997)—“leverage
resources to create new institutions or to transform existing ones” (Maguire et al.,
2004 p. 657; Greenwood & Suddaby, 2006). Institutional entrepreneurs not only
“initiate divergent changes … that break with the institutionalized template for
organizing within a given institutional context” but also lead the implementation of
these changes (Battilana & D’Aunno, 2009, p. 68). The difficulty of implementing
organizational change necessitates the presence of a clear vision that can attract and
motivate other actors within the organization to pursue that vision in order to achieve
superior performance. However, divergent change is usually faced with resistance,
especially from individual actors or organizations who prefer the status quo and
battle reforms that could threaten their traditional and ordinary ways of operating
(Campbell, 2010). The “social skills” of institutional entrepreneurs, such as “bar-
gaining” and “alliance building” (Levy & Scully, 2007), are crucial in softening
resistance to change and convincing other players to become a part of the proposed
reforms (Garrett, 2009).
Power remains at the heart of institutional entrepreneurs’ capacity to implement
change. Levy and Scully (2007) define this power as one that “transcends” material
resources and formal authority and is based on the institutional entrepreneurs’ abil-
ity to effectively coordinate with different actors in the organizational field, negoti-
ate and build alliances with them, and strategically respond to any unexpected
circumstances. Similarly, Lawrence (2008) considers institutional power to be a
“relational phenomenon, rather than a commodity … an effect of social relations,
rather than something an actor can “have,” “hold,” or “keep in reserve” (p. 174).
Hence, power in this context is not considered a capacity, but rather a relational
effect of certain institutions on their actors (Clegg et al., 2017).
The ability of institutional entrepreneurs to implement (or enforce) change also
relies equally on the “social position” they exercise within their institutional fields.
Sherer and Lee (2002) argue that institutional entrepreneurs’ social position deter-
mines their influence and ability to “mobilize allies” who can support the imple-
mentation of divergent changes (DiMaggio & Powell, 1983). An actor’s social
position plays a more prominent role particularly in “fragmented” institutional
fields, where they need to “find a common ground and elaborate an encompassing
discourse that resonates with the interests and values of all the different actors”
(Battilana & D’Aunno, 2009, p. 85). The access of institutional entrepreneurs to
actors in higher political and social positions and the ability to convince them to
support the reforms they want to carry out (DiMaggio, 1988; Meyer & Rowan,
1977) facilitate the acquisition of necessary financial resources that are particularly
critical during the early phases of implementing change (Battilana & D’Aunno, 2009).
While the institutional entrepreneurship perspective freed organizations and
institutions from earlier deterministic accounts, it nevertheless portrayed institu-
tional entrepreneurs as heroic figures who seemingly always succeed in changing
institutions (Lawrence et al., 2009a, 2009b). Such a perspective overlooked the
roles of other actors involved in the change process (Hardy & Maguire, 2017;
Meyer, 2006), and also did not depict cases of failure. Institutional entrepreneurship
traces the purposeful efforts, work, and actions of individual and organizational
actors as they create, maintain, or disrupt institutions, whether they succeed or not
(Lawrence & Suddaby, 2006). This chapter draws from this important theoretical
framework to analyze how the initiation and implementation of PPPs evolved in
Saudi Arabia, as well as individual and organizational actors’ work to affect PPPs
within Saudi’s institutional environment.
Methodology
Research Context
Since infrastructure services in Saudi Arabia were traditionally funded by the gov-
ernment through EPC explain contracts, the need for institutional, legal, and regula-
tory tools to administer PPP contracts never arose. The more persistent challenge
for the implementation of PPPs in Saudi Arabia is the weak capacity of the local
private sector to deliver high-quality infrastructure services. The dominance of the
private sector by a few traditional merchant families who have close links with the
royal family and elites in the bureaucracy has resulted in a monopoly of merchant
families over certain segments of the private sector, particularly construction
(Biygautane et al., 2020; House, 2013).
Nevertheless, the absence of fair competition in awarding government contracts,
which is worsened by a lack of human capacity to undertake the financial, legal, and
technical requirements for structuring PPP projects, makes the execution of PPP
projects extremely problematic (Biygautane, 2017). The long decades of EPC con-
tracts established a well-tested traditional process that is in tandem with the public
and private organizations of Saudi Arabia. PPP contracts necessitate a complete
restructuring and reform of existing institutional frameworks to comply with the
rigidity and due diligence that banks require private consortia to provide.
Table 1 demonstrates the incompatibility between the requirements of PPPs and
the institutional context of Saudi Arabia. At the time of initiating and implementing
36 M. Biygautane
Table 1 Comparison between PPP requirements and Saudi Arabia’s institutional context in 2008
PPP-supporting
Effective legal and Technical and
bureaucratic Organizational regulatory managerial
Political support systems support for PPPs frameworks capacity for PPPs
– Support was – Slow – No PPP unit – Absence of a – Lack of
only for bureaucratic existed at the PPP law technical,
traditional machinery central or – Restrictions legal, and
EPC contracts – Lack of capacity sectorial on foreign financial skills
– Lack of within the public government investors’ for PPPs
understanding sector levels access to – Lack of
of PPP concept – Weak ministerial – Inadequate local market capacity
among public communication organizational – Burdensome among local
officials – Lack of support for restrictions contractors
– Lack of trust transparency in PPPs for arbitration – Project-related
between the procurement of – Lack of talent in GTP risks
public and public projects to provide – Obligatory transferred to
private sectors – Lack of training or use of the private
– Lack of PPP-enabling capacity Ministry of sector
experience administrative development Finance – Overreliance
with PPPs in mechanisms contract on various
transportation templates international
sector advisors
– Government
cap on hiring
of foreign
labor,
restricted
access to talent
Source: Ashurst (2016); Capital (2013); Biygautane et al. (2020), Biygautane, 2017)
the Median Airport project, the country lacked the necessary political support,
effective bureaucratic systems, and organizational support that the literature assumes
critical for PPPs. In addition, Saudi Arabia lacked PPP-supporting legal and regula-
tory frameworks, as well as the technical and managerial capacity that is essential
for implementing and managing PPP projects.
Description of the Case Study and Its Performance
The transformation of Madinah Airport from being a domestic airport into an inter-
national one in 2007 increased the passenger volume exponentially. This growth put
pressure on the General Authority for Civil Aviation (GACA) to involve the private
sector’s expertise in expanding the airport to accommodate for increasing traffic.
The yearly increase in passenger volume by 21%—mostly religious pilgrims com-
ing to Madinah, which is the second holiest city in the Muslim world (after Mecca)—
made the expansion of the airport a priority for the government (International
Financial Corporation (IFC), 2012). The airport’s facilities, which date back to
1972, reached their maximum capacity of 3 million passengers per year in 2010
(MEED, 2011). With an expectation that passenger volume would reach 8 million
by 2015 and 18 million by 2037 (IFC, 2012), the hard reality was that the airport
management had to repeatedly turn away profitable traffic because of capacity con-
straints. With a lack of local experience and skills in project delivery, the GACA
resorted to a PPP for the expansion of the airport, and a private consortium was
sought. The guaranteed increasing volume of passengers made the airport project a
bankable business case for the private sector.
Furthermore, the poor financial performance of the airport required the imple-
mentation of new managerial practices to tackle the yearly deficits in the airport’s
balance sheets. As indicated by several interviewees, the airport balance sheets and
income statements consistently reported negative performance, and that is com-
pounded by a large number of GACA’s employees (190) who were located at the
Medina Airport facility. Introducing a private sector’s operation into the airport
could potentially address the fiscal deficit and increase the efficiency of employees
while decreasing their numbers.
Medina Airport After the PPP
Madinah Airport was delivered not only within its budget of $1.2 billion but also 6
months ahead of schedule. The transformation of the Madinah Airport into a PPP
project has had a positive impact on its performance. As Fig. 1 demonstrates, man-
aging and operating the airport through an experienced private consortium led by
the leading aviation company Tepe Akfen Vie (TAV) from Turkey increased traffic
capacity of the airport from 3 million in 2011 (before the PPP) to 8 million in 2019.
9,000
8,000 7,805 8,145 8,130
7,000
6,573
6,000
5,704 5,831 5,462 5,659 5,782
5,000
4,588 4,669 4,464
4,000
3,547 3,701 3,846
3,000 2,960 2,984
2,486 2,348
2,000 2,340 2,003 1,985 2,109 2,343
1,628 1,685
1,000 1,207
0
2011 2012 2013 2014 2015 2016 2017 2018 2019*
TOTAL International Domestic
Fig. 1 TAV traffic figures (passengers in 000s). Source: TAV Airports Annual Reports
(2019)/*From July 2018 to the end of June 2019/TAV began serving Median from July 2012
38 M. Biygautane
60.665 59.668
58.045
54.451
48.549 49.031
40
32.935 36.282
2011 2012 2013 2014 2015 2016 2017 2018 2019*
Fig. 2 Air traffic movements (commercial flights only). Source: TAV Airports Annual Reports
(2019)/*From July 2018 to end of June 2019/TAV began serving Median from July 2012
70.2 71.2
59.8
46.3
34.3
28.4 26.8
16.5 13.7 15.1 16.4
4.4 7
3.1
2012 2013 2014 2015 2016 2017 2018
Revenue (€ Millions) EBITDA €
Fig. 3 TIBA annual revenues and EBITDA. Source: TAV Financial Statements and Earnings
Releases (2019)
Furthermore, as shown in Fig. 2, the number of commercial flights handled by

the airport increased dramatically as well, from 34,000 in 2011 to around
60,000 in 2019.
As shown in Fig. 3, following the airport’s expansion and the private sector’s
efficient operation and maintenance, airport revenues skyrocketed from approxi-
mately €16.5 million in 2012 to €71.2 million in 2018. Similarly, the airport’s earn-
ings before interest, tax, depreciation, and amortization (EBITDA) increased
sharply from €3.1 million in 2012 to €16.4 million in 2018.
The efficiency of the airport’s management through a private operator is also
reflected in the reduced number of employees at Median Airport. The number of
GACA’s employees dropped to only 16 in 2018 compared to 190 before the PPP
was implemented, and TAV employed around 250 to run the entire airport in 2018.
Such a considerable reduction in the number of public sector employees working at
the airport shows how managing the airport by a private operator instituted a marked
change in the nature of public sector employment within the airport. Nevertheless,
it also shows that ultimately only productive employees could be kept within the
private sector, while unproductive ones were transferred to other government depart-
ments or retired from the workforce. This situation also demonstrates the govern-
ment’s willingness to support the private sector by relaxing its previous strict rules
to maintain local workforce in the airport.
Data Collection
The case study method was used for this research because it is a reliable tool to
scrutinize and provide a detailed description of a contemporary phenomenon in a
real-life context (Yin, 2003, 2014). Two data collection methods were used in this
study. First, initial desk research was carried out to form a general understanding of
the case study. Government reports, consultancy reports, and newspaper articles
provided rudimentary information about the structure of the Madinah Airport PPP
contract and related financial data.
Second, 21 face-to-face in-depth, semi-structured interviews were conducted
between March 2016 and July 2019, in the Saudi Arabian cities of Jeddah, Madinah,
and Riyadh. The selection of interview participants was based on their direct
involvement in the initiation, design, and implementation of the Madinah Airport
project. Interview times ranged from 40 to 90 min. Among the interviewees were
senior government officials (five), senior representatives from the private sector
(three), senior legal and financial consultants (six), engineers (three), a senior repre-
sentative of Saudi Airlines, and senior representatives of an international organiza-
tion in Riyadh (two).
Findings
he Genesis of the PPP Idea and Its Rationale

T
for Madinah Airport
The appointment of a new President of Civil Aviation at the Ministry of Defense and
Civil Aviation, in 2003, marked the beginning of a new era for the liberalization of
the aviation industry in Saudi Arabia. Having worked previously at the Saudi
Industrial Development Fund and various private banking entities, the new presi-
dent brought to the Civil Aviation the ethos of the private sector and a spirit of effi-
ciency that gradually helped to build a new organizational culture. His vision was to
make Civil Aviation “a commercial and not a government entity, which directed the
strategic objectives of the organization,” as stated by a public sector interviewee.
40 M. Biygautane
Table 2 How institutional entrepreneurs created missing critical success factors

Effect on implementation of the airport on
Work of institutional entrepreneurs PPP basis
– Establishing internal commitment and – Provided missing technical expertise in
capacity administering PPP projects
– Specified desired goals from the PPP
project for all the stakeholders within GACA
– Increased interest in the PPP model
– Mobilizing political support – Created the missing political leadership
for the PPP project
– Provided the political power to drive the
implementation forward
– Helped overcome any potential resistance
from public or private stakeholders
– Appointment of an authoritative figure with a – Streamlined project implementation
strong “social position” process
– Provided clear vision, unity of purpose
– Provided strong leadership to clear any
bottlenecks
– Building alliances and bargaining strategies – Facilitated bureaucratic and
to overcome bureaucratic hurdles administrative procedures
– Provided easy access to heads of
departments in charge of licenses and
approvals
– Clarified the purpose and promises from
the PPP model to all heads of departments
– Comprehensive build-transfer-operate (BTO) – Provided the missing legal and regulatory
agreement and the International Financial structure for PPPs
Cooperation (IFC) involvement – Facilitated the contractual setup for the
PPP project
– Overcoming the resistance of the airport’s – Reduced resistance of the airport’s staff
administration and staff to join the private operator of the airport
– Private sector absorbed salaries of public
employees
The actions of organizational and individual actors and their effect on the project are
synthesized in Table 2.
Unlike other countries in which coercive pressures, such as financial constraints,
have forced governments to adopt PPPs as a lending mechanism to finance their
infrastructure, Saudi Arabia did not face this pressure, thanks to its oil wealth. It was
mimetic pressures that drove the President of Civil Aviation to change the culture of
the organization and follow the international trend of pursuing the private sector’s
promises of higher efficiency in service delivery. To achieve this vision, the GACA
hired employees with substantial private sector experience to administer the GACA’s
ambitious privatization and corporatization programs.
However, the GACA faced numerous challenges in extending and operating
Madinah Airport via a PPP contract. The institutional field in which the GACA
operated was challenging, and Madinah Airport’s administration was highly resis-
tant to new managerial ideas. The opaque and lethargic Saudi bureaucracy did not
have the same dynamism and entrepreneurial drive as the GACA’s leadership,
lacked an understanding of the meaning of PPPs, and was not responsive or sup-
portive of innovative reforms (Common, 2012, 2013). Communicating with frag-
mented government entities and attempting to implement a public policy without an
established framework endangered its feasibility. Furthermore, the existing
Government Tendering and Procurement Law (GTPL) was a critical legal barrier
that made delivering infrastructure through PPPs extremely difficult within the
Saudi legal and regulatory frameworks.
ow Did Institutional Entrepreneurs Within the GACA

H
Implement the Madinah PPP Project?
Establishing Internal Commitment and Capacity
Since Madinah Airport was the first full-fledged PPP project to be implemented by
the GACA, its leadership sought it as a successful example for other airports in the
Kingdom. The GACA set about doing this by sharing its vision and strategy of
involving the private sector in delivering and operating airports with all its employ-
ees and ensuring that it had their support. Then, a PPP department was established
within the GACA and staffed by “people from the private sector who brought with
them the understanding and knowledge of what makes for a successful partnership,”
as the head of the PPP unit stated. The PPP department reported directly to the
president of the GACA and facilitated weekly meetings with employees to discuss
and communicate any challenges and to gain his quick approval for internal and
external requests.
Mobilizing Political Support
Absence of a PPP system within the government required the institutional entrepre-
neurs within the GACA to mobilize strong political support so that the project had
the political momentum that it needed to go forward. Nine interviewees indicated
that the GACA’s previous association with the Ministry of Defense, which was run
by a royal prince, gave its leadership direct access to top decision-makers. After
developing a business case and conducting the necessary due diligence to confirm
the feasibility of delivering Madinah Airport on a PPP basis, the GACA’s team
requested a Royal Order from the King of Saudi Arabia endorsing the project, which
was given. A senior legal consultant stated, “If a Royal Order is issued, it must be
executed at any price, and all concerned parties have no choice but to abide by its
directives.”
After obtaining the Royal Order, the GACA’s next step was to “get the exception
to tender the project as a PPP from the Supreme Economic Council, as this was a
nongovernment contract, and the GTPL did not apply to it.” The Council was
chaired by the King and comprised all of the Kingdom’s ministries, which
42 M. Biygautane
significantly facilitated communication of the projects’ objectives and importance

to all relevant ministries. An engineer at a government entity in Riyadh stated that
the Council issued an order to establish a steering committee with representatives
from key ministries who would meet regularly. The Ruler of the Madinah
Governorate issued orders to public and private entities to provide the GACA’s team
with all of the logistical and administrative support needed to guarantee the success
of the project.
Appointment of an Authoritative Figure with a Strong “Social Position”
One of the key factors behind the successful implementation of Madinah Airport
was appointing a single “authoritative figure” with a strong social position to over-
come the bureaucratic and administrative hurdles that could block the project. The
head of the PPP unit occupied this role and brought along extensive experience
working with the public and private sectors. As the senior government official
within GACA stated, the efficiency and speed of implementing the project was
essentially due to the head of PPP unit’s capacity to make any decision without
going through formal bureaucratic channels. The head of the PPP unit asserted that
“PPP projects need one individual who has the power and guts to make good deci-
sions after consulting with his or her team.”
Such ability to make swift decisions is unusual within the sluggish Saudi bureau-
cracy, where decisions need to be approved by numerous departments. Even so, the
strong social position of the head of the PPP department and his capacity to take
instant decisions were granted by the Supreme Economic Council. Although he was
required to submit regular strategic reports to the Council outlining the milestones
of the project and its achievements, he was not required to receive approvals prior to
making decisions, so long as all the actions were supporting the success of the proj-
ect. Furthermore, he served as a direct link among the private sector, government
entities, consulting firms, and banks, which eased communication and minimized
conflicts among these different actors.
uilding Alliances and Bargaining Strategies to Overcome

B
Bureaucratic Hurdles
After gaining the necessary political support for the project and assigning one leader
within the GACA to lead its implementation, the establishment of strategic alliances
with key government entities was critical to secure access to financial resources and
overcome any bureaucratic hurdles that could block the project. A senior govern-
ment official within the GACA commented, “we kept all influential ministries and
government agencies as a part of the project and invited them to our meetings.” This
strategy of involving all ministries in the project design and implementation ensured
that they were not excluded from decision-making and also that they owned the
project and were responsible for its success. According to another senior govern-
ment official, this guaranteed “nobody would come later on and say that there were
problems they were not aware of while the project was in the construction phase,
and thus risk the private sector’s investment.”
The Ministry of Finance (MoF) played a critical role in the success of the PPP
contract. Through both formal and informal communications, the institutional
entrepreneurs within the GACA convinced the Ministry to support the project and
requested that it provide two financial guarantees to make the project bankable.
First, as a private sector interviewee stated, the Ministry had to provide the consor-
tium with guarantees that, in the event that “the project failed or was canceled due
to political reasons, we would be compensated for our work and reimbursed for our
investments.” The other financial guarantee related to any late payments or defaults
by Saudi Airlines, the national carrier, and the primary user of the airport, which had
a history of missing its payments to the airport. Because the GACA aligned itself
with the MoF and involved it in the initial talks regarding tendering the airport on a
PPP basis, that made the Minister a supporter of the project during the Supreme
Economic Council’s meetings and accelerated the approval of financial guarantees.
Overcoming the wider bureaucratic obstacles required more bargaining strate-
gies from institutional entrepreneurs at the GACA. Despite a Royal Order and steer-
ing committee supporting the project, both the GACA and the private sector faced
resistance from government entities because PPP contracts did not meet their
requirements. A government official stated that the GACA conflicted with many
government entities because, when they “requested something, other government
entities requested something else, and since there was no PPP system in place,
everything was done by way of exception.” To minimize time loss for the private
sector, the GACA’s team did not rely on the traditional way of communicating, that
is, sending official letters, but instead arranged direct meetings with government
entities. They met with the entities that resisted the project and explained to them its
benefits for the country and its citizens, and the importance of involving the private
sector in its management and operation. This ultimately resulted in the cooperation
and support of those entities.
ow Did Institutional Entrepreneurs Gain the Trust

H
of the Private Sector?
omprehensive Build-Transfer-Operate (BTO) Agreement

C
and the International Financial Cooperation (IFC) involvement
The Saudi bureaucracy usually functions with limited transparency and favors local
merchant families when granting government contracts (Ali, 2010). The conse-
quence of this is that international investors are understandably hesitant to operate
in the Saudi market (House, 2013; Rice, 2004). Moreover, the lack of a complete
legal framework that allows the private sector to construct and operate a government
entity and the lack of a reliable arbitration system posed significant challenges for
implementing the Madinah Airport project on a PPP basis.
44 M. Biygautane
Institutional entrepreneurs at the GACA were aware of these challenges, and the
fact that introducing a full-fledged system for the PPP project was not feasible, they
had to maneuver around existing rules and regulations to implement the project. A
private sector employee admitted that “you cannot create a new system for PPPs; all
PPPs cannot be the same. If you want to deliver a project in the health sector, that will
be different from an airport.” The head of an international organization in Riyadh
confirmed this by stating, “The idea is, do you need new PPP systems to implement
PPPs or not? Can you move without them? Yes, you can move without them.” Hence,
the BTO agreement was the legal framework that protected the rights of both parties
and provided investors with the guarantees they needed before engaging in the project.
There was considerable competition for the PPP contract from several interna-
tional companies specializing in developing and operating airports. Eight qualified
bidders submitted their proposals based on GACA’s minimum technical require-
ments (MTRs), and four were shortlisted such as Aeroports de Paris from France,
Malaysian Airports from Malaysia, Houston in the United States, and TAV from
Turkey. The four shortlisted companies submitted technical as well as financial pro-
posals in which they presented their technical and financial models of operating the
airport on a PPP basis, and TAV’s consortium was awarded the project contract to
construct a new apron and extend the airport’s facilities and operate them over
25 years through a BTO contract. The capital investment of TAV’s consortium
reached $ 1.14 billion and is required under the contract to pay a concession fee of
54.4% of gross revenues to GACA every year.
Effective Negotiations and Communication
Unlike other government entities in Saudi Arabia that lacked effective channels of
communication and collaboration, the GACA’s institutional entrepreneurs were
aware that effective dialogue and negotiations with the private sector were instru-
mental to the success of a PPP agreement. The importance of this dialogue was
crucial when disagreements surfaced about specific clauses in the BTO agreement.
A private sector interviewee noted that the GACA’s team were innovative in tack-
ling the challenges and issues that emerged when finalizing the BTO agreement and
in reaching solutions that were mutually beneficial.
Furthermore, the GACA was instrumental in seeking exceptions from other gov-
ernment entities when existing laws and regulations did not provide the necessary
securities for the concessionaires and lenders. Effective communication with the
public sector entities, IFC team, lenders, and bidders solved many potential prob-
lems before they even occurred. It also created an environment of trust that allowed
a real sense of partnership and collaboration to persist throughout the entire period
of preparing the BTO agreement and the financing of the PPP project.
A senior government official admitted that the social and negotiation skills of the
GACA’s team were essential in overcoming the new cultural challenges that arose
when the airport was transferred to the private sector. Because GACA’s institutional
entrepreneurs bridged the gaps between government entities and facilitated discus-
sions between the public and private partners, they solved a nearly endless array of
problems and prevented many others from occurring. Although institutional entre-
preneurs were implementing a significant change and embarking on a project that
broke the institutional template for executing infrastructure projects, they managed
to wield their negotiation skills to implement the project while keeping the public
and private parties satisfied.
vercoming the Resistance of the Airport’s Administration

O
and Staff
The role of the GACA’s institutional entrepreneurs and their active collaboration
and partnership with the private sector manifested itself in the ways that they han-
dled the resistance of Madinah Airport’s administration and staff who refused to be
transferred into a private entity. In Saudi Arabia, government employees keep their
jobs for life, and there are few expectations for performance. As such, shifting to a
private operator posed a threat to their job security. A senior representative of a local
bank explained that “the biggest resistance for the PPP project came from the air-
port’s administration and employees, who wrote letters of complaint to the King,
and even to human rights organizations” to voice their dissatisfaction and insist on
their right to keep their government jobs. There is an unwritten social contract
between the Saudi government and its citizens dictating that Saudis are entitled to
government jobs as a share of oil revenues (Biygautane et al., 2020), and the GACA
and concessionaire were aware of the sensitivity of this issue.
The GACA’s team established a select committee that oversaw the transition of
the airport’s employees to the private sector and provided sufficient guarantees to
protect their job security. The GACA collaborated with the winning consortium, to
develop incentives and packages that encouraged employees to transfer peacefully.
First, as a private sector interviewee stated, an agreement was reached with the win-
ning consortium to offer all employees “a salary increase of 20%, health insurance,
and free housing as well,” which they had not been entitled to under the public sec-
tor’s management. Second, TAV established a human resource system that supported
developing employees’ capacities. A senior government official stated that “perhaps
50% of the airport’s employees lacked the necessary skills to effectively perform
their jobs as per the new standards of the private sector,” but the TAV exhibited a true
spirit of partnership in investing heavily in delivery of training programs both in
Saudi Arabia and in Turkey, where the headquarters of TAV is located. These training
programs ensured that employees could develop the necessary skills to perform their
jobs, thereby satisfying the government requirements of employing Saudi nationals
at the airport and enhancing their productivity to meet the private sector’s expectations.
Ultimately, the government allowed the airport management to lay off unproduc-
tive employees who were not meeting their key performance indicators and not
fulfilling their contractual obligations as mandated in their contracts. This is clear
46 M. Biygautane
from the significant drop in the number of local employees within the airport, and a
testament to the strong commitment of the government to enable the private opera-
tor of the airport to recruit capable and productive employees and lay off redundant
and unproductive ones. This approach enabled the private sector to operate the air-
port efficiently and ensured that employees were supporting the growth and effec-
tiveness of the airport’s operations.
Discussion: Implications for Theory
What lessons can we learn from Madinah Airport? This case study shows that PPP
literature should expand its theoretical horizons by looking beyond the technical
aspects of implementing PPPs and scrutinize the roles of individual actors during
the implementation process. Enabling institutional entrepreneurs to introduce sub-
stantial change can compensate for the absence of CSFs in the wider bureaucratic
environment. This is particularly relevant within developing countries, where it can
be costly to improve the quality of existing bureaucratic structures, introduce new
regulatory frameworks, or build the government employee capacity to govern com-
plex PPP contracts (Wang, 2014). Furthermore, PPP contracts can include clauses
that protect the rights of both parties and fill in any gaps in the local legal or regula-
tory systems, and international consultants often provide immediate technical
expertise to secure the timely delivery of services (Marques and Berg, 2011).
The case analysis also challenges assumptions often embedded in PPP literature
about factors leading to the use of PPPs such as financial pressures and efficiency
gains. The Saudi government did not face challenges to raise the needed finances for
the airport, and the existing bureaucratic environment did not prioritize or encour-
age efficiency in service delivery; however, the belief of GACA’s leadership in the
efficiency gains from aligning with a private sector partner established the impetus
for innovation in the financing model of the airport. Most importantly, the absence
of a PPP-enabling environment within the Saudi bureaucracy did not dissuade the
institutional entrepreneurs from carrying out the expansion of Madinah Airport on a
PPP basis, but instead motivated them to maneuver around existing barriers and find
ways to deliver the project. This finding shows that when leadership within an orga-
nization believes in PPPs, institutional entrepreneurs can resort to informal channels
to communicate and build trust with other government entities, develop alliances,
and negotiate with the private sector to mitigate any challenges posed by existing
bureaucratic weaknesses. Furthermore, when a single authoritative figure is empow-
ered to lead the project from every aspect and serves as a bridge among the political,
administrative, and economic actors, this safeguards against the project being sus-
pended due to “cracks” in the existing bureaucracy (Sabry, 2015).
This chapter has demonstrated that infrastructure PPP involves a complex and
sophisticated contractual arrangement, which, if appropriately designed, can poten-
tially provide higher value for money as shown in the case of Madinah Airport. The
present research found that, for PPPs to operate successfully in the context of the GCC,
policymakers should provide compelling political support and be willing to bear a
considerable risk of losses or minimal outcomes during the early phases of experimen-
tation with PPPs. Most importantly, policymakers should initiate not only considerable
changes in the regulatory frameworks associated with PPPs but also associate new
meanings with the normative and cultural-cognitive elements that are integral to the
success of PPP implementation. In order to design strategies for change that are
designed to fit the unique cultural and sociopolitical settings of each GCC state, policy-
makers should empower institutional entrepreneurs and provide them with resources
and access to power, which will enable them to enforce changes that diverge from
institutionalized practices. The findings of this research support the findings of Hakim
and Blackstone’s (2009) argument that private sector entrepreneurs can enable effec-
tive and important changes if they are provided with the required political resources,
and the authors also emphasize the role of “human element” as “most important for
successful implementation” of new initiatives in the public sector (p. 18).
The findings of this research can guide governments, particularly in developing
countries with similar sociopolitical systems, to empower institutional entrepre-
neurs to facilitate the implementation of PPPs. Instead of attempting to create exter-
nal (superficial) support for PPP projects, governments should train, equip, and
empower institutional entrepreneurs with the skills and strategies to navigate
bureaucratic hurdles and innovate practical solutions to overcome them. As demon-
strated in the Madinah Airport project, institutional entrepreneurs had a deep under-
standing of the weaknesses of the public sector, and through their informal
connections, effective alliance-building, and skills to mobilize allies, they were able
to reach mutually beneficial outcomes. They did not try to alter the dynamics of
power that connect different organizations in Saudi Arabia, nor threaten to adjust
the legal or administrative structures that had been operational in the country over
the past 60 years. Instead, they focused on gaining the necessary exceptions and
approvals to develop a comprehensive and inclusive BTO agreement that protected
the interests of the public and private partners.
The findings of this research demonstrate the need for more attention to be paid to
the role of institutional entrepreneurs in implementing projects. Institutional entre-
preneurship offered a useful theoretical lens to scrutinize the implementation of
Madinah Airport. It helps to explain why the GACA adopted the PPP model for the
airport’s expansion and operation, and how GACA managed to successfully carry
out its implementation in a broader bureaucratic environment that lacked all of the
supposed CSFs for PPP projects. Although Saudi Arabia might seem conceptually
unappealing for PPP projects given the lack of institutional and technical require-
ments, institutional entrepreneurs within the GACA relied on political power to gain
the necessary exceptions to implement the project. This offers useful insight into
how other GCC states and developing countries might move forward with PPPs,
notwithstanding the existence of administrative systems that are resistant to change
and the absence of CSFs.
48 M. Biygautane
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Models, Expectations and Reality
in Airport Public-Private Partnerships
Carlos Oliveira Cruz and Joaquim Miranda Sarmento
Abstract Several governments have been developing public-private partnerships

in transportation projects, and airports are particularly attractive, on account of their
strong potential for delivering high returns. This chapter analyses the main models
that have been used for the development of PPPs in airports and reflects on the main
expectations of governments for developing these solutions. Both theoretical and
empirical evidence are used to support our analysis. Despite the several advantages
of using PPP in the airport sector, governments should also be concerned with the
potential pitfalls. Planning, regulating and monitoring are essential tasks to be per-
formed by the public sector in order to assure efficiency gains from private manage-
ment. Also, controlling is essential for the fact that airports are often monopolistic
to prevent rent-seeking behaviour by private companies.
Keywords Airports · Public-private partnerships · Concessions · Privatisation
Abbreviations
BAA British Airport Authority

DFC Discount cash flow
EBITDA Earnings before interests, taxes, depreciation, and amortisations
EBRD European Bank for Reconstruction and Development
IFC International Finance Corporation
SOE State-owned enterprise
TFP Total factor productivity
C. O. Cruz (*)
CERIS, Instituto Superior Técnico, Universidade de Lisboa, Lisbon, Portugal
e-mail: oliveira.cruz@tecnico.ulisboa.pt
J. M. Sarmento
Advance/CSG, ISEG—Lisbon School of Economics and Management, Universidade de
Lisboa, Lisbon, Portugal
e-mail: jsarmento@iseg.ulisboa.pt

https://doi.org/10.1007/978-3-030-83484-5_4
52 C. O. Cruz and J. M. Sarmento
Introduction
The development of public-private partnerships (PPPs) has been emerging as a pan-

acea for developing infrastructures. PPPs are a form of procurement (Reis &
Sarmento, 2017; Cruz & Sarmento, 2018), under the theoretical supposition that the
private sector can improve the value for money of public projects when subjected to
an optimal level of risk (Sarmento & Renneboog, 2016). However, the reality of
PPPs is significantly different. The model was primarily used for avoiding budget-
ary constraints and/or as a solution for governments to receive lump sum payments
(Sarmento & Renneboog, 2014). The latter being the case for airports, as is dis-
cussed below.
Airports are nodal infrastructure and an integral part of the transportation sys-
tem, being an interface between different modes of transport: air and land. Ashford
et al. (2013) argue that airports are a point of interaction between three elements of
the air transport system: the airport, the airline company and the passenger—with
all three elements having objectives that are not always compatible.
Full privatisation of airport assets is still rare, and most privatisation models
adopt a mixed public/private coexistence which is limited in time (Tomová, 2011;
Cruz & Marques, 2011; Cruz & Sarmento, 2017). Although the term privatisation is
commonly used to describe models of increasing private sector participation, the
concept sensu stricto is distinct from PPP (Martins et al., 2014). Privatisations are
ad eternum sales of public assets, whereas PPPs are limited in time. This means that
when the duration of a PPP comes to an end, the assets are returned to the public
sector. For simplicity, we use the broader concept of privatisation.
The case of the British Airport Authority (BAA) is an example of full privatisa-
tion (Francis & Humphreys, 2001). This is a textbook example which illustrates
some of the problems of building private monopolies (Adler et al., 2015), particu-
larly the effect on the quality of service. Long after the privatisation process, the
British authorities forced BAA to sell one of London’s airports for antitrust motives
aimed to increase competition.
Although there has been a world trend for airport privatisation, this phenomenon
raises some concerns. Many airport systems exhibit characteristics of natural
monopolies, which brings about the need for the definition of a clear and effective
regulatory model to prevent monopolistic behaviours, as claimed by Marques and
Brochado (2008) and Humphreys et al. (2007). Bel and Fageda (2013) found evi-
dence that the stringency of regulatory reform is related to the level of existing
competition. The existence of ex post regulation is commonly cited as being a cru-
cial step for the protection of the public interest (Beesley & Littlechild, 1989;
Neufville, 1999).
The phenomenon of airport privatisation has spread throughout the world. In
Asia, there have been initiatives to privatise airports, following the model of a direct
sale in most cases. Nevertheless, Asian governments have retained most shares, due
to concerns of monopolistic power, and because it allows them cross-subsidisation
of regional airports (Hooper, 2002). Truitt and Esler (1996) claim that the
Models, Expectations and Reality in Airport Public-Private Partnerships 53
privatisation wave can be explained by the prospects of a ‘windfall of cash’, and

although this should not constitute the main reason for privatisation, it certainly has
motivated many privatisation processes, such as BAA or the 2012 privatisation of
the Portuguese Airports (ANA), which is described below. However, not one single
model, but a rather wide diversity of models is used for the private sector manage-
ment and operation of airports (Ashford, 1994). Nevertheless, there is a core ratio-
nale in all cases, namely, that airports have moved from being a simple public utility
to being a complex of modern business (Gillen, 2011).
Table 1 summarises the value of the main transactions, in terms of EBITDA
(earnings before interests, taxes, depreciation and amortisations) multiples, a com-
mon approach to compare transactions, in the airport sector since 2010. EBITDA
multiples are the most common indicator for evaluating transactions. The values
presented exhibit the implicit valuation of each business, taking into account its
EBITDA (the transaction value divided by the previous year EBITDA). It is impor-
tant to mention that these transactions involve very distinct operations, such as par-
tial sales, full sales. PPP, or concessions. The table contains information for each
airport of what was the EBITDA multiple as well as the average EBITDA multiple
for all the privatisations that occurred in the same year.
In Table 1, we present the value of the transaction as a multiple of the airport
EBITDA. EBITDA is the most used financial measurement of firm earnings and
margins (Damodaran, 2001). Despite the discount cash flow (DCF) being the most
common method used in investment valuation to calculate a firm value, the market
also uses the multiple of EBITDA as a measurement, as it is simple and requires
fewer calculations and assumptions than the DCF model (Damodaran, 2016). The
firm value is calculated by using a multiple of the previous year EBITDA. In Table 1,
we can observe that on average, airports were transacted at a 13× multiple, with a
range from 9× to 22×. Most airports were valuated between 11× and 16× multiples.
Damodaran database (Damodaran, 2020) provides, for the transportation sector, an
average multiple of 15×.
There are several arguments that support the privatisation of airports. For exam-
ple, Poole (1994) summarises the following advantages of privatisation: access to
private capital for development, extraction of an upfront or ongoing payment, stim-
ulation of competition, introduction of more innovation, secure long-term efficien-
cies, shift of the risk of financing, speeding up project delivery, reduction of
construction costs and the reduction of political intervention in airport decision-
making. Privatisation can remove the financial burden from the public budget, thus
spreading the risk associated with operations, whilst introducing more active mech-
anisms to improve efficiency and competition. It is often argued that the airport
management can benefit from private sector expertise. For example, when airports
are managed under a government department, many managerial activities are often
more restrictive, such as facility commercialisation or personnel management.
Advani and Borins (2001) used a sample of 201 airports and found that the market
orientation of airport management is higher for privately owned airports. Bilotkach
et al. (2012) concluded, based on the analysis of a panel of European airports, that
Table 1 Benchmark of airport transactions

Transaction EBITDA Average EBITDA multiples
Airport year multiples (same year)
Gatwick 2010 9.1 10.1
Ghangi Airports 2010 11.7
Gatwick 2010 9.5
Naples 2011 13.3 12.7
Copenhagen 2011 15.1
Brussels 2011 11.1
BAA 2011 11.3
F2i 2012 16.5 15.0
TAV 2012 16
Edinburgh (by BAA) 2012 13.1
Puerto Rico 2012 16.3
BAA 2012 13.1
Newcastle 2012 16.3
BAA 2012 13.6
ANA 2012 15.3
F2i 2013 8.3 11.9
Stansted (by BAA) 2013 15.6
Gemina 2013 11.5
Hochtief Airports 2013 15.1
AdP 2013 10.4
Belfast and Stockholm 2013 10.9
Luton 2013 10.9
HAH 2013 12.4
ISG 2014 14.2 15.3
Ljubljana 2014 22.1
Bristol 2014 18.4
ISG 2014 12.4
Aberdeen, Glasgow, 2014 15
Southampton
Vienna 2014 9.8
Greek regionals 2015 21.3 19.7
Toulouse 2015 18.1
(Source: adapted from RDC, 2016)
Note: Some transactions appear more than once, as they are refinancing transactions. Also, with
the exception of the Jordanian Airport that required an upgrading of the facility, all the others were
privatisations, with no immediate upgrading, although some may have it on the contract in the
long run.
aeronautical charges are lower when airports are under private ownership or
management.
There are also arguments against the privatisation of airports. Matsumura and
Matsushima (2012) claim that the literature, at that time, still lacked enough evi-
dence that privatisation maximises social welfare. Zhang and Zhang (2003) found
that the airport fees of a social welfare-maximising airport are lower than those of a
budget-constrained public airport, which, in turn, is lower than that of a privatised
airport which is committed to pursuing profit maximisation. Using a panel data of
European airports, Bel and Fageda (2009) found that private airports which are not
regulated tend to have higher prices than public or regulated airports and thus
demand excessive rents. Barret (2000) found that privatised airports are usually
more attractive to passengers and low-cost carriers, as they offer substantial dis-
counts. However, unregulated privatised airports tend to overcharge for congestion
and introduce substantial allocative inefficiencies (Basso, 2008). Therefore, the
establishment of independent regulators should always precede any privatisation
process, to ensure that the public interest is protected (Neimeier, 2002) and to pre-
vent monopolist abuses. Furthermore, with regard to the argument that private man-
agers are more efficient, Vasigh and Gorjidooz (2007) demonstrate that there is no
significant relationship between airport total factor productivity (TFP) and owner-
ship structure. However, the authors found that airport productivity and efficiency
are dependent on the level of competition, the choice of market and regulatory con-
trol. Oum et al. (2006) found the same, although, using a sample of Asian, US and
European airports, they concluded that airports with government majority owner-
ship and those owned by multilevel of government are significantly less efficient
than airports that are mostly privately owned.
There is a consensus among researchers that it is still very difficult to measure
the level of success of the privatisation process. Vasich and Haririan (1996) claim
that most proponent and opposing groups of the privatisation model usually support
their arguments based on politics or ideology, rather than basing it on quantitative
and scientifically verifiable data. Based on a sample of 20 airports, Lin and Hong
(2006) found that neither the form of ownership nor the size of an airport have an
impact on the operational performance of airports. The existence of a hub airport,
the location of the airport and the economic growth rate of the country in which the
airport is located are all related to the operational performance of airports.
Regarding the privatisation of Chinese airports, Yang et al. (2008) claim that
there is still a lack of adequate monitoring, to effectively measure the success, or
failure, of privatisation. Lin (2013) and Lin and Mantin (2015) concluded that if all
airports are privatised within the same area, then welfare becomes worse than when
there is competition between airports and also between public versus private owner-
ship. This is in line with the findings of Neto et al. (2016), who support government
regulatory restrictions that substitutes existing competition among airports.
The evidence from the literature suggests that there are conflicting results in
terms of private sector involvement in the management and operation of airports.
There is evidence of improved efficiency, but no other benefits seem to exist.
This chapter analyses the main models that have been used for the development
of PPPs in airports, and it reflects on the main expectations of governments for
developing these solutions. Both theoretical and empirical evidence is used to sup-
port our analysis. This research is structured as follows: after this introduction,
Section 2 presents an overview of airport systems; “Airport Ownership and
Management” section analyses airport ownership and management; Section 4
presents airport business models; “Selected PPP Case Studies” section discusses
some selected case studies of airport PPP projects; “Analysis and Lessons from the
Case Studies” section analysis the case studies; and finally, “Conclusion” section
draws the main conclusions and policy implications.
Airport Ownership and Management
PPPs are simply one model within a wide range of ownership and management
models. Many airports are managed within public models including local, regional
and federal administration. But even those operating with private partners can be
fully private, operate under concession or under various structured PPPs. This sec-
tion provides an overview on the most common models.
In the past, airports were owned and managed mostly by state-owned enterprises
(SOE) or by public entities which depended on national or local and regional gov-
ernments. However, since the 1980s, as with other traditional infrastructure sectors,
such as ports, roads or railways, private participation in the provision and manage-
ment of airport services and infrastructures has been increasing (Cruz & Sarmento,
2018). This trend is aligned with the ever-expanding wave of privatisations in the
economies of Western Europe during the last quarter of the twentieth century and is
also due to the measures taken to deregulate the sector and thus introduce more
competition.
Albeit with varying degrees of development and following varied models, coex-
istence now exists in the sector of public and private business models with regard to
ownership and management. The reasons for this change in the infrastructure man-
agement paradigm vary from country to country, but they usually include, inter alia,
a mechanism for capturing private investment which removes pressure on public
finances and improves the efficiency of the provision of services.
The BAA became a privately held company in 1987 and is one of the few exam-
ples of total privatisation in the sector, being the entity that owns and manages the
largest airports in Britain. It is listed on the London stock exchange and is therefore
subject to the discipline of the capital market, which has tremendous implications
for financing and, at the same time, for the management model and objectives.
Spain also has models in which the State holds all the capital of the company
which manages the infrastructure (AENA). The State simultaneously assumes the
role of shareholder, regulator, manager and operator. In Germany, New Zealand,
Japan and the Netherlands, the existing models are more complicated, as the infra-
structure manager is owned by various stakeholders and, within the public sector, is
subject to various levels of administration. Consider the case of the Munich air-
port—which is operated by Flughafen Munchen GmbH, which is partly owned by
the State of Bavaria (51%); the Federal Republic of Germany (26%) and the
Municipality of Munich (23%).
In America, contrary to what is commonly believed, all airports are public prop-
erty. In fact, in most airports, the municipalities own the property rights of their
infrastructure and are responsible for their management. In any case, for reasons
that are not addressed in this chapter, the level of public management of airports in
the United States is of a less interventive and less extensive nature in comparison to
the Europe, and in particular to Spain. The management does not consist of the
direct provision of services, but on the contrary, especially with regard to landside
operations, the management is carried out by private entities. The airport authority
(which is a public non-profit entity, owned by a municipality or a municipal depart-
ment, albeit with full accounting separation) is responsible for the award of conces-
sions, the creation of joint ventures and the definition of the contracts governing the
activities carried out within the airport limits.
The multiplicity of forms and models of corporate governance reduces the adop-
tion of any standardisation of institutional architectures. The classification proposed
by Oum et al. (2006) seeks to highlight several possible combinations of infrastruc-
ture ownership and management that contemplates several levels of public and pri-
vate intervention, namely, (i) a government department (which operates the airport
directly); (ii) an autonomous authority of the public administration for airport man-
agement; (iii) a public company; (iv) a joint venture (public-private) with a majority
of private capital; (v) a mixed entity (public-private) with a majority of public capi-
tal; and (vi) public ownership of a privately managed infrastructure (a concession
contract for management).
Within each type of institutional architecture there are different organisational
models. Take, for instance, the case of an airport managed by a public company,
which could be owned by the central administration or could even be a decentralised
model, where the company is under the responsibility of the local administration, as
shown by various experiences in Europe and the United States.
The models for the ownership and management of airport infrastructures are
closely related to the issue of investment financing, which results in the sharing of
competencies among various stakeholders. The value of the investment and its
breakdown among the various stakeholders depends on options for the organisation
of the value chain. For example, certain aviation companies carry out investments in
airport infrastructures themselves.
Internationally, there are two typical forms of organisation of the airport busi-
ness, with implications for the extent and value of investments: (i) the US standard,
on the one hand, where airports provide the minimum facilities and allow airlines
themselves to perform a wide range of transformations and services on infrastruc-
tures and the European standard, on the other hand, where the activities of the air-
port manager are more comprehensive and comprise a greater range of value-added
activities. Even so, within each of the alternatives, the amounts of investment can
vary considerably, depending on the degree of subcontracting of activities which the
airport authority decides to carry out.
Both forms of organisation have implications for airport costs and revenues, as
well as for the amounts of investments that are made. In the United States, airports
are typically contracted management entities and service providers—e.g. traffic
control, whilst aviation companies are responsible for significant investments in
infrastructure, controlling terminals and in directly supporting the costs of their
operation, instead of airport services, e.g. the maintenance of lounges and the pro-
cessing of passengers. Most European airports, with maximum expression at
Frankfurt Airport, control most of the elements of the value chain, which results in
a more significant investment in infrastructure, higher costs and higher revenues.
Selected PPP Case Studies
ANA Airports, Portugal
In Portugal, the main national airports were developed and managed by ANA,
Aeroportos de Portugal, which until 2012 was exclusively owned by the Portuguese
State. ANA operates the nine airports of Lisbon, Porto, Faro, Beja, Flores, Horta,
Ponta Delgada and Santa Maria e Madeira. Following the financial rescue in 2011,
which included, among other measures, a privatisation programme, the government
included ANA among the companies to be privatised. It should be noted that ANA
has always been a highly profitable company, as is commonly the case with airport
management companies—unlike airline companies which typically have very vola-
tile and often negative results. Thus, in 2012, the government decided to privatise
ANA for the value of 3.080 million Euros. It was bought by Vinci—a French com-
pany working in construction and concessions.
The proposed privatisation model included the joint sale of ANA’s equity in all
airports, which had previously established a concession contract with the State.
There was a bidding, and the Vinci group won by offering a 3-billion-Euro proposal,
which was 800 million Euro above the second-best proposal (more detail on the
privatisation of ANA can be found at Cruz & Sarmento, 2017). The concession
contract between the State and ANA is for the exclusive development, financing,
management and operation of the national airport system for a period of 50 years,
which established a monopoly for the operation of airports in Portugal (the govern-
ment do not have any control on the revenues, besides the regulatory one). This
concession also includes the potential construction of the new Lisbon Airport,
which is a large airport to be built in the outskirts of Lisbon, to replace the existing
old airport, which is located near the city centre. The existing airport (Airport
Humberto Delgado) has the yearly capacity for 22–25 million passengers, and in
2016 reached 22 million traffic.
This process created one of the few cases in Europe of a monopoly privatised
airport network. In the United Kingdom, the privatisation of BAA established a
monopoly in London, where the four airports belonged to the same company.
However, this led to a decision by the Competition Authority to force the monopoly
to be dismantled with the sale of one of London’s four airports—Gatwick—which
later joined Edinburgh and Stansted, the latter which is also in London (Fig. 1).
Since privatisation, the number of passengers has been growing at increasing
rates, unlike before 2012, where the growth rates suffered greater variations.
Fig. 1 The number of passengers (left axis) and passenger growth (left axis) in ANA airports
Nevertheless, this cannot be exclusively attributed to privatisation since the

Portuguese economy and particularly the tourism sector have been experiencing a
positive momentum since 2013/2014.
On the downside, the model adopted in Portugal raises doubts about the real
benefit of creating a private monopoly. For example, airport fares for intra-EU pas-
sengers increased by 45% in 2013 and 94% in 2018. Furthermore, the model of
economic regulation adopted in the Portuguese case predicts that as the number of
passengers’ increases when compared to a reference value, the concessionaire is
allowed to increase tariffs, which has led to several significant increases. It is impor-
tant to mention that in the case of BAA, the regulator forced a breakup of the
monopoly, by selling two airports (Gatwick and Edinburg). This is one of the big-
gest challenges for the Portuguese regulator, to ensure that the private monopoly is
not engaging in excessive rent-seeking strategies, thus decreasing the social welfare.
For the concessionaire, the experience is highly positive, considering that both
the number of passengers and the revenue for passengers have been growing, with
positive impact on the EBIDTA margins. The concessionaire has also been invest-
ing and improving the passenger experience in the airport, whilst increasing the
overall capacity. But as mentioned, this came at a significant cost: the creation of a
private monopoly that can engage in rent-seeking strategies.
Nikola Tesla Airport, Belgrade, Serbia
In 2018, the Serbian government decided to grant a 25-year concession for the oper-
ation and upgrading of Nikola Tesla Airport in Belgrade (5.3 million passengers in
2017) in a bidding process with four different competitors. The concession was
awarded to Vinci Airports and involved a 420-million-Euro investment in expanding

and upgrading the infrastructure. The 17-year maturity financing was ensured from
four multilateral institutions—IFC (International Finance Corporation, a member of
the World Bank Group), EBRD (European Bank for Reconstruction and
Development), Agence Française de Développement (via its subsidiary Proparco)
and DEG (KfW Group)—and from six merchant banks (UniCredit, Intesa, Erste,
Société Générale, Kommunalkredit and CIC). Vinci Airports paid a single instal-
ment of 501 million Euros to the Serbian government for the concession, which is
one of the most significant transactions ever carried out in Serbia. The expansion
plan includes the obligation to reconstruct the existing runway and build new ones
and also to upgrade the terminal and all the airport system, and from a regulatory
perspective, potential airport fees increases will be regulated by the Civil Aviation
Directorate of the Republic of Serbia. The government expects that by having a
private international airport operator, it will be possible to transform Nikola Tesla
Airport into a regional hub and, therefore, to increase the number of passengers. The
concession is still too recent to be able to assess on its merits or pitfalls, but it seems
that it was, like in Portugal, motivated by two main drivers: (a) to allow the govern-
ment to capture the benefits of an upfront payment and (b) to leverage investment in
a public infrastructure in urgent need of upgrading and refurbishment.
Pristina, Kosovo
In 2011, Kosovo’s government celebrated a PPP with the Limak-Aeroport de Lyon

consortium for the operation and upgrading of Pristina Airport. The main motive,
according to the government, has been the need to invest in the airport, without
creating an excessive burden for the public budget. The model used was a conces-
sion for 20 years, involving a physical expansion of the airport to 25,000 square
meters, with a total investment of 140 million Euro. That investment plan would
increase the airport capacity from 1.5 million passengers to 4 million passengers per
year. The consortium also has to pay 40% of its gross income to the government in
exchange for concession rights. The number of passengers has been growing since
the PPP was established, in 2011, but without evidencing any significant difference
with the preceding years (Fig. 2).
Since then, there have been growing concerns about the success of the project. In
2016, the National Audit Office raised concerns about the potential non-compliance
of the concession contract. The National Audit complained that ‘the outstanding
works are not finished yet and it is not specified when and how they will be final-
ised’. Later, in 2017, the EU rule of law mission in Kosovo (EULEX) claimed that
there were serious ‘safety issues, poor management practices and potential corrup-
tion taking place at the airport in Pristina that require further investigation’.
Passengers (million; 2005-2017)

2.5 16.00%
14.00%
2
12.00%
1.5 10.00%
8.00%
1
6.00%
4.00%
0.5
2.00%
0 0.00%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Passengers (Millions) Passengers growth (%)
Fig. 2 The number of passengers (left axis) and passenger growth (left axis) in Kosovo Airport
Queen Alia Airport, Amman, Jordan
In 2007, following an open tender, the Jordanian government awarded a 25-year

concession to the Airport International Group (AIG) to build a new terminal and
upgrade all the airport systems. The total estimated investment was around 1 billion
dollars. As of 2018, the shareholders are the following: Aéroports de Paris (ADP)
(51%), Meridian Eastern Europe Investments (32%), Mena Airport Holding Ltd.
(12.75%) and the EDGO Group (4.75%). The Government still retains ownership of
the airport and receives 54.47% of the airport’s gross revenues for the first 6 years
and 54.64% for the remaining 19 years.
The project of Queen Alia Airport PPP is frequently mentioned as a case study of
great success, given the difficulties and challenges it had to overcome. At the time
that the project was developed, no clear and stable regulatory and legal framework
for the establishment of a PPP model existed in Jordon. The solution was a direct
approval from parliament, following a widely accepted view by civil society that
this was a crucial project for unlocking the economic and touristic development of
the country. However, to establish a PPP, it was necessary to ensure that the financ-
ing and, at that time, the maturities for financing in the Middle East did not exceed
10 years, which was clearly insufficient for the size of the project. It was also neces-
sary to ensure collaterals, and the Islamic Development Bank (IDB) was involved
through an original arrangement, whereby the IBD owned the terminal and is paid
by the concessionaire (Fig. 3).
Passengers (million; 2005-2017)

9 0.3
8
0.25
7
6 0.2
5
0.15
4
3 0.1
2
0.05
1
0 0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Passengers (Millions) Passengers growth (%)
Fig. 3 The number of passengers (left axis) and passenger growth (left axis) in Queen Alia Airport
Analysis and Lessons From the Case Studies
Greenfield vs Brownfield
Firstly, it is important to distinguish between greenfield and brownfield Airport

PPPs. Some cases involved the construction of new infrastructure to replace an
existing outdated and/or a limited capacity (greenfield) infrastructure, whilst in
other cases, the private partner operates an existing airport and provides the neces-
sary expansion (brownfield). It should be mentioned that with brownfield projects,
the airports are usually already experiencing a lack of investment, either due to
capacity limitations or outdated systems. This could be the trigger to promote the
PPP—transferring to a private partner the responsibility to implement, manage and,
mainly, finance the necessary investment.
Single vs Airport System
In the single airport case, which is most common, the grantor establishes a PPP for
a single airport, whereas in a system of airports, the PPP involves an airport system
(either regional or even national, such as in the case of ANA Portugal).
The problem with airport systems—creating a monopoly which is managed by a
private entity—is that it can maximise the instalment received, but at the same time
it can impact the social welfare (e.g. Cruz & Sarmento, 2018), as it can enable rent-
seeking strategies, like increases in airport fares. The choice of whether the single
vs airport system is linked to the overall objectives of the government should be
discussed within the framework of a trade-off between short-term and long-term

vision for the system. Airports can compete on a geographical basis, or by granting
a concession for the entire system, like the BAA where potential competition is
eliminated (Starkie, 2008).
Hubs vs Regional
Single airport PPPs have been used for different types of airports. Cases vary from
large hub airports to small regional airports. Examples of the first case are the Queen
Alia in Jordan airport, and examples of smaller airports where PPPs have been
implemented include Pristina Airport.
Government Motivations
Government motivations are very distinct and are often determined by political-,
economic- (national and international) and social-specific contexts. Nevertheless,
based on the case studies, the literature review and the authors’ own empirical
knowledge on the subject, it is possible to identify a set of motivations which fre-
quently influence the use of PPPs in airports. These motivations are presented below:
(a) Increase air connectivity: Particularly in the case of small regional airports
(such as the example of Kosovo or, to use a different example, Kosice airport in
Slovakia), governments frequently celebrate PPPs with the expectation that a
private international large player is able to attract more airlines and thus increase
the number of connections and destinations and, consequently, air connectivity
as well. However, significant competition between airports exists, particularly
for transfer passengers, but not exclusively, and it is in this area that the poten-
tial superior performance of a private partner in attracting more traffic com-
pared with public-owned airports still has to be proven.
(b) Foster passenger growth: The rationale for this motivation is the same as the
previous one, namely, that governments expect significant increases in passen-
gers growth, although, once again, there is no evidence to support this
expectation.
(c) Foster efficiency: This theoretical expectation is common to all PPP projects
and, in fact, should be one of the main reasons for engaging in PPPs—with the
objective of increasing the operational efficiency of the system, thus reducing
the expenditures or improve productivity. Furthermore, the potential efficiency
gains can be relevant in the case of greenfield projects, given the superior track
record of PPP projects in terms of on-time and on-budget performance, whereas
in the case of brownfield projects, these efficiencies are not so obvious, and,
even if they do occur, it is not clear whether they will not be exclusively appro-
priated by the private partner.
(d) Increase the availability of capital: This motivation (and the following one) is
what, in most cases, really motivates the government to engage in PPPs,
whereby airports require significant investment in expansions and modernisa-
tion of systems and equipment, and it is difficult to cope under strong public
budgetary constraints, where PPPs emerge as a way of financing new invest-
ments. On the other hand, considering that airports are among the most profit-
able businesses within the air transport sector, the private sector considers most
of these projects to be highly attractive.
(e) Obtain short-term revenue: Since most airport PPPs are highly profitable, gov-
ernments can ask for upfront instalments. Indeed, in some cases, governments
receive an annual concession fee, like in Queen Alia Airport in Jordan, whilst in
other cases, governments ask for a lump sum at the beginning of the project,
like in ANA Airports of Portugal. Therefore, for governments struggling with
high debts and budgetary equilibrium, airports emerge as a quick win for cash-
ing-in large sums (e.g. the Portuguese case).
Conclusions
Airport PPPs are growing and there are several advantages in this procurement
model. However, reality shows that governments should be aware of the dangers of
engaging in PPPs based on expectations that frequently do not materialise.
The case studies analysed indicate that it is essential to have a clear and stable
regulatory framework, which can prevent ex post opportunities and rent-seeking
strategies, whilst simultaneously ensuring proper contract monitoring. Once con-
tracts are signed, governments should monitor progress and ensure that the invest-
ments and obligations of the concessionaire are fully implemented and that potential
efficiency gains can be guaranteed and shared. We can see some significant regula-
tory problems in the case of Pristina Airport. But, also, in ANA and Belgrade
Airport, issues regarding the increase of tariffs and the need for additional invest-
ments to increase the airport capacity have been raising problems between the pri-
vate operator and the government.
Furthermore, the options behind the structuring of a PPP should be assessed
beforehand, particularly considering the options of developing PPPs for single air-
ports or creating a monopolistic power PPP for all airports. The latter can maximise
the value of sale but can equally harm the public interest in the long term.
Given the difficulties in ensuring well-balanced and mutual beneficial contracts,
it would be relevant for PPP contracts not to be excessively long and/or have explicit
earlier termination contracts, in order for the government to retain the concession.
An excessive period of the contract not only provides excessive rents to the private
sector, undermining efficiency, but also creates incentives for the private partner to
be less efficient. Furthermore, the government needs to assure that if the PPP
bankrupts or is not able to provide services according to contract, there is a legal

provision that allows for the public sector to take control of the operation. This legal
provision should come without any significant compensation to the private partner
that has failed to comply with the contract. The existence of these options should be
accompanied by a fair compensation mechanism, in order to avoid jeopardising
private sector participation. In the case of ANA, there are strong doubts, considering
the increase in revenues of the last years, if the 50-year concession was not exces-
sive when compared with the 3 billion Euro price. Nevertheless, it was difficult to
forecast the increase in traffic that occurred in Lisbon between 2014 and 2019. A
clause allowing the concession to end before the 50 years if some revenue of traffic
indicator was achieved could have been included. Such clause would allow reducing
the likelihood of excessive rents from the private sector due to unexpected and
exogenous windfalls (such as the increase in tourism in Lisbon). Furthermore, gov-
ernments should avoid models where the government exclusively receives an
upfront payment without any type of revenue/profit sharing in the future. This type
of model only encourages monopolistic behaviours by concessionaires. Again, this
was the case of ANA, where the government favoured the financial compensation
(yet it is necessary to consider that Portugal was under a financial bailout from the
IMF, EC and ECB at the time of the concession—the concession was part of the
MoU signed between Portugal and those institutions).
This analysis of the utilisation of PPPs in airports still requires more research,
particularly as there is still little empirical evidence regarding results from a large
sample of examples, in different countries. Additionally, the celebration of these
PPPs is often carried out in some secrecy, and relevant data (such as concessions
contracts and its annexes) are often not made publicly available. With an increase in
transparency and available data, more insightful analysis will be possible.
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Airport Privatization in the United States
Robert Puentes and Paul Lewis
Abstract Prior to the COVID-19 pandemic, airport infrastructure investments,

such as new runways, modern terminals, and improved ground access, were a top
priority for governments and the traveling public. The robust revenues from park-
ing, concessions, and landing fees piqued the interest of private sector investors
looking for stable, long-term returns. While the current economic slowdown brought
airport operations nearly to a halt, there is an expectation that it will eventually
return to normal. When it does, there may be increased interest in airport privatiza-
tion of state and local governments that are strapped for cash. Governments may be
interested in giving airport investment and management responsibilities to a private
company that keeps excess returns, and then invest to attract more air service and
passengers. While airports are commonly privatized abroad, only one airport is
privatized in the United States. This chapter reviews the policies that govern airport
privatization in the United States, recent history in domestic case studies, and the
implications going forward. At the end, circumstances unique to the United States
greatly limit the usefulness of privatization in solving airport problems. While
privatization may be attractive in some very specific contexts, policymakers first
need to clearly understand the problem they are trying to solve and then determine
whether privatization is the best approach.
Keywords Airport privatization · Public-private partnerships · Federal Aviation

Administration · Airport Investment Partnership Program · Private activity bonds
Abbreviations
ASUR Aeroportuario del Sureste

AIP Airport Improvement Program
AIPP Airport Investment Partnership Program
APPP Airport Privatization Pilot Program
ACI-NA Airports Council International-North America
BPC Bipartisan Policy Center
R. Puentes (*) · P. Lewis

Eno Center for Transportation, Washington, DC, USA
e-mail: rpuentes@enotrans.org; plewis@enotrans.org

https://doi.org/10.1007/978-3-030-83484-5_5
70 R. Puentes and P. Lewis
BTS Bureau of Transportation Statistics

COVID-19 Severe Acute Respiratory Syndrome Coronavirus-2
FAA Federal Aviation Administration
GAO US Government Accountability Office
House T&I US House Transportation and Infrastructure Committee
IATA International Air Transport Association
LMM Luis Muñoz Marín Airport
MIDCo Midway Investment and Development Corporation
NEG National Express Group
NYSDOT New York State Department of Transportation
PABs Private activity bonds
PRPA Puerto Rico Ports Authority
P3A Puerto Rico Public-Private Partnerships Authority
TWA Trans World Airlines
USDOT US Department of Transportation
Introduction
In 2019, there were 5080 public-use airports as part of the national aviation system
in the United States (USDOT, 2020). Prior to the outbreak of the coronavirus, these
airports moved more than 2.5 million passengers each day safely and effectively and
contributed $850 billion in activity to the American economy (FAA, 2020b). There
is also substantial evidence that airports play a major role in regional development
(Florida et al., 2015).
But there are also considerable challenges. For one, even with the effects of the
COVID-19 pandemic, it is unlikely that the runway and terminal capacity at some
of the nation’s major airports will be able to accommodate projected growth in pas-
sengers over the next 20 years (Eno, 2013). Already in 2015, the head of an airport
trade group noted that airports were “at the breaking point” and need $75 billion of
capital investments in the next few years (Sharkey, 2015). While most airports in the
United States clearly benefit from competent public governance, others argue that
the reason for excessive flight delays is partly due to the failure of “publicly owned
and managed airports” to improve their efficiency (Morrison & Winston, 2008).
It is no wonder that prior to the outbreak of COVID-19, the call to privatize US
commercial airports had gotten louder. Advocates for increased privatization cite it
as a means to raise one-time government revenues, increase airport investment, and
remove politics from airport decision-making (Poole, 2018a). Commercial airports
also represent an ideal potential private investment because of their consistent rev-
enue sources from parking, landing, and concession fees. Unlike most highways
and transit systems, airports regularly cover their costs with revenues from their
facilities. Investment in airport infrastructure makes the facility more attractive to
airlines and passengers, increasing revenues for compensating investors and meet-
ing the public sector goal of increasing airport use (Ernico et al., 2012).
Airport Privatization in the United States 71
In addition, one comprehensive survey found that airports often opt for mixed or
full privatization and 41% of all European airports have some share of private own-
ership, compared with only one airport in the United States, as discussed below
(Jankovec, 2016). However, passengers give these airports mixed reviews. Of the 32
European airports that rank in the top 100 in a passenger survey of the best in the
world, 20 are public or run by a nonprofit, and 11 are private or mostly private; of
the 15 US-ranked airports, all are fully public, but only 5 of those are ranked within
the top 50 globally (Skytrax, 2017).
While privatization is still more prevalent abroad, the US context is starkly dif-
ferent. Despite its worldwide attention, in the United States, there is not always a
rational nexus between calls for airport privatization and the problems stakeholders
are trying to solve such as underinvestment in infrastructure, flight delays, and pas-
senger access. Therefore, it is important to investigate the complexities of US air-
port governance and lessons learned from past privatization experiences.
This chapter analyzes the outcomes of airport privatization in the United States,
describes different models for the role of private firms in airports, examines the
federal pilot program and its participating airports, and discusses key implications
for both the public and private sectors.1 We find that airport privatization may be
attractive in some circumstances; however, policymakers first need to clearly under-
stand the problem they are trying to solve and determine whether privatization is
indeed the best approach.
It is important to note that the form of public-private partnerships (PPP) repre-
sented in this chapter—private firms leasing airports from public entities to operate
them—represents a particular type of arrangement. It is not unlike a private firm
entering into an agreement to lease a toll road where operation of the facility is
coupled with some capital investments such as expansion, technology upgrades, and
general maintenance. However, airports operate as monopolies in some regions, and
some have expressed concern that a private firm operating in such an environment
would seek to exploit its position and overcharge its customers (Gillen, 2011).
Others reject this notion and argue that airports engage in monopolistic competition
(Starkie, 2002). Nevertheless, since the federal government has a primary role to
play in airport privatization, they may be viewed as a special base of PPPs.
Background
Privatization refers to the long-term lease or sale of an airport. But private sector
involvement at US airports is not binary in that they are wholly owned and operated
by either a government or public authority or a for-profit company. All publicly
owned airports in the United States have a high degree of private involvement for
1
This analysis focuses on commercial airports, rather than general aviation since the federal pilot
program is directed primarily at the former.
most airport operations. One expert states that, in some respects, US airports are the
most privatized in the world since almost all of the “finance, planning, and operating
activities” are outsourced to private, for-profit companies (Odoni, 2009).
Although not directly employed by the airport, federal public sector employees
work at airports as security officers or Federal Aviation Administration (FAA) air
traffic controllers, as required by federal law.2 But the remaining workers, including
food vendors, bag handlers, gate attendants, and construction workers, are almost
always employed by the airlines or private contractors (GAO, 1996). From a work-
force perspective, privatization would largely affect only the airport management
employees.
In addition to handing off airport management to a private investor, public-
private partnerships may also be considered an attractive way to inject new funds
into capital assets like airport terminals, runways, and parking garages. It can also
provide a one-time payment to local governments for the privilege of a long-term
lease. In the United States, other transportation investments such as highway, tran-
sit, and seaport expansions have used private capital with the private sector selling
bonds to cover some of the upfront costs, repaid by future toll, fee, and/or tax rev-
enues (Eno, 2014). Backed by future airport revenues, airports that need new termi-
nals and runways could use the same private debt to improve and expand. However,
as described below, several barriers limit the usefulness of private capital for public
airports.
First, publicly owned airports can take advantage of tax-exempt public bonds,
which the federal government offers to states, localities, and agencies like transpor-
tation departments and school districts. There is no federal cap on the amount of
tax-exempt municipal debt governments can issue, and municipalities have broad
discretion to sell them to individuals and institutions like banks. The interest
received by holders of municipal bonds is exempt from federal income taxation; a
perk that allows the issuing government to pay a lower premium and remain com-
petitive. This makes the cost of borrowing for infrastructure improvements extremely
cost-effective for the public sector. They are often backed by either general tax
revenues or, for airports, the revenue generated on the airport property (e.g., airline
fees, concessions, parking) (Nichol, 2007).
States and localities are also allowed to issue debt for projects that have some
private benefit often with the same tax privilege as municipal bonds. These private
activity bonds (PABs) issued for airports are not subject to any kind of volume cap
and are widely used. A 2018 report from the Congressional Research Service found
that more than $7.8 billion in PABs was issued for airports in 2015 (Maguire &
Hughes, 2018). PABs can only be issued by governmental authorities and not by the
private sector, which must issue debt at taxable market rates that tend to be much
more expensive than public bonding, although in some cases airports issue PABs in
PPPs for construction or on behalf of airlines for hangers.
2
49 US Code § 44901.
Airports also have robust, diverse revenue streams and usually do not lack the
funding or bonding authority to make improvements to their infrastructure and
operations. These sources mean that, on average, airports in North America have net
revenues that exceed their capital and operating expenses (ACI, 2015). This is natu-
rally attractive to an investor and is a primary reason why airports are proposed for
privatization.
However, with few exceptions, federal law requires all revenues generated by a
public airport to be reinvested back into airport assets.3 This includes local taxes on
aviation fuel, landing fees, parking revenue, and in-airport concessions. While this
does not apply to service, management, and construction contracts, it makes long-
term leases unappealing since a private partner cannot use that revenue to generate
financial return for its investors.
Finally, a private partner might repay federal grants that previously went to the
improvement of an airport, such as grants from the Airport Improvement Program
(AIP), subject to the discretion of the US Department of Transportation. Private
partners might also have to return any federal property or equipment (Elias & Tang,
2017). These grants have long-term restrictions on use, and repayment might be
costly or burdensome for a hypothetical private entity managing the airport. Since
there is very limited experience with airport privatization and the AIP terms vary by
airport, it is unclear exactly how specific airports would be affected. Nevertheless,
this uncertainty is clearly not attractive to private investors.
In order to address these regulatory hurdles and to test privatization, the United
States Congress created the Airport Privatization Pilot Program (APPP) which was
reauthorized in 2018 as the Airport Investment Partnership Program (AIPP).4 Under
the AIPP, the Secretary of Transportation can approve the privatization and waive
the requirements for repayment and/or for the restricted use of airport revenues
outside the property. Only general aviation airports can be actually “sold” under the
program, while commercial airports can only be leased out.5
Even though the program was created intentionally to foment privatization, the
path is not easy. For one, to be granted an exemption to the use of revenues, the
sponsor of the transaction needs the concurrent approval of 65% of all airlines using
the airport.6 The same supermajority of airlines must approve all fees that are
charged to airlines at a higher rate than inflation. In addition, the FAA is allowed to
audit the operations and finances of the privatized airport in order to determine if it
is collecting reasonable rents, landing fees, and other charges, though the program
does not define what is “reasonable.” Therefore, while federal law allows
privatization, current rules make it difficult approving or even considering privatiza-
tion of airports.
3
49 US Code § 47107 (b)
4
H.R. 302 (P.L. 115–254), the FAA Reauthorization Act of 2018
5
A commercial airport is one with regularly scheduled flights served by airlines for passengers and
freight. General aviation airports serve noncommercial, largely “private” aircraft.
6
The actual provision is 65%t of all airlines using the airport and airlines representing 65% of the
annual landed weight (FAA, 2018).
Airport Privatization Experience
While only few airports have applied to participate in the APPP, their examples are
illustrative and important in order to discern the narrow set of conditions when
privatization is practical. Overall, the experience in the United States is decid-
edly mixed.
Stewart International Airport
The first airport in the United States to be privatized under the APPP was Stewart
International, a former military airport located in New York State in Westchester
County, 67 miles north of New York City.7 According to the US Government
Accountability Office (GAO), the state sought the sale or lease Stewart Airport to a
private partner in order to increase service, provide resources to invest in the airport,
and boost tax revenue (GAO, 1996).
In 1997, the New York State Department of Transportation (NYSDOT) received
five responses to its request for proposals from potential operators of the airport.
The next year, the National Express Group (NEG), a major British rail, bus, and
coach transit company, inked a deal with the state, which was sent along to the FAA
for final review and approval.8 NEG was awarded the right to operate the airport for
99 years and paid the state $35 million, which was invested back in to airport opera-
tions. The state would also receive 5% of gross income each year beginning in the
tenth year of the lease. New York State did not request an exemption on the use of
revenues because they knew from preliminary discussions with the air carriers that
they would be unable to receive their required approval. However, the state requested
and received an exemption from the requirement to repay federal grants and return
property (National Express and NYSDOT, 1999).
In the application, NEG affirmed that it had “extensive experience in owning,
managing, and operating airports” due to its acquisition of East Midlands and
Bournemouth International Airports in the United Kingdom, earlier in the decade.
NEG also highlights its management of Philippines’ Subic Bay International Airport
in 1997 “during which it became familiar with FAA procedures” (National Express
and NYSDOT, 1999). Per the parameters of the APPP, New York retained the right to
inspect the airport operations and the financial records of NEG at any time. The lease
stipulated that the transaction would have no impact on the fee structure for air carri-
ers whose rates and charges would be unchanged, unless approved by the airlines.
Unfortunately, the deal struggled from the outset, and by 2006, NEG sought to
sell the lease to run the airport. The next year, Stewart was returned to public hands
7
The airport was recently renamed New York Stewart International Airport in 2018 to enhance its
appeal to travelers in the region (Howland, 2018).
8
The operator was technically SWF Airport Acquisition, Inc., a wholly owned subsidiary of
National Express Corporation, which is a wholly owned subsidiary of NEG.
when in 2007 the Port Authority of New York and New Jersey purchased the remain-
ing 91 years of the lease from NYSDOT. The Port Authority continues to run
Stewart along with other major airports in the region.
There are several likely reasons why the deal with NEG collapsed. One such
reason is related to the severe downturn in aviation passengers that followed the ter-
rorist attacks of September 11. According to the International Air Transport
Association (IATA), from 2000 to 2001, the national air passenger traffic fell 5.9%
and another 1.4% the next year (IATA, 2011). Federal data show that enplanements
at Stewart dropped by 27.8% and another 11% during the same timeframe.9 For a
private business model built on increasing revenue from non-aeronautical sources,
such as new retail and restaurants in the terminal and car rental and parking conces-
sions, traffic drops can create severe financial difficulties for the private partner.
Yet in this case, NEG was already reconsidering its strategy to expand from
mostly public transit operations into aviation. Just 1 year after the state approved it,
NEG asked NYSDOT to terminate the lease, which the state declined to do (Ernico
et al., 2012). That was right around the time when NEG sold off its interests in three
UK airport operations in order to concentrate on its bus and rail business (BBC
News, 2011). NEG was concerned about its ability to generate a satisfactory long-
term financial return, and according to the GAO, “was not interested in investing in
the airport” (GAO, 2014). They also may not have been able to invest as the com-
pany nearly went bankrupt during this time when it overbid for a UK rail line
(Bowker, 2009).
Stewart represents a clear policy failure to successfully privatize a US airport
through the APPP process. It may not, however, have been a business failure for
NEG. Two different reports cite the “significant” return on investment for the firm
despite its desire to terminate the lease (Ernico et al., 2012; Tang, 2017). NEG’s
annual report for 2007 notes the company’s successful sale of Stewart for $78.5 mil-
lion to the Port Authority of New York and New Jersey which allowed it to recover
the cost of its investments and reinvest the profits (NEG, 2007). The case of Stewart
is useful as an example of the challenges that can arise when a private operator
experiences significant internal transitions and the unpredictable role that external
events can have on the revenues and operations of an airport (Reimer, 2008).
San Juan Luis Muñoz Marín Airport, Puerto Rico
As of 2021, the only privatized airport in the United States is Luis Muñoz Marín
(LMM) Airport in San Juan, Puerto Rico. It is owned by the Puerto Rico Ports
Authority (PRPA) and leased to Aerostar Airport Holdings (Aerostar), owned by
ASUR (Aeroportuario del Sureste) and the Public Sector Pension Investment Board/
9
Eno analysis of FAA data “Passenger Boarding (Enplanement) and All-Cargo Data for US
Airports.”
AviAlliance, under a 40-year lease that began in 2013. LMM is currently the 43rd
busiest US airport and, by far, the busiest in the Caribbean and the largest air cargo
hub serving as an international gateway for the Americas.
Puerto Rico is a national leader in its efforts to work with private partners on a
range of infrastructure projects. Through 2009 legislation, it established one of the
earliest entities to regulate and facilitate such partnerships, the Puerto Rico Public-
Private Partnerships Authority (P3A) (Gillers, 2017). These initiatives were done
partly out of necessity, namely, extremely high public debt loads, among other
financial threats. Notably, the Commonwealth had very limited financial resources
since its economy began to contract in 2006. As a result, it failed to invest in impor-
tant infrastructure assets like its airports (Treasury, 2015).
The PRPA, in particular, had serious financial difficulties, and LMM needed sig-
nificant investment to modernize the airport. One comprehensive commentary noted
the airport’s crumbling ceilings and floors, the poorly maintained instrument land-
ing system, and the many inconveniences like unpleasant corridors, balky air condi-
tioning, long delays at baggage claim, and insufficient retail and catering options
(Tierney, 2017). Perhaps most perniciously, it criticized the PRPA’s “unwieldy
bureaucracy,” political patronage, and general lack of responsible management and
oversight (Oum et al., 2008).10
Saddled with over $800 million in debt and unable to tap into the municipal bond
market to make necessary investments in the LMM, even for basic upkeep and
maintenance, Puerto Rico’s P3A studied whether a privatization model would
address the airport’s massive challenges (P3A, 2010). In 2009, the PRPA applied to
participate in the APPP, and following a 2012 competitive selection process, it even-
tually agreed to lease the airport to Aerostar for $615 million upfront, plus a share
of revenues over the life of the 40-year lease (Moody’s, 2013). The airlines servic-
ing the airport approved this privatization arrangement.
The FAA granted all necessary exemptions in order to apply $500 million of the
upfront payment to PRPA debt relief. The remainder went to an early retirement pro-
gram for PRPA employees, an air travel promotion program, and upgrades at other
regional airports. Aerostar also received an exemption from having to payback federal
grants that supported LMM and from restrictions on earning compensation from use
of the airport. Aerostar held the landing rates fixed for 5 years, after which fees only
increased at the rate of inflation. At no additional cost to the airlines, the company was
also responsible for improving and modernizing the airport through an accelerated
capital program (USDOT, 2009). Aerostar was given the right to sublease the non-
aeronautical areas of the airport and to collect and retain all related fees, charges,
payments, and revenues. The airlines serving LMM generally supported the privatiza-
tion efforts, given the poor management and substandard condition of the airport.
Importantly, the privatization plan made explicit efforts not to disenfranchise
workers at the airport. Existing workers were promised that they would keep their
10
The PRPA also managed Puerto Rico’s ten other airports and maritime port facilities. One study
found that the institutional model of airports managed by authorities with jurisdiction of multiple
air and maritime ports is almost always the least efficient.
jobs, and then-US Transportation Secretary guaranteed the plan would be rejected if
the collective bargaining agreement were violated (BPC, 2016). Aerostar asserted
that the $200 million in upgrades to the terminals created 3000 jobs by 2014, though
this figure is difficult to confirm (Coto, 2014).
The privatization of LMM is widely considered to be a success. In addition to the
debt relief brought to the PRPA, the LMM is now better managed, and the $260 mil-
lion that Aerostar expected to spend in capital investments was critically needed.
The private sector was well suited to address the mounting challenges that the air-
port faced, and there was widespread support from stakeholders, including the air-
lines. Some have asserted that the ultimate deal for LMM was undervalued because
the transaction was not negotiated in the public’s interest and undercut workers
(Kunkel & Sanzillo, 2018). Nevertheless, from 2013 to 2016, enplanements
increased by nearly 6%, and average passenger fares decreased from $324 in 2013
to $290 in 2017 (Eno, 2017).11 Aerostar officials testified that the privatization
would ultimately create $2.6 billion in total economic value for Puerto Rico over the
life of the lease (P3A, 2010; House T&I, 2014).
In September 2017, Hurricane Maria devastated the island and the airport, result-
ing in passenger and flight traffic dropping by more than 50% in the following year
(BTS, 2019). In 2019, airport traffic rebounded 19% over 2018 levels, but was once
again halved due to the impacts of the coronavirus (PR Wire, 2020). How these
effects will affect the long-term financial stability of the airport and its impact on
private investors is yet unclear (ASUR, 2019).
Midway International Airport
Chicago Midway International Airport is one of the busiest airports in the Midwest
and was briefly the busiest in the world shortly after it was acquired by the city in
1927. After O’Hare International Airport was built 16 miles to the north in 1955,
Midway’s passenger traffic declined precipitously, but has since recovered thanks in
large part to the arrival of Southwest Airlines in 1985 and internal reinvention. With
this success, it may seem odd that twice in the last decade, Chicago applied to the
federal government program to privatize Midway. Yet Chicago is experiencing its
own fiscal challenges and is considered the “most aggressive instigator of infra-
structure asset leases” (Ashton et al., 2016).
The impetus for Midway was consistent with the Chicago’s assertive efforts to
transact with the private sector on infrastructure (The Economist, 2010). The city
received approval from the airlines operating at the airport, led by Southwest, to
11
Eno analysis of FAA data “Average Domestic Airline Itinerary Fares.” Figures are for inflation-
adjusted average fares. Hurricane Maria made landfall in September 2017 and certainly has had a
major impact on passenger demand and airfares, but the figures from 2017 and 2016 are nearly
identical. We also recognize that since 2005 airlines have begun to unbundle charges for things like
checked bags, seat selection, meals, and drinks from the total ticket price.
lease the airport. In 2008, the city agreed to a 99-year $2.5-billion lease with
Midway Investment and Development Corporation (MIDCo) consortium (Tang,
2017). The deal would have lowered airline landing fees for 6 years, with increases
at no greater than the rate of inflation. The entire payment would be made up front
with a little more than $1 billion going for infrastructure improvements in the city,
about another billion for pension contributions, and the remainder unrestricted
(ACI-NA undated). It appeared as if Midway would be the first privatized major US
airport. However, largely due to the financial strain brought on by the Great
Recession, the deal was cancelled in 2009 when MIDCo was unable to secure the
financing and had to pay a $126 million penalty to the city.
Chicago renewed the effort to lease Midway in 2013 under Mayor Rahm
Emanuel, claiming the airport no longer provided “any direct financial benefit to the
taxpayers” (City of Chicago, 2013). By this time, the city had the experience of the
first application as well as the high-profile parking meter fiasco and took a more
conservative approach to the transaction (Goldsmith, 2010). The city limited the
lease to no more than 40 years and intended to ask the FAA for the revenue and
repayment exemptions. However, the second application was abandoned later in the
year when one of the two bidders withdrew their proposal. The city then suspended
its efforts to privatize the airport and pulled out of the APPP altogether.
The bids to privatize Midway are clear failures, but for different reasons. On the
first attempt in 2008, despite support from the airlines, the city, and other stakehold-
ers, the concessionaire was unable to raise the capital needed for the upfront pay-
ment. The parties could not execute the deal, with added difficulty from the effects
of the recession, and the transaction was not completed. The second deal in 2013
was also not executed, but mostly because the city did not structure its parameters
in a way that was palatable for investors. The rigidity is at least partially attributable
to Chicago’s focus on protecting taxpayers and avoiding a deal like the one on its
parking meters (Emanuel, 2013).12
St. Louis Lambert International Airport
In the late 1990s, the St. Louis Lambert International Airport was the nation’s 15th
largest, with more traffic than Seattle-Tacoma, New York LaGuardia, or Charlotte
Douglas. Lambert was once the home of Trans World Airlines (TWA), but after a
2001 merger with American Airlines, many flights were moved to other larger air-
ports in Chicago and Dallas. Daily operations by air carriers averaged about 1000
takeoffs and landings per day in 1997, compared with just 350 in 2016. The airport
now suffers from excess capacity.
Despite the traffic decline, Lambert is generally considered to be a very well-run
airport, and enplanements have steadily risen since the 2009 nadir (Principato,
12
In 2008, Chicago received an upfront payment of $1 billion and leased the city’s parking meters
to a group of private investors. The deal was criticized for its lack of transparency and was called
a “dubious financial deal” by the city’s Inspector General.
2017). Nevertheless, in 2017, the city applied to include Lambert in the

APPP. According to the application, the reasons for the change are not unlike other
applications to the APPP. The city believed a private partner would help bring in
more revenue from non-aeronautical, cargo, and adjacent land, which would boost
the regional economy (City of St. Louis, 2017).
In addition, the city explicitly wanted to secure an upfront payment from a pri-
vate partner and then use that revenue for projects elsewhere in the City, a process
known as asset recycling (Poole, 2018b). The city’s application stated that it
expected to “free up more than 1 billion in capital” for non-airport uses. The St.
Louis Mayor at the time of the initial proposal specifically mentioned the North-
South MetroLink light-rail expansion as a project that could be funded with pro-
ceeds from the lease (Kirn, 2018).13 The next mayor “adopted the privatization
effort as her own” and in 2018 selected an advisory team for the proposal and
worked to clear several hurdles, including securing support from the city boards and
gaining airline approval (Messenger, 2019). Detractors asserted that recent bond
rating upgrades indicate that the airport is already well operated, and the City could
lose control over how the airport is run under privatized lease (Moody’s, 2017).
In late 2018, after 18 potential bidders expressed formal interest in submitting
proposals, the Mayor abruptly ended the city’s privatization plans. In doing so she
cited opposition from the general public and the regional business community
(Schlinkmann, 2019). At the same time, groups of labor and community activists
continue to call for privatization as a way to make airport improvements and gener-
ate jobs and revenue without raising taxes (Schlinkmann, 2020a). In 2020, an effort
was launched to collect enough signatures to put the Lambert privatization question
before voters in November 2020 (Ruff, 2020). However, that initiative was aban-
doned before it could reach the ballot (Schlinkmann, 2020b).
Irrespective of how the city decides to proceed, it does appear that the primary
impetus for the effort is to extract airport value for other city infrastructure projects
rather than solving any specific airport-related problem. While asset recycling can
work, it is still relatively untested in the United States. That does not mean St. Louis
should not experiment with such new approaches, but it is unclear if such an arrange-
ment would address the airport’s operations any better than the current arrangement
(Thorsen, 2017).
Westchester County Airport
The Westchester County Airport is located about 20 miles north of Manhattan and
60 miles, or a 1-h drive, south of Stewart Airport in New York. The airport is owned
by the county and is served by five commercial airlines. Only 16% of traffic at
Westchester is commercial aviation. The vast majority of traffic is general aviation,
making it one of the busiest business aviation hubs in the United States
13
Mayor Francis Slay retired in 2017, and the new Mayor Lyda Krewson continued to pursue
privatization and recently selected an advisory team for the proposal.
(WestchesterGov.Com, 2018). Although the county owns the airport, a private con-
tractor has managed Westchester since the mid-1940s, specifically AvPORTS (a
private sector airport management services company) since 1977.
In 2016, the county applied to participate in the APPP. The primary motivation
was to balance the county’s 2017 budget by redirecting resources used to operate
the airport for other county services. Soon after, a $130-million, 50-year deal was
announced, subsequently retracted by the county after concerns about the lack of
transparency were voiced (Epstein, 2016). A formal request for proposals was
released in 2017, and later that year, Macquarie Infrastructure Corporation-s
$1.1-billion, 40-year bid was chosen. A little less than half the money would support
airport capital improvements with the remainder coming in as a payment to the
county, of which $300 million would be upfront and applied directly to the county’s
general fund. The county board did not approve the deal, and the new county execu-
tive has moved ahead with a different plan for improving the airport and keeping it
in public hands (Wilson, 2020).
Though not as nationally prominent as the others, the proposal to privatize
Westchester’s airport was highly controversial locally. In addition to concerns about
transparency, citizen groups were formed to protest the feared increases in aircraft
traffic and concerns about damage to an adjacent reservoir. The former county exec-
utive who championed the privatization proposal stated publicly that the goal was to
monetize it for budgetary purposes. Without a clear case for why privatization made
sense over other arrangements, the deal was never executed, and the county for-
mally withdrew from the APPP in March 2019 (FAA, 2020a).
Despite the prevalence of airport privatization around the world, the San Juan
Airport is the only successful example in the United States. This analysis demon-
strates that there are several likely reasons for this lack of activity along with key
implications for policy and practice.
Regulatory hurdles. There are significant restrictions on the use of airport reve-
nue and potential concerns about paying back federal money invested in privatized
airports. The FAA still has the ultimate authority to approve or deny all applications,
and the process is long and time-consuming. According to the GAO, Midway and
LMM airports took 83 and 38 total months, respectively, to navigate the privatiza-
tion process (GAO, 2014). While this also includes time the airports spent negotiat-
ing with their airlines, the regulatory path is challenging.
Negotiations with labor. The potential effects of privatization on airport workers
are largely dependent on the state and local laws for any particular airport. The US
Code protects any collective bargaining agreement in place before lease negotia-
tions. This means that private firms have to navigate different sets of rules for differ-
ent airports and the political climate around labor on a case-by-case basis. The GAO
references Chicago and San Juan where airport public officials voiced strong
support for allowing workers to keep their jobs, or similar ones, although the APPP
does not require it (GAO, 2014).
Financial considerations. Most airports are owned by municipal governments,
have robust revenue streams, and can borrow money at tax-free government rates.
Of course, in certain instances where the public authority is saddled by severe debt
loads, private capital is very attractive, especially as an upfront payment that the
government may be able to repurpose through asset recycling. Barriers to runway
expansion or terminal modernization are usually not related to a lack of available
funding due to airports’ access to capital.
Concerns about transparency. In St. Louis and San Juan, local officials expressed
concern about being left out of early deliberations. Chicago was particularly sad-
dled with concerns for how both the parking meter and first Midway deals were
prearranged. The recommendations from that city’s Inspector General are a good
framework for future deals, including considering alternatives that solve short-term
budget problems (City of Chicago Inspector General, 2009).
Perceptions of problems. Since most state and local governments in the United
States have access to money and many airports are well run as public assets, it not
clear whether the APPP is relevant to most airports. The biggest problems stem
from passenger frustration with disruptions caused by major construction and
expansion projects at large airports. This suggests that addressing travelers’ con-
cerns is more a question of working with private partners on aviation infrastructure,
rather than operations and management, the two functions that are already con-
tracted out. Instead, PPPs to build, renovate, and modernize new facilities and oper-
ate terminals are an alternative means for capital investment.
Limitations on market incentives. Outside of the airport discussion, privatization
promises to result in better products and lower prices for consumers due to increased
competition where private investors are more likely to lower costs than increase
prices in order to compete with one another (The Economist, 2017). While this
works in many aspects of transportation, airports are problematic because they are
inherent monopolies in regional markets, limiting the incentives for efficiencies
(Blackstone et al., 2006). Few cities have more than one airport, and for those that
do, the airports are still far apart, thus serving distinct parts of the region. Studies as
to whether international examples of airport privatization abuse their market power
are at best inconclusive, and in some cases contradictory (Morrison and Winston,
2008; King, 2014).
The speed, scale, and severity of the COVID-19 pandemic has devastated the
aviation sector. While the ultimate outcomes of the crisis are not yet known, it is
clear that airports will be under increasing pressure to innovate. They will be forced
to do more with less and must at the same time adapt to the new realities through
improved processes, decision-making, and technologies. While each airport is dif-
ferent, many of their challenges are likely to be similar. Passenger demand plum-
meted along with revenues from both passengers and concessionaires; air cargo
capacity is also strained. The traditional means of funding, financing, and delivering
aviation services may no longer be adequate, jeopardizing the important role avia-
tion plays in the global economy.
With the safety of passengers and the broader travelling public as the primary
concern, the demand for a more touchless environment and a world of social dis-
tancing upend traditional business models for the overall airport ecosystem. Airports
may no longer be considered to be low-risk investments, and the share prices of
many privatized airports plunged in the first half of 2020 (Graham, 2020).
For the time being, negotiations between the public and private sectors on airport
privatizations are on hold as travel and traffic forecasts are rebuilt. Until there is a
clearer understanding of global travel demands, it is likely to remain that way.
Once air travel resumes and airport operations are reassessed, policymakers and
regional leaders should ascertain the problems to be solved and assess all potential
solutions. Privatization can make sense for an airport that finds itself in dire straits.
If an airport has an intractable problem with poor management or is so heavily debt-
laden that it is unable to invest, privatization might directly address those problems
as it did in San Juan. But if seeking to increase competition, decease costs, and
improve management, airports already have a host of tools at their disposal that do
not require navigating a complex regulatory and legal process.
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Federal Aviation Administration Docket 2009-1144.
U.S. Department of Transportation. (2020). National transportation statistics, Table 1–3.
U.S. Department of Treasury. (2015). Addressing Puerto Rico’s economic and fiscal crisis and
creating a path to recovery: Roadmap for congressional action.
U.S. House Transportation and Infrastructure Committee. (2014). Roundtable policy discussion on
opportunities for aviation and public private partnerships, May 20.
United States General Accountability Office. (1996). Airport privatization: Issues related to the
sale or lease of US commercial airports, GAO-RCED-97-3.
United States Government Accountability Office. (2014). Airport Privatization: Limited Interest
Despite FAA’s Pilot Program. GAO-15-42.
WestchesterGov.Com. (2018). General aviation.
Wilson, D. M.. (2020). Latimer launches new airport master plan process with pledge for robust
public engagement. The Journal News, February 27.
Legal Impediments to Airport P3s
in the United States
Peter J. Kirsch and Andrew C. Fischer
Abstract The financial and regulatory structure for airports in the United States
places the Federal Aviation Administration at the center of a complex and sweeping
regulatory scheme that imposes pervasive oversight over the nation’s airport infra-
structure. The agency regulates airports primarily based on contractual agreements
tied to federal grants, functionally ensuring the nation’s airport infrastructure is con-
tinually subject to cradle-to-grave regulatory oversight. These grants are typically
funded by airline ticket taxes but in current-dollar terms, money available through
federal grants has been declining; at the same time, airports face a dire backlog in
capital investment in airport infrastructure. As a result, new and creative funding
structures, like public-private partnerships, are gaining traction. But with federal
regulation touching nearly every element of airport operation and financing, airport
proprietors who want to take advantage of creative funding opportunities face a
daunting task. Proprietors and potential investors must navigate a vague, intricate,
and changing federal regulatory landscape coupled with myriad state and local
laws—a hurdle that may prove too much for potential investors, especially those
unfamiliar with airport financing.
Keywords Federal Aviation Administration · P3s · Airports · Capital · Funding ·

Infrastructure · Development · Privatization · Airport finance
Abbreviations
ACI Airports Council International

AIP Airport Improvement Program
AIPP Airport Investment Partnership Program
APM Automated people mover
P. J. Kirsch (*)
Kaplan Kirsch & Rockwell, LLP, University of Chicago, Oberlin College, Denver, CO, USA
e-mail: pkirsch@kaplankirsch.com
A. C. Fischer
University of Colorado, Hamilton College, Clinton, NY, USA
e-mail: andrew.c.fischer@colorado.edu

https://doi.org/10.1007/978-3-030-83484-5_6
86 P. J. Kirsch and A. C. Fischer
APPP Airport Privatization Pilot Program

ConRAC Consolidated rent-a-car facility
DBF Design-build-finance
DBFOM Design-build-finance-operate-maintain
DOT Department of Transportation
FAA Federal Aviation Administration
JFK John F. Kennedy International Airport
PFC Passenger Facility Charge
PRPA Puerto Rico Ports Authority
P3s Private-public partnerships
TIFIA Transportation Infrastructure Finance and Innovation Act
Introduction and Historical Context
It has almost become trite in the United States to decry the state of airport infrastruc-
ture, especially after 2014 when then-Vice President Joe Biden compared New York
LaGuardia Airport to an airport in a “third-world” country (Codianni, 2014). Less
than 2 years later, New York Governor Andrew Cuomo announced a plan to mod-
ernize New York’s airports—a $4-billion undertaking (Pallini, 2020).
Among other improvements, the redevelopment has included a new 1.3-million-
sf, 35-gate central terminal, two-thirds of the funding for which will come from
private financers and passenger fees (Dobnik, 2016). The design-build-finance-
operate-maintain (DBFOM) contract with a consortium known as LaGuardia
Gateway Partners (“Gateway Partners”) required private investment of $2.35 billion
in tax-exempt bonds and approximately $200 million in equity funding, with repay-
ment and returns contingent on project delivery and long-term performance; the
proprietor of LaGuardia Airport, the Port Authority of New York and New Jersey
(“Port Authority”), contributed $1.2 billion for the “grandiose entry hall” and a new
parking structure (Poole Jr., 2018). As part of the DBFOM1 contract, Gateway
Partners takes responsibility for the management and operation of Terminal B until
2050, receiving milestone payments as well as rent from airline and concessions
operators (Business Wire, 2016). Gateway Partners alone bears the risk of cost over-
runs and schedule delays, significantly increasing the risk compared to a tradition-
ally procured infrastructure project.
The Gateway Partners contract was the result of a multi-year competitive bidding
process preceding the May 2015 selection. The process began in October 2012 with
the Port Authority’s issuance of a 50-page book of specifications, designed to ensure
potential bidders’ qualifications. As the process continued, the field of bidders
shrank until only Gateway Partners and one other bidder remained. A year into the
1
Various financial structures are all lumped into the public-private partnership, or P3, basket,
including design-build-finance-operate-maintain (DBFOM); design-build-finance (DBF); and,
even under certain circumstances, traditional design-build (DB) arrangements.
Legal Impediments to Airport P3s in the United States 87
bidding process, the Port Authority forwarded Governor Cuomo’s unilaterally

announced “design contest” specifications to the bidders, which included a “great
hall,” allowing bidders’ flexibility to incorporate them into future proposals, and the
bidding process continued after a several-month delay. In many respects the roller-
coaster bidding and contracting process for LaGuardia is not untypical of other
large public-private partnerships for airports in the United States: while each has its
own political history and financial imperatives, local politics inevitably plays an
outsized role.
Since at least the second half of the twentieth century, airports have met capital
needs by using a combination of federally regulated funding sources and airport-
revenue-backed debt. Federal involvement has its origins in the early days of avia-
tion, when federal policymakers decided that passenger airports should be owned
and operated by local governments, rather than by the private sector or federal gov-
ernment (Federal Aviation Administration, 2017). But the Congress recognized the
capital-intensive nature of airport facilities and, in order to ensure adequate capital
investment and uniformity, authorized various federal grant programs. This federal
involvement also established the regulatory hook for federal regulation of airport
operations and furthered the government’s policy imperative to ensure that the
national aviation system operated as an integrated, nationwide whole.
In 1990, faced with deficits and tight budgets, the Congress authorized a
Passenger Facility Charge (PFC), which supplemented the long-standing federal
grant programs. Although federal policies technically treat PFCs as a local revenue
source, the reality is that, just like FAA grant funds, PFCs are highly regulated by
the FAA (Tang, 2019). The law authorizing PFCs is an exception from the general
statutory prohibition on passenger “head taxes” or charges levied on a per-passenger
basis. The initial ceiling on the PFC was $3; a decade later, the Congress raised the
cap to $4.50 per passenger (Tang, 2019).
Reliance on federal sources or federally regulated sources of capital appears
unsustainable in the twenty-first century. Analysis and reports indicate that the aero-
nautical infrastructure in the United States is approaching its breaking point, falling
behind projected demand and requiring massive infrastructure improvements imme-
diately.2 With infrastructure described as “terminally challenged” by the Airports
Council International-North America (ACI), current funding arrangements appear to
be insufficient to meet the skyrocketing need for investment (Puentes & Lewis, 2013).
Notwithstanding the substantial, deferred-capital needs of US airports, both the
availability of federal grant funds and the real-dollar value of PFCs have decreased
in recent years. Congress has not raised the statutory cap on PFCs to account for
rising construction costs and inflation; today, nearly 20 years after the cap’s last
2
The COVID-19 pandemic undoubtedly has slowed the growth and substantially reduced travel
demand. But historic figures strongly suggest that travel demand will resume after the crisis—
whether that lasts 1, 2, or more years, travel will resume in a time frame that is much faster than
the time it takes to plan, design, and construct substantial airport infrastructure. New runways or
substantial capital projects at US airports can often take in excess of a decade from initial concept
to operation.
increase, the PFC cap remains $4.50, and the round-trip flight maximum per pas-
senger is $18.3
While overall PFC revenue grew from $85.4 million in 1992 to over $3.4 billion
in 2018, ACI has observed that as more airport proprietors adopted the fee and the
Congress raised the cap in 2000, increased construction costs and inflation have
reduced the PFC cap’s purchasing power by 50% (Tang, 2019; Airports Council
International-North America, 2019). In recommending that the Congress raise the
cap on PFCs, ACI has emphasized that the $91.6-billion debt burden necessitates
the rebuilding of aviation infrastructure (Airports Council International-North
America, 2019).
Enter public-private partnership (P3) structures as an increasingly attractive
method for delivering capital improvements necessary to accommodate projected
infrastructure needs (Khan, 2019; Puentes & Lewis, 2013). The use of P3 structures,
such as the DBFOM contract with Gateway Partners, remains a relatively new
method for delivering any transportation project in the United States, compared to
Europe and other world regions. Of the $996 billion in all transportation P3 projects
planned and funded worldwide from 1985 to 2009, the United States claimed only
12.1% compared to Europe’s 48% (Khan, 2019).4 In the United States, P3s accounted
for only a little over 1% of infrastructure investment in 2010–2014 compared to
5–15% in the United Kingdom and 8% in Canada (McKinsey & Co., 2016).
The term “P3” does not have a definitive legal or commercial meaning when
applied to US airports or infrastructure projects. Nevertheless, most definitions used
by the airport sector indicate that an airport “P3” generally refers to:
an arrangement by which services and improvements that traditionally have been provided
by a [public] airport sponsor are instead provided by a private sector entity, including
arrangements … through which a private sector partner will exercise relatively greater con-
trol, have relatively greater responsibility, and/or make a relatively greater financial invest-
ment than would customarily be the case with respect to a particular kind of contract,
service or project. (Butzin & Eads, 2019)
This definition sweeps broadly5 since state and local governments own virtually all,
and operate most, US commercial service airports.6 The many public-use general
3
One of the principal reasons for Congress’ failure to raise the PFCs cap is vigorous opposition to
any increase by large US air carrier trade groups. Airlines for America (A4A) has embarked on an
aggressive program to convince the Congress that airport proprietors have plenty of borrowing
capacity and revenue from users to finance infrastructure maintenance and improvements so an
increase in the PFC levy authority is unnecessary (Airlines for America, 2019).
4
While Khan’s data are somewhat out-of-date with the growth of private investment in the United
States in the last 10 years, the US infrastructure investment remains far behind from that in Europe
and Asia. Some recent high-visibility failures of P3 projects undoubtedly will impede any ability
of the US market to catch up with their worldwide competitors.
5
The Federal Aviation Administration uses the term “airport sponsor” which is functionally the
same as an airport proprietor. FAA uses the term “sponsor” to distinguish airport proprietors who
receive FAA grants.
6
The distinction between ownership and operation is important here. While virtually all commer-
cial airports in the United States are publicly owned (Branson, Missouri being the notable excep-
aviation (noncommercial) airports, meanwhile, fall under a variety of ownership

and control models, with public and private ownerships both common, especially
for small airfields (Federal Aviation Administration, 2019).
P3s are an attractive approach for alternative project delivery and financing struc-
tures for a variety of reasons. The core attraction is the opportunity to optimize the
use of scarce financial resources to deliver projects that might not otherwise be
delivered and to deliver projects at a higher value on a more reliable schedule or
faster than would otherwise be possible. Yet P3 structures must adapt to a financial
and regulatory environment based on highly regulated, federal government grants
and fees as the principal source for capital. The result is a dynamic and rapidly
changing P3 marketplace. As the public and private sectors test this new-to-the-US
financing and project delivery tool, narrowly tailored P3 projects—targeted at spe-
cific capital improvements rather than entire airports—have quickly become more
attractive.
Unique Financial and Regulatory Challenges for US Airports
Financial Environment
The viability and permutations of P3 structures in the US airport market cannot be

understood without first understanding the unusual financial and regulatory envi-
ronment in which US airports operate. Virtually all commercial service airports in
the United States receive federal assistance in the form of the FAA’s AIP grants.
Instead of direct regulatory control, the FAA regulates the finances and capital
structures of US airports through requirements in the agreements which accompany
AIP grants. Thus, not only is the source of airport capital unique but the regulatory
model also differs from both other countries and even other domestic regulated
industries. The most significant implication of this model is that the legal frame-
work and procedural protections, which are familiar to investors and accompany
most regulatory actions under the US law, do not apply to the FAA’s contract-based
regulations.7 For prospective foreign investors in US airports, the regulation-
through-contract approach can prove perplexing and appear wrought with
tion), many airports contract with service providers to operate all, or portions of, these airports.
Firms such as Vinci Airports (formerly Airports Worldwide and TBI) provide turnkey operational
services at commercial and general aviation airports including Orlando-Sanford, Ontario
International, and Hollywood-Burbank. It is not uncommon for individual terminals to be privately
operated as well.
7
A majority of the procedural protections for the issuance and interpretation of regulations under
the Administrative Procedure Act, 5 USC § 500 et seq., which provides the framework for most
agency-administered regulation, do not apply to requirements included in AIP grant agreements on
the theory that the requirements are the product of a consensual contract that the airport proprietor
agreed to the requirements as a condition of receiving the grant.
uncertainty. Even for investors familiar with contract-based regulatory structures,

the FAA contracts have an unusual feature that can be mystifying to the uninitiated:
not only do most airports receive annual grants but the terms of the grant agree-
ments occasionally change, and each annual grant contains a 20-year tail, making
all contractual commitments binding for a 20-year period from the latest grant.
Furthermore, even though federal AIP grants can be used only for a precise subcat-
egory of airport capital projects, the grant agreements regulate essentially all airport
capital and operating functions, regardless of the source of funds.
The FAA approval process for AIP grants is complex and time-consuming, fur-
ther compounding the insufficiency of capital needed for necessary improvements.
Moreover, AIP grants may only be used for the construction of improvements
directly related to aeronautical functions, such as aircraft operations, including run-
ways, taxiways, aprons, and safety-related projects (Tang, 2019; Airport
Improvement Program Handbook, 2019). With certain exceptions, AIP grants can-
not be used for ancillary, albeit important, non-aeronautical functions or for facili-
ties that are wholly leased to the private sector. For example, AIP grants may not be
used for “revenue-producing areas” at most airports, so the grants cannot help many
US airports increase capacity or decrease congestion linked to terminals and other
leased, commercial facilities including vehicle parking areas, passenger conve-
niences, and ancillary airline functions (Tang, 2019; Airport Improvement Program
Handbook, 2019). When AIP grants were the only or the principal source of airport
capital funding, airport proprietors had little choice but to adapt capital programs to
the labyrinthine AIP requirements.
The contractual requirements accompanying each AIP grant are known as “Grant
Assurances” and are comprehensive in scope and reach. One of the most important
Grant Assurance requirement is that a recipient airport operate as a “closed fiscal
system,” meaning that all revenue that an airport proprietor receives may only be
used for the capital and operating costs of the airport or system of airports. This
requirement is both imposed by contract and statutorily mandated, based upon the
underlying principle that the federal government has a strong interest in preserving
its investment in airport facilities and must ensure that users of an airport do not face
hidden taxes that might result if local governments could use airport revenues to
subsidize other local government functions (Policy and Procedures Concerning the
Use of Airport Revenue, 2013).
The FAA further regulates the entire capital construction process, by imposing
substantive and procedural constraints on solicitations, bidding, contracting, and
spending, even where federal funding is insubstantial (Airport Improvement
Program Handbook, 2019; Federal Aviation Administration, 2017). What this
means is that airport proprietors cannot avoid federal entanglement even by forego-
ing substantial federal funding. Any federal funding of any portion of a project trig-
gers the comprehensive regulatory oversight.
Because of the closed fiscal system requirement, using P3 structures in the air-
port context requires significant adjustments compared to P3s used to deliver high-
way, transit, and other infrastructure projects. For example, an airport P3 structure
would not allow a private entity that finances a runway rehabilitation to recover
anything significantly exceeding its investment via a share of landing fees paid by
airlines and aircraft operators. Because landing fees constitute airport-generated
revenue, the fees can only be used on the airports’ capital or operating costs (Policy
and Procedures Concerning the Use of Airport Revenue, 2013). Allowing a private
entity to recover anything significantly exceeding its investment goes beyond cover-
ing capital or operating costs and would therefore violate the requirement.
The closed fiscal system requirement, moreover, contains crucial nuances.
United States airports routinely enter contracts in which a private entity can make a
profit. Consider a service-delivery arrangement in which an airport proprietor pays
a shuttle-bus operator more than the operator spends to fulfill its obligations. The
private-sector provider of such a service may recover a reasonable profit or return
on its investment. The FAA’s manual on compliance with contractual require-
ments—the “Airport Compliance Manual” (“Manual”)—explains that:
[p]rohibited uses of airport revenue include direct or indirect payments that exceed the fair
and reasonable value of those services and facilities provided to the airport. The FAA gen-
erally considers the cost of providing the services or facilities to the airport as a reliable
indicator of value. For example, the DOT Office of Inspector General (OIG) and the FAA
found a city sponsor to be diverting revenue where the sponsor charged the airport for
investment management at the rate that would have been charged for commercial services
when services to the airport were actually provided by city employees at a much lower cost.
(Federal Aviation Administration Airport Compliance Manual, 2009)
While the Manual provides important guidance on traditional service delivery and
other contractual arrangements, it was last comprehensively updated in 2009 when
P3 delivery structures were virtually unknown in the US airport market. Therefore,
the Manual does not explicitly address issues that arise in more complex P3 struc-
tures in which a private sector entity’s return on its investment is less transparent
and the airport proprietor’s control over that return is attenuated. Although FAA
policies can prove difficult to parse, the FAA appears to endorse a “fair market
value” standard, allowing private entities to generate a reasonable profit for provi-
sion of certain services and facilities as well as a reasonable return on investment in
the case of capital expenditures. Whether the FAA would allow a private entity to
recover a substantial financial return for investors, even where the entity carries
considerable risk, appears less certain.
FAA has not set a bright line for what is, and is not, permissible profit or return
on capital investment, even in the face of private financing models that have become
common in infrastructure development. The result, of course, is regulatory uncer-
tainty that can only be reduced by formally seeking the FAA’s advance approval or
acquiescence. Even sophisticated P3 players are often uncomfortable with seeking
advance federal regulatory review and advice (or, even worse, approval and over-
sight) in the financial structuring of a transaction and are understandably reluctant
to open their books to federal scrutiny.
As US airports seek to increase both aeronautical and non-aeronautical revenue,
another crucial nuance appears: “Airport revenue” does not actually encompass all
revenue generated on airport property (Kramer et al., 2015). For example, an airport
P3 structure cannot grant a private entity a share of the proprietor’s landing fees
since landing fees constitute airport revenue or, more precisely, revenue to the air-
port proprietor. In contrast, a Cinnabon, Hudson News, or another private enter-
prise that operates airport concession space routinely generates revenue on airport
property and funnels the revenue off-premises; however, the FAA has long held that
these private entities do not generate “airport revenue” for purposes of the closed
fiscal system requirement so long as the airport proprietor itself receives appropriate
revenue for the use of airport space, such as fair market value concession rent.8 This
rent from a private entity constitutes airport revenue and must be used only for the
airport proprietor’s capital or operating costs (Federal Aviation Administration
Airport Compliance Manual, 2009).
This “airport revenue” definition often fails, or proves difficult to apply, when
dealing with more complex contractual arrangements, including P3 structures. A
traditional retail or a service-delivery contractual arrangement is straightforward
enough: the airport proprietor is on one side and a private entity on the other. In a P3
structure, the airport proprietor is, technically, on one side of the contract and a
private entity on the other. In these structures, however, a private entity steps (at
least in part) into the customary role of the airport proprietor, sharing contribution,
control, risk, and responsibility for services and capital investment with the airport
proprietor. Although an airport proprietor must itself comply with the closed fiscal
system requirement, a private entity generally does not. But what about a private
entity that steps into the customary role of the airport proprietor? For example, a P3
structure might allow a private entity to manage and collect rent from concessions.
Such rent is not technically airport revenue under the current understanding because
a private entity, not the airport proprietor, receives the revenue. But does the fact that
concession rent typically qualifies as airport revenue cause the P3 structure to vio-
late the spirit of the law? In other words, will the FAA find a violation? FAA has
provided scarce guidance or regulatory clarity on these and similar questions.
Skepticism from airlines and other airport stakeholders poses another obstacle to
airport P3 structures. This skepticism is puzzling because P3 financing is common
at airports outside the United States and has not received the level of airline criti-
cism that sometimes accompanies US airport P3 projects. Possibly the airline-
industry groups fear P3 structures may result in higher fees, lead to diversion of
revenue from the airport, and—perhaps most importantly—reduce the substantial
influence that airlines and other airport users have traditionally had over airport
proprietors and federal decision-making.
These concerns, while undoubtedly self-serving, cannot easily be dismissed
because airlines have considerable national and local political strength. For exam-
ple, ahead of the Denver (Colorado) City Council’s approval of a P3 project to reno-
vate Denver International Airport’s main terminal, a group representing several
airlines sent letters to Mayor Michael Hancock and Council members citing
8
The FAA requires fair market rent for non-aeronautical functions but does not require fair market
rent for aeronautical functions so long as the airport proprietor does not unjustly discriminate
against similarly situated enterprises and is able to come as close as possible to financial self-suf-
ficiency in the proprietor’s particular circumstances (Airport Compliance Manual, 2009).
concerns about the project’s cost and impact (Proctor, 2017).9 As an indication of
the seriousness with which the city treated the letter, a few days later, United Airlines
President Scott Kirby was given the opportunity to speak to a Council subcommit-
tee. Because United, like other carriers, plays an important role in financing both
airport capital and operating costs, the City Council gave United the audience that a
substantial stakeholder would deserve.
A couple years into construction on Denver Airport’s “Great Hall Project,” the
initial skepticism toward the P3 structure appeared warranted. After unsuccessful
mediation, Denver ultimately terminated the $1.8-billion contract it had signed with
Great Hall Partners, a private consortium. A series of problems, ranging from costs
attributable to newly discovered defects in the original concrete structure of the
building to change orders and claims of micromanagement by the public agency,
proved too much (Woodruff, 2019). After termination, some opined that the prob-
lems with the Great Hall Project showed the risk of using P3s in certain contexts and
suggested that P3s be limited to construction of new assets (Slowey, 2020b). The
failure of the Denver Great Hall Project was also caused by management inexperi-
ence, a cumbersome contracting approval process, and the lack of a true partnership
between the City and Great Hall Partners. While all of these problems could have
been routinely addressed in a traditional construction contract, the P3 arrangement
shifted both risk and responsibility in an unfamiliar manner and contributed to the
project’s failure.
Although the high visibility failure of projects like Denver’s Great Hall Project
fuel skepticism, the urgent need for capital investment at US airports is likely to
carry P3 structures through the teething problems associated with introducing a new
tool into a complicated financial and regulatory environment. As more airport P3
projects successfully address unexpected discoveries, solve public-private disagree-
ments, grapple with risks, and demonstrate financial viability, industry skepticism
should fade.
In addition to the closed fiscal system requirement, P3 structures are further
hampered by the ability of publicly owned US airports to issue tax-exempt bonds,
which incentivize the use of traditional methods for capital improvements. The fed-
eral government does not tax interest paid to holders of state and local government
municipal bonds, thus allowing state and local governments to offer lower interest
rates on their bonds and remain competitive against private bonds that offer higher
interest rates (Puentes & Lewis, 2013). If the cost of capital is considered and the
effective subsidy from the tax exemption is ignored, then state and local govern-
ments can generally borrow money more cost-effectively than private entities
(Puentes & Lewis, 2013). Therefore, if a state or local government can finance a
capital improvement, the total cost of using traditional financing methods will com-
pare favorably to the cost of capital if the private partner needs to secure debt financ-
ing at market rates. Such an approach could eliminate the need for P3s, though
9
In February 2020, Denver International Airport CEO Kim Day reportedly told Council members
in private meetings that she and the airport management were to blame for the Great Hall Project’s
failure (Slowey, 2020a).
others argue that P3 structures offer the added benefit of using each dollar more
efficiently (Khan, 2019).
In certain instances, P3 structures can themselves take advantage of local tax-
exempt bonds. An instrument called “private activity bonds” ameliorates the greater
borrowing cost of using P3 structures for delivering capital improvements. As the
term “private activity bonds” suggests, state and local governments may issue
municipal bonds whose proceeds are used for projects with significant private
involvement (US Department of Transportation, 2016).10 The federal government
does not specifically tax interest paid to holders of private activity bonds for certain
exempt facilities. The Internal Revenue Code provides that private activity bonds
qualify as exempt facility bonds when 95% or more of the proceeds from the issue
will be used to fund various enumerated types of infrastructure, including airports.
Private activity bonds, therefore, may help finance qualifying P3 projects. According
to the Congressional Research Service, in 2015, state and local governments issued
more than $7.8 billion in private activity bonds for airports, with additional non-
airport funding sources used for airport-related projects (e.g., airport transit connec-
tors) (Puentes & Lewis, 2013). Since 2015, private activity bonds have been used
for other core airport projects like Denver’s Great Hall Project.
In 2003, the Congress made limited, US Department of Transportation-issued
private activity bonds available for highway, transit, and intermodal projects. The
Department of Transportation (DOT) also administers the Transportation
Infrastructure Finance and Innovation Act (TIFIA) credit program, providing direct
loans, with low interest rates and favorable terms, to regional or national transporta-
tion projects. Any legal entity, including a private one, that undertakes a qualifying
project and is authorized by the Secretary of Transportation may receive a TIFIA
loan (Khan, 2019).
Airports do not currently qualify for TIFIA loans, although an airport might have
a project (such as an intermodal transit project) that independently qualifies for
TIFIA funding. The Build America Bureau—the arm of DOT charged with admin-
istering these bonds and the TIFIA program—has indicated a growing willingness
to reinterpret TIFIA goals to allow for broader financing eligibility for airport proj-
ects in the future, and members of the Congress have proposed to extend TIFIA
eligibility specifically to include core airport projects (Butzin & Eads, 2019; Press
Release, 2019c).
10
As a practical matter, states prescribe which government entities may issue private activity bonds
and what projects are eligible for such financing. The commonly authorized issuers include, for
example, hospital authorities, housing authorities, regional development authorities, and solid
waste management authorities (Brooks et al., 2017). In the case of the LaGuardia Airport Terminal
B redevelopment project, the “New York Transportation Development Corporation” loaned the
proceeds of “special facilities bonds” to partners to finance construction (New York Transportation
Development Corporation, 2016). Should private activity bonds go into default, the “conduit bor-
rowers,” such as Gateway Partners, carry financial liability, not the “conduit issuers,” such as the
New York Transportation Development Corporation (Kagan, 2018).
Regulatory Environment
As previously noted, most federal regulatory control over US airport financial mat-
ters derives from the Grant Assurances that airport proprietors execute as a condi-
tion of receiving federal AIP grants. The FAA can achieve comprehensive oversight
without direct regulation because virtually all commercial service airports and thou-
sands of general aviation airports receive AIP grants (Kaplan Kirsch & Rockwell,
2018). The US regulatory structure reflects and perpetuates a deliberate tension
between state and local interests in exploiting the economic-development value of
airports and a national interest in creating and maintaining a coherent national air-
port system.
Under FAA policies, the Grant Assurances apply not only to the airport propri-
etor itself but also to every enterprise on the airport or those that do business with
the airport proprietor. While not a major impediment for entities engaged in tradi-
tional aeronautical services, for investors in airport infrastructure, the Grant
Assurance requirements impose regulatory conditions that add a layer of complex-
ity and regulatory oversight that goes beyond the terms of the actual P3 project—a
daunting reality for those unfamiliar with the FAA regulatory structure. FAA man-
dates that most contracts into which an airport proprietor enters include specific
provisions designed to extend the Grant Assurance requirements to the private sector.
The comprehensive list of required contract clauses raises complex questions
regarding circumstances under which airport proprietors must include provisions in
contracts with no federal financial involvement or contracts with which the airport
proprietor has no direct privity. Taken on its face, the FAA requirements would
apply to every contract affecting an airport, no matter how small. The agency does
not have either a de minimis rule or a rule that limits the required clauses based upon
the level of contractual connectivity to the airport proprietor. The litany of clauses
may therefore discourage some private entities from participating in airport P3 proj-
ects absent greater regulatory clarity.
The FAA has not provided even broad guidance regarding the scope of its con-
tractual oversight of airport P3 structures. As a result, all parties to an airport P3
structure must independently evaluate the project, considering all potentially appli-
cable federal statutes and regulations equally. In addition, predicting federal policy
changes which might occur over the course of a multi-year P3 project can prove a
daunting endeavor.
The failure to provide broad guidance for oversight of airport P3 structures is at
least partially a result of FAA’s self-perpetuating unfamiliarity with these arrange-
ments. The FAA has not encouraged P3 structures, and in the absence of market
pressures, the FAA has apparently not believed it necessary to develop guidance that
would facilitate or reduce the uncertainty surrounding P3 structures.
While the FAA undoubtedly is the pivotal regulatory player because of the US
regulatory structure, airport P3 structures are also subject to regulation by state and
local governments. Indeed, parties interested in a potential airport P3 must also
account for all potentially relevant state statutes and regulations. As the DOT notes,
“unlike other countries with national standards, individual [US] States set their own
policies and pass their own P3 legislation” (US Department of Transportation). As
of early 2019, 38 states, Puerto Rico, and the District of Columbia authorize P3s as
a method for delivering transportation projects (National Conference of State
Legislatures, 2019). The authorizing legislation provides public agencies with the
legal authority to employ P3 structures and provides a framework for designing and
delivering P3 projects. State-level regulation, however, varies considerably on top-
ics such as project selection and review processes and maximum lease lengths.
Additionally, US states possess “varying levels of experience … with regards to
their capabilities to identify, develop, and implement transportation P3s” (US
Department of Transportation). The DOT observes a consequent “market concen-
tration in specific States with experience in P3s” (US Department of Transportation).
For example, of all highway DBFOM-P3 projects reaching financial close prior to
June 2015, 79% of the total $24.6-billion investment was in only four states:
California, Florida, Texas, and Virginia (US Department of Transportation).11
The US airport financial and regulatory environment—compounded by FAA’s
failure to provide any broad guidance for airport P3 projects, the agency’s regula-
tory unfamiliarity with P3 structures, and the varying degrees of regulation (and
experience) among US states—makes airport proprietors and private entities espe-
cially reluctant to employ creative P3 structures. As the DOT observes, the variance
among US states “can present challenges to private partners used to a single national
program” (US Department of Transportation). The sheer complexity of designing
compliant P3 structures and the possibility of strict enforcement is another powerful
deterrent. Furthermore, the DBFOM model for P3s incorporates design-build (DB)
contracting, which has yet to be broadly adopted in some states and remains rela-
tively novel in others, and further distinguishes the P3 model from standard practice
for many airport proprietors.
Yet even in the face of these hurdles, P3 structures will continue to proliferate
because, if for no other reason, cash-strapped local governments and federal gov-
ernment dysfunction make the risks worthwhile. A change to the fundamental, pow-
erful deterrent of complexity, however, would spur more rapid adoption (US
Department of Transportation).
arrow P3s, Targeted at Specific Capital Improvements, Are

N
More Attractive Than Airport-Wide Investments
The US airport market, designed primarily for government investment in airport

infrastructure, makes narrowly defined P3 projects—those targeted at specific capi-
tal improvements or unique airport facility needs—more attractive than broader
11
Note that this statistic may be somewhat misleading because it based upon the value of, not the
number of, P3 projects. In large states like California, a single large project could skew the total
value statistics.
investments in entire airports. The financial and regulatory hurdles are made rela-
tively manageable through a reduction in scope, though resulting projects can still
require a massive, multibillion-dollar undertaking. While early discussions on pri-
vate airport investment in the United States focused on full airport privatization,
modeled on similar transactions in Europe, the use of airport P3 structures gradually
evolved to primarily target specific capital improvements.12
Even when discrete and focused, P3 projects at US airports can still require sig-
nificant capital and carry significant risk for allocation (Poole, 2017). For example,
at Los Angeles International Airport, a $5-billion “Landside Access Modernization
Project” includes the construction of a consolidated rent-a-car (“ConRAC”) facility
and automated people mover (APM), connecting the ConRAC facility and a future
Metro station to passenger terminals. Two components of the Modernization
Project—the ConRAC facility and the APM—use DBFOM P3 structures (Poole
Jr., 2018).
One project that has received considerable attention in recent years for its end-
product, if not the contractual means for the project’s delivery, involved introduc-
tion of a commercial airline passenger service at historic Paine Field in the Seattle
metropolitan area. A private entity—Propeller Airports—financed without federal
funds, constructed a passenger terminal, which the entity operates and will maintain
for 30 years (Poole, 2017). Paine Field, a large industrial airport and home to
Boeing’s wide-body aircraft manufacturing facility, has never had commercial air-
line passenger service. When some carriers expressed an interest in providing such
service, Snohomish County—the airport proprietor—considered designing, build-
ing, and operating a new terminal, but the County had neither experience nor staff
to handle commercial service or the construction and operation of an airline termi-
nal. Propeller approached the County with a comparatively simple proposal:
Propeller would lease undeveloped property at Paine Field and take full responsibil-
ity for all passenger facilities and functions, while the County would receive modest
profit sharing but have no operational responsibilities. Propeller was to be respon-
sible for all terminal-related functions and for coordination with the TSA (who by
law provides airport security for almost all passenger terminals in the United States)
and for the cost of local law enforcement, but the County would remain responsible
for the airfield and for all FAA regulatory oversight responsibilities. As at most large
airports, the FAA already had a federal air traffic control tower, so the considerable
costs of that facility did not need to be part of the transaction. The small, two-gate
terminal opened in March 2019 with 24 daily flights and every single slot fully sub-
scribed. In February 2020, even before its first anniversary, the millionth passenger
passed through the terminal (Crystal, 2020). Endorsing the Propeller model, the
Washington state pension funds invested heavily in the project less than a year after
its opening (Everett Herald, 2019)
For the current status of airport privatization efforts in the US, see the FAA website. (Federal
12
Aviation Administration, 2019).

The Paine Field project is small in scope—the private investment totaled approx-
imately $50 million—but represents an unusual model. The airport proprietor priva-
tized all commercial airline passenger functions while retaining operational control
over the entire airfield and all other airport functions, allowing Propeller to avoid
FAA safety and operational regulations targeted at airfield operations. Indeed, the
proprietor’s lease of undeveloped property to Propeller was structured much like
any other proprietor’s lease of concession space to an aeronautical (e.g., fixed base
operator) or non-aeronautical (e.g., terminal restaurant) function. Propeller makes
lease payments to the proprietor, but Propeller’s financial arrangements with its
contractors as well as customers are largely outside FAA regulatory purview and are
private transactions not subject to the transparency requirements of the FAA and
public open records laws.13 Paine Field represents the first fully privatized commer-
cial airline passenger function in the United States. This model could prove an
intriguing model for secondary airports in markets that can support more than one
commercial airport. Although the largest of these markets—such as Chicago; Los
Angeles; New York; and Washington, D.C.—already have multiple airports, mid-
sized or highly congested metropolitan areas like Seattle or Atlanta could support
the Paine Field model.
A few lower-profile projects offer another model: airline-as-investor. The inter-
national terminal at Houston’s William P. Hobby Airport was funded entirely by an
airline tenant and procured through a design-build-finance (“DBF”) mechanism.
Southwest Airlines needed an international terminal and accompanying facilities on
a timetable that was impracticable for the Houston Airport System, the public pro-
prietor of Houston’s two commercial service airports. Southwest offered to fund
and assume responsibility for the construction of the international terminal, the cost
of which Houston Airport System will repay to Southwest using rental revenue from
Southwest, other tenants, and airport concessions (Richards, 2016; Porier, 2016). As
the principal airline at Hobby, Southwest had a strong interest in maintaining con-
trol of cost and schedule, and it was able to do so far better than if the proprietor had
used a traditional procurement system.
Austin-Bergstrom International Airport in Austin, Texas, used a P3 structure for
redeveloping its small, unused South Terminal into a no-frills facility for ultralow-
cost carriers. LoneStar Airport Holdings, a private entity created for the project,
completed the $12.5-million renovation; it now has a concession agreement to oper-
ate the South Terminal for 30 years, setting its own fees and contractual relation-
ships with the terminal users (Poole Jr., 2018; Wear, 2016). The low-cost terminal
allowed the proprietor to attract and retain ultralow-cost carriers that might other-
wise have concluded that they were priced out of the main terminal at Austin.
Although the contractual relationship with the airport proprietor is more complex
13
Some FAA requirements, such as mandates for disadvantaged business enterprises and prohibi-
tions on unjust discrimination, apply not only to a proprietor but to its contractors. So Propeller is
not entirely free of FAA regulation, but most of its business operations are free of the routine regu-
latory oversight that FAA exercises over airport proprietors, including oversight of terminal leasing
terms, financial arrangements with carriers and terminal access issues.
than the one at Paine Field, the operator similarly enjoys comparatively light regula-
tory oversight over its operations.
As a final example, Governor Cuomo’s $13-billion multi-project upgrade of
John F. Kennedy (JFK) International Airport is finding its place among the next
wave of projects. With airlines and groups of airlines controlling JFK’s terminals,
Cuomo’s upgrade foresees airlines leading DBFOM terminal redevelopments, and
the upgrade reportedly involves “$12 billion in private funding” (Press Release,
2018; Poole, 2017). Taking a dig at perceived federal government dysfunction and
perhaps the unusual US airport regulatory and financial environment, Cuomo
claimed that New York was actually taking actions to transform the JFK airport,
while those in Washington, D.C., merely talk about it (Press Release, 2018).14 This
Governor’s plan seeks to consolidate and centralize the existing six operating termi-
nals at the airport (Terminals 1, 2, 4, 5, 7, 8). A total of $7 billion has been allocated
to the airport’s new south side which will be developed by a consortium of Lufthansa,
Air France, Japan Airlines, and Korean Air Lines. An additional $2 billion has been
allocated to the new north-side terminals, to be developed by Jet Blue, and there will
be $2 billion of private investment for upgrading the facilities and infrastructure
throughout the new airport. The Port Authority of New York and New Jersey (the
airport proprietor) has budgeted $1 billion for these improvements (Li, 2018).
Development agreements have been executed with consortia for the various termi-
nals, and construction work is ongoing at this writing, but, like many airport infra-
structure projects, the entire JFK redevelopment has been delayed by the pandemic
and the airlines’ resulting financial distress.
Airport Investment Partnership Program
The full privatization of the British Airports Authority in 1987 started a global shift
of airport control from government enterprises to partial or full private management
and operation (Poole, 2017). As of 2016, for example, more than 40% of European
airports count at least one private shareholder, and these airports, collectively, han-
dle approximately 75% of European airline passengers (Airports Council
International, 2016). When compared to other types of transportation infrastructure,
commercial service airports in Europe have presented a desirable private-investment
opportunity, with consistent long-term revenue potential from concession, landing,
and parking fees (Puentes & Lewis, 2013).
Although the use of airport P3 structures in the United States is gradually evolv-
ing to target specific capital improvements, at least some private investors—such as
14
The celebratory and self-congratulatory tone of Governor Cuomo’s statement and press release
suggests a more specific, fleshed-out plan for the multi-project upgrade than currently exists or, at
least, than currently publicly disclosed. In February 2019, Governor Cuomo announced a $344-mil-
lion expansion of JFK’s Terminal 8, an American Airlines and British Airways partnership. The
accompanying press release contains few details (Press Release, 2018).
private equity investors who actively buy and hold similar highly regulated
infrastructure-intensive operating businesses—would likely be more comfortable
with European-model airport privatization. Large-scale privatization allows for
greater development, whereas ownership in a small part of the airport like a terminal
makes it difficult to plan long-term growth (Poole, 2017; O’Dea, 2017). In addition
to applying many of the same arguments that support the use of airport P3 struc-
tures, advocates for full privatization cite an opportunity to obtain increased capital
for airport assets, stimulate competition, encourage innovation, produce greater
efficiency, and reduce politicized decision-making (Ernico et al., 2012; Puentes &
Lewis, 2013).
Despite global popularity, full airport privatization has not generated much inter-
est in the United States because of the US airport financial and regulatory environ-
ment, as well as local policy concerns over ceding control of an essential public
infrastructure facility (Poole, 2017; US Government Accountability Office, 2014).
In the mid-1990s, the Congress established a program to study if innovative
financial structures could incentivize private sector investment in aviation infra-
structure (Federal Aviation Administration, 2004). Originally limited to a handful of
pilot projects, the program—now renamed the Airport Investment Partnership
Program (AIPP)—permits the Secretary of Transportation to exempt any airport
proprietor from the closed fiscal system requirement, as well as any other law, regu-
lation, or grant assurance to the extent necessary to permit the proprietor to recover
an approved amount of money from the sale or lease of the airport. An attendant
provision simultaneously exempts an airport proprietor from any obligation to repay
grants previously provided by the federal government or return of property deeded
by the federal government upon sale or lease of the airport. Taken together, these
provisions could enable privatization; for example, a multi-decade concession and
lease structure that involve an up-front cash payment from the private sector would
be permissible where, without the provisions, such structure and payment plan
would not be permitted.
The centerpiece of the AIPP deals with the private entity on the other side of a
sale or lease of an airport and exempts the purchaser or lessee from the closed fiscal
system requirement and other laws, thus allowing the purchaser or lessee to be com-
pensated by the airport’s operations. The private entity may impose a PFC, receive
AIP grants, and collect reasonable rates of revenue from aircraft operators. As typi-
cal with FAA, certain conditions accompany the AIPP exemptions, such as the
requirement that the Secretary approve the agreement and that the airport proprietor
and private entity fulfill several enumerated commitments.
Would-be airport investors often view the US full airport privatization frame-
work “not as an invitation but as an obstacle course” (Poole, 2017). According to
FAA, the initial group of airports that submitted APPP applications spent
34–46 months in the process, only for most to withdraw at various stages (Federal
Aviation Administration, 2004). Other airports may have contemplated APPP appli-
cations but been deterred from even beginning the formal process; only two airports
have completed the process and were privatized, and one of those airports later
returned to public control. A small handful of additional airports are participating in

the process at various stages.
Precarious finances might incentivize full privatization, as was the case in Puerto
Rico. In 2012, the Puerto Rico Ports Authority (PRPA) agreed to lease San Juan’s
Luís Muñoz Marín Airport to private entity Aerostar for a $615 million initial pay-
ment and a share of revenues over the life of a 40-year lease. In 2010, the PRPA
found itself burdened with more than $800 million in debt and unable to access the
state and local government bond market to conduct basic upkeep and maintenance
at Luís Muñoz Marin, let alone make necessary capital improvements. The airlines
serving Luís Muñoz Marin supported full privatization, “given the poor manage-
ment and substandard condition of the airport.” San Juan remains the only airport to
have successfully completed the privatization process and remained under private
control.
The Hendry County Airglades Airport—a small, one-runway facility in South
Central Florida, with only rudimentary aeronautical facilities but with ambitious
aspirations of developing an international cargo facility to compete with Miami
International Airport—has joined San Juan in successfully completing the regula-
tory approvals for privatization. The FAA approved Hendry County’s AIPP applica-
tion in October 2019, and the airport reportedly projected “successful close of
finances” at the end of February 2020, with construction to begin immediately
thereafter (Notice of Availability for Participation of Airglades Airport, 2019;
Toczauer, 2019).
Other airports, however, have withdrawn AIPP applications. The Westchester
County Airport in White Plains, New York, withdrew an AIPP application in March
2019 (Airport Investment Partnership Program, 2019). In December 2019, Mayor
Lydia Krewson abruptly ended the City of St Louis’ almost 3-year, highly publi-
cized flirtation with privatizing St. Louis Lambert International Airport, a former
TWA and American Airlines hub which experienced a dramatic decline in traffic
after American Airlines slashed service (Schlinkmann, 2019). The failure of the St.
Louis privatization may be, at least in part, attributable to the reasons for the bid in
the first place. Unlike San Juan, which needed international investment and profes-
sional management, St. Louis Lambert International Airport was generally regarded
as well managed with plenty of workable (some argued, too much) infrastructure.
Instead, the objective for the privatization was unrelated to the airport: the city
wanted to funnel money into other city coffers that would have been unavailable
absent privatization. This privatization effort and abandonment was enormously
controversial due to the lack of a clear, airport-based policy imperative for privatiza-
tion and the absence of a compelling economic or financial story to justify the
switch. The failure of the Westchester County privatization was likewise political
and not financial: the original proposal was promoted by a County Executive whose
party lost control in the following election and never enjoyed support from the other
political party.
Additional factors dampen investor enthusiasm, such as the provisions that
require a supermajority of airlines to support full privatization and fee increases
above the rate of inflation (Puentes & Lewis, 2013). Additionally, FAA reserves the
right to review an operator’s revenue return for reasonableness, but does not clearly
define “reasonableness,” thus creating significant uncertainty regarding the permis-
sibility of different financial management structures and decisions (Airport
Privatization Pilot Program: Application Procedures 1997; Puentes & Lewis, 2013).
Would-be airport investors, furthermore, do not have the benefit of test cases or pilot
projects to help navigate the significant uncertainty surrounding the FAA’s treat-
ment of full airport privatization.
Some policy-based objections also hamper full airport privatization in the United
States, unique financial, and regulatory environment aside. First, US airports have
other tools to increase competition, decrease costs, and improve management with-
out sifting through complex laws and regulations. Second, privatization might not
solve the underlying concern of undeveloped infrastructure; oftentimes privatiza-
tion is used to generate a one-time influx of cash to be used on other projects
(Puentes & Lewis, 2013).
With San Juan’s Luís Muñoz Marin, for example, full privatization solved a
“specific airport problem,” namely, the PRPA’s inability to access the state and local
government bond market to conduct basic upkeep and maintenance or make capital
improvements (Puentes & Lewis, 2013). Likewise, the Airglades project is designed
to convert a largely unused, rudimentary rural airfield into a cargo hub with enor-
mous economic development promise. The City of St. Louis, meanwhile, planned
to privatize St. Louis Lambert International Airport with the goal of monetizing the
airport assets to generate hundreds of millions of dollars for municipal purposes
unrelated to the airport (Schlinkmann, 2019). Although FAA continues to support
the AIPP, it arguably does so with minimal enthusiasm and only at the Congress’
direction.
Summary and Conclusion
In contrast to much of the rest of the world, US airport P3 structures are still in their
infancy. The unusual mix of operational, regulatory, commercial, and practical con-
trol by the federal government makes the United States a particularly complex mar-
ket for investors. Additionally, unusual statutory limitations on the use of airport
revenue, exhaustive FAA oversight, financing advantages of AIP grants, and tax
benefits associated with public bond financing, together present practical, legal, and
financial hurdles for private investors.
These barriers separate investment from a starved airport market. According to
some calculations, the US airport requires at least tens of billions and perhaps over
$100 billion in infrastructure investments in the immediate future. Yet at a spend
rate of less than $4 billion per year in grants, the federal government will not meet
that demand. At the same time, fiscal constraints prevent state and local govern-
ments from reaching that investment goal with state and local bonding. In this land-
scape, investors with a high-risk tolerance and a long-term perspective will likely
find attractive opportunities for capital projects at airports of every conceivable
size—from mega hubs to small supplemental airports. These opportunities will

probably not come in the form of whole-airport P3s but rather in the form of spe-
cific, capital-intensive projects with a predictable revenue stream where federal
funding is either unavailable or an insignificant component of overall project cost.
Given the extensive federal regulation of airport finances in the United States, inves-
tors will need to creatively structure financial arrangements and compensation to
find exceptions to the federal requirement that all airport revenue be used exclu-
sively for the airport’s capital and operating costs.
The federal government could, with comparatively small policy changes, sub-
stantially alter the climate for airport P3s in the United States. The existing statutory
authority provides the flexibility needed to resolve uncertainties about private inves-
tor roles, return of investment, regulatory oversight, and length of contractual
arrangements. These changes (or, more precisely, increased precision and certainty
in federal policies) could be accomplished at the administrative level if there were
FAA political support for such efforts. This would require a change in FAA perspec-
tive from one in which federal financial control is paramount to one in which the
FAA is one of many sources of capital funding and in which the agency seeks a
balance of authority commensurate with the balance of funding sources. As the US
government seeks more infrastructure investment more generally, the climate is ripe
for such revisions.
Acknowledgments The authors are deeply indebted to Matthew Seligman and Laura Boyer, law
students at the University of Colorado, for their thoughtful editing of drafts of this chapter.
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Public-Private Partnerships in Port Areas:
Lessons Learned from Case Studies
in Antwerp and Rotterdam
Bart Wiegmans, Niek Mouter, Thierry Vanelslander, and Stefan Verweij
Abstract The cost-benefit analysis (CBA) is a widely used approach for the
appraisal of transport projects, but criticisms on it have led to the development of
alternatives such as the BENEFIT approach. This book chapter analyzes three cases
of infrastructure investments in port areas in Belgium and the Netherlands, by appli-
cation of the BENEFIT approach. We find inter alia that differences in country
performance on internationally accepted indicators can influence differences in
infrastructure investments between countries. Moreover, infrastructure projects
with larger revenue-generating possibilities will influence the PPP (public-private
partnership) potential of this type of projects in a positive way. Applying different
appraisal methods to the same infrastructure project might help to arrive at infra-
structure project investment approvals that are well-documented.
Keywords PPP · Cooperation · Port areas
B. Wiegmans (*)
Department of Transport & Planning, Faculty of Civil Engineering and Geosciences, Delft
University of Technology, Delft, The Netherlands
e-mail: b.wiegmans@tudelft.nl
N. Mouter
Section Transport & Logistics, Faculty of Technology, Policy and Management, Delft
University of Technology, Delft, The Netherlands
e-mail: n.mouter@tudelft.nl
T. Vanelslander
Department of Transport and Regional Economics, Faculty of Business and Economics,
University of Antwerp, Antwerp, Belgium
e-mail: thierry.vanelslander@uantwerp.be
S. Verweij
Department of Spatial Planning and Environment, Faculty of Spatial Sciences, University of
Groningen, Groningen, The Netherlands
e-mail: s.verweij@rug.nl; http://www.stefanverweij.eu

https://doi.org/10.1007/978-3-030-83484-5_7
108 B. Wiegmans et al.
Abbreviations
BENEFIT The BENEFIT project operationalized through its transport infrastruc-

ture resilience indicator provides a rating methodology, which gives
the likelihood of an infrastructure project in its current configuration
to reach its stated outcomes with respect to cost to construction com-
pletion, time to construction completion, actual vs forecast traffic, and
revenues.
CSI Cost-saving
D&C Design-and-construct
DBFM Design-build-finance-maintain
FEI Financial-economic
FSI Financing scheme
GI Governance
InL Institutional
IRA Reliability/availability
KDL Kieldrecht lock
LHRT Liefkenshoek Rail Tunnel project
MEAI Market efficiency and acceptability
MV2 Second Maasvlakte
PSC Public Sector Comparator
QCA Qualitative comparative analysis
RAI Remuneration attractiveness
RRI Revenue robustness
RSI Revenue support
VfM Value for money
Introduction
It has been traditional for governments to decide on and directly finance transporta-
tion infrastructure investments. However, the introduction of market principles,
more liberal viewpoints, deregulation, and privatization have resulted in a more
competitive, market-based transport sector, in which the government does not need
to finance all investments in infrastructure (Wiegmans et al. 2002).
As a result of this change in attitude, public-private partnerships (PPPs) for
transportation infrastructure have become popular among policy makers (European
PPP Expertise Centre, 2015). However, despite their apparent advantages, the
involvement of private parties in investing in transport infrastructure has remained
limited, and it has proven challenging to implement PPPs successfully (e.g., Verweij
Public-Private Partnerships in Port Areas: Lessons Learned from Case Studies… 109
et al., 2017). However, successful PPPs have been implemented in, for instance,
container terminal investments in large deep-sea ports, where port authorities col-
laborate with large deep-sea container carriers and/or global terminal operating
companies.
The purpose of this chapter is to identify the factors that affect success and fail-
ure for the development of PPPs in port areas. Hopefully, this can contribute to the
development of effective PPP design. The research question of this chapter is as
follows: which success and failure factors can be identified from PPP experiences in
the port areas of Antwerp and Rotterdam and how can this inform effective PPP
design? We aim to answer this research question through an analysis of three case
studies in freight transportation in the port areas of Antwerp (Belgium) and
Rotterdam (the Netherlands). “Public Private Partnerships in the port areas of
Antwerp and Rotterdam” section briefly describes the respective port areas and
introduces the PPP projects. “Evaluation Frameworks: CBA, PSC, and BENEFIT”
section discusses the theoretical approaches toward PPP and concludes with our
suggested framework to evaluate the projects. “The Three Infrastructure Projects
Compared and Evaluated” section contains the analyses of the PPP projects and
indicates the lessons learnt. Finally, “Conclusions and Discussion” section ends
with the conclusions and discussion.
ublic-Private Partnerships in the Port Areas of Antwerp

P
and Rotterdam
This section addresses the context and relevant characteristics of the three consid-
ered PPP cases. The full analysis of the PPP characteristics is done in “The Three
Infrastructure Projects Compared and Evaluated” section, with the selected method-
ology from “Evaluation Frameworks: CBA, PSC, and BENEFIT” section.
Liefkenshoek Rail Tunnel (LHRT)
The Port of Antwerp was served by a common railroad connection to the hinterland,
causing congestion and delays (see Fig. 1). The Liefkenshoek Rail Tunnel project
(LHRT) was designed to address this problem, as the new railroad would accom-
modate and allow for growth (Petit, 2015). The Liefkenshoek Rail Link project is
the largest PPP project in Belgium. LOCORAIL NV, a consortium of construction
groups CFE, VINCI Concessions, and BAM PPP, was chosen after competitive bid-
ding with a 42-year concession contract to design, build, finance, and maintain
(DBFM) the Liefkenshoek Rail Link project with a total value of approximately
Fig. 1 Overview of rail network in the Port of Antwerp. Legend: Hoofdspoorlijn = main rail line,
Havenspoor = port rail line, Ondergronds spoor = underground rail line. Source: https://www.ant-
werpen.be/docs/Stad/Stadsvernieuwing/Bestemmingsplannen/RUP_02000_212_00067_00001/
RUP_02000_212_00067_00001_0000Document_tn.html
€690 million (Bamelis, 2015; Van Olmen, 2015). The project includes two single-
track tunnels of roughly 5970 m in length each and with an internal diameter of
7.3 m, constructed by shield driving, and several kilometers of the tunnels were
constructed by cut-and-cover with deep diaphragm and cement-bentonite walls. The
total project is divided into 13 construction sections including an aqueduct, the ren-
ovation of the existing 30-year-old Beveren Tunnel, the starting shaft, and two tun-
nels with cross-passages and evacuation shafts, as well as the end ramp. Construction
began in November 2008. The critical part of the project was the construction of the
starting shaft, as both tunnels depended on this to remain on schedule. The excava-
tion for the first tunnel started in January 2010 and construction for the second tun-
nel started 2 months later in March 2010. Construction works were completed in
February 2014, and the railroad has been operational since the 14th of December
2014. The works were financed by the European Investment Bank and six commer-
cial banks. Infrabel, the Belgian rail network manager, pays an annual availability
fee of €50 million to Locorail until 2051 (TUC Rail, 2015).
Second Maasvlakte (MV2)
The Second Maasvlakte (MV2) has been financed primarily by the Port of Rotterdam
Authority. The port authority borrowed money from the European Investment Bank
(€900 million), the Bank Nederlandse Gemeenten (€450 million), and a bank con-
sortium consisting of ING, Fortis, and Rabobank for a loan of €450 million. The
total loan is meant to finance the MV2 and the infrastructure in the Port of Rotterdam.
The consortium PUMA, composed of the companies Boskalis and Van Oord, has
built the first phase of MV2. The companies VolkerWessels and BAM have been
responsible for building the quays, railways, and roads. The project’s main aim was
to reclaim land from the sea and to build an additional port area that will be primar-
ily used to accommodate new container terminals. In September 2008, after years
of discussions, planning, and protests, the building of the MV2 started (the orange
part in Fig. 2) and was finished after approximately 5 years, in May 2013, for a
Fig. 2 Overview of the Maasvlakte 2 project in the port of Rotterdam. Source: https://nl.wikipe-
dia.org/wiki/Tweede_Maasvlakte#/media/Bestand:MV2_plankaart_Gr_tcm81-33695.jpg
budget of around €3 billion. The project Maasvlakte 2 was realized by the Port of
Rotterdam Authority on own account and risk, and in the end, the project was fin-
ished on budget.
Kieldrecht Lock (KDL)
The development on the left bank of the Port of Antwerp dates back to the 1970s
and started from the Waasland Channel, with the construction of the north and
south docks. In the original development plans, a disclosure of the Waasland Port
toward the Scheldt river at the seaside was scheduled via the Baalhoek Channel and
the related Baalhoek Lock. The Kallo Lock would thereby only function as a transit
lock. The seaside access was never completed, and the Kallo Lock, which has been
operational since 1983, is the only access way to the Waasland Port. In 1998–1999,
when the choice was made for the Deurganckdok and a further development via
that way, it was decided to remove the reservation area for the Baalhoek Channel
from the regional development plan. The Kallo Lock is heavily used with 8800
shifts per year. Waiting times amount to 3.5 h. Given its dimensions
(360 m × 50 m × 12.58 m), the lock was never meant to function as access lock from
the seaside. Moreover, there is always the chance that a collision at the level of the
lock would block the entire Waasland Port. The new Kieldrecht Lock (KDL) is big-
ger than the current Kallo Lock and will hence allow using the Waasland Port’s
potential to the maximum. The new lock is not only larger and longer then the Kallo
Lock but also deeper. With the increased growth of the activities in the Waasland
Port, the Kallo Lock will reach its capacity. A second lock on the Scheldt left bank
offers the Port of Antwerp operational reliability in the case the Kallo Lock would
not be accessible for shipping traffic. During periods of maintenance or repair
works, there is then no problem, as the ships can sail in and out the Waasland Port
via the second lock. The total costs for the lock are €382.3 million. The contract
was awarded for a 20-year period to NV Deurganckdoksluis; a PPP consortium
owned 26% by NV Vlaamse Havens (public) and Port of Antwerp (private). The
call was launched in November 2010, the contract was approved, and the financing
was closed in November 2011 (Regering, 2012). Financing was provided by the
European Investment Bank, KBC, and the contractor. The lock was opened for
usage in 2016 (Fig. 3).
Fig. 3 Overview of the location of the Kieldrechtsluis. Source: https://nl.wikipedia.org/wiki/

Kieldrechtsluis
Evaluation Frameworks: CBA, PSC, and BENEFIT
Cost-Benefit Analysis (CBA)
In most high-income countries, CBA or CBA techniques form the core of the eco-
nomic appraisal of transport projects (e.g., Andersson et al., 2018; Mackie et al.,
2014). In the Netherlands, it is obligatory to evaluate proposed investments in port
infrastructure that require a financial contribution from a national government using
a CBA. The Dutch government also developed guidelines which CBA analysts
should follow when conducting their studies (e.g., Romijn & Renes, 2013).
Basically, a CBA is an overview of all the positive effects (benefits) and negative
effects (costs) of a project or policy option (e.g., Van Wee, 2012). All impacts are
quantified as far as possible and expressed in monetary terms using the notion of
households’ willingness to pay for these effects (e.g., Boadway, 2006). Finally, gov-
ernment projects are typically intertemporal in nature, so the benefits and costs
occur over a period of time (e.g., Boadway, 2006). To deal with this, they are pre-
sented as the so-called present values, implying that—even after a correction for
inflation—it is better to have 1 euro or dollar now than, for example, in 10 years’
time (Van Wee, 2012). Present values are aggregated to yield an indicator of the
project’s net impact on social welfare.
Investments in port areas generally also require financial support from the gov-
ernment, notwithstanding the desire to create a more competitive, market-based
transport sector, in which the government does not need to finance all investments
in infrastructure (Wiegmans et al., 2002). Hence, in the Netherlands, CBAs were
conducted for various port investments in the past two decades, ranging from rela-
tively small local projects such as new locks in inland waterways (tens of million
euro investments) to the Second Maasvlakte project, which is a billion euro expan-
sion of the Port of Rotterdam (Annema et al., 2017). Annema et al. (2017) observed
that in the period 2000–2012, 14 CBAs were conducted for investments in inland
waterway projects, and 8 CBAs were conducted for investments in seaports in the
Netherlands.
Two Dutch studies offered in-depth analyses of CBAs for seaport projects.
Annema et al. (2017) focused on the CBA that was conducted for the Second
Maasvlakte project (see “Second Maasvlakte (MV2)” section). Annema et al.
(2017) concluded that the CBA was used as a learning tool and not as a decision-
making tool in these two cases. They established that in the case of the Second
Maasvlakte, the CBA fueled the decision to implement the extension of the port in
phases (depending on the arrival of new customers for the port grounds). The fact
that in these cases CBA was used as an optimization instrument and not as a deci-
sion instrument echoes findings in the more general CBA literature (Eliasson &
Lundberg, 2012; Hahn & Tetlock, 2008; Mouter et al., 2013). Despite its virtues,
some of the assumptions underlying CBA are criticized by notable philosophers,
economists, and psychologists alike (e.g., Ackerman & Heinzerling, 2004; Kelman,
1981; Nyborg, 2014; Sagoff, 1988; Thaler, 1999; Tversky and Kahneman, 1981).
As it is out of the scope of this chapter to review this literature, we limit ourselves
to two critiques that are relevant for the evaluation of PPP investments in port areas.
The first criticism is targeted toward the postulation in CBA that only persons
within a country’s national boundaries are counted in the analysis. This postulation
is contested by cosmopolitans, who argue that governments should treat foreigners
and residents in the same way in a CBA because it is unethical to discriminatorily
allocate resources between domestic and foreign persons (Singer, 1972).
Cosmopolitans, for instance, emphasize that the welfare effects of a government
policy do not magically cease to exist at political borders (Rowell & Wexler, 2014).
This debate is especially relevant for port investments, which generally have an
international character. This particularly holds for cross-border projects, such as the
deepening of the Scheldt’s Waterway to Antwerp and the proposed Freight Rail
projects between Antwerp and Germany (the IJzeren Rijn) and between Antwerp
and Rotterdam (the Robellijn).
The second line of critique focuses on the postulation in CBA that a project’s
societal value is independent on how the project is financed (Harberger, 1978). This
postulation is also called “complete fungibility”: it does not matter whether govern-
mental projects are financed with private or public Euros, because both types of
budgets cannot have a different purpose. A crucial issue is that “complete fungibil-
ity” does not fit with what is observed in reality (e.g., Thaler, 1999; Tversky &
Kahneman, 1981). Thaler (1999), for instance, shows that individuals explicitly
and/or implicitly group their expenses into categories (“mental accounts”). Income
and assets are distributed across the categories to form “sub-budgets” within the
overall budget, and Euros contained within a given budget can have a specific goal
or purpose. As such, they are at best imperfect substitutes for Euros from other bud-
gets, even for the same individual. From this point of view, a more defensible notion
is to assume that individuals view their own money and government funds as being
from two separate budgets. The implication of the assumption that individuals
believe that private Euros and public Euros can have different purposes is that the
extent to which a particular port investment is financed from public Euros or private
Euros impacts the way the project should be evaluated in a CBA. That is, when the
project is fully funded from public resources, its welfare effects should be inferred
from individuals’ preferences regarding the use of public Euros, which could be
elicited in a context in which individuals make choices when faced with effects
accruing from alternative allocations of government budget (e.g., Goel et al., 2016;
Mouter et al., 2017): the so-called “willingness to allocate perspective.” In the case
the project is both funded by private and public Euros, the private part should be
evaluated using the conventional willingness to pay approach, whereas the public
share is assessed using a willingness to allocate approach.
Public Sector Comparator
Following these critiques, other methods have been proposed to evaluate transport
infrastructure investments. For instance, the European Union used the BENEFIT
approach, and at the national level, governments use tools such as the Public Sector
Comparator (PSC). The PSC is the benchmark costs of providing the service speci-
fied by the public procurer with traditional procurement, which is then compared
with the costs of providing the service through a PPP (see, e.g., Grimsey & Lewis,
2004, 2005; Boardman & Hellowell, 2017; World Bank Institute, 2013). The PSC
basically answers the question whether or not procurement of infrastructure and
related services is good value for money (VfM) compared to traditional or standard
public sector procurement (Yescombe, 2007). In the Netherlands, the standard pro-
curement option today is the design-and-construct (D&C) contract (Lenferink et al.,
2013), and DBFM (design-build-finance-maintain) is the default PPP option
(Rijksoverheid, 2018). Although the private contractor is integrally responsible for

infrastructure construction and design in both D&C and DBFM (Culp, 2011), the
latter is considered a type of PPP, whereas the former is not (Yescombe, 2007; e.g.,
Rijksoverheid, 2018). The reason is that private financing is considered an essential
element in PPPs, which is present in DBFM but not in D&C. Because governments
have clear financing cost advantages over private consortia (Leruth, 2012; Moore
et al., 2017), in the Netherlands, DBFM is normally only considered, using the PSC,
for projects over €60 million (van Financiën, 2013). Based on existing evidence, the
Dutch Ministry of Finance estimates that DBFM(O) projects achieve cost advan-
tages—in terms of VfM—ranging from 10 to 15% (van Financiën, 2016). A short-
coming of this focus on prospective outcomes, using tools such as the PSC, is,
however, that it is unclear whether the outcomes actually materialize; they do not
account for the actual value achieved during and after the project’s lifecycles (Boers
et al., 2013). For instance, low bids on contracts may evaporate due to contract
claims during project construction (Mohamed et al., 2011), and unforeseen events
may impact the project scope and lead to implementation difficulties that impact
project costs (e.g., Verweij et al., 2017). As a result of consequent contract changes,
the cost advantage of PPPs over regular infrastructure procurement may potentially
even be nullified (cf. Van Elst & Van Montfort, 2018). Therefore, scholars have
recently called for more research into the actual outcomes of PPPs (i.e., outcomes
occurring after contracts were signed) compared to traditionally procured projects
(Verweij, 2018).
BENEFIT
The BENEFIT1 project analyzes funding schemes within an interrelated system.

Funding schemes are deemed to be successful based on a number of dimensions:
–– The business model that generates the funding scheme, as well as their stake-
holders and policy contexts
–– The implementation context, including contextual changes over time and space,
among which changes in overarching policy
–– Transport mode context, which reflects the availability and reliability of
infrastructure.
–– The financing scheme, which shows the nature and sources of financing used to
make the investment
–– The governance model and more in particular the contracting arrangements
The above are key elements in transport infrastructure provision, operation, and
maintenance, as illustrated in Figs. 1 and 4.
1
BENEFIT: business models for enhancing funding and enabling financing for infrastructure in
transport, www.benefit4transport.eu
Fig. 4 BENEFIT key dimensions in transport infrastructure investment. Source: Roumboutsos

et al. (2014)
By defining indicators for each of the abovementioned dimensions, an input-

output model is created, whereby success can be linked to a combination of indica-
tor values occurring. Such combinations are called typologies. Best matches
between typologies and success allow for the development of a Decision Matching
Framework. This framework enables all concerned actors to analyze the potential
and thereby make decisions that lead to the most desirable outcome. The BENEFIT
Decision Matching Framework makes use of following indicators as listed in
Table 1. The indicators are operationalized according to the calculation methods
identified in the Appendix A. Note that the FEI and InI indicators are composed of
values from publicly available sources, while the other indicators are based on
expert judgments for the values of the composing subdimensions. Expert judgments
are taken from a variety of concerned stakeholders for the considered projects, each
time covering the different points of view (project principal, user, technology pro-
vider, etc.), so as to avoid bias in the answers.
Key findings can be identified with respect to the influence that indicators have
on the four specific outcomes considered within the BENEFIT Matching Framework,
i.e., cost to completion, time to completion, actual versus forecast traffic, and actual
versus forecast revenues. The approach to do so can be summarized as matching the
scorings to the abovementioned matching framework indicators with success scores
attached to the four outcomes. The BENEFIT approach will also be used in this
chapter to compare the different projects with each other.
Table 1 BENEFIT Matching Framework indicators

Indicator Subdimension
Financial-economic (FEI) Competitiveness
Economic/financial key figures
PPP support
Institutional (InI) Political (political capacity, support, and policies)
Regulatory (legal and regulatory framework)
Administrative (public sector capacity)
Governance (GI) Efficiency/effectiveness of governance
Contractual flexibility
Cost-saving (CSI) Capability to construct
Capability to innovate
Capability to operate
Revenue Support (RSI) Share of non-transport activities
Capability to manage revenue risk
Level of optimal other revenue risk allocation
Remuneration attractiveness (RAI) Cost recovery
Risk of income
Operational performance
Revenue robustness (RRI) Cost coverage
Risk of revenues
Optimal operational performance
Market efficiency and acceptability (MEAI) Market and environmental efficiency
Public acceptability of funding scheme
Financing scheme (FSI) Project gearing ratio
Sources of finance
Reliability/availability (IRA) Investment
Users
Market strength/competitiveness
The Three Infrastructure Projects Compared and Evaluated
Following the BENEFIT approach, the three projects Liefkenshoektunnel, Second

Maasvlakte, and the Kieldrecht Lock are compared and analyzed, after the comple-
tion of all projects. Input data for the analysis are shown in Table 2. The figures in
this table are obtained by applying the calculation approach from the Appendix
A. There, for each dimension and subdimension, the possible values are shown.
Expert judgments, including different types of concerned actors and stakeholders
and reports for each case, are used to score each subdimension. Experts include both
contractors involved, as well as financiers, public authorities, and port authorities.
Scores were for each subdimension averaged over the various stakeholders.
First of all, Table 2 shows that the MV2 dominates the Liefkenshoektunnel on all
indicators, the “Governance” and “CSI” indicators being the exceptions. Second,
Table 2 shows that the three case studies score in a quite similar way on various
indicators, examples being “Financial-economic” (FEI), “Institutional” (InI),
“Governance” (GI), and “Reliability/availability” (IRA). This can be explained by
the fact that all projects are implemented in Belgium and the Netherlands, which
Table 2 BENEFIT approach applied on the three projects

Indicator Subdimension LHRT MV2 KDL
Financial-economic (FEI) Competitiveness 0.691 0.785 0.641
Economic/financial key figures
PPP support
Institutional (InI) Political (political capacity, support, 0.74 0.94 0.78
and policies)
Regulatory (legal and regulatory
framework)
Administrative (public sector
capacity)
Governance (GI) Efficiency/effectiveness of 0.688 0.636 0.625
governance
Contractual flexibility
Cost-saving (CSI) Capability to construct 0.639 0.617 0.367
Capability to innovate
Capability to operate
Revenue support (RSI) Share of non-transport activities 0.133 0.691 0.245
Capability to manage revenue risk
Level of optimal other revenue risk
allocation
Remuneration attractiveness Cost recovery 0.667 1.0 0.667
(RAI) Risk of income
Operational performance
Revenue robustness (RRI) Cost coverage 0.741 1.5 0.750
Risk of revenues
Market and environmental efficiency
Public acceptability of funding
scheme
Market efficiency and 0.444 0.65 0.833
acceptability (MAEI)
Financing scheme (FSI) Project gearing ratio 0.458 1.0 0.655
Sources of finance
Reliability/availability (IRA) Investment 1 1 1
Users
Market strength/competitiveness
On/over cost Over On Over
On/over time Over On Over
On/below traffic Below To be On
seen
On/below revenue Below To be On
seen
Sources: own calculation
perform relatively similarly in terms of financial-economic conditions (FEI), and

both countries are characterized by a relatively stable political environment as well
as by a properly functioning rule of law (InI). High values for the latter two indica-
tors are important for achieving high outcome scores on cost, time, and traffic.
LHRT and KDL went over time, with LHRT, for instance, featuring 2.5 years of
delay in the actual contract signing, and KDL even a delay of 15 years between
initial plans and contract signing. As these indicators are based on internationally
accepted country performances and as the differences between Belgium and the
Netherlands are not too large, these are not the indicators where the differences
between infrastructure projects will be found. Quite interestingly, all three case
studies improved the reliability and availability of the infrastructure fully in line
with expectations (IRA). Third, Table 2 shows that the cases perform differently on
some other indicators such as :Revenue support” (RSI), “Revenue robustness”
(RRI), and “Financing Scheme” (FSI). Particularly the revenue support drastically
differs between the MV2, which performs quite well on this indicator, and the
Liefkenshoektunnel, which performs very poorly, especially as reliability in the ini-
tial years was lower than expected, therefore leading to somewhat lower usage and
compensations to be paid. The latter is rather strange for port-related projects, since
both ports have a nodal function, at the intersection of many modes of transport,
which usually reflects in a high RSI. Furthermore, also the larger revenue-generating
possibility for the MV2 (via rents and port dues) influences these indicators for the
MV2 project in a positive way. Fourth, for all three outcomes, the observation from
Roumboutsos et al. (2014) has confirmed that the CSI for port projects is typically
low: this has to do with the fact that, also here, the projects are mostly handled by a
PPP consortium primarily for its operating skills, and less for its construction skills.
That explains also why projects with a higher CSI typically have a somewhat better
cost, time, traffic, and revenue performance. Fifth and finally, a high remuneration
attractiveness (RAI) contributes to a better revenue outcome score. Only LHRT
explicitly does not seem to confirm this picture, probably due to the fact that it con-
cerns a port hinterland transport link rather than a port terminal project.
Conclusions and Discussion
In this chapter, we presented the results of the analysis of three cases of infrastruc-
ture investments with the BENEFIT approach. The BENEFIT framework is
designed to overcome some of the critiques raised against the cost-benefit analysis
(CBA), which is nowadays still considered the gold standard for supporting public
decision-making. In essence, BENEFIT evaluates infrastructure investments from
different angles and by using different methods, which enhances the documentation
and quality of investment decisions. The central research question was as follows:
which success and failure factors can be identified from PPP experiences in the port
areas of Antwerp and Rotterdam, and how can this inform effective PPP design?
From the comparison and evaluation of the three cases, several conclusions arise.
Firstly, the MV2 project clearly outperformed the Liefkenshoektunnel and
Kieldrecht Lock projects on the indicators RSI, RRI, and FSI. The analysis shows
that the Second Maasvlakte project has a better revenue support, revenue robust-
ness, and financing scheme. This result indicates that infrastructure projects with
larger revenue-generating possibilities (such as the MV2 through rents and seaport
dues) will influence the performance of this type of projects in a positive way, com-
pared to projects with less revenue possibilities such as roads and locks. Secondly,
differences in country performance on internationally accepted indicators can also
influence differences in infrastructure investments between countries. Directly with
the project, these indicators do not distinguish among the projects too much (such
as FEI and Inl), but indirectly, they influence the performance of the respective
infrastructure projects. In this chapter, we raise attention to the issue that while the
CBA is still the most widely used approach, it also received criticism increasing the
call for alternative assessment approaches for evaluating the success of PPP proj-
ects. One option is the BENEFIT approach, which we applied in this chapter.
Admittedly, though the evaluation methods are designed for different purposes.
Moreover, there are also limitations to the BENEFIT framework. For one thing,
while BENEFIT provides a transparent framework through quantification for the
comparison of PPP transport projects, it remains descriptive for seaports, as opposed
to other modes. For seaports, no conclusive trends with respect to influencing indi-
cators could be found. The latter is a requirement for being able to develop and
apply the quantitative transport infrastructure rating instrument, which within
BENEFIT was developed for most other modes. Therefore, findings of this paper
can therefore not be generalized to just any port PPP case, let alone making a com-
parison between port PPP projects and publicly funded projects. However, the
approach and method for sure can. The figures can be transferred to other cases, the
setting of which is as much similar as possible only. Other cases can of course apply
the same approach and calculate the outcomes for their specific setting. To be able
to explain differences between PPP projects more fully, it will be interesting to
combine the application of the BENEFIT framework with analytical methods such
as qualitative comparative analysis (QCA) (see Gerrits and Verweij, 2018).
Therefore, the combined and integrated application and comparison of different
methods to the same infrastructure project might also help to arrive at infrastructure
investment project approvals that are of high-quality, well-documented, and sub-
stantiated. The main point is also that this will allow us to learn better from past
projects for future projects. Preferably, this should in future work also be applied to
a wider set of cases. The same extended approach could also be applied to compare
between PPP projects and publicly funded projects.
Appendix
This Appendix operationalizes the various BENEFIT indicators mentioned in

“Evaluation Frameworks: CBA, PSC, and BENEFIT” section of the main text, so as
to be used in “The Three Infrastructure Projects Compared and Evaluated” section
for the concrete case calculations.
FEI
FEI1 The (growth) A score between 1 (weak) and 7 (strong), rescaled to

competitiveness index between 0/1
developed by the World
Economic Forum
FEI2 Inflation (consumer Composed by two governance indicators of the World
prices), general Bank—rule of law and regulatory quality—combined with
government final the aggregated OECD indicators of regulation in energy,
consumption expenditure, transport, and communications (ETCR) on the regulatory
GDP per capita growth restrictiveness (inverse of level of liberalization) of markets,
and unemployment rate. each scaled between 0 and 1 and weighted
FEI3 S&P global equity prices publicly available figures, rescaled to between 0 and 1
and domestic credit to
private sector
FEI4 PPP governmental support Government effectiveness indicator by the World Bank, each
index as developed scaled between 0 and 1 and weighted
FEI (FEI1 + FEI2 + FEI3 + FEI4)/4
INI
INI1 “Political” Composed of three main governance indicators of the World

subdimension Bank: political stability and absence of violence, control of
“political capacity, corruption, and voice and accountability, each scaled between 0
support, and policies” and 1 and weighted
INI2 “Regulatory” Composed by two governance indicators of the World Bank—
subdimension “legal rule of law and regulatory quality—combined with the
and regulatory aggregated OECD indicators of regulation in energy, transport,
framework” and communications (ETCR) on the regulatory restrictiveness
(inverse of level of liberalization) of markets, each scaled
between 0 and 1 and weighted
INI3 “Administrative” Government effectiveness indicator by the World Bank, each
subdimension “public scaled between 0 and 1 and weighted
sector capacity”
FEI (INI1 + INI2 + INI3)/3
GI
G1 The client selected 0 = more than one bidder selected in pricing stage + no collective
only one service project cost estimation
provider [bidder] to 0.5 = only one bidder selected in pricing stage/collective project
participate in the cost estimation
pricing stage 1 = only one bidder selected in pricing stage + collective project
G2 The client and the cost estimation
key service
providers [bidders]
collectively
estimated the
expected project
cost
G3 Encouragement of 0/1
competition
between bidders
G4 Integration of 0/1
design and
construction
G5 The key service 0 = no penalty + no cost risk
providers 0.5 = penalty/cost risk
[contractor] to pay a 1 = penalty + cost risk
penalty if
completion dates
were not met
G6 The key service
providers
[contractor] solely
carried the risk of
rising costs
G7 The client and key 0/1
service providers
[contractor] [to
share] shared equal
proportions of profit
due to cost
underruns
G8 Bonding 0/1
requirements
G9 All exploitation, 0/1
commercial/revenue
and financial risks
are shared
G10 Clauses enable both 0 = no clause present
updating of service 1 = one of or both clauses present
and price changes
G11 Clauses indicate 0/1
that client has an
option to terminate
the agreement
without cause
GI (G1 + G2 + G3 + G4 + G5 + G6 + G7 + G8 + G9 + G10 + G11)/11
CSI
x1 Level of civil works %

x2 Capability to construct %
x3 Optimal construction risk allocation %
x4 Adoption of innovation 0/1
x5 Capability to manage the application of innovation 1 = ex ante or ex post if successful
0 = ex post if unsuccessful
x6 Share of other transport infrastructure investment %
x7 Life cycle planning 0/1

x8 Capability to operate %
x9 Optimal operational risk allocation %
CSI x2x3 – (x1 − x1x2x3) + x4x5 + x7x8x9
RSI
x10 Share of greenfield %

x11 Coopetition (for greenfield) %
x12 Capability to manage traffic %
demand (for greenfield)
x13 Optimal traffic demand risk %
allocation (for greenfield)
x14 Level of satisfaction (for greenfield) 1 = more than 50% very satisfied
0.5 = more than 50% satisfied
0 = less than 50% satisfied
x15 Share of brownfield %
x16 Coopetition (for brownfield) %
x17 Capability to manage traffic %
demand (for brownfield)
x18 Optimal traffic demand risk %
allocation (for brownfield)
x19 Level of satisfaction (for 1 = more than 50% very satisfied
brownfield) 0.5 = more than 50% satisfied
0 = less than 50% satisfied
x20 Share of non-transport activities %
x21 Capability to manage the non- 0/1
transport revenue risk
x22 Optimal other revenue risk %
allocation
x23 Other economic impacts Positive impacts: 1
Negative impacts: −1
No influence: 0
x24 Other environmental impacts Positive impacts: 1
No influence: 0
x23 Social impacts Positive impacts: 1
No influence: 0
x24 Institutional impacts Positive impacts: 1
No influence: 0
RSI 1 + x10x11x12x13x14 + x15x16x17x18x19 + x6x11x12x1
3x14 + x20x21x22 + x23 + x24 + x25 + x26
RAI
RAI1 Cost recovery %

RAI2 a: Share of income stream i on total % share of income stream i on total
revenues revenues
b: Risk of income source i Usage payment: 3
Availability payment: 2
Quality performance payments: 2
Subventions: 1
Risk of income s: Σ(a.b)
RAI3 si: score of income (or penalty) stream i on 1 (inadequate incentive) to 4 (adequate
incentives incentive)
wi: % of income stream i on total income %
Optimal operational performance s: Σ(wi.si)
RAI (RAI1 + RAI2 + RAI3)/3
RRI
RRI1 Cost coverage %

w: 2
RRI2 a: Share of revenue stream i on total revenues %
b: Risk of revenue source i scale: 1 (low risk) to 4 (high risk)
Risk of revenues s: Σ(a.b)
RRI (2RRI1 + RRI2)/2
MEAI
MEAI1 smc1: Adherence of infrastructure use 1–4 (1, not related; 4, fully related)
pricing scheme to (social) marginal
costs of infrastructure use
smc2: Application of consistent 0/1
marginal cost pricing scheme in
concurrent infrastructure
Market and environmental efficiency s: smc1 (smc2 cond.)
MEAI2 pa1: Direct benefits of project to 1–4 (1, no benefits to funding agent(s); 4, full
funding agent(s) alignment of benefits to funding agent)
pa2: Perception that pricing revenue 1–4 (1, application of revenues not transparent;
is applied toward a desired objective 4, application of revenue transparent and
towards a desired objective)
Public acceptability of funding s: pa1 + 0.5*pa2
scheme
MEAI (MEAI1 + MEAI2)/2
FSI
D Debt Debt A. Investors (debt) with a high aversion against risk taking: the general
indicator public (tradable bonds), other institutional investors (e.g., pension funds,
insurance companies, other funds), non-leading banks: 4
Debt B. Lead banks: 3
Debt C. International Financial public Institutions IFIs (e.g., EIB): 1, 5
Debt D. Government: 1
E Equity Equity A. Investors (equity) with a high aversion against risk taking: the general
indicator public (tradable shares), commercial Banks: 4
Equity B. Infrastructure funds and private equity funds, individual affiliated
investors (e.g., contractors, operators and other project sponsors): 3
Equity C. Government
FSI = 0.5 * Ieq * (1 − d) + Idebt * d, d = share of debt
IRA
R Level of reliability Reliability was improved fully in line with expectations or even
more: 1
Reliability was improved only partially in line with expectations: 0.50
Reliability was not improved or only marginally: 0.0
A Level of Availability was improved fully in line with expectations or even
availability more: 1
Availability was improved only partially in line with expectations: 0.50
Availability was not improved or only marginally: 0.0
IRA (1 + IR) * (1 + IA)/4
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Seaport PPPs in the EU: Policy,
Regulatory, and Contractual Issues
Eric Van Hooydonk
Abstract In many ports of the European Union (EU), public port authorities rou-
tinely award terminal contracts to private operators who undertake substantial capi-
tal investment in port superstructure such as terminal surface layout, handling
equipment, and warehouses. This well-nigh traditional collaboration can be consid-
ered a form of PPP avant la lettre. Partnerships where the private terminal operator
also finances the port infrastructure, such as capital dredging, quay walls, or even
breakwaters and locks, are rare in the EU. There are several reasons for this, includ-
ing the strong role of the public sector in ports, the availability of sufficient public
funding sources, and the usually satisfactory functioning of the classic combination
of public infrastructure investment and private superstructure investment. Generally,
the setting up of PPPs in EU ports does not seem to encounter major legal obstacles
deriving from either Union or national law. However, port terminal contracts in the
EU Member States take different forms. In the few cases of private infrastructure
investment, models are lacking, and there is often experimentation, which entails
risks. There is scope for EU institutions to issue a guidance instrument that offers
practical, legal, and financial advice and explains best practices on both classic and
innovative PPPs in ports.
Keywords Ports · Port terminal · Port policy · Port finance · EU ports · Regulation
(EU) 2017/352 · Concessions · State aid · PPP
Abbreviations
BOT Build-operate-transfer
ECJ Court of Justice of the European Union
ECLI European Case Law Identifier
ECR Reports of the Court of Justice of the European Union
E. Van Hooydonk (*)

Ghent University (Maritime Institute), Portius - International and EU Port Law Centre, Eric
Van Hooydonk Advocates, Antwerp, Belgium
e-mail: eric@ericvanhooydonk.be

Transportation, Vol I, Competitive Government: Public Private Partnerships
https://doi.org/10.1007/978-3-030-83484-5_8
130 E. Van Hooydonk
EIB European Investment Bank

EU European Union
j° juncto (i.e., read in combination with)
GBER Commission Regulation (EU) No. 651/2014 of 17 June 2014 declaring
certain categories of aid compatible with the internal market in applica-
tion of Articles 107 and 108 of the Treaty
PSO Public service obligation
Ro/Ro Roll-on/roll-off
TFEU Treaty on the Functioning of the European Union
Scope and Purpose
In this contribution we will briefly outline the preconditions for the application of
public-private partnerships (PPPs) in the EU seaport sector that arise from EU pol-
icy, law, and practice. We focus on two specific types of port PPPs: (1) the operation
of a port terminal by a private partner who finances the superstructure, while the
public partner finances the infrastructure (“port superstructure PPP”), and (2) the
operation of a port terminal by a private partner who, in agreement with a public
partner, finances both the infrastructure (or part of it) and the superstructure (“port
infrastructure PPP”).
EU Port Management Systems and PPP Practice
Port Management Systems
To understand the use of PPPs in EU ports, it is necessary to have an insight into the
organization of port authorities, which are usually the public partners in such a
PPP. The way in which EU ports are managed is largely determined by the political
and constitutional views, principles, and traditions that exist in the individual
Member States. As a result, there is an almost endless variety of port management
systems in the EU. Nevertheless, some broad classifications can be applied.
First of all, port management functions (i.e., the responsibilities of a port author-
ity or, in the EU’s regulatory jargon, a “port managing body”) and port operations
(in the EU often called “port services”) can be set up according to either a public
service-oriented or a commercial approach. In the first case, the activity is seen as
of general interest; in the second, the provider is inspired by a profit motive. The
organization of the EU’s ports industry is largely based on a mixed model and, more
specifically, a division of roles between the public and the private sector, with infra-
structure management taken care of by public authorities and the provision of han-
dling and marine services by commercial businesses.
Seaport PPPs in the EU: Policy, Regulatory, and Contractual Issues 131
Port authorities can take diverse legal forms. In Europe, different port manage-
ment traditions have been found to cohabit. In the Latin or Mediterranean (central-
ist) tradition, and in a number of countries of the former Eastern bloc, the State is
(or used to be) the principal actor, although it often operates via a more or less
autonomous port authority.1 Under the Hanseatic (local) tradition, a predominant
role is played by the municipalities.2 The Anglo-Saxon approach used to be charac-
terized by the presence of independent trust ports, but today in the UK privatized
commercial management prevails. In many countries, different systems are com-
bined, or shares and/or decision-making mandates are distributed over several part-
ners.3 The latest port governance report of the European Sea Ports Organisation
(ESPO, 2016) confirms that today most port authorities in Europe remain publicly
owned. Full ownership by the State or by the municipality continues to be predomi-
nant. Few port authorities are owned by a combination of different public entities.
Mixed public-private ownership is rare. A large number of publicly owned port
authorities in the EU are structured as independent juridical persons (often an
autonomous body sui generis4 created under specific legislation, or a limited com-
pany governed by commercial and/or public law5), and operate in a more or less
business-like manner. Port authorities listed in the stock exchange remain the excep-
tion.6 Full private ownership is common in a large number of ports in the UK. This
peculiarity and the absence of State aid to ports have been cited in the UK as a
motive for leaving the EU, which has become a reality in 2020.7
From a legal point of view, four typical powers of a port authority can be identi-
fied. The first and main task of such body is the management of port land and infra-
structure, including the carrying out of construction and maintenance works. It may
grant rights to use port assets or areas to third parties who provide services to the
final port users. It is in this context that PPPs for the construction and operation of
terminals may be set up. Secondly, the port authority may police port operations, in
other words ensure the orderliness and safety of those operations. For this purpose,
it may issue port regulations and set up a Harbor Master’s Office. Thirdly, the port
authority may itself provide port services, ranging from cargo handling and passen-
ger terminal services (to which we shall return in the next paragraph) to marine
services (pilotage, towage, or mooring). Fourthly, the port authority normally
charges and collects port dues of different types and denominations. In many—but
not all—EU ports, the tariffs of these dues are set by the port authority itself (in
1
For example, in Bulgaria, Croatia, Cyprus, Estonia, France, Greece, Italy, Lithuania, Malta,
Poland, Portugal, Romania, Slovenia, and Spain.
2
For example, in Belgium, Denmark, Finland, Germany, the Netherlands, and Sweden.
3
In Ireland, Latvia, and Sweden but also, for example, in Poland and the United Kingdom.
4
For example, Hamburg (Germany), and the seven major French ports (the “Grands Ports
Maritimes,” which include Marseilles, Le Havre, and Dunkirk, France’s biggest ports).
5
Including Rotterdam (the Netherlands) and Antwerp (Belgium), the EU’s biggest ports.
6
For example, Koper (Slovenia), Piraeus (Greece), Tallinn (Estonia), and Thessaloniki (Greece).
7
On port policy considerations underlying Brexit, see Van Hooydonk, 2019a, at 363–368, para-
graph 124.
132 E. Van Hooydonk
some cases subject to approval by a governmental agency). In addition, the port

authority may act as a price regulator for services offered in the port by other service
providers. The EU policy and law do not fix the exact role (or roles) of port authori-
ties. In other words, the EU leaves these arrangements up to the choice of national
legislators or the port authorities themselves. As a result, the division of tasks
between the port authority, national departments and agencies, and the private sec-
tor as well as the degree of autonomy of port authorities differ significantly.
As far as the role of the port authority in the provision of handling services is
concerned, the predominant port management model in the European Union is that
of the landlord port. In this case, the port authority owns (or at least manages) the
infrastructure and land of the port and grants usage rights to one or more private
terminal operators. In the tool port model, the port managing body owns or manages
the land but in addition makes certain port equipment, for example, cranes, available
to private operators. The EU’s biggest ports have abandoned this system, which is
set to disappear from the Union because private terminal operators, who are as a rule
more efficient, prefer investing in their own equipment, because port authorities
want to avoid commercial risks and because port equipment is increasingly inter-
changeable between ports and terminals. Finally, in a (full) service, integrated, or
comprehensive port, the port managing body provides all services, including termi-
nal operations (possibly using subcontractors). This system prevails in numerous
privatized UK ports that operate on a purely commercial basis and can also be found
in smaller public ports mainly in Northern Europe.
Port Reform and PPPs
In recent decades, many port authorities, including in the EU, underwent reform
under schemes labelled “corporatization,” “liberalization,” “commercialization,” or
“privatization.” Legally speaking, these notions have no fixed meaning. Considering
the normal meaning of the terms, the essence of corporatization is the transforma-
tion of the port authority from a department of a public body, such as the State or a
municipality, into a separate juridical person with decision-making powers and a
budget of its own (e.g., an autonomous agency, a company governed by public law,
a limited company under commercial law)8—but not necessarily entailing the intro-
duction of a profit-making objective. Liberalization can be understood as the
removal of (often public sector-controlled) monopolies and the opening of market
access for competing service providers. In the port sector, liberalization is often
implied in the landlord model for terminal operations, but marine services have
largely remained immune to it. Commercialization, taken in a strict sense, is almost
synonymous with liberalization, in the sense of replacing a publicly controlled
full-service or tool port model with a landlord system of private provision of port
8
This happened, for example, in Belgium, France, Germany, Italy, and the Netherlands.
services, while the public sector retains ownership of port infrastructure.9 In a wider
sense, commercialization refers to any form of imposing a profit-seeking motive on
port managing bodies or port service providers, via whatever specific legal, owner-
ship, or organizational reform measures. Finally, privatization boils down to a trans-
fer of ownership of port infrastructure or shares in a publicly owned port managing
body or port service provider to private natural or juridical persons (which may
include, e.g., ship owners, stevedores, terminal operators, investment funds, pension
funds, and private individuals).10 In practice, some of the above reform measures
may go hand in hand.
The notion of public-private partnerships (PPPs) in ports can have different
meanings. PPP is not firmly defined in EU law. For the sake of convenience, this
paper is based on a broad understanding of the notion of a port PPP as a long-term
partnership between a public and private sector entity within which the latter takes
on a substantial investment in new port terminal assets and subsequently assumes an
operating risk.
Under the most widespread PPP scheme in EU ports, a private operator invests
in port superstructure (such as cranes, surface layout and warehouses)11 under the
common landlord port management model (hereafter: “port superstructure PPP”).
The examples of such investments by private operators in the fitting out and equip-
ping of port terminals on land and quays made available by the port authority are
innumerable in the EU. It is in fact the standard formula, as the many big container
terminals of Rotterdam, Antwerp, and Hamburg, to name but the three largest EU
ports, demonstrate. Terminals for the handling of dry bulk, liquid bulk, breakbulk,
and Ro/Ro are often constructed and operated in the same way. This has been the
usual division of responsibilities between the public and private sectors from long
before the concept of PPP came into vogue. Moreover, it has little or nothing to do
with the emergence of the milestone private finance initiative (PFI) in the UK in the
early 1990s. At that time, the private sector had already established itself firmly in
the UK port sector, not through private terminal equipment investments according
to the continental European landlord model, but through outright privatization, i.e.,
selling off the public port infrastructure to private investors. In any event, private
superstructure investment onto publicly funded and controlled port infrastructure is,
although often not classified as a PPP, the common form of public-private coopera-
tion in EU ports. Although the private partner invests only in superstructure, it often
involves significant capital expenditures and operating risks. It is therefore justified
to regard the traditional port superstructure PPP as PPP avant la lettre.
9
This happened, for example, in Cyprus.
10
This happened, for example, in some ports in Greece, and in the United Kingdom.
11
The EU General Block Exemption Regulation (GBER) defines ‘port superstructure’—admit-
tedly, for the purposes of EU State aid rules, not specifically PPPs—as ‘surface arrangements (such
as for storage), fixed equipment (such as warehouses and terminal buildings) as well as mobile
equipment (such as cranes) located in a port for the provision of transport related port services’
(Art. 2(158)).
134 E. Van Hooydonk
PPPs based on private investment in port infrastructure (such as breakwaters,

locks, capital dredging for waterway access and basins, land reclamation, and quay
walls)12 (hereafter: “port infrastructure PPP”) are still much less common in the EU
port sector, which in a sense has a traditional character and is marked by a high level
of public intervention, control, and funding. An early example of a port infrastruc-
ture PPP designed as a works concession can be found in the (initial) port of
Zeebrugge (Belgium). That port complex consisted of an outer port protected by a
mole, a maritime lock, an inner port, a sea canal, and an inner dock system at its
terminus near the city of Bruges. The port and canal complex were constructed,
financed, and operated on the basis of a concession granted by the Belgian
Government in 1896 to a limited company established by two private entrepreneurs
and the City of Bruges. Later, the State—which, from the outset, had financed the
bulk of the port works—joined as a shareholder, and the majority of shares in this
company was gradually taken over by the public authorities. Today, the company is
an almost 100% city-owned public port authority (with very few shares remaining
in private hands). A more recent example of privately financed port infrastructure
can be found in Sines, Portugal’s main container port. In 1999, a “public service”
concession for the development and operation of a container terminal, including
terminal infrastructure (in fact a BOT scheme), was granted to PSA Sines. This
company is a subsidiary of PSA International, which is a global investment holding
company that grew out of the former Port of Singapore Authority. The award of the
contract has been criticized for a lack of fair opportunities offered to other interested
candidates. PSA Sines is currently expanding the successful terminal, including its
infrastructure. In 2019, the Portuguese government adopted a decree-law that lays
the foundation for the award by the port authority to a private partner of a public
service concession for the construction and operation of an additional container
terminal (the Vasco da Gama terminal). Also in this case, the construction of the
terminal infrastructure will be the responsibility of the concessionaire. A similar
case of private infrastructure investment can be found in Piraeus, which is Greece’s
main port. In 2008, the Piraeus Port Authority granted a concession to Piraeus
Container Terminal, as subsidiary of Chinese-owned Cosco Pacific. The concession
comprised not only the right to operate an existing container terminal but also the
duty to upgrade it and to construct an additional terminal, including the quay infra-
structure, primarily with a view to attracting transshipment traffic. Among the mani-
fold motives for attracting a private infrastructure investor were the wish to develop
the port as an international container hub while limiting the financial risk in this
rather volatile business, speeding up the expansion of the port, and lowering admin-
istrative and operational costs through the implementation of modern management
practices (Psaraftis and Pallis, 2012). Later, through a privatization operation, Cosco
12
The aforementioned GBER defines “port infrastructure” as “infrastructure and facilities for the
provision of transport-related port services, for example, berths used for the mooring of ships, quay
walls, jetties and floating pontoon ramps in tidal areas, internal basins, backfills and land reclama-
tion, alternative fuel infrastructure, and infrastructure for the collection of ship-generated waste
and cargo residues” (Art. 2(157)).
acquired the majority of shares in the port authority. Following Cosco’s entry into
the scene, the port succeeded in attracting considerable new throughput volumes.
An innovative partnership was established in 2015 for the expansion of the Calais
ferry port in France, one of the most important ports for traffic between the European
continent and the United Kingdom. The operation of the port was entrusted to a
mixed public-private concessionaire, who delegated the design, construction, and
maintenance of the port infrastructure to a separate public-private company, which
charges the concessionaire an availability fee. The project had a funding gap that
was closed through various public support mechanisms. Private infrastructure
investments also occur in industrial ports, such as Vassiliko in Cyprus. There, a
cement factory built a port facility on the basis of a lease agreement, and a liquid
bulk handler invested, under a license agreement, in a tank park with a jetty for the
accommodation of ocean-going vessels. In the Netherlands, some DBFM-based
lock projects in maritime and inland waterway canals can be mentioned, including
for the construction of a new lock connecting the Amsterdam Ship Canal with the
North Sea.
The general picture of PPP practice in the EU port sector is thus twofold. There
is a strong tradition of port superstructure PPPs, i.e., superstructure investments by
private operators in the fitting out and equipping of terminals in port areas where the
public sector constructs the infrastructure. Private infrastructure investments
through a port infrastructure PPP are still rather rare in the EU. There is a variety of
cases, mainly inspired by ad hoc needs. At first glance, the limited role of port infra-
structure PPPs is surprising because in the market for PPPs in the EU, transport is
the largest branch both in terms of value and number of projects. These regularly
include infrastructure development in the motorways, rail, and airport sectors (EIB-
EPEC, 2020). In our view, a combination of five major factors explains why over the
past decades the EU saw no major transition to PPPs for investments in new port
infrastructure: (1) the strong, historically rooted presence of the public sector in EU
port management patterns, with ports often being considered assets of strategic and
critical national importance; (2) the availability of sufficient public funding sources
needed to expand port infrastructure; (3) the relative infrastructural maturity of the
port system when compared to dramatic capacity expansion and private financing
needs in other continents; (4) the smooth functioning of traditional port superstruc-
ture PPPs under the popular landlord model; and (5) a certain conservatism (not
necessarily to be valued as negative) in port management circles, along with the lack
of established models for setting up port infrastructure PPPs. Only in exceptional
cases the option of setting up a port infrastructure PPP enters the picture, particu-
larly where there is a lack of public investment funds or where the intended invest-
ment is of a predominantly commercial or industrial nature (such as a single-user
port facility). In this context, it comes as no surprise that big visions or theories on
the desirability or advantages and disadvantages of PPP in ports are lacking in the
EU. As will be shown below, not only PPP practice but also national legislation is
rather diverse across the EU, and different types of contractual arrangements are
used depending on national traditions. In the few cases of port infrastructure PPPs,
136 E. Van Hooydonk
the contracts are inevitably tailor-made if not experimental, and often inspired by
examples from other sectors or even non-EU countries.
The Regulatory Framework for Port PPPs in the EU
The EU Framework
The legal framework for port PPPs in the EU is governed, on the one hand, by the
law of the European Union and, on the other hand, by the domestic law of the EU
Member States. EU law, which takes precedence over Member State law, consists
of primary law and secondary law. Both of them impact on PPPs in the port sector.
Primary EU law is composed of the provisions laid down in the European Treaties
and includes, for example, the principles relating to the internal market and free
competition, including State aid to undertakings, which are laid down in the Treaty
on the Functioning of the European Union (TFEU). Secondary EU law comprises
regulations, directives, and decisions issued by the EU institutions. These include,
for example, the Public Procurement Directives13 and the EU Concessions Directive14
(to which we will return further on) and the sector-specific EU Seaports Regulation.15
The latter regulation was adopted in 2017, after a debate that lasted 20 years. This
instrument governs the management of the Union’s maritime ports, more specifi-
cally (1) the granting of access to the market for port services to prospective service
providers and (2) the financial management of the European port system, including
rules on the transparency of public funding and the collection of port infrastructure
and port service charges.16 One of the regulation’s main aims is to support the liber-
alization of the port services market through a set of measures that stimulate com-
petition “in” or at least “for” the market. The instrument clearly favors financially
autonomous and market-oriented management of ports under a landlord model.
13
Directive 2014/24/EU of the European Parliament and of the Council of 26 February 2014 on
public procurement and repealing Directive 2004/18/EC; Directive 2014/25/EU of the European
Parliament and of the Council of 26 February 2014 on procurement by entities operating in the
water, energy, transport, and postal services sectors and repealing Directive 2004/17/EC. The latter
Directive governs public procurement in the utilities sector, which includes ports and airports.
14
Directive 2014/23/EU of the European Parliament and of the Council of 26 February 2014 on the
award of concession contracts.
15
Regulation (EU) 2017/352 of 15 February 2017 establishing a framework for the provision of
port services and common rules on the financial transparency of ports.
16
The regulation applies to the provision of the following categories of port services, either inside
the port area or on the waterway access to the port: (a) bunkering; (b) cargo handling; (c) mooring;
(d) passenger services; (e) collection of ship-generated waste and cargo residues; (f) pilotage; and
(g) towage (Art. 1(2)). Its scope is further limited to those maritime ports that belong to the trans-
European transport network, as listed in Annex II to Regulation (EU) No 1315/2013 (Art. 1(4)).
For an in-depth analysis of the regulation, see Van Hooydonk, 2019a; see also Van Hooydonk,
2019b, 2019c, 2019d, 2019e, 2019f, 2019g and Van Hooydonk, 2020.
Nevertheless, the regulation does not really impose any specific port management
system. Compulsory privatization of ports would go against primary EU law,
because the Treaty on the Functioning of the European Union is neutral as regards
the public or private ownership of undertakings.17 Both the Treaty and the EU
Seaports Regulation recognize the right of Member States to organize services of
general economic interest18 and, under certain conditions, to maintain or introduce
exclusive or special rights.19 The regulation’s preamble insists that the instrument
does not seek to interfere with national port governance models, leaving it to
Member States to determine, for example, whether and, if so, to what extent or in
what way private investors are involved in port management or port operations.20
Despite the undeniable fact that the EU Seaports Regulation is today the central
instrument of EU port policy and law, we will see below that its practical impact on
port PPPs is quite limited.
The National Frameworks
Most port authorities in the EU operate within a framework set by specific national
legal acts (port laws, port decrees, port provisions of a Maritime Code, etc.).21 Many
of these laws deal with matters such as the legal regime of port land and assets and
the status, powers, and organization of port authorities. Most of them do not seem
to deal specifically with PPP contracts. Some EU Member States have adopted spe-
cific horizontal laws to regulate or facilitate PPPs which apply to most if not all
economic sectors. Some national PPP laws indeed also apply to ports,22 but this is
not everywhere the case.23 Some countries took specific measures to encourage port
PPPs. In France, Act No. 94-631 of 25 July 1994, which allowed the creation of
rights in rem and immoveable leases on the public domain, met a specific demand
by the port sector which wanted to attract private investments and facilitate their
bankability. Similarly, as from 2003, Flemish decrees authorized Belgian port
17
See Art. 345 TFEU. The principle is confirmed in Recital (9) of the EU Seaports Regulation.
18
See Art. 14 and 106(2) TFEU and Protocol No. 26 to the TFEU.
19
See Art. 106(1) TFEU.
20
See Recitals (9), (10), and (24) of the Preamble and, at length, Van Hooydonk, 2019a, at 319–321,
paragraphs 109 and 442–447 and paragraph 147.
21
For example, Belgium (Flanders), Bulgaria, Cyprus, Denmark, Estonia, Finland, France, Greece,
Ireland, Italy, Latvia, Malta, Poland, Romania, Spain, and the United Kingdom. Some individual
port authorities, such as those managing the ports of Hamburg (Germany), Klaipeda (Lithuania),
and Koper (Slovenia), are governed by specific laws. In the Netherlands, however, no specific port
law applies, and in Sweden the national statutory framework is limited.
22
For example, the Romanian Law no. 178 from 1 October 2010 – the law regarding the public-
private partnership.
23
For example, the Bulgarian Public-Private Partnership Act of 2012. This does not alter the fact
that concessions were applied in several Bulgarian ports.
138 E. Van Hooydonk
authorities to grant such rights on goods belonging to the public domain for the
purpose of setting up PPP projects.24 Since 2016, there has been some further
streamlining at EU level, as all Member States had to adopt national laws to imple-
ment the EU Concessions Directive, which we will come back to later.
Key Issues in Setting Up PPPs in the EU Port Sector
State Property
As we have already pointed out, today’s EU law is neutral regarding property own-
ership systems, and this also applies to ports. However, Roman law—the cradle of
many of Europe’s and the world’s and the EU’s legal systems—already considered
the port a quintessential public good.25 Largely based on that tradition and on the
enduring belief that ports are key assets of general interest and not, or not only,
profit-seeking businesses, several of the EU’s civil law countries26 still regard ports
as parts of the “public domain” (French domaine public, as mentioned in Article
538 of Napoleon’s famous Code civil), which is essentially extra commercium.
Ports often share this status with other scarce public assets such as the seabed,
waterways, and roads. Depending on the specificities of the national legal system,
the public domain principle can have important consequences for PPPs. Firstly, it
may imply a ban on private ownership arising from the requirement that these goods
be State property (or at least property of a public sector-controlled agency, such as
an autonomous port authority). Secondly, specific legal arrangements may govern
the granting of temporary usage rights to individuals or juridical persons; for exam-
ple, the port authority may be authorized to grant revocable authorizations, permits,
or concessions only, rather than long leases under civil law, and mortgaging build-
ings and other constructions for the benefit of banks may face restrictions as well.
Thirdly, the public domain status may have implications for the legal nature of port
dues and the way they are introduced and collected. All these rules may imply
restrictions on PPPs in ports or hamper the bankability of private investments or
make them less attractive. On the other hand, certain civil law countries in Northern
Europe,27 where public authorities own the ports, do not consider them part of the
public domain because that notion is absent or has been abandoned (and as a result,
civil law leases for terminal operations are perfectly common).
24
See Arts. 9, § 3 of the Flemish Ports Decree of 2 March 1999 (as amended). The underlying
analysis and policy recommendations were provided in Van Hooydonk (2001).
25
We do not use this concept here in the sense assigned to it in economic science.
26
For example, Belgium, France, Italy, Portugal, Romania, and Spain.
27
For example, Germany and the Netherlands.
Generally, in common law countries,28 private operators can own ports, just like
any other business assets, and the port authority may be a commercial company run-
ning all port operations itself. The UK port privatization campaign, started in the
1980s, generalized this model. However, some common law countries by law
impose obligations on port operators to serve the general interest of the public29 or
have specific laws dealing with public ownership of ports30 or the foreshore.31
The traditional distinction is further blurred by the fact that some common law
countries also use port “concessions”32 (but prior to the introduction of the afore-
mentioned EU Concessions Directive, these were often not governed by specific
rules of administrative law) and by the fact that in some civil law countries, port
infrastructure may be owned (temporarily) by a private investor under a port infra-
structure PPP, in particular a works concession. Practically, the specific rules on
public ownership of ports rarely, if ever, seem to result in an obstacle to port super-
structure PPPs. As already mentioned, some civil law countries33 have relaxed their
traditional regime of public goods specifically to facilitate PPP in ports. This was
aimed more specifically at making rights in rem and mortgages possible and thereby
improving the bankability of such projects.
Contract Type
For each port PPP, the right contract form will have to be chosen given the regula-
tory context, the financial setup, and other factors such as bankability and national
or local practices. The choice determines key issues such as the award procedure,
the rights and obligations of the parties, and the duration (including the scope for
renewal and early termination).
For port superstructure PPPs, the following contract types are used in practice:
lease agreements governed by civil law,34 emphyteutic lease agreements governed
by civil law,35 lease agreements partly governed by specific port laws and
regulations,36 land concessions or similar contracts governed by specific port laws
and regulations,37 land concessions (or “public domain” concessions) governed by
28
Such as, in Europe and the UK.
29
For example, the UK.
30
For example, Cyprus.
31
For example, Ireland.
32
For example, again, Cyprus.
33
France and Belgium.
34
For example, Gdansk (Poland) and Hamburg (Germany).
35
For example, Rotterdam (Netherlands).
36
For example, Riga (Latvia).
37
For example, Genoa, Naples, Trieste, Venice (Italy), Algeciras, Barcelona, Valencia (Spain), and
the French Grands Ports Maritimes (“convention de terminal”).
140 E. Van Hooydonk
no specific legal framework,38 tailor-made concessions for the commercialization of

existing port facilities,39 or service concessions governed by the EU Concessions
Directive and the national laws transposing it. In most cases, however, port terminal
contracts in a classic landlord port setup remain outside the scope of the latter direc-
tive. The reason is that such contracts often focus on the permission to use publicly
owned property and not on a service to the port users that the grantor wants to
secure. In this sense, there is no “procurement” of a service on the part of the grantor.
Following some hard lobbying from EU ports, the preamble to the EU Concessions
Directive confirms that such port terminal contracts, although sometimes called
concessions, are not service concessions within the meaning of that directive.40 On
the basis of similar reasoning, these port terminal contracts should not, as a rule, be
regarded as public contracts governed by the EU Public Procurement Directives and
national implementing legislation either.41 In practice, the correct classification of
port terminal contracts still gives rise to legal disputes.42 A number of bigger ports
where the conclusion of port terminal contracts is a routine business have adopted
General Terms and Conditions.43
Port infrastructure PPPs, on the other hand, often require ad hoc contractual
arrangements which result from sometimes complex award procedures and detailed
negotiations. Contracts under which a private investor undertakes to design, build,
maintain, and operate a new port terminal, including its infrastructure, are often
designed as a build-operate-transfer (BOT) scheme (or similar). Legally speaking,
such contracts will today often amount to a works concession within the meaning of
the EU Concessions Directive, to which we will return below.
The award of port terminal contracts is not subject to the EU Seaports Regulation.
That is because its market access chapter does not apply to cargo-handling and pas-
senger services.44 In addition, the EU Seaports Regulation provides expressly that it
is without prejudice to the EU Directives that deal with concessions and public
procurement.45 This proviso means that once a given port service is organized by
means of a works or services concession or a public contract within the meaning of
38
For example, Antwerp, Ghent, and Zeebrugge (Belgium).
39
For example, Limassol (Cyprus).
40
Recital (15) of the EU Concessions Directive.
41
See, in relation to an airport, but perfectly transposable to seaports, ECJ 13 July 2017, Malpensa
Logistica Europa, Case C-701/15, ECLI:EU:C:2017:545; see also, in a case relating to the State
Seaport of Klaipėda (Lithuania), European Commission, Additional Formal Notice-Infringement
No 2007/4595, Brussels, 10 July 2014; European Commission, Additional Reasoned Opinion-
Infringement No 2007/4595, Brussels, 27 November 2014.
42
See, for example, a judgment of the French Conseil d’État (Supreme Administrative Court) of 14
February 2017, Société de Manutention portuaire d’Aquitaine vs. Sea Invest Bordeaux, No.
405157, ECLI:FR:CECHR:2017:405157.20170214.
43
For example, Antwerp, Hamburg, and Rotterdam.
44
Art. 10(1) EU Seaports Regulation. For further background, see Van Hooydonk, 2019a, at
369–383, paragraph 12.
45
Art. 1(7) EU Seaports Regulation.
the aforementioned directives, the relevant provisions of those directives or, to be

precise, the national rules transposing them, take precedence. For the sake of com-
pleteness, the horizontal EU Services Directive does not apply to the port sector at
all,46 and thus does not apply to the award of port terminal contracts either.
In sum, regarding port PPPs in the EU, there is no uniformity in the types of
contracts used, and EU integration has brought only limited harmonization. After
all, the diversity among EU Member States is the logical consequence of the cau-
tious approach of the EU institutions in regulating national port management sys-
tems. Even if the contract is a services or works concession within the meaning of
the EU Concessions Directive, uniformity remains limited, as this EU directive (and
the national laws that implemented it) only regulates a limited number of aspects,
especially the award procedure, the duration, and the scope for modification without
a new award process. All other aspects are left to national law. Because national law
often does not provide a detailed default framework defining the rights and obliga-
tions of the contracting parties, the port authorities or local ministries that negotiate
the contracts have a serious responsibility here.
Award Process
An important question is what procedure the public partner in a port PPP should
follow to designate the private partner. In 2008, the European Commission stated
that competitive award procedures were applied in ports such as Antwerp, Rotterdam,
Amsterdam, Bremerhaven, Wilhelmshaven, Le Havre, Sines, Barcelona, and
Algeciras and that it “assume[d] that all Member States respect the requirement of
open access to port concessions.”47 In 2013, the Commission confirmed that in a
large majority of EU ports (71%), port authorities had on their own initiative intro-
duced transparent and objective procedures as a matter of good port governance.48
Even if one considers these figures encouraging from the point of view of transpar-
ent government and fair competition, they also indicate that contracts are still being
concluded without an objective and open procedure. It is therefore useful to recall
the relevant principles of EU law.
If a port PPP takes the form of a works or services concession within the mean-
ing of the EU Concessions Directive, the public partner49 will have to conclude the
agreement with the private partner after a competitive procedure that meets the
requirements of that directive (or, more precisely, the national legislation
46
Art. 2.2(d) Directive 2006/123/EC of the European Parliament and of the Council of 12 December
2006 on services in the internal market.
47
Answer given in the European Parliament by Commissioner Barrot on 21 February 2008 to
Written Question no. P-0262/08 Schinas.
48
See Van Hooydonk, 2019a, at 630, paragraph 214.
49
To be precise, the EU Concessions Directive applies to “contracting authorities” and “contracting
entities.” The latter may be a private operator enjoying a special or exclusive right.
142 E. Van Hooydonk
transposing it). However, under this specific European regime for concessions, the
public partner enjoys greater flexibility than under the ordinary public procurement
rules. The starting point is that the public partner has the freedom to organize the
procedure leading to the choice of concessionaire.50 But the design of the conces-
sion award procedure must respect the principles of equal treatment of economic
operators, nondiscrimination, transparency, and proportionality.51 More specifically,
the public partner wishing to award a concession must make known its intention by
means of a concession notice.52 Technical and functional requirements must define
the characteristics required of the works or services that are the subject matter of the
concession, and they must be set out in the concession documents.53 Concessions
must be awarded on the basis of objective and published award criteria which ensure
that tenders are assessed in conditions of effective competition so as to identify “an
overall economic advantage” for the public partner.54 The award criteria must be
linked to the subject matter of the concession and shall not confer an unrestricted
freedom of choice on the public partner.55
As we have seen, the conclusion of classic port terminal contracts, including
those that involve a port superstructure PPP, normally remains outside the scope of
secondary EU instruments (including the EU Public Procurement Directives, the
EU Concessions Directive, and the EU Seaports Regulation). However, a specific
Recital to the EU Seaports Regulation recalls that public authorities, when conclud-
ing cargo and passenger terminal contracts, are still bound by the general treaty-
based principles of transparency and nondiscrimination set out in the case law of the
European Court of Justice.56 More specifically, this refers to the Telaustria doctrine
as developed by the Court,57 according to which the obligation of transparency con-
sists in ensuring, for the benefit of any potential tenderer, a degree of advertising
sufficient to enable the services market to be opened up to competition and the
impartiality of procurement procedures (without necessarily implying an obligation
to call for tenders). The transparency principle is intended to preclude any risk of
favoritism or arbitrariness on the part of the contracting authority. The obligation
implies that all the conditions and detailed rules of the award procedure must be
drawn up in a clear, precise, and unequivocal manner in the contract notice or speci-
fications so that, first, all reasonably informed tenderers exercising ordinary care
can understand their exact significance and interpret them in the same way and,
second, the contracting authority is able to ascertain whether the tenders submitted
satisfy the criteria applying to the contract in question. The principle of equal
50
Art. 30(1) EU Concessions Directive.
51
See Art. 30(2) j° 3(1) EU Concessions Directive.
52
53
54
Art. 37(1) and 41(1) EU Concessions Directive.
55
56
Recital (38) of the EU Seaports Regulation.
57
ECJ 7 December 2000, Telaustria, Case C-324/98, ECLI:EU:C:2000:669, ECR 2000, I-10745.
treatment requires tenderers to be afforded the equality of opportunity when formu-

lating their tenders, which implies that the tenders of all tenderers must be subject
to the same conditions.58
In conclusion, it is safe to say that EU integration has led to a generalization of
the obligation to award public contracts, including port PPP contracts, after a trans-
parent and objective procedure in which all interested private parties have equal
opportunities. The old practice of awarding port terminal contracts, whether for port
superstructure PPPs or port infrastructure PPPs, to preferred partners behind closed
doors, which apparently has still not been rooted out completely, is no longer com-
patible with EU law.
Contract Duration
To prevent concessionaires from controlling the market for too long without com-
petitive pressure, the EU Concessions Directive has introduced restrictions on the
duration of concessions. To start with, the directive provides that the duration of
concessions shall be limited and that the public partner shall estimate the duration
on the basis of the works or services requested.59 For concessions lasting more than
5 years, the maximum duration of the concession shall not exceed the time that a
concessionaire could reasonably be expected to take “to recoup the investments
made in operating the works or services together with a return on invested capital,
taking into account the investments required to achieve the specific contractual
objectives.” The investments taken into account for the purposes of the calculation
shall include both initial investments and investments during the life of the conces-
sion.60 This arrangement allows the authorities concerned ample flexibility to adjust
the contract duration to the level of private investment sought in a port PPP.
Although the European Commission initially intended to regulate the duration of
market access rights in the port sector in a sector-specific manner, the EU Seaports
Regulation that was finally adopted does not contain such rules, and, as we have
already mentioned, the instrument does not apply to the award of port terminal con-
tracts anyway. However, duration restrictions for classic port terminal contracts
such as those often used for port superstructure PPPs do result from primary EU
law, as interpreted by the Court of Justice. More particularly, the Court considers
that the grant of long contracts or similar acts implying market access rights is liable
to impede or even prohibit the provision of the services concerned by undertakings
in other Member States and therefore constitutes a restriction on the fundamental
58
See Van Hooydonk, 2019a, at 668–679, paragraphs 226–227, with further references.
59
60
144 E. Van Hooydonk
freedoms; the grant of rights of unlimited duration is as such contrary to the

European Union legal order.61
Public Funding
Primary EU law aims at curbing the use of public funds in a way that distorts the
normal competitive relationship between businesses. A presentation of the legal
framework for the application of State aid rules in the port sector goes beyond the
scope of this paper. Therefore, a few policy-oriented basic principles should suffice.
Under primary EU law, any aid granted by a Member State or through State
resources in any form whatsoever, which distorts or threatens to distort competition
by favoring certain undertakings or the production of certain goods is considered, in
so far as it affects trade between Member States, to be incompatible with the inter-
nal market.62 However, the existence of state aid is excluded, for example, where
there is no economic activity (this applies, e.g., to the functions of a Harbor Master’s
Office), or where the public funding does not confer an economic advantage, more
specifically where the investment is in compliance with the Market Economy
Operator Principle (this may be the case where a private co-investor participates to
a significant degree). If State aid is involved, it must be notified to the European
Commission, which may consider it compatible with the treaty in certain cases.63
Practically, the European Commission enjoys a rather wide discretion to accept
public funding of port projects on that basis. In many port-related cases, the
European Commission has accepted a notified public funding scheme based on the
treaty provision which allows aid to facilitate the development of certain economic
activities or certain economic areas.64
A high level of public investment is characteristic of the port sector in most EU
Member States (with the exception of the UK). Public bodies fund the provision of
public authority-type services (e.g., maritime traffic control, vessel traffic services,
Harbour Master’s functions, firefighting, antipollution surveillance, customs con-
trol), the construction and maintenance of general port infrastructure as well as,
particularly in the widely applied landlord model, the construction and maintenance
of terminal infrastructure. Broadly speaking, this pattern has found acceptance
under the State aid rules. As far as general port infrastructure is concerned, the
practice and policy of the Commission has been to consider that public investments
in maritime access routes that are available to users free of charge (such as
61
See and compare, for example, ECJ, 9 March 2006, Commission vs Spain, Case C-323/03,
ECLI:EU:C:2006:159, ECR 2006, I-2161; ECJ 25 March 2010, Müller, Case C-451/08,
ECLI:EU:C:2010:168, ECR 2010, I-2673; ECJ 9 September 2010, Engelmann, Case C-64/08,
ECLI:EU:C:2010:506, ECR 2010, I-8219.
62
Art. 107(1) TFEU.
63
See Art. 107(3) TFEU.
64
Art. 107(3)(c) TFEU.
breakwaters, locks, navigable channels, dredging, etc.), and other maritime infra-
structures that benefit the entire maritime community do not normally give rise to
State aid concerns, even if they confer a competitive advantage on the port authority
that receives the aid. In the case of public investments in user-specific port infra-
structure, the presence and compatibility of State aid will depend on the financial,
procedural, and contractual setup. As these cases show a great variety, it is hard to
make general statements on the impact of State aid rules on such port PPPs. As a
rule, the European Commission expects public authorities funding port projects to
award terminal contracts via a public, open, and nondiscriminatory tender proce-
dure, leading to the choice of the economically most advantageous offer, minimiz-
ing the economic advantage in favor of the future private port service provider and
establishing concession or similar fees in line with market prices. More difficult to
justify is the public funding of port superstructure such as cranes because, in a
competitive landlord model, investments in such user-specific equipment should be
borne by the terminal operator.
The Preamble to the EU Seaports Regulation mentions that it does not aim to
preclude competent authorities from granting compensation for actions taken in
fulfilment of the public service obligations provided that such compensation com-
plies with the applicable State aid rules.65 It also calls on the European Commission
to identify which infrastructure does not fall under the scope of State aid, taking into
consideration the noneconomic nature of certain infrastructure, including access
and defencse infrastructure, provided that they are accessible to all potential users
on equal and nondiscriminatory terms.66, 67 Shortly after the adoption of the EU
Seaports Regulation, the scope of the General Block Exemption Regulation (GEBR)68
was extended to ports.69 As a result of this, certain relatively limited publicly funded
infrastructure investments in maritime ports are no longer subject to prior authoriza-
tion by the European Commission. This procedural simplification is intended to
facilitate and speed up investments, in full legal certainty for aid-granting authori-
ties and project developers. However, the exemption is subject to conditions. For
example, “[a]ny concession or other entrustment to a third party to construct,
upgrade, operate, or rent aided port infrastructure” shall be assigned “on a competi-
tive, transparent, nondiscriminatory, and unconditional basis.”70 The Preamble to
65
66
67
For a discussion of these statements, see Van Hooydonk, 2019a, at 851–859, paragraph 280.
68
Commission Regulation (EU) No 651/2014 of 17 June 2014 declaring certain categories of aid
compatible with the internal market in application of Articles 107 and 108 of the treaty.
69
Commission Regulation (EU) 2017/1084 of 14 June 2017 amending Regulation (EU) No
651/2014 as regards aid for port and airport infrastructure, notification thresholds for aid for cul-
ture and heritage conservation and for aid for sport and multifunctional recreational infrastruc-
tures, and regional operating aid schemes for outermost regions and amending Regulation (EU) No
702/2014 as regards the calculation of eligible costs. For a discussion, see Van Hooydonk, 2019a,
at 679–685, paragraph 229.
70
Art. 56b.7 GBER.
146 E. Van Hooydonk
the 2017 GBER Amendment mentions that this requirement is without prejudice to
“the Union rules on public procurement and concessions, where applicable.”71
Further guidance on the implications of EU State aid law can be found in the
European Commission’s Analytical Grids on the application of State aid rules to
the financing of infrastructure projects, more specifically in Grid No. 3, which is
entitled Construction of port infrastructures72; the Commission Notice on the notion
of State aid as referred to in Article 107(1) of the Treaty on the Functioning of the
European Union73; and a report published by the European PPP Expertise Centre
(EPEC) on PPPs and State aid.74
Finally, the EU Seaports Regulation has introduced specific rules on the trans-
parency of financial relations between the managing body of the port and public
authorities.75 It appears from the Preamble to the Regulation that the intention was
to allow a fair and effective control of State aid, hence preventing market distortion
and, more generally, to prevent unfair competition between ports in the Union.76
The accompanying communication from the Commission clarifies that the new
transparency rules should also remove “uncertainties for investors looking to
invest.”77 Although the Commission’s 2013 ports policy package did not explicitly
address the need to encourage PPPs in ports, the preparatory Impact Assessment
recognizes that public funding has become scarcer as a result of the economic cri-
sis78 and that one of the expected impacts of the transparency rules is the creation of
opportunities for private investment.79 The regulation’s transparency rules partly
complement and partly replace the rules that already applied earlier based on the
general EU Transparency Directive.80
Control of Foreign Investment
In 2019, an EU Regulation establishing a framework for the screening of foreign

direct investments into the European Union on the grounds of security or public
order was introduced.81 Upon presenting this proposal, former Commission
71
Recital (8) GBER.
72
European Commission (2015).
73
European Commission (2016).
74
EPEC and Herbert Smith Freehills, 2016.
75
See Art. 11 EU Seaports Regulation.
76
See Recitals (6), (42), and (43) EU Seaports Regulation.
77
European Commission, 2013a, at 10.
78
European Commission, 2013b, at 12.
79
Ibidem, 42–43.
80
For a detailed discussion, see Van Hooydonk, 2019a, at 815–851, paragraphs 269–851.
81
Regulation (EU) 2019/452 of the European Parliament and of the Council of 19 March 2019
establishing a framework for the screening of foreign direct investments into the Union.
President Jean-Claude Juncker specifically referred to the need for transparency,

scrutiny, and debate in cases where foreign, State-owned companies wanted to pur-
chase a European port (which was, of course, a hint to China).82 The regulation
allows the Member States, in determining whether a foreign direct investment is
likely to affect security or public order, to consider its potential effects on, inter alia,
critical transport infrastructure.83 The European Commission may address opinions
to the Member States where it considers, for example, that a foreign direct assess-
ment is likely to affect the trans-European Transport Network (TEN-T),84 of which
the ports subject to the EU Seaports Regulation form a part.
Exclusive Rights
An important part of the contractual balance in a port PPP concerns the existence
and scope of exclusive rights. Here a distinction must be made between the exclu-
sive right to operate the terminal in question (the “terminal monopoly”), competi-
tion with other terminals within the same port (“intra-port competition”), and
competition with terminals in other ports (“inter-port competition”). With respect to
these aspects, there is no distinction between port superstructure PPPs and port
infrastructure PPPs.
As for the terminal monopoly, it seems logical that the terminal operator enjoys
exclusivity to operate its terminal and offer its services there to the end users of the
port. Sometimes this is implicit in the contract; in other cases it is explicitly con-
firmed. However, problems occasionally arise with third-party service providers or
subcontractors claiming a right to offer their services within the terminal, either to
the terminal operator or to the end users of the port. Conversely, it happens that the
terminal operator claims the right to make access to its terminal for other service
providers, for example, bunkering providers or ship chandlers, conditional on the
granting of access, in return for payment. Furthermore, the question arises whether
a terminal operator has the right to offer marine services itself, such as pilotage,
towing, or mooring. It is highly recommended that these issues are explicitly
addressed in the contract documents. This is often forgotten, and sometimes the
national competition authority has to intervene on the basis of the provisions of
general competition law that deal with abuses of a dominant position.
Next, as regards intra-port competition, the market power of the terminal opera-
tor depends first of all on the market structure within the port. In many cases the
operator will have to compete with other companies. However, the actual situation
(limited capacity of the port and/or absence of competitors) may result in a domi-
nant position, if not an outright factual monopoly. In that case, enforcement of the
82
See European Commission, 2017.
83
Art. 4(1)(a) Regulation (EU) 2019/452.
84
Art. 8(1), 8(3) j° Annex Regulation (EU) 2019/452.
148 E. Van Hooydonk
competition rules or further government regulation may be required. In some (prob-

ably rather rare) cases, the operator enjoys an explicit, contractually defined right to
handle one or more types of cargo within the port. In the case of private infrastruc-
ture investments, it occurs that through a specific contractual clause, the port author-
ity denies itself the right to subsequently build competing terminals.
As far as inter-port competition is concerned, the position of the operator is first
of all determined by the market structure as well. Overall, the market for port ser-
vices in the EU should be considered competitive in the sense that most ports are
exposed to competitive pressure from other ports. In rare cases, contracts granted by
national authorities protect the private operator from competition from other (exist-
ing or future) ports in the country. In view of the diversity of situations, no generally
applicable legal principles can be formulated. Given the fundamental importance of
these issues and the general principles of competition law, any clauses restricting
competition should be considered very carefully when drawing up a PPP contract.
Public Service and Minimum Throughput Obligations
In a normal landlord model, where operators are exposed to intra-port and/or inter-
port competition, cargo handling is seen as a commercial activity, and no public
service obligations are imposed. As indicated above, some port terminal contracts
do not even impose explicit obligations to actually provide certain services to end
users. However, because of the public investment in the underlying infrastructure,
the inherent scarcity of port capacity, and the public interest associated with eco-
nomic development, it is common practice in many ports to impose on the terminal
operator the handling of a minimum traffic volume calculated based on objective
parameters. Where competition is absent or weak and the general interest so
requires, imposing public service obligations (PSOs) may be a useful regulatory
mechanism. PSOs typically include permanent availability of services and nondis-
criminatory treatment of users (which limits or annuls the possibility for the opera-
tor to negotiate prices with its customers). An example is Limassol, the largest port
in Cyprus, where the container terminal and general cargo terminal operators oper-
ate under explicit public service obligations. They must offer their services on a
24/7 basis. Their tariffs are also largely regulated. The rationale is that the port is the
only major port on the island, controlling almost all imports and exports, and that
the terminal operators concerned enjoy a strong position of power within the
national economy. On these issues, there are again no fundamental differences
between a port superstructure PPP and a port infrastructure PPP.
Pricing
In terms of pricing policy, a distinction must be made between port dues, handling
fees, and profit sharing.
To give effect to the “user pays” principle, the EU Seaports Regulation obliges
Member States to ensure that a port infrastructure charge is levied.85 This refers to
what is commonly understood by “port dues”, which are paid by the final port users
(ship owners and cargo interests).86 The EU Seaports Regulation certainly permits a
port infrastructure PPP scheme under which a works concessionaire constructs and
exploits new port infrastructure and collects the relevant port infrastructure charg-
es.87 Likewise, a port authority may entrust a works concessionaire (such as a dredg-
ing company) with the improvement of the waterway access in return for the right
to charge a toll to users. But a PPP scheme under which no port infrastructure charge
is paid at all and where only handling fees are paid would appear to go against the
EU Seaports Regulation.
As a rule, landlord port authorities do not interfere with the commercial freedom
of their terminal operator(s), who receive freely set (or negotiated) handling and
storage fees from their customers. In exceptional cases, particularly where the
strong market power of the operators must be counterbalanced in the general inter-
est to prevent abusive charging behavior, the operator is subject to ex ante restric-
tions on tariff-making (the imposition of ceiling tariffs, prior approval of tariffs, or
even the unilateral imposition of all tariffs by the port authority or another compe-
tent authority). The EU Seaports Regulation’s provisions on port service charges88
will normally not be relevant to port PPPs relating to terminals.
The income of landlord port authorities is typically composed of, in addition to
the port dues, concession, lease, or royalty fees, which are paid by the terminal
operators. Two approaches are possible in this latter regard. First, the port authority
can be satisfied with a fixed fee determined in advance, for example, based on the
land surface used. Second, variables can be built in, based on the traffic handled or
the turnover or (gross or net) profit achieved. In the latter case, the port authority
assumes part of the financial risk and has an incentive in managing the contract in a
business-minded way, but will inevitably also find itself in situations where its own
financial interest conflicts with the public interest. On these matters, no rules have
been determined at the EU level, and no substantial distinction exists between port
superstructure and port infrastructure PPPs.
Labor
In many EU ports, the organization of port labor is a difficult problem. There are
still ports where work is reserved for a strictly regulated, closed pool of dockers. In
fact, access to the job is often reserved for trade union members, and these unions
85
Art. 13(1) EU Seaports Regulation.
86
See the definition of a “port infrastructure charge” in Art. 2(9) EU Seaports Regulation.
87
See Van Hooydonk, 2019a, at 958–959, paragraph 310.
88
See Art. 12 EU Seaports Regulation.
150 E. Van Hooydonk
largely control the organization of work. Several EU Member States still have
restrictive laws and regulations on port labor. Over the decades, the European
Commission has tried to liberalize dock work. The European Court of Justice has
repeatedly condemned restrictive rules and practices in this sector, insisting on the
right of employers to freely select their staff.89 The trend in the EU is to regulate port
work increasingly along the lines of general labor law. For prospective private inves-
tors in new port projects, the normalization of labor relations is often a major con-
cern. When a private investor takes over an existing operation, it should also take
into account the protection of the employees already present by the general EU rules
on transfer of undertakings.90
Performance Standards
In the EU port terminal industry, quality control and sanctioning mechanisms are
neither regulated nor standard practice. Where operators are exposed to competitive
pressure, there is in se no need for such regulatory mechanisms. If, on the other
hand, an operator enjoys a de facto or de jure exclusive right, performance regula-
tion may well be justified. Problems often arise where the terminal contract does not
allow the grantor to act in an adequate manner against shortcomings in the service,
for example, by imposing a fine, or if the only theoretically available sanction is the
unilateral termination of the agreement. But some concession contracts do contain
penalty clauses. In concessions in sectors other than ports elsewhere in the EU, it is
common practice to introduce penalty arrangements as well.
Dispute Settlement
There are no fixed rules in the EU for dispute resolution between the parties to a port
PPP. Practice shows that this is an important issue. Apart from ordinary court pro-
ceedings, contractual clauses may provide for consultation and conciliation proce-
dures or arbitration. Sometimes the arbitration is organized in another country, e.g.,
in London (which does raise questions with regard to EU ports after Brexit). A
recent trend is the initiation of international arbitration proceedings concerning port
89
See ECJ 10 December 1991, Merci, Case C-179/90, ECLI:EU:C:1991:464, ECR 1991, I-05889;
ECJ 11 December 2014, Commission/Spain, C-576/13, ECLI:EU:C:2014:2430; ECJ 11 February
2021, Katoen Natie Bulk Terminals, Joined cases C-407/19 and C-471/19, ECLI:EU:C:2021:107.
90
Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the
Member States relating to the safeguarding of employees’ rights in the event of transfers of under-
takings, businesses, or parts of undertakings or businesses.
terminal disputes against States before the World Bank’s International Centre for
Settlement of Investment Disputes in Washington, D.C.91
In many ports of the European Union, public port authorities routinely award termi-
nal contracts to private operators who undertake substantial capital investment in
port superstructure such as terminal surface layout, handling equipment, and ware-
houses. This well-nigh traditional collaboration is often not considered a form of
PPP, which as a concept only developed later. However, it can be considered an
application of PPP avant la lettre. Partnerships where the private terminal operator
also finances the port infrastructure, such as capital dredging, land reclamation,
quay walls, or even breakwaters and locks, are rare in the EU. There are several
reasons for this, including the strong role of the public sector in ports, the availabil-
ity of sufficient public funding sources, and the usually satisfactory functioning of
the classic combination of public infrastructure investment and private superstruc-
ture investment. Generally, the setting up of PPPs in EU ports does not seem to
encounter major legal obstacles deriving from either Union or national law. EU law
requires transparent and competitive award procedures and sets general standards
on matters such as duration of the contract, public funding, and control of foreign
investment. Member State law may impose restrictions on the creation of private
property and security rights and on the choice of contract type. Port terminal con-
tracts in the EU Member States take different forms. In any case, it is advisable to
elaborate clear contractual clauses on issues such as exclusive rights and competi-
tion, any public service obligations, pricing, performance standards, and dispute
settlement. The lack of experience with works concessions or BOT contracts for the
construction of new port infrastructure and, even more so, DBFM contracts for new
general port infrastructure may result in experimental approaches and uncertainty;
higher transaction costs; and, in the worst case, financial imbalances and contractual
disputes. Therefore, we believe that there is scope for EU institutions to issue a
guidance instrument that offers practical, legal, and financial advice and explains
best practices on both classic and innovative PPPs in ports.
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Eric Van Hooydonk (1965) is a research professor with the University of Ghent where he focuses
on the regulatory aspects of port policy and management. He is a member of the University’s
Maritime Institute and chairs Portius, a center for the study of international and EU port law. Eric
holds a licentiate in laws, a special licentiate in maritime sciences, and a doctorate in laws. He is
the managing partner of Eric Van Hooydonk Lawyers, an internationally oriented niche law firm in
Antwerp dealing with port matters and providing consultancy on, among other things, port regula-
tion, port governance, port reform, and port concessions. He co-authored the 2003 Flemish PPP
Decree for the facilitation of PPPs, including in the port sector of Belgium.
Sustainable Strategies for Mass Rapid
Transit PPPs
Sock-Yong Phang and Bin Chye Tan
Abstract Mass rapid transit (MRT) PPPs have proliferated in the past two decades.
This chapter provides a framework to categorise and understand alternative PPP
designs. As MRT systems are inherently large, unprofitable and risky projects, PPP
design is critical to project success and sustainability. We study the experiences of
MRT PPPs in London, Hong Kong, Singapore and Beijing to understand factors
underlying success and failure and to arrive at policy recommendations for PPPs.
Policymakers need to have additional governance improvement and risk mitigation
measures in place when tied supply chains are utilised. Hong Kong’s experience
illustrates that ‘Rail plus Property’ strategy can facilitate synergies and cross-
subsidization of rail from land value capture. Appropriate mechanisms for alloca-
tion of revenue risks are key to financial sustainability. The government should own
MRT systems, but there are benefits of design-build-finance-operate-maintain-
transfer PPPs for lines, private financing of rolling stock and private sector mainte-
nance of assets and operation of train services.
Keywords MRT · PPP designs · Risk allocation · Land value capture · Vertical
integration
Chapter in Handbook on PPPs in Transportation, Erwin A. Blackstone, Robert Clark and Simon
Hakim (eds.), Springer-Science (2021). The authors prepared this chapter in their personal capac-
ity. The opinions and conclusions expressed in this paper are their own and do not necessarily
reflect the official policy or position of any agency, organisation, employer or company that they
are or were previously associated with.
S.-Y. Phang (*)

Singapore Management University, Singapore, Singapore
e-mail: syphang@smu.edu.sg
B. C. Tan
High-Speed Rail Group, Land Transport Authority of Singapore, Singapore, Singapore
e-mail: TAN_Bin_Chye@lta.gov.sg

https://doi.org/10.1007/978-3-030-83484-5_9
154 S.-Y. Phang and B. C. Tan
Abbreviations
BIIC Beijing Infrastructure Investment Corporation

BMTRC Beijing MTR Corporation
CNY Chinese Yuan
DBFOMT Design-build-finance-operate-maintain-transfer
E&M Electrical and mechanical
ISC Infrastructure Service Charge
JICA Japan International Cooperation Agency
LTA Land Transport Authority, Singapore
LUL London Underground Limited
MRT Mass rapid transit
MTR MTR Corporation Limited, Hong Kong
PTC Public Transport Council, Singapore
SMRT Singapore Mass Rapid Transit Limited
TfL Transport for London
UITP Union Internationale des Transports Publics (The International
Association of Public Transport)
UKNAO UK National Audit Office
URT Urban rail transit
XRL Express Rail Link, high-speed rail in Hong Kong
Introduction
With rapid urbanization in developing countries, the number of urban rail transit
(URT) systems completed, undergoing construction or expansion has increased dra-
matically in the past decade. The term URT includes a broad range of urban and
suburban electric passenger transit systems including trams, light rail, monorail,
magnetic levitation (maglev) and mass rapid transit (MRT). For procuring less com-
plex tram, monorail and light rail transit projects, several governments have chosen
to use PPPs (Carpintero & Petersen, 2015). In this chapter, the focus is on MRT
(metros, subways) where underground construction is often involved.
From 2010 to 2019, 45 new metro systems were constructed, mostly in China
and India (UITP XE “Union Internationale des Transports Publics (The International
Association of Public Transport)”, 2019; Xue, 2018; Xinhua, 2018; Global
Construction Review, 2019). Several Latin American cities are starting new proj-
ects, and those with existing systems are expanding them. The World Bank Group
recently published The Urban Rail Development Handbook to provide policymak-
ers with practical recommendations to improve URT implementation (Pulido
et al., 2018).
Several cities have embraced the PPP approach for these costly, risky and com-
plex developments (Xue, 2018). The most cited objectives for using PPPs were
access to technical and/or operating expertise, private sector cost efficiency and
private capital. The design of MRT PPPs has been varied (Phang, 2007; Chang &
Sustainable Strategies for Mass Rapid Transit PPPs 155
Phang, 2017; Ke et al., 2017; Pulido & Mandri-Perrott, 2018; Bray & Sayeg, 2013).
The experiences of the cities that have utilized PPPs provide useful lessons for
transport policymakers new to MRT development.
Notable failures have tainted MRT PPPs (Hall, 2015). A common belief is that
private sector involvement in URT is problematic as it is an unprofitable and risky
activity (Gomez-Ibanez & Meyer, 1993). Detractors of URT PPPs often cite the
persistent dominance of government-owned metro systems in the USA (Pulido &
Mandri-Perrott, 2018) to support their view that it is not feasible to privatise URT.
Given the enthusiasm, scepticism and controversy, the objective of this chapter is
to examine notable MRT PPPs to glean important lessons for policymakers on PPP
design. While some studies use ‘success’ to mean technical/operational success and
delivery of projects (Dehornoy, 2012; Halcrow, 2004), this chapter adopts a more
stringent definition and includes financial sustainability of the PPP for the duration
of its tenure as an additional criterion. We first provide an overview of the complex-
ity and risks for metro development, as well as the forms of PPPs that have been
utilised. We then select four cases (Singapore, London, Hong Kong and Beijing) for
more in-depth analyses and conclude with suggestions and practical recommenda-
tions for MRT PPPs.
Key Challenges in Designing MRT PPPs
In high-density cities, MRT or metros represent the most cost-efficient mass transit
mode for moving large numbers of commuters along transportation corridors.
Although there are risks associated with all infrastructure projects, metro projects
are particularly risky (Pulido & Rios, 2018). Construction involving tunnels and
underground stations in densely populated urban areas is challenging even in the
best of circumstances. The costs of undertaking the construction of tunnels, tracks
and stations and procuring electrical and mechanical (E&M) assets such as rolling
stock, power supply and signalling systems are in many cases in the billions of
dollars.
For a sample of 44 urban rail projects located across the world and completed
between 1966 and 1997, Flyvbjerg (2007) estimated that 75% had cost escalations
or overruns of at least 33%, and 25% had cost escalations of at least 60%. The need
for lengthy approval processes that could span several jurisdictions and government
agencies as well as the need to engage with numerous stakeholders are also con-
tributory factors to unanticipated cost escalations.
Once in revenue service, maintenance and operation costs are above fare revenue
for most systems and increase significantly with age of the system (Levy, 2017;
Shang & Zhang, 2013). Fare revenue for transit could be low for a number of rea-
sons: ridership, fare regulation, fraud and free fares in some cities for selected cat-
egories of users. For greenfield projects, there has been a long history of ridership
failing to meet predevelopment forecasts (Bray & Sayeg, 2013; Siemiatycki &
Friedman, 2012). For a sample of 22 urban rail projects completed between 1969
and 1998 and located in North America, Europe and developing countries, Flyvbjerg
(2007: Table 6) estimated that 75% had actual ridership at least 40% lower than
forecast, and 25% had actual ridership at least 68% lower than forecast.
Phang (2007) categorized the risks intrinsic to a metro rail project under the four
main project tasks: design, finance, construction and operations. Pulido and Rios
(2018) highlight the common risks URT projects face that are magnified by their
scale and long implementation periods. Table 1 is a compilation of the list of the
numerous risks involved (Phang, 2007; Pulido & Rios, 2018), many of which may
not be appropriate to be transferred to the private sector. The Beijing Line Number
4 PPP, discussed later in this chapter, is a good example of appropriate risk sharing
allocation.
Given the numerous risk factors and the complexity of risk allocation, it is not
surprising that well-funded governments that have developed capital delivery and
operational management expertise prefer to adopt a traditional public works
approach where a government agency undertakes to finance, deliver and operate the
entire project. For the same reasons, there is growing interest from the governments
of cities requiring URT systems that do not have adequate technical expertise locally
and/or face fiscal constraints, to utilize PPP procurement.
In designing a PPP, risk identification and assessment need to be carried out early
in project development and risk allocation given special attention throughout the
PPP design phase (Pulido & Rios, 2018; Bray & Sayeg, 2013). The tasks and risks
allocated to the private sector are key factors in determining the eventual success
and sustainability of the PPP. The private sector partner will require compensation
for any risk that it is required to bear, and the risk premiums will form part of the
project’s costs.
There are a few critical factors to consider when deciding if a particular risk
should be transferred to the private sector: the degree to which it is able to influence
or control the outcome that is risky and its ability to bear the risk. The public sector
partner needs to consider if the private sector partner can potentially benefit by tak-
ing on the risk and if there are net efficiency improvements to be gained from the
risk transfer or sharing. This requires the public sector to have adequate institutional
capacity to conduct risk assessment and negotiate with private sector contractors
and partners to determine fair risk premiums (Pulido & Rios, 2018).
Based on experiences of URT PPPs in four Southeast Asian cities, (Bray &
Sayeg, 2013) concluded that ‘operating risk should be transferred to concession-
aires to the greatest extent possible, followed by equipment supply risk to support
transfer of operating risk, design risk to allow system life-cycle costs to be mini-
mized and construction risk to ensure efficient delivery of the rail system’.
If risks are not appropriately allocated (and subsequently mispriced), it can lead
to adverse selection and moral hazard problems that undermine the benefits of the
PPP. It is possible to allocate tasks such as metro operations to the private sector
partner, while retaining or sharing the revenue or ridership risk with the public sec-
tor through guarantees. Government guarantees however can impose hidden costs
on the public sector, consumers or taxpayers, some of which may not be immedi-
ately apparent at the early stages of the project. Using the case of an urban railway
project in Seoul, Kim et al. (2019) analysed how minimum revenue guarantees can
pose a significant financial burden to the government.
Table 1 Nature of risks (is risk usually better allocated to private sector?)
General/project environment
• Force majeure risk (no)
• Macroeconomic risk (shared)
• Political and regulatory risks (no)
Task 1 design
• Change orders risk (no)
• Environment and zoning permits risk (no)
• Untested technology risk (shared)
Task 2 finance
• Interest rate risk (yes)
• Exchange rate risk (yes)
• Refinancing risk (shared/no)
• Intra consortium counterparty risk (yes)
Task 3 construction, E&M system, rolling stock procurement
• Property acquisition and right of way delays risk (no)
• Construction delays risk not attributable to public sector (yes)
• Intra consortium counterparty risk (yes)
• Health and safety risks (shared)
• Unforeseen construction cost overruns risk (shared)
• E&M system, rolling stock failure risk (yes)
Task 4 operate and maintain
• Ridership forecast/revenue risk (shared)
• Cost overrun risk not attributable to public sector (yes)
• Cost overrun risk arising from macroeconomic factors (shared)
• Fraud risk (yes)
• Deferred maintenance risk (yes)
• Fare adjustment risk (no)
• Changes in quality standards risk (no)
Note: Adapted from Phang (2007), Table 2
Closely intertwined with the issue of risk allocation is the task or combination of
tasks to allocate to the private sector in the PPP (Carpintero & Petersen, 2015).
There are multiple PPP designs in the metro systems sector. The next few para-
graphs summarize the more extensive discussion found in Chang and Phang (2017).
Table 2 illustrates the heterogeneity of metro PPP design in the tasks separated or
bundled and allocated to the private sector partner.
Row A in Table 2 shows the London Underground PPPs where in 2003, the
government-owned Transport for London (TfL) separated out its ownership of the
infrastructure and awarded them to two private companies to upgrade and maintain.
Row B of Table 2 shows examples of systems where the public sector owns rail
infrastructure and rolling stock assets and privatises operations and maintenance
functions as in Stockholm and in Latin American.
Row C shows the case of Singapore which relied on private firms to operate
trains services between 2000 and 2016. Row D shows mixed systems for cities
Table 2 Varied structures of MRT PPP

Finance
Infra and own Operate
ownership rolling Maintain train
Structure and finance stock infra services Examples
(A) Public sector owns Private Public Private Public London
rolling stock and operates (2003–2010)
train services
(B) Public sector owns all Public Private Stockholm,
assets, private sector operates Latin American
and maintains cities
(C) Public sector owns Public Two private train operators Singapore
infrastructure assets, private (2000–2016)
sector owns rolling stock,
operates and maintains
(D) Predominately public Public Public Private (selected London,
sector owned and operated, lines) Beijing,
with PPPs for selected lines/ Private (selected lines) Hangzhou,
functions Private DBFOMT (selected lines, or stations) Shenzhen,
Seoul,
Bangkok, Lima
(E) Predominantly vertically Private DBFOMT Hong Kong,
integrated private operators Hyderabad
Note: Adapted from Chang and Phang (2017), Table 2
which have experimented with unbundled PPPs. The government remains the prin-
cipal owner but introduces PPPs for one or more lines or functions. Cities with such
mixed systems include Barcelona, Beijing, Hangzhou, Shenzhen, Seoul, London,
Lima and Bangkok.
Row E shows the privatised vertically integrated design-build-finance-operate-
maintain- transfer (DBFOMT)-bundled approach utilised in Hong Kong and
Hyderabad. This strategy represents the greatest degree of transfer of tasks, control
and risks to the private sector partner. Hong Kong’s Mass Transit Railway (MTR) is
a regulated monopoly provider that is also involved in real estate development; it
also operates in several other cities globally as the private partner in PPP projects.
For the construction of a new metro system, there are advantages (and disadvan-
tages) in splitting a mega-project into several smaller components or combination of
components and different phases, instead of bundling several projects into one large
procurement or PPP contract. While this splitting allows for greater flexibility, could
reduce risk, increase competition and is lower in costs to taxpayers, it requires the
public sector project owner to be responsible to manage and integrate the multiple
contracts and bear the interfacing risk (Pulido & Mandri-Perrott, 2018). Regardless
of bundling or integration of tasks, ridership demand risk for URT PPPs can be
considered separately, and there are different models internationally that have been
used to transfer or share demand or revenue risk (Siemiatycki & Friedman, 2012).
We will contrast the experiences in Singapore and Beijing in the next section.
Analysis of Two Failed MRT PPPs
In this section, we analyse the factors behind the failures of MRT PPPs in Singapore
and London that eventually led to re-nationalization. Specific details of the
Singapore and London systems such as ridership, fares and other relevant variables
are summarised in Table 3.
Revenue Risk in Singapore’s Urban Rail System
Fare revenue (farebox) is a function of ridership and fare levels. This section consid-
ers the treatment of fare revenue risk in Singapore’s MRT system. The first two lines
of Singapore’s MRT system were built and financed by the government in the 1980s.
The government funded the cost of building the civil infrastructure1 and the first set
of operating assets. In 1987, when the first lines began operations, the government
established the Singapore MRT Limited (SMRT), wholly owned by Temasek
Holdings (a government-owned investment holding company), as the operator. The
government leased the running of the rail system to SMRT for an initial 10-year
period; there was no competition for the concession. The government had expecta-
tions for the MRT operator to be financially self-sufficient (as was the case then for
the bus operators) and to cover its operating and maintenance costs including provi-
sions for eventual rolling stock replacement from fare revenues.
However, it soon became clear that one of the government’s financial criteria, of
full farebox recovery before it granted the go-ahead for a project, would require
MRT fares to be much higher than bus fares. This criterion hindered the approval of
new lines and extension of existing lines. The uncertain future costs of replacing
operating assets (of which rolling stock was the largest component) was also a risk
that the private operator had little control over. In 1996, the Land Transport
Authority2 (LTA), a government agency, relaxed the cost recovery criterion and
announced that it would provide for rail infrastructure and the first set of operating
assets as well as the inflationary component of subsequent sets of operating assets
(Looi & Choi, 2016). This transferred the rolling stock replacement cost risk from
the operator to the government. In 1999, LTA awarded the concession to operate the
new North-East Line to the dominant bus company, SBS Transit, breaking the
monopoly that SMRT had on MRT operations. This was after the LTA had called a
1
Civil infrastructure refers to the different structures and buildings within a system that serve a
community’s needs and activities. It includes the infrastructure for supporting, for example, elec-
tric power, oil and gas, water and wastewater, communications and transportation. Civil works
refer to any building or civil engineering works that address the construction of roads, pavements,
surfacing, railway infrastructure, underground works, special foundations, marine works and
hydraulic works.
2
The Land Transport Authority of Singapore, a statutory board under the Ministry of Transport, is
responsible for land transport developments in Singapore.
Table 3 Description of cities and MRT PPP, 2019
Singapore London Hong Kong Beijing
Population 5.6 8.8 7.4 21.8
of
metropolis
(2018,
millions)
Average 3.3 5.0 5.6 10.5
MRT
ridership
(2018,
millions
per day)
Operating 5 11 11 20
MRT lines
(Number
of)
Length of 200 402 175 628
MRT lines
(km)
MRT 119 270 93 391
stations
(Number
of)
MRT adult S$0.83–2.08 £2.40–5.10 HK$3.90–52.70 CNY3–10 (airport
fares express CNY25)
(Stored
value fare
card, per
trip)
MRT adult S$170–190 £135–351 HK$435–635 Discounts for
fares monthly expenditure
(Monthly > CNY100
pass)
Exchange S$1 = US$0.737 £1 = US$1.291 HK$1 = US$0.129 CNY1 = US$0.148
rate
(16
September
2020)
Details of MRT PPP cases discussed
Name of SMRT Metronet; MTR Corporation Beijing MTR
private (2000; delisted in Tube Lines
company 2016) (2002–2007)
Activities Provides MRT, bus Maintain and Design, build, Finance and own
under and taxi services; improve London finance, own, rolling stock,
control of purchase and own Underground operate and maintain signalling and E&M
private rolling stock, lease network assets the entire system systems for Line 4;
company and maintain fixed such as stations, and undertake real operate Line 4
assets, operate rolling stock, estate developments; services and
services for three track and retain fare, maintain assets;
MRT lines; retain signalling; raise advertisement, real retain fare and
fare and private capital estate sales and advertisement
advertisement for undertaking rental revenue revenues; share
revenues; no sharing revenue risk
of revenue risk
Sources: Compiled from official websites of governments and system operators
closed tender for the concession and had only invited the then two major bus opera-
tors to submit proposals—conspicuously keeping the SMRT and foreign operators
out (Phang, 2007).
In 1998, the LTA signed a new 30-year licence and operating agreement with the
SMRT. SMRT leased the tracks and stations and purchased the operating assets
(including rolling stock) from the LTA at net book value (S$1.2 billion) to operate
the MRT services. SMRT was listed on the Singapore stock exchange in 2000 (at
S$0.61 cents per share) becoming the first MRT operator to be privatised via a pub-
lic share issue (Phang, 2007). This was a case where a contract was signed between
two public sector agencies, and one was subsequently privatised such that the con-
tractual relationship became a PPP.
The Public Transport Council (PTC), an independent public agency established
by parliament in 1987, regulates fare adjustments for both rail and bus through a
price cap formula. It also determines minimum standards for service delivery and
service obligations for bus services. The operators however are still required to
apply annually for fare revisions, with the PTC having the discretion to approve the
amount and structure of the increase. The price cap formula is subject to periodic
review. For the 14-year period, between 1998 and 2011, approved fare increases up
to the cap permitted by the fare formula occurred in only 2 years, 2005 and 2006
(Chang & Phang, 2017). If fare increases had been at the price cap between 1998
and 2011, fares would have increased by 35.0% (average of 2.2% per annum) over
the 14-year period; the PTC however approved increases that raised nominal fares
by only 6.9% (average of 0.5% per annum) over the same period. Inflation averaged
1.6% per annum over the same period, so that real fares decreased at an average rate
of −1.1% per annum. Private sector operators in Singapore were thus exposed to
regulatory risks that led to declining profit margins as costs increased.
While the first decade after listing was relatively uneventful, weaknesses in
SMRT began to surface by 2011. Singapore’s population had increased from
4.4 million in 2006 to 5.2 million by 2011, and there was overcrowding, longer wait
times and strain on existing bus and MRT services. A series of major train break-
downs led a government-appointed Committee of Inquiry (2012)3 to conclude that
LTA’s regulatory oversight over SMRT’s rail maintenance and capital improvement
of infrastructure had been inadequate (Chang & Phang, 2017). Service breakdowns
continued with 14 major disruptions in 2014 and an additional 29 disruptions in
2015 (Gomez-Ibanez & Goh, 2016).
The government realised that a major restructuring of the sector was needed to
achieve both higher standards of rail reliability and financial sustainability of the
rail operators. In 2016, LTA re-purchased the rail-operating assets from SMRT for
S$1.06 billion (net book value plus goods and services tax) and concurrently del-
isted SMRT through a shareholder buyout by Temasek Holdings at S$1.68 per share
at a cost of S$1.18 billion (Chang & Phang, 2017). This reform of the sector allowed
3
A summary of the Committee’s 358-page report, released in 2012, is available at the Ministry of
Transport’s website at: https://www.mot.gov.sg/news/COI%20report%20-%20Executive%20
Summary.pdf.
the government to make the necessary capacity expansion and to replace and
upgrade operating assets.
After 16 years, SMRT was back where it had started: an asset-light MRT opera-
tor, 100% owned by Temasek Holdings. SMRT’s re-nationalization illustrates the
weaknesses of a 30-year concession contract for metro operations set within a fare
regulatory model used originally for the bus sector. The combined strain of escalat-
ing rolling stock replacement costs (the government was responsible only for the
inflationary component of the costs of subsequent sets of operating assets), increas-
ing operating and maintenance costs and an insufficient farebox eventually made
the PPP unsustainable for SMRT.
In 2017, LTA awarded the contract to operate the new Thomson-East Coast Line
to SMRT (LTA, 15 September, 2017) after reviewing tender submissions from the
two incumbent rail operators. A number of differences in this contract from the
1998 contract stood out: the farebox is retained by LTA; SMRT will be paid a ser-
vice fee of S$1.7 billion spread over a (much shorter) 9-year contract term; the
operating assets remained under the ownership of the government. This represents
a transformation from asset heavy, capital intensive, long-term concessions to asset-
light short-term operating concessions which reduced the risk to the concessionaire
and increased competition for the contract. To incentivise performance, the actual
service fee paid to SMRT would be tied to its performance in key areas of service
reliability, customer satisfaction and operations and maintenance performance.
This approach is consistent with the use of key performance indicators for PPP
transport projects to meet specific stakeholders’ performance objectives as advo-
cated by Mladenovic et al. (2013). LTA further unbundled non-fare business such as
the commercial spaces and advertising spaces associated with the stations and trains
through a separate tender for these businesses. With the redesigned PPP contracts,
the Singapore MRT procurement model has evolved into one that is asset-light with
no farebox risk and relies on an expanded government role from its ownership of all
assets. In Singapore’s context, the cost of government financing is substantially
lower than the cost of private capital.
This evolution is consistent with the findings of Bray and Sayeg (2013), who
reviewed the approaches used in Singapore, Bangkok, Kuala Lumpur and Manila
and found that all systems that used private sector finance for the development of
initial systems had faced financial problems. In particular, the transfer of ridership
(and hence revenue) risk for an urban rail line to a concessionaire was found to be a
contributory factor. They concluded that a gross cost,4 performance-based form of
concession is most appropriate for individual rail lines as these are part of an inte-
grated public transport system, and the concessionaire for any single line has rela-
tively limited (though non-zero) capacity to modify ridership on its line.
4
The concessionaire pays for civil works and/or electrical and mechanical works and pays for
O&M and pertinent asset costs. The government retains fare and other revenue and pays the con-
cessionaire an amount equal to the costs the concessionaire incurs for the provision of agreed
services.
Renationalization of London Underground Infracos
The London Underground is the world’s first underground passenger railway.

Opened in 1863, the network has since expanded to 11 lines which collectively
handled an average of 5 million passengers a day in 2018. In the early 1990s, after
more than a century of operations, the network began to experience frequent break-
downs and delays, caused by aging infrastructure. The poor state of the infrastruc-
ture was due to a number of reasons (JICA XE “Japan International Cooperation
Agency” , 2015). Firstly, London Underground Limited (LUL), being fully owned
by the central government, did not have enough allocated budget to pursue long-
term investments. Secondly, LUL was unable to manage and control infrastructure
investments, resulting in chronically underinvested infrastructure. Major projects,
such as the Jubilee Line Extension and the Central Line upgrades, were also subject
to frequent cost overruns and delays (UK House of Commons, Committee of Public
Accounts, 2005).
During the early 2000s, LUL launched the London Underground PPPs with the
principal aim of introducing additional finance, best practice and management effi-
ciencies from the private sector into the maintenance and upgrading of the network.
The involvement of the private sector for a 30-year period (divided into four 7.5-
year review periods) was intended to ensure that capital investment decisions were
made on a long-term basis (UKNAO, 2004; Butcher, 2012a).
The PPP procurement of the maintenance and improvements to network assets
such as stations, rolling stock, track and signalling was split into three infrastructure
companies (Infracos) each with its own PPP contract with LUL (JICA, 2015: 84).
These were the following:
• BCV contract consisting of the Bakerloo, Central, Victoria and Waterloo and
City lines
• SSL contract consisting of the Circle, District, East London, Hammersmith and
City and Metropolitan lines
• JNP contract consisting of the Jubilee, Northern and Piccadilly lines
The three PPPs were primarily output-based contracts that intended to incentiv-
ize the private sector to achieve certain improvements to the performance and condi-
tion of the network. LUL retained ownership of the farebox and was responsible for
driving the trains, operating the stations, customer services and fare collection.
The Infracos’ only source of revenue, the Infrastructure Service Charge (ISC)
(paid every 4 weeks by LUL), was calculated based on the estimated cost of the
Infraco works at the time of concession award adjusted by the actual performance
of the Infracos during the concession. Actual performance was determined against
an agreed set of benchmarks that measured infrastructure capability, availability and
ambience. Escalations to the original costs were only compensated (through an
increased ISC) if they were incurred in an ‘economic and efficient’ manner.
In 2002, the JNP PPP concession was awarded to Tube Lines Ltd., a consortium
of Bechtel, Jarvis and Amey. The BCV and SSL PPP concessions were awarded in
2003 to Metronet Rail Ltd., a consortium of Atkins, Balfour Beatty, Bombardier,

EDF Energy and Thames Water.
By 2007, the Metronet PPPs went into bankruptcy due to massive cost escala-
tions and had to be re-nationalized. Estimated loses to the taxpayer of the Metronet
failure have been as high as £410 million (UK National Audit Office (UKNAO),
2009). Due to cost escalations, the JNP PPP also went into bankruptcy in 2010, and
its shares were re-acquired by TfL, effectively ending private sector participation in
the London underground infrastructure just 7 years into what were originally
30-year concessions.
Amongst the many commonly cited reasons (Gannon et al., 2014; UKNAO,
2009; Ochieng et al., 2013; Vining & Boardman, 2008) for Metronet’s collapse was
the ‘tied supply chain’ strategy employed by Metronet. All five Metronet sharehold-
ers were also the suppliers of the Metronet Infracos in a tied supply chain. However,
by itself the tied supply chain is not an uncommon feature, and indeed there are
many successful PPPs that have utilized tied supply chains. It is a common strategy
for major infrastructure equipment suppliers and contractors to take equity stakes in
greenfield PPP projects in other infrastructure sectors, notably in airports, roads and
power generation. Rather than the ‘tied supply chain’ reason, the root cause of
Metronet’s failure was poor governance and management structures that resulted in
suppliers being favoured over Metronet Rail Ltd. (Williams, 2010). With stronger
governance, one would have expected that Metronet shareholders would have kept
each other honest. This risk could also have been mitigated by the participation of
strong third party financiers (equity and/or debt providers), but this was not the case.
The recent trend of strong ‘untied’ financial investors participating in greenfield
PPP projects would have been helpful then.
Metronet had expected to spend £16 billion over the 30-year concession period
(Vining & Boardman, 2008). The expenditure was to be funded by lenders (through
loans, bonds), London Underground (through regular unitary payments) and
Metronet’s shareholders (through equity). The UK National Audit Office reported
that approximately 60% of projected capital expenditure in the first 7.5-year period
were to be awarded to the five parent companies as suppliers (UKNAO, 2009: 54).
Comparing the profit margins of the value of the work performed against the rela-
tively low amount of shareholder funds (£350 million) (UKNAO, 2009), the
Metronet shareholders had more to gain as suppliers than to lose as shareholders.
This raises the question of whether the Metronet shareholders really lost as their
profit margins as suppliers could have more than compensate for their equity losses.
In its report on the failure of Metronet, UKNAO stated that the profit margins on
£2 billion worth of sales of goods and services sold by shareholders were unknown.
However, it estimated that for the five shareholders to breakeven on work done to
March 2007 and recover their equity investment in Metronet, the minimum gross
profit margins on sales required were 15% for Balfour Beatty, 55% for EDF, 82%
for Thames Water, 33% for Atkins and 27% for Bombardier (UKNAO, 2009: 42).
Metronet was highly leveraged with 88% debt funding. In addition to the mis-
alignment of incentives arising from the tied supply chain and poor governance,
TfL’s guarantee of 95% of Metronet’s £2 billion debt meant that any bankruptcy
would be paid for by the UK government (Vining & Boardman, 2008). Metronet’s
lenders clearly did not have sufficiently strong incentives to protect their investment
due to their limited downside exposure.
The root cause for the demise of Tube Lines in 2010 is less obvious than
Metronet’s in 2007, but it resulted in a similar outcome, albeit 3 years later—failure
to control costs. Tube Lines initially wanted £6.8 billion (later reduced to £5.75 bil-
lion) for a major programme of renewal on the Piccadilly and Northern Lines, but
the independent arbiter only granted the company just under £4.4 billion (Williams,
2010). This shortfall led to a sequence of events eventually resulting in nationaliza-
tion. Applicable to both Metronet and Tube Lines, the cost, tenure and complexity
of the PPPs made them difficult to execute and administer.
On hindsight, was PPP the most appropriate procurement strategy for upgrading
the London Underground network? The failed PPPs can be considered as successful
change agents. There had been some undeniable benefits; the performance of the
London Underground network did improve over the first 5 years of the PPP (Butcher,
2012b). TfL, through the re-nationalized Infracos, was better placed than in the
early 2000s to execute its ambitious upgrading plans for the network. The PPPs
played a role in helping to kick-start the renewal process of a century-old system.
The failures of the PPPs caused the central government to make a significant
‘U’-turn in its funding policy with TfL. This policy shift has removed funding
uncertainties for TfL and LUL for long-term investment (Gannon et al., 2014).
However these gains have been achieved at a very high price to the taxpayer, esti-
mated at more than £4.1 billion (Williams, 2010).
Despite the setbacks experienced by TfL in their experience with the London
Underground PPPs, the demand for rail connectivity and travel in London, and
indeed the UK, remains undiminished. What were the lessons and how has the
structure of the UK government URT procurement adapted?
Just as the London Underground PPPs were concluded, the £14.8 billion Crossrail
programme started to take shape. It will deliver a 117-km rail line that will link
Reading and Heathrow in west London with Shenfield and Abbey Wood in the east,
including 21 km of twin tunnels under London. There will be 41 Crossrail stations,
including 10 new stations.
In addition to government grants, Crossrail will be funded by substantial contri-
butions from developers and the Business Rate Supplement, an increment on the
rates (taxes) paid by London businesses. More than 60% of the project cost (based
on the £14.8 billion estimate) will come from Londoners and London businesses
(Greater London Authority, 2016). Conspicuously, no commercial project finance
will be utilized. As of September 2020, the opening of Crossrail (renamed the
Elizabeth Line), originally planned for opening in December 2018, has been delayed
to early 2021 and is expected to cost more than £18 billion.
Analysis of Two Successful MRT PPPs
Having considered two cases of MRT PPP failures, we now turn to two successful
cases: the MRT PPPs in Hong Kong and Beijing. Specific details of the Hong Kong
and Beijing systems such as ridership, fares and other relevant variables are sum-
marised in Table 3.
Land Value Capture in Hong Kong
Hong Kong is one of the most densely populated places in the world. Part of the
reason is the geography – 80% of the 1100 km2 land mass is mountainous, the built-
up area only accounts for 24% of the total land area, and only 7% is zoned for resi-
dential uses. Due to the limited usable land and high population density, public
transportation, of which URT is the dominant mode, is well promoted and forms the
transportation backbone of Hong Kong.
The government plans the urban rail transit system, while the railway lines are
built and operated by Mass Transit Railway Corporation Limited (MTR), a quasi-
private transit company listed on the Hong Kong stock exchange with 75% of the
company’s shares owned by the government (MTR, 2017). The MTR network has
11 rail lines, over a route length of 230 km with 93 stations. The network carried an
average of 5.8 million passenger trips per weekday in 2017.
MTR, the monopoly operator of the URT, is a super vertically integrated com-
pany responsible for building the infrastructure and rail systems and operating the
lines post completion. There is therefore an absence of competition in the MRT
sector. MTR’s vertical integration extends from rail to real estate development
(‘Rail plus Property’) of areas over and around stations and depots.
Accompanied with the super vertical integration, the entire farebox revenue risk
is transferred to MTR for the rail business, while the government uses an annual fare
adjustment formula to set fares, balancing passenger affordability and sufficient
profitability to support MTR’s rail operations.
In exchange for bearing the cost of fully developing and operating the lines, and
in addition to the farebox, the Hong Kong government compensates MTR by exclu-
sively granting the company 50-year development rights over the land around or on
top of railway stations and depots. The values of the development rights granted are
calculated using the appreciation in land value attributable to the development of the
rail line, effectively MTR’s development profit.
MTR then partners with property developers to derive benefits from the property
developments through sharing profits in agreed proportions from the sale or lease of
properties (after deducting development costs), sharing assets in kind or receiving
upfront payments from the developers, taken case by case (Suzuki et al., 2015).
Through these strategies, MTR has been able to capture the land value increment
due to the accessibility and agglomeration benefits from their rail projects not only
upfront but also through recurring income and capital gains over a sustained period
after the start of operations.
MTR’s real estate activities include property development, rental and manage-
ment and commercial activity within their stations. MTR’s Hong Kong property
business has over 18,000 residential units under tender, manages over 96,000 resi-
dential units and owns 13 shopping malls. For 2017, MTR’s Hong Kong property-
related businesses contributed 40% of the total revenue and an estimated 70% of
earnings before interest and taxes. When MTR evaluates the costs and benefits of a
rail project, the increase in land values (over and above the time savings benefits to
current users) is therefore definitely a benefit that it can attribute to the project.5
Overall, the financial performance of MTR has been robust and sound. Its busi-
ness portfolio is diversified through rail, property and through its growing global
business. Local fare revenue is relatively stable. The excellent financial performance
has generated benefits for the public in the form of affordable fares as well as divi-
dends to the government. With its 75% shareholding, the Hong Kong government
continues to directly benefit from the financial performance of the listed company.
The rail network’s increasing ridership has also generated social benefits though the
magnitude of this is hard to quantify. Positive environmental impacts include
reduced air pollution, road congestion and energy consumption. The MTR proper-
ties have increased density and reduced sprawl, and improved accessibility and
amenities have led to appreciation in land values.
In the case of MTR, the main objectives of its stock market listing were to fur-
ther promote efficiency and introduce market discipline to the running of the rail-
way and also to stimulate private sector innovation in growing its property business.
These twin goals appear to have been attained to date. However, is the current ‘Rail
plus Property’ model able to sustain MTR’s growth into the future? Part of the
answer lies in the continued price appreciation of real estate. Hong Kong’s residen-
tial property price index has tripled over the last 10 years. Is this ‘Rail plus Property’
model sustainable? After the merger of MTR and the Kowloon-Canton Railway
Corporation in 2007 (MTR became Hong Kong’s only rail operator), the govern-
ment utilised two other financing models alongside the ‘Rail plus Property’ model
for rail expansion (Loo et al., 2018): the capital grant model and the conces-
sion model.
The West Island Line Extension (3-km extension with three stations) costs
HK$15.4 billion and opened for service in 2015. The government provided the
MTR with a capital grant of HK$12.7 billion towards construction to close the
financing gap. The MTR retained ownership and full responsibility for the design,
5
Hong Kong’s MTR is in the advantageous and unique position of being the sole rail operator in
Hong Kong that was able to capture the real estate development benefits of rail. However, when
evaluating a PPP rail project versus an alternative public rail project, this benefit is not unique to
the PPP but can also be enjoyed by the alternative public rail. Such benefits for the PPP are relevant
when a public rail is not an option, is less efficient, is less innovative in promoting the synergy
between rail and real estate and/or is unable to effectively capture the increase in land values to
finance the project.
finance, construction, operation and maintenance. The critical difference was that
there was no property development rights from the rail extension.
The Hong Kong government used a concession model for the two most recent
and largest value projects: the HK$84.4/US$10.9 billion (originally HK$66.9/
US$8.6 billion) 26-km Express Rail Link (XRL) and the HK$90.7/US$11.7 billion
(originally HK$79.8/US$10.3 billion) 17-km Shatin to Central Link. Under the
concession model, the government owns the railway assets, pays for the capital cost
of the line and assumes the construction risks, while MTR serves as project manager
and pays service concession fees for the right to operate the railway (Hong Kong
Legislative Council, 2008).
XRL is a 26-km-long high-speed rail project that connects the West Kowloon in
Hong Kong to Shenzhen, Guangzhou and mainland China’s high-speed intercity
rail network. XRL started operations in September 2018, which was 3 years later
than originally planned. The substantial delay and budget overrun at XRL led to key
management changes at MTR in 2014.
The Shatin to Central rail project, planned for completion in 2019, also suffered
repeated delays, cost overruns and allegations of shoddy work. The opening of
phase 1 of the line was delayed from 2015 to 2020. As of September 2020, the
completion date for the second phase had been further postponed to 2022. This
illustrates that although the costs of finance via public sector debt could be lower,
governments should be mindful that construction risks need to be well managed
under the public procurement strategy to avoid cost and schedule overruns.
On 26 March 2019, the Commission of Enquiry convened by the Hong Kong
government to investigate the issues faced by the Shatin to Central Link in its
interim report recommended a number of mitigation measures (Hartmann &
Hansford, 2019). The most relevant of these measures was, The Commission further
recommends that consideration should be given as to the appropriateness of the
‘Concession’ model for future projects entrusted by the Government to be project
managed by MTRCL, or whether the Government should revert to the previously
used ‘Ownership’ model. Under the previous ownership model, MTR would have
been responsible for cost overruns. Since 1998, the MTR had delivered ten major
rail projects under the ‘Rail plus Property’ model, all within their original budgets
or with only small-scale overruns (Cheung, 2019). The use of the concession model
should be viewed in context: XRL was a strategic high-speed rail project connecting
Hong Kong to mainland China; the Shatin to Central Link project had been awarded
to the Kowloon-Canton Railway Corporation in 2002; and extensive renegotiations
were necessary post-merger before the project could proceed.
It remains to be seen if the Hong Kong government will revert completely to the
‘Rail plus Property’ model for further urban development, but the accompanied
benefits since its implementation are undeniable. Newman et al. (2018) are support-
ive of the Hong Kong approach as they advocate using an ‘Entrepreneur Rail Model’
that integrates private land development with URT and using the land value created
to fund urban rail and urban regeneration.
Revenue Risk Sharing in Beijing Line No. 4
We next consider revenue risk sharing arrangements for the Beijing Line No. 4 PPP
(Chang & Phang, 2017). In 2001, Beijing was selected to host the 2008 Summer
Olympic Games. In preparation for the Games, the Chinese government invested
heavily in new sports facilities and transportation systems. The metro sector in
Beijing was restructured, and the government looked to PPPs for resources to help
support the planned expansion of the system from two lines (54 km) in 2000 to eight
lines (200 km) by 2008. The Beijing Infrastructure Investment Corporation (BIIC)
was tasked with the responsibility of metro finance and investment.
The 29-km Line No. 4, costing 15.3 billion Chinese Yuan (CNY)/ US$2.26 bil-
lion, was implemented using a PPP. A joint venture company, the Beijing MTR
Corporation (BMTRC), was established in 2005, and it was awarded a 30-year con-
cession to operate and maintain the line. There is no evidence of competition for the
award of the concession contract. The Hong Kong MTR was one of the three share-
holders of BMTRC and held 49% of the shares. The other two investors were BIIC
and another state-owned entity that jointly owned 51% of BMTRC—the minimum
required under Chinese law. BIIC financed the civil works which comprised two
thirds of the total cost. Rolling stock, signalling and E&M systems, comprising one
third of the cost, were entirely financed and procured by the BMTRC (Chang, 2013).
Line No. 4 was completed within the expected time and operational by September
2009. The Hong Kong MTR Corporation (MTR) brought in its rail and financing
expertise to build, finance and operate Line No. 4. Chang (2013) estimated that
BMTRC enjoyed operations and financial cost savings of 9.4% of expenses.
Although there were no cost savings in the purchase of rolling stock using the PPP
model, BMTRC was able to reduce financing costs through debt restructuring and
currency hedging. A survey conducted by McKinsey and the Beijing MTR also
showed much higher consumer satisfaction of the No.4 line as compared to other
lines. The presence of a new private operator also generated knowledge spillovers to
other public sector-operated lines, resulting in system-wide cost savings, improved
efficiency and service quality (Chang & Phang, 2017).
Farebox as well as advertisement revenues for Line No. 4 resided with the
BMTRC. This transfer of operational revenues provides BMTRC with incentives to
reduce cost and improve the quality of service to attract more passengers. However,
BMTRC did not bear the full farebox risk. This risk was shared with the government
through a shadow price (SP) and shadow ridership (SQ) mechanism (Chang, 2013:
155–156) that was used to establish a revenue floor and ceiling. SP translated to a
guaranteed revenue per passenger unrelated to the actual price (AP). The parties
agreed to a SP of CNY3.34 (about US$0.50) in 2006, and this would be adjusted
every 3 years based on the Consumer Price Index. In 2010, the SP was adjusted to
CNY4. If AP fell below SP, BMTRC would be compensated by the public sector. If
AP is above SP, the extra profit allocation would be 70% public sector and 30%
private sector partner. This insulated the private sector from negative fare risk that
could result from the government’s system-wide fare policies.
The PPP contract also incorporated ridership risk. Shadow revenue was defined
as shadow price multiplied by shadow ridership (SR = SP × SQ). The daily shadow
ridership numbers were forecasted by an independent consulting firm—it was pro-
jected to be 564,000 in 2010 and to grow to more than a million by 2025. If actual
ridership (AQ) fell below the SQ, the private sector would be compensated. If AQ
was above SQ, revenue would be shared with the government. Table 4 provides the
details of the formulas used.
In 2007, the Beijing government changed the metro fares to a flat rate of CNY2.6
The public sector subsidised BMTRC on a per passenger trip basis for the differ-
ence between the lower AP and the agreed SP. The lower fares contributed to
increased ridership numbers generating healthy profits for BMTRC. Actual rider-
ship in 2010 was 122% of the shadow level. This led the government to modify the
revenue sharing arrangements in 2010 to increase the public sector share of
BMTRC’s revenue when actual ridership is higher than the shadow projections (see
Table 4 for details).
The general favourable outcomes for the Line No. 4 PPP led the Beijing govern-
ment to use similar PPP structures to award additional concessions for Daxing Line,
Lines No. 14 and No. 16 to BMTRC. With the rapid expansion of the metro system,
average daily ridership more than tripled from 3.3 million in 2008 to 10.5 million in
2018 (Beijing Municipal Commission of Transport at www.bjjtw.gov.cn). Hong
Kong MTRC also benefited from its PPP experience in Beijing and has since
become the private partner in contracts to invest and operate other MRT systems in
other Chinese cities as well as in London, Stockholm, Melbourne and Sydney. The
Beijing model illustrates the strength of a hybrid financing option that unbundles
upfront procurement of civil infrastructure capital expenditure from rail systems
(signalling, power, communications, track and rolling stock.) A much wider con-
tractor pool exists for civil works that serves to increase price competition. Rail
systems can be bundled together with operations and maintenance and privatised
via a PPP to take advantage of synergies in those functions.
The failed London Underground PPPs could be seen as successful change agents,
kick starting the renewal of a century-old rail system that has benefitted Londoners.
Both the London and Singapore cases also highlighted the value of setting out clear
exit conditions or unwinding of any PPP to minimize uncertainty. Recent changes
in MRT PPP strategy in Singapore also indicate a move towards asset-light operat-
ing concessions with correspondingly shorter concession lengths to maximize
6
On 28 December 2014, a distance-based fare schedule for all lines replaced flat fares, with the
exception of the Airport Express. See Table 3.
Table 4 Ridership risk sharing for Beijing Line No. 4 PPP
2007–2010
R ≤ 0.8 0.8 < R ≤ 1.0 1.0 < R ≤ 1.2 R > 1.2
Public sector subsidy
0.8 × SR − AR (SP- (SP–AP) × SQ
AP) × AQ
Public sector revenue share
0 0 0 0.5 × AP × (R-1.2) × SQ
2010 revision to public sector revenue share (no changes to
Sustainable Strategies for Mass Rapid Transit PPPs
public sector subsidy)

R ≤ 0.8 0.8 < R ≤ 1.0 1.0 < R ≤ 1.1 R > 1.1
0 0 0.5 × AP × (R − 1.0) × SQ 0.5 × AP × 0.1 × SQ + 0.6 × AP × (R − 1.1) × SQ
where R is AQ/SQ, where AQ is Actual ridership, SQ is Shadow ridership, AP is Actual price, SP is shadow price, SR is Shadow revenue = SP × SQ,
AR is Actual revenue = AP × AQ
Explanatory Notes: R is the ratio of actual to ‘shadow’ (or agreed forecasted) ridership levels. The formulas for subsidy are dependent on R as well as on the
difference between the shadow price and actual price (SP-AP). The public subsidy serves to cushion the operator against downside revenue risks that could
arise from both ridership as well as fare risks. The operator enjoys a minimum revenue guarantee of 80% of the shadow revenue. When actual ridership is higher
than the shadow level (R > 1.2 prior to 2010 and R > 1 after 2010), the public sector enjoys a share of the revenue.
Note: Adapted from Tables 1A and 1B in Chang (2013)
171
contestability. Both Hong Kong and Singapore have recently made decisions to pro-
cure and finance MRT lines and rolling stock using lower-cost public debt.
The Beijing experience shows that there are advantages to unbundling the upfront
procurement of civil infrastructure capital expenditure from rail systems (signal-
ling, power, communications, track and rolling stock). Civil infrastructure works
are better procured directly by governments due to its similarity to other forms of
public infrastructure (such as roads) and access to what is usually a much wider
contractor pool, which serves to increase price competition. Rail systems can then
be bundled together with operations and maintenance and privatised via a PPP to
take advantage of synergies in those functions. This option would require less pri-
vate capital, enabling cash-strapped governments to procure MRT systems with less
risk transfer to the private sector. However, in pursuing this strategy, governments
should be mindful that construction risks must be well managed to avoid cost and
schedule overruns.
Functions that the governments can undertake in the MRT system have numer-
ous permutations, but in general, government usage of MRT PPPs should be
inversely correlated to its agility/flexibility, fiscal surplus and project management
ability. We conclude from London’s experience that in addition to clear objectives
and performance targets, policymakers need to have satisfactory governance
improvement and risk mitigation measures in place when tied supply chains are
utilised by a PPP. Hong Kong’s experience illustrates that a ‘Rail plus Property’
strategy can facilitate synergies and cross-subsidization of rail from land value cap-
ture. The PPP case studies illustrate that appropriate mechanisms for allocation of
financial and revenue risks are key determinants of long-term financial sustainabil-
ity. Beijing’s experience illustrates that the government should own metro systems,
but there are benefits of entering into DBFOMT PPPs for selected lines, private
financing of rolling stock and private sector maintenance of assets and operation of
train services.
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Rational Inattention in Non-Profit
Public-Private Partnerships: The Las
Vegas Monorail Bankruptcy Case
L. Bolaños and J. Gifford
Abstract Public-Private Partnerships (PPPs) have become popular transit project

delivery mechanisms, allowing US state and local governments to access resources
from, and share risks with, the private sector. In order to attract private resources
however, the public sector must address rational inattention—a potential bankruptcy
determinant. Consequently, this paper explores the Las Vegas Monorail bankruptcy
case. After reviewing the project’s documents, risk analyses, and news reports, the
analysis suggests that the bankruptcy arose from stakeholder inattention since (i)
the project’s non-profit corporation isolated project developers from consequences
and (ii) investors sought seemingly liquid and safe assets (the project’s bonds) as the
Dotcom bubble burst. Insufficient evidence was found to support a competing
hypothesis regarding opportunistic behavior. The findings suggest that policymak-
ers (1) conduct competitive procurements, (2) avoid non-profit corporations for
future PPPs, (3) perform ex ante stress tests to evaluate debt sustainability, and (4)
conduct analyses to evaluate the costs and benefits of PPP contract renegotiations.
Keywords Public-Private Partnerships (P3s) · Transportation · Las Vegas

Monorail · Bankrupt
Introduction
The Las Vegas Monorail (the monorail) is an electric-powered monorail that,

according to 2015–2017 statistics, transports nearly 5 million passengers along
Nevada’s Las Vegas Strip annually (BDO USA, LLP 2017; Las Vegas Monorail
2018). Funded entirely through private resources, the project required no public
L. Bolaños (*)
Ministerio de Economía de Guatemala, Guatemala City, Guatemala
George Mason University, Arlington, VA, USA
J. Gifford
George Mason University, Arlington, VA, USA
e-mail: jgifford@gmu.edu

https://doi.org/10.1007/978-3-030-83484-5_10
176 L. Bolaños and J. Gifford
sector investment, direct subsidies, or guarantees. Moreover, the local jurisdiction,

Clark County, Nevada, receives $50,000 annually from the monorail franchise
agreement. Both the monorail and its franchise agreement derived from a Public-
Private Partnership (PPP): a long-term contract that allowed the public sector to
access the private sector’s financial, engineering, technological, and risk manage-
ment resources.
Given such potentially beneficial mutual access—demonstrated by projects like
Denver’s Eagle PPP—many US policymakers see PPPs as a viable alternative to
traditional public infrastructure procurement. PPPs can experience difficulties,
however. In January 2010, for example, the Las Vegas Monorail Company (LVMC)
declared bankruptcy. Although the bankruptcy did not affect public sector balance
sheets, project bondholders lost 98% of their capital and accrued interest, totaling
$645.6 million, following debt restructuring negotiations. If public and private sec-
tor interest in PPPs is to continue, all parties must draw lessons from such experi-
ences to construct more robust PPP structures in the future.
To that end, the following case study explores the project’s legal and financial
documents, risk analyses, and contemporary news reports to identify factors leading
up to the LVMC bankruptcy filing. The analysis suggests that by employing a non-
profit corporation to manage an infrastructure project requiring large amounts of
debt, participants without “skin in the game” created an environment favoring ratio-
nally inattentive behavior by bondholders. A competing hypothesis, opportunistic
behavior, is also discussed although insufficient supporting evidence was found.
The findings suggest that to reduce PPP concessionaire bankruptcy, increase long-
term project viability, and increase private investors’ confidence in future transpor-
tation PPPs, governments should (1) conduct competitive procurements, (2) depend
less on non-profit PPP structures, (3) perform independent ex ante stress tests to
evaluate debt sustainability, and (4) evaluate the costs and benefits of PPP contract
renegotiation when concessionaires struggle financially.
The remainder of this paper proceeds, first, with a description of the Las Vegas
Monorail PPP and its history. The paper then analyzes potential driving factors
behind the project’s difficulties. The final section provides concluding remarks and
offers lessons for policymakers.
Project Description
Context
Facing increasing tourist congestion within the city of Las Vegas, Clark County,
Nevada, and the Regional Transportation Commission of Southern Nevada (RTC)
decided to explore elevated transit system options in 1989 (Walker 1999), although
no public transit project came to fruition. Instead, the city’s resorts, recognizing that
congestion diminished the amount of time customers could devote to entertainment
activities, developed their own transportation alternatives during the 1990s. The Las
Rational Inattention in Non-Profit Public-Private Partnerships: The Las Vegas Monorail… 177
Table 1 Las Vegas Monorail key dates

Milestone Date
MGM Grand-Bally’s Monorail
Construction starts 1993
Open to traffic June 1995
Las Vegas Monorail
Legislation approved 1997
Franchise signed 1998
Bond issuance 2000
Construction starts 2001
Initial completion date January 2004
Open to traffic July 2004
Closed to traffic September 2004
Reopened to traffic December 2004
Ridership problems 2005
Received default notice from bond trustee February 2008
Bond trustee missed an interest payment January 2010
Files for bankruptcy January 2010
Exited Chap. 11 May 2012
Vegas Monorail, originally named the MGM Grand-Bally’s Monorail, originated in

1993 as a private venture providing transportation service between two Las Vegas
hotels: MGM Grand and Bally’s Hotel (see Table 1 for key project dates). The 0.68-
mile (1.1-km) project included two stations but intentionally left open the possibil-
ity of future service expansions to create an urban transit system reaching at least as
far as the city’s convention center, located almost 2 miles (3.2 km) northeast of
Bally’s Hotel. The monorail represented just one of several such transportation sys-
tems provided by the city’s hotels and casinos to mobilize tourists. Three additional
tram projects opened between 1993 and 1999, involving the Mirage, Treasure
Island, Monte Carlo, Bellagio, Mandalay Bay, and Excalibur hotels.
Since the casinos and resorts did not charge for their private transportation ser-
vices, the projects presented financial burdens for the private sector. Nevertheless,
the transportation projects provided a valuable service for customers, and monorail
expansion could benefit the local economy by shifting additional tourist resources
from transportation to entertainment. As a result, the MGM Grand-Bally’s Monorail
resorts offered to hand their monorail over to Clark County or the RTC, thereby
discontinuing their financial responsibilities and enabling future monorail expan-
sions. Through an intense lobbying process during 1996 and 1997, the resorts con-
vinced the Nevada Legislature and the Clark County Board of Directors that the
monorail offered a positive contribution to the broader Las Vegas transportation
system. In response, the Nevada Legislature passed Assembly Bill 333 in 1997,
defining public sector responsibilities for publicly-owned, rail-fixed guideway or
monorail facilities. The Nevada Department of Transportation (NDOT) would over-
see safety regulations, while local government, in this case, Clark County, would
manage things like zoning. The Bill also allowed the public sector to procure the
monorail project using design, build, operate, maintain (DBOM) contracts, one
form of Public-Private Partnership, and enabled private sector actors to operate
facilities and charge fares as public transportation providers in Clark County
(U.S. Department of Transportation. Federal Highway Administration 2012; Nevada
Senate and Assembly 1997).
Development
Wishing to reduce traffic congestion and related pollution by developing a more

extensive Las Vegas monorail system, the Clark County Board of Directors took
advantage of Assembly Bill 333. The county began working with the MGM Grand-
Bally’s Monorail in 1998 to define a corridor through which the monorail would
expand its services. The process also involved permitting, adjustments to the fran-
chise agreement and building ordinances, and acknowledgment that eminent domain
could not be used to obtain a right-of-way (Walker 1999). In August 1998, the
MGM Grand-Bally’s Monorail LLC submitted a franchise application that was sub-
sequently awarded that December. In exchange for $50,000 in annual payments to
the local Clark County government, the franchisee—the MGM Grand-Bally’s
LLC—would derive revenue from monorail fares and advertisements with the com-
mitment to design, construct, operate, and maintain a 3.9-mile (6.3-km) monorail
extension over 50 years. The extension would connect the MGM Grand Hotel to the
former Sahara Hotel to the north, with seven new stations at hotels and casinos in
between (Clark County Board of Commissioners 1998). At the time, this project
represented “one of very few rapid transit projects in the world being implemented
on a complete design/build/operate/maintain/finance … basis” (Stone et al. 2001)
and was “the only urban rail transit project since the 1920s with a significant portion
of the financing based on projected farebox revenues” (U.S. Department of
Transportation. Federal Highway Administration 2016). Additionally, the monorail
would be electric, helping to address the region’s pollution concerns.
Although MGM Grand, Bally’s, and other hotels would benefit from the
expanded monorail, particularly through its connection with the Las Vegas
Convention Center to the northeast, the private partners struggled to reach an agree-
ment for funding the up to $200 million project. Expectations surrounding county
or federal money only deepened the impasse (Miller 2000), with increasing support
coming from figures like US Senator Harry Reid. Although Reid was ultimately
able to pass a bill in 2002 allowing the monorail’s bond financing to be considered
“matching funds” to federal funds used for a 7.3-mile (11.75-km) extension from
McCarran Airport to Cashman Field (Las Vegas CityLife 2005), in the meantime,
federal funds were only available as a complement to private investment, not as a
substitute. To overcome the impasse, the Granite Construction and Bombardier
Transit construction and operations companies—the latter involved in the original
monorail’s 1993 construction—expecting to be involved in the new expansion,
approached MGM Grand and Bally’s to suggest the formation of a non-profit cor-
poration (Miller 2000).
The non-profit corporation structure offered four benefits. First, the monorail,
understood as a public project, could diminish financing costs by issuing cheaper
tax-exempt bonds in accordance with US Internal Revenue Service (IRS) Revenue
Ruling 63-20 (FHWA 2016). Under this regulation, “revenue bond” repayment
would come from the revenue source the bonds help to finance, in this case, the
monorail revenues. The Director of the Nevada Department of Business and Industry
would issue the bonds and lend the proceeds to the non-profit corporation under a
financing agreement (Markell 2010). Two other non-profit PPP corporations had
recently issued similar tax-exempt debt for Virginia’s Pocahontas Parkway and
South Carolina’s Southern Connector in 1998. Second, the structure required no
equity or stockholders. All funding would come from donations or debt. Third,
board members, some connected to MGM Grand and the Bally’s hotel, enjoyed
limited liability. For example, in the case of bankruptcy, board members would not
be liable for any remaining debt. Finally, the non-profit structure theoretically lim-
ited potential monopoly franchisee abuses by eliminating profit motives (Walker
1999). Clark County was reluctant (Walker 1999), but the state government
responded more favorably.
Since the project’s bonds repayment would depend on future revenues, adequate
revenue projections for the monorail and its extension were essential. To develop
the monorail revenue forecasts, MGM Grand-Bally’s Monorail hired URS Greiner,
now URS Corporation, an engineering firm whose studies had supported over $24
billion in transportation infrastructure projects, in 1999 (Stone et al. 2001). The
resulting study expected strong and growing demand for the monorail’s extension:
14 million passengers a year paying $2.50 a person, later revised to 19 million. Two
additional analyses found similar results, increasing confidence. First, the RTC had
conducted a major investment study of the region’s public transportation in 1997,
concluding that demand along the monorail’s corridor would exceed URS Greiner’s
projections. Second, upon request by the Rogich Communications Group, hired by
LVMC to help the project secure private financing, the firm Wilbur Smith Associates
released an analysis of the URS Greiner projections in May 2002 that also provided
a positive revenue forecast outlook (Packer 2000).
Given these findings, the private partners formed the Las Vegas Monorail
Corporation as a private, non-profit corporation in 2000. The State of Nevada
Department of Business and Industry then issued $649 million in bonds in September
2000 to fund the extension project’s construction and operation (see Table 2). Of the
amount issued, $354 million was dedicated to designing, building, and equipping
the monorail (Smith and Castellana 2004). This value had grown by five times since
the project’s initial $65 million cost estimate from 1997 and by two times since
expert assessments conducted in 2000 estimated its cost to be between $150 and
$200 million (Miller 2000). Prior to the bonds’ issuance, operating expenses had
also increased by 44% and management fees by 250%. In addition, LVMC’s pur-
chase price for the MGM Grand-Bally’s monorail increased from $20 to $25 mil-
lion, all without a clear explanation (Jon Twichell/Associates et al. 2000). Since the
Table 2 Bond types issued to finance the Las Vegas Monorail

Issue Description Value
1st Tier Series 2000 Current interest bonds $352,705,000
Capital appreciation bonds $98,743,217
2nd Tier Series 2000 Current interest bonds $149,200,000
3rd Tier Series 2000 Subordinate bonds $48,500,000
Source: Salomon Smith Barney, Banc of America Securities LLC (2000, b)
original PPP contract, acquired by LVMC, employed an industrial revenue bond or

special revenue financing structure that attached repayment to the contract’s reve-
nue sources, LVMC maintained responsibility for bond repayment. LVMC could
not use revenues like state taxes to repay those funds. As a result, while the Director
of the State of Nevada Department of Business and Industry issued the bonds, the
state did not guarantee them in case of default.
In order to increase investor confidence, LVMC hired Ambac Assurance
Corporation to provide $352,705,000 in insurance for the current interest 1st Tier
Series 2000 bonds, representing 54.3% of the bonds issued. The insured bonds
received an AAA rating from the Fitch Ratings agency. The agency rated the unin-
sured capital appreciation 1st Tier Series 2000 bonds BBB-, reflecting low default
risk expectations from litigation delays, demand shortfalls, and/or bankruptcy (Fitch
Ratings 2012). Fitch even considered the project’s advertising revenue projections
to be overly conservative given other transportation venues’ successes. The agency
also considered construction and operation risks to be less relevant given the proj-
ect’s design-build contract agreement and the contractors’ experience (Business
Wire 2000). Moody’s Investors Service’s Baa3 rating for the same bonds indicated
the bonds’ moderate credit risk given the project’s speculative characteristics
(Moody’s Investors Service 2009). Neither the 2nd Tier Series 2000 bonds nor the
subordinate bonds purchased by the resorts involved in the project were rated
(Business Wire 2000). With the bond money, LVMC bought the MGM Grand-Bally
LLC Monorail, took over responsibility for the Las Vegas Monorail extension PPP
agreement’s implementation, and subcontracted monorail operations to Transit
Systems Management (Jon Twichell/Associates et al. 2000). Granite Construction
and Bombardier Transit Company received the extension’s design-build contract
without a competitive bidding process. While the LVMC project took advantage of
Assembly Bill 333, the three trams connecting other Las Vegas attractions remained
under private operation.
Construction and Early Years
Granite Construction and Bombardier Transit Company began construction of the

monorail extension in 2001 after LVMC obtained a right-of-way from eight differ-
ent actors (Walker 1999). The construction schedule anticipated a January 2004
system opening, but construction delays shifted the opening to July 2004. A series
of technical problems, including failing parts, necessitated a system closure between
September and December 2004.
Once the system reopened in 2005, ridership problems quickly became evident.
By the end of 2005, ridership reached only 51.4% of original projections, and fare
revenues reached only 60.8% of original projections. While the LVMC projections
expected $48.8 million in farebox revenue for the year 2004, with 2–11% annual
growth thereafter depending on future fare adjustments, these projected farebox
revenues, expected to represent 85.7% of all project revenues, never materialized
(see Table 3). By the time LVMC filed for bankruptcy in 2010, ridership and reve-
nue values missed their original forecasts by 85% or more. Accumulated advertising
revenues between 2003 and 2011 totaled just 16% of base projections. Burdened by
high debt levels driven by cost escalations, LVMC’s financial health deteriorated as
revenues fell behind expectations and the company struggled to pay its debt service
(Kanigher 2010). LVMC’s accumulated deficits grew from $90.5 million in 2005
(the first full year of operation) to $295.6 million in 2009, the year prior to LVMC’s
bankruptcy filing.
This inauspicious beginning undermined the project’s financial position as the
federal government lost interest in funding any subsequent extension phases and the
rating agencies slowly downgraded their bond ratings to “non-investment” grades.
Following the 2004 technical breakdowns, Moody’s Investors Service cut the unin-
sured 1st tier bonds from Baa3 to Ba1 in March 2005. Later that year, Fitch Ratings
announced it would not change its rating, although it recognized that ridership
demand had come in 40% below projections and that operating costs exceeded pro-
jections by 20% (Saskal 2005). Starting in 2006, continuous LVMC bond rating
downgrades began as revenues consistently fell behind expectations and losses
increased (see Table 4). By 2007, Fitch Ratings considered the bonds very high risk
(rating CC); Moody’s reached the same conclusion the next year (rating Caa2).
In an effort to increase ridership, LVMC negotiated a total of four modifications
to its franchise agreement between 1999 and 2006 (Clark County Board of
Commissioners 1998, 2003, 2005, 2006). They extended the monorail right of way
Table 3 Las Vegas Monorail projected and actual ridership and fare revenues
Ridership (passengers) Fare revenue (US$)
Year Projected Actual Projected Actual
2004 19,536,000 1,452,928 $48,840,000 $4,450,000
2005 19,935,000 10,264,667 $49,837,500 $30,303,000
2006 20,171,000 7,015,109 $55,470,250 $32,213,000
2007 20,566,000 7,917,613 $56,556,500 $29,447,000
2008 20,961,000 7,602,599 $57,642,750 $29,678,753
2009 21,229,000 6,005,024 $63,687,000 $26,990,995
2010 21,622,000 5,240,263 $64,866,000 $23,391,078
2011 21,730,000 4,931,447 $65,190,000 $22,312,419
Constructed with data from Las Vegas Monorail Company (2012a, b, c, d, e, f, g, h, i)
Table 4 Las Vegas Monorail uninsured 1st tier series 2000 credit rating history
Date Fitch Ratings Moody’s
2000 BBB- Baa3
2004 – On watch list
2005 – Downgraded to Ba1
2006 Downgraded to BB, Downgraded to B3
later to CCC
2007 Downgraded to CC –
2008 – Downgraded to Caa2
2009 Downgraded to C Downgraded to Ca
2010 Downgraded to D. Downgraded to C
Rating withdrawn after July Rating withdrawn after June
Data from Saskal (2005); Cohen (2006); RedOrbit (2007); Fitch Ratings (2009), (2010); Moody’s
Investors Service (2012)
to McCarran Airport and increased the non-compete zone around the airport, limit-
ing the construction of alternative traffic alleviation projects. The 2006 renegotia-
tion extended the franchise agreement through 2081, adding 33 years to the original
contract, subject to financial close and construction of the airport extension. Lacking
the expected $1 billion in required funding, construction for this phase 2 airport
extension never began (Cillo and Azzarello 2012).
Bankruptcy
As investment markets reacted to LVMC’s growing troubles, the 1st Tier insured
bond price dropped below face value in January 2008 and continued declining for
the next 2 years (see Figure 1). A month later, the bond trustee notified bondholders
that LVMC was in default. The company avoided an immediate bankruptcy filing by
employing its cash reserves to pay the debt service. In May, a chief restructuring
officer was hired at the request of the bond insurer, Ambac Assurance Corporation.
In 2009, after cash reserves fell short of the debt service, the bond insurance com-
pany covered part of the difference. By January 2010, LVMC was unable to pay the
debt service on the 2nd tier bonds and subsequently filed for reorganization under
Chap. 11 of the US Bankruptcy Code. The bond insurer then filed for bankruptcy in
October 2010 (Ambac Assurance Corporation 2010). Despite generating insuffi-
cient revenue to pay its debt obligations, the monorail produced sufficient revenue
to cover operating expenses, and the facility remained in service (Las Vegas
Monorail Company 2012g, h).
Since the state of Nevada had issued the LVMC bonds, many worried that tax-
payers in Nevada and Clark County would be held responsible for the debt pay-
ments. In August 2008, for example, discussion arose regarding the use of Las
Fig. 1 Las Vegas Monorail 1st tier series 2000 price (2005–2012). Note: CUSIP: 2545VAC0.
Constructed with data from the Municipal Securities Rulemaking Board::EMMA (2012)
Vegas hotel taxes to fund the monorail, despite earlier promises that no taxes would
fund the project (Kanigher 2010). Given the project’s industrial revenue bond
financing, taxpayers did not bail out the LVMC, although legal defense during
bondholder lawsuits cost the state $176,000 in February 2011 (Ryan 2011).
LVMC exited Chap. 11 in May 2012 after the courts approved its Fifth Amended
Plan of Reorganization. The plan altered the Board of Directors’ composition and
reduced the debt from $658.6 million down to $13 million (O’Reiley 2012; Verlotta
2012). First-tier bondholders, originally owed $451.4 million, received just $13 mil-
lion (2.8%). They would also receive a 5.5% interest rate until maturity in 2055,
down from their original 6% yield. The remaining bondholders, originally owed
$207.2 million, received nothing (Webster 2012). The bankruptcy of Ambac
Assurance Corporation, the first-tier bondholders’ insurer, and its subsequent reor-
ganization complicated the LVMC reorganization (Saskal 2011).
By 2017, traffic conditions continued to worsen between the McCarran Airport
and the Las Vegas Strip. In response, LVMC announced in December 2017 that it
expected to borrow $110 million to expand the facility 0.5 miles (0.8 km) between
the MGM Grand and Mandalay Bay hotels (Scott Davidson 2017). This announce-
ment took place after Clark County decided to financially support another monorail
extension south to the Mandalay Bay hotels using $4.5 million a year coming from
room taxes (Corbin 2017; Las Vegas Sun Newspaper 2017). These decisions
occurred despite the monorail continuing to miss updated, post-bankruptcy rider-
ship revenue expectations—$21.9 million rather than $24.3 million for 2017—in
the face of growing competition from Uber and Lyft (Las Vegas Review-Journal
2017; Marroquin and Davidson 2018).
Discussion
This section will discuss the proximate cause of the Las Vegas Monorail Corporation
bankruptcy—revenues falling short of projections—and will discuss why this likely
took place. The analysis explores two potential explanatory hypotheses for the
bankruptcy: (1) strategic or opportunistic behavior against bondholders and (2)
rational inattentiveness.
Demand Risk
The Las Vegas Monorail Corporation’s history points to demand risk as the primary
driver for the corporation’s financial troubles and ultimate bankruptcy after farebox
and advertising revenue projections proved overly optimistic. Various practical
explanations for these demand and revenue shortfalls have been proposed. For
instance, the monorail’s location in the hotels’ back yards—likely necessitated by
eminent domain limitations (Walker 1999)—made the system difficult to find (Clark
2008). The lack of an airport connection also presents a possible explanation,
although it is unclear whether such an extension would have addressed the project’s
financial problems. The original revenue projections did not include the airport
extension, and the planned extension could have opened no earlier than 2007, just
in time for the 2007–2010 economic downturn (see Table 5).
The Great Recession’s broad economic downturn was also blamed for the proj-
ect’s poor revenue performance, although without compelling evidence. As the
annual economic growth data in Table 5 demonstrate, the Las Vegas metropolitan
area’s economic growth was positive during the LVMC’s construction and early
operations phases: 2001 through 2006. Nevertheless, even in 2005 and 2006, 2 years
prior to the worst of the Great Recession, LVMC ridership and revenue figures
failed to reach 50% of expectations (Cox 2012).
Since the revenue projections overestimated demand even in the years prior to
the Great Recession, the discussion must consider their reliability. The projections
faced several practical complications. First, the lack of comparable fare collecting
cases in Las Vegas may have left revenue collection prospects especially uncertain.
Forecasting without comparable cases is a long-recognized challenge (Knight
1921). Second, the starting average fare increased 25% during the financial plan’s
development, making the revenue projections less reliable (Jon Twichell/Associates
et al. 2000; Wendell Cox Consultancy 2000). Since the RTC, Wilbur Smith
Associates, the bond insurer, and the ratings agencies reached similarly favorable
conclusions regarding the monorail’s financial outlook, such uncertainties appear
plausible as explanatory factors for the LVMC demand overestimation. On the other
hand, outside parties had disagreed with the URS Greiner projections from the out-
set. Independent ridership projections developed by Wendell Cox Consultancy
between 1999 and 2000, for example, came in 53–69% lower than URS Greiner’s,
Table 5 Annual economic growth for Las Vegas-Henderson-Paradise (real GDP in chained dollars, 2001–2011), selected economic activities
2001– 2002– 2003– 2004– 2005– 2006– 2007– 2008– 2009–
2002 2003 2004 2005 2006 2007 2008 2009 2010 2010–2011
LVMC stage Construction Open with <50% ridership Default Bankruptcy
Industry/economic activity Annual economic growth—Las Vegas-Henderson-Paradise
All industry total 4.4 5.3 13.1 10.1 3 1.4 −3.1 −11 −2.4 0.5
Private industries 4.6 5.1 13.9 10.9 2.8 1.1 −3.8 −12.3 −2.9 0.8
Wholesale trade 5.3 3.6 16.5 11.8 2.9 0.4 −1.8 −17.3 −4.1 0.1
Retail trade 6.2 9 13.6 14.5 1.5 −2.9 −9.2 −20.1 7.2 13.5
Transportation and warehousing 18 −12 30.7 12 6.4 −1.3 5.4 −4.5 13 −5
Transit and ground passenger transportation 45.7 −39.3 23.5 0.4 4.9 0.2 0.4 −11.3 3.4 7.8
Arts, entertainment, recreation, 2.6 3.2 10.6 7.7 5.7 0.2 −6.8 −13.1 3 7.5
accommodation, and food services
Arts, entertainment, and recreation 3.9 20 14.6 18.1 18.5 1.6 −9.9 −28.3 −2.4 34.1
Performing arts, spectator sports, museums, 4.7 17.6 −4.8 17 18.9 2.3 −6.7 −44.1 −30.3 151.9
and related activities
Amusement, gambling, and recreation 2.5 24.1 46.2 19.3 17.9 0.9 −13.6 −8.3 19.2 −20.1
industries
Accommodation and food services 2.5 1.6 10.1 6.5 3.9 0 −6.3 −10.9 3.6 4.4
Accommodation 2.1 0.9 8.7 5.6 4.4 1.7 −8.5 −11.3 1.9 3.6
Food services and drinking places 4.9 5 16.9 10.4 1.9 −7.5 4.8 −9 10.5 7.3
Data from Bureau of Economic Analysis (2018)
arguing that other projects inside and outside the United States should be used as
benchmarks to assess the projections (Wendell Cox Consultancy 2000). The Wendell
Cox report also found the projected advertising revenues to be optimistic and pre-
dicted a project default between 2006 and 2007.
Possible Explanations
Nearly all the project partners possessed strong incentives to prefer optimistic
assumptions when developing the monorail demand forecasts. Clark County, for
instance, expected to benefit from increased mobility, reduced traffic, and reduced
pollution without risking any funds or liability. MGM Grand and Bally’s Hotel
expected to benefit by shifting their monorail maintenance costs to a third party.
Other hotels and casinos along the proposed extension also expected to benefit from
improved accessibility. Given this dynamic, could the project demand overestima-
tions have been strategic? In other words, did the demand overestimations function
as a tool to convince investors to finance the project even though the probability of
bond repayment was low? Or were the overestimations simply the result of multi-
ple, simultaneous mistakes?
The strategic overestimation hypothesis hinges on opportunistic behavior.
Opportunism refers to what economists describe as self-interested and guileful stra-
tegic behavior (Williamson 1996). International transportation infrastructure expe-
rience recognizes opportunistic behavior between both private concessionaires and
the public sector. For example, private operators might overestimate demand to win
a bid process, later renegotiating the contract with governments to extract additional
rents (Guasch 2004). Alternatively, public sector bureaucrats and political authori-
ties can renegotiate contracts with private concessionaires to increase infrastructure
investments and increase electoral support (Guasch et al. 2007).
The literature has not explored cases of opportunistic behavior at bondholders’
expense, however, as would be the case in the LVMC bankruptcy. Despite several
debt defaults and bankruptcies involving PPP non-profit corporations in the United
States, including Virginia’s Pocahontas Parkway and South Carolina’s Southern
Connector in addition to the LVMC case (Gifford et al. 2015), the literature explor-
ing PPP non-profit corporations says little about opportunism (Allison 2001;
Robbins and Meulen 2009; Mendel and Brudney 2012). Considering typical inter-
national opportunism experiences—a developer threatening to leave an infrastruc-
ture project unless an increased subsidy is provided—the impacts for bondholders
are unclear. In the example above, bondholders could face a momentary or perma-
nent debt default if no subsidy is forthcoming but could also benefit from prompt
payment if the subsidy does occur. Nevertheless, the transaction cost economics
framework suggests that large infrastructure projects often encourage opportunistic
behavior due to their asset specificities, uncertainties, and low transaction frequen-
cies (Williamson 1996).
Asset specificity increases opportunism because the infrastructure assets cannot

be used for a different activities without absorbing huge value losses. For example,
investors cannot redeploy monorail track infrastructure and vehicles to a new loca-
tion without accruing large losses from structure removal, transportation, warehous-
ing, and foregone revenue, assuming demand even exists in an alternative location.
In addition, transportation infrastructure projects like the monorail are typically
indivisible and immobile, greatly increasing asset specificity. Uncertainty increases
opportunism risks since unexpected circumstances not predicted by contract fram-
ers offer opportunities for strategic behavior (You et al. 2018). Projecting future
demand for large infrastructure projects remains challenging, particularly if, as
occurred in the LVMC case, few extant facilities offer strong cases for comparative
analysis. Finally, such opportunism risks are amplified if low transaction frequen-
cies diminish learning opportunities that would otherwise inform contract develop-
ment and contract updates. For example, the United States had experienced only 6
monorail developments since 1959 (Wikipedia 2018). As a result, few lawyers with
US experience and knowledge of Nevada law would have been available to structure
the Las Vegas monorail contract in ways that would minimize opportunistic
behavior.
Does opportunistic behavior appear relevant in the LVMC case? Since the proj-
ect developers were interested primarily in the monorail extension’s construction
and operations, they might have shifted increased costs onto bondholders, as sug-
gested by Allison (2001), who, given the favorable demand estimates, were will-
ing to pay.
In the 3 years preceding the bond issue, LVMC’s design, construction, and equip-
ment costs appear to have grown five times. Operating expenses increased by 44%
and management fees by 250%. All these increases occurred without ready explana-
tions. Given that the design-build contractors, Granite Construction and Bombardier
Transit Company, proposed the non-profit corporation approach and received the
design-build contract without competitive bidding processes, LVMC may have
developed a conflict of interest that enabled the project’s significant cost escala-
tions. However, cost escalation does not necessarily indicate opportunistic behavior.
A non-profit structure does not provide a profit motive, and hence leadership has no
incentive to minimize costs (Alchian and Demsetz 1972).
Nevertheless, the demand estimates may have supported the growing cost struc-
ture. Some analysts provided revenue projections that were much closer to reality
than those presented by LVMC. The Wendell Cox evaluation in particular, funded
by a competing hotel-casino, the Venetian Hotel Casino and Resort (Las Vegas Sun
1999), noted several questionable factors underlying the LVMC projections (Jon
Twichell/Associates et al. 2000). First, demand projections for similar systems car-
rying high passenger volumes had overestimated ridership by an average of 70%.
Other studies have found that 90% of large urban transit projects have failed to meet
ridership forecasts (Flyvbjerg 2007; Siemiatycki and Friedman 2012). Demand
overestimation across such projects averages between 20% and 30% (Trujillo et al.
2002), reaching as high as 80% (Checherita and Gifford 2007). Second, the URS
Greiner demand projections exceeded demand for existing systems like the
New York Subway, the London Underground, the Stockholm Metro, and other new
US rail systems (Wendell Cox Consultancy 2000). Third, the LVMC projections’
assumed fare recovery ratio (fare revenues divided by operating costs) was 280%
higher than for comparable US systems, likely overestimating the monorail’s ability
to pay its debt service. Finally, the LVMC forecasts employed an unusually low
price sensitivity of demand, assuming 10% price increases would decrease ridership
by only 2% (−0.20). This contrasts with the US national transit elasticity of −0.36
(80% higher). Ultimately, the monorail’s price elasticity of demand prior to 2009
reached levels at least 60% higher than the national elasticity and 190% higher than
forecasted (Wendell Cox Consultancy 2000).
While cost escalation and questionable projection assumptions may suggest
opportunistic behavior, little evidence suggests guile in LVMC’s behavior. Instead,
LVMC paid to insure 54.3% of its bonds, and Ambac Assurance Corporation—the
world’s second-largest bond insurer at the time—was willing to insure the bonds. In
addition, the project’s resorts and contractors risked capital in the project—$30 mil-
lion and $18.5 million, respectively (Stone et al. 2001)—although one might argue
that the hotels’ investment was minimal compared to the project’s size and the part-
ners’ revenue streams. Regardless, the resorts and the contractors did risk capital
despite knowing that when other non-profit corporations’ PPP projects faced finan-
cial troubles, namely, Virginia’s Pocahontas Parkway and South Carolina’s Southern
Connector, none were rescued by the public sector. The private partners could have
little expectation that the state of Nevada would act on their behalf. This contrasts
strongly with international experiences where the public sector has rescued PPP
concessionaires and PPP bondholders, including Britain’s Metronet (the London
Underground PPP), and several highways in Spain where governments committed
millions in taxpayer funds to rescue troubled PPP projects (Vining and Boardman
2008; Gifford et al. 2015; Shields 2017).
As a result, without clear evidence of guile, the strategic behavior hypothesis
remains unproven in this case. Instead, rational inattentiveness, or an actor’s deci-
sion to ignore information based on his/her limited and costly information process-
ing abilities, might provide a stronger explanation (Sims 2010).
First, the LVMC’s non-profit corporation structure may have limited its stake-
holders’ attentiveness. According to the industrial organization and financial litera-
tures, people expecting limited benefits from an action have less motivation to
attend to new information. As a result, when decision makers have low skin in the
game or lack residual claims on a project’s operations, firms underperform (Alchian
and Demsetz 1972, pp. 789–790; Cremers et al. 2009; Bhagat and Tookes 2012). In
the LVMC case, the organization’s Board of Directors risked no equity in the mono-
rail project, had no responsibility for outstanding debt in the case of bankruptcy, and
would not profit from a financially sound monorail. As a result, the board likely
lacked strong incentives to adequately analyze the monorail project’s risks and may
have overlooked pessimistic information regarding demand overestimation and
unsustainable debt.
Second, concurrent economic events may have limited bond buyers’ attentive-
ness. LVMC bonds were issued in September 2000, just as the Dotcom bubble was
bursting. Between March and September of that year, 280 Internet-based service
firms in the Bloomberg US Internet Index lost $1.755 trillion (59%) of their market
value (Kleinbard 2000). During periods of high volatility, investors tend to prefer
safer and more liquid assets, conducting a “flight to safety” or “flight to quality”
(Vayanos 2004; Baele et al. 2013). The LVMC’s tax-free and insured revenue bond
offering positive revenue forecasts probably looked appealing to investors fleeing
risky tech investments. In addition, an investor saturated with negative news may
have focused less on details when processing information and evaluating
projections.
As the Las Vegas Monorail case demonstrates, PPP infrastructure procurement

approaches involving private actors can provide great public benefits. The city of
Las Vegas now possesses a well-travelled monorail system without having commit-
ted public resources (prior to a new 2017 project expansion). Nevertheless, the
case’s 2010 bankruptcy and significant bondholder losses also demonstrate how
flawed structures can jeopardize PPPs’ attractiveness to the private sector. The case
study presents evidence that developers’ and investors’ rational inattentiveness
likely drove this outcome. The non-profit corporation structure, particularly its lack
of profits and limited liability, most likely allowed the project’s developers to over-
look information that cast doubt on the project’s viability. Investors, too, likely suf-
fered from rational inattention when the bursting Dotcom bubble made the LVMC
bonds look like a safe investment. The opportunism hypothesis, while intriguing,
lacks sufficient evidence.
The Las Vegas Monorail experience suggests four lessons for policymakers
interested in delivering large transportation infrastructure projects using PPP
approaches. First, the findings suggest that procuring parties should conduct com-
petitive procurement processes, thereby obtaining expertise from multiple firms
when designing and evaluating projects and financing approaches. Had the county
pursued a monorail project independently, it might have questioned whether the
MGM Grand-Bally’s Monorail offered the best approach or whether its owners rep-
resented the best available developers. Since Las Vegas already contained four oper-
ators of similar transit projects, given a competitive procurement process, one of the
city’s other firms, or another firm from outside the county, might have presented a
cheaper technological design requiring less demand to remain sustainable.
Second, policymakers must carefully evaluate whether a non-profit corporation
structure represents the most appropriate approach for their project contexts, either
as concessionaires or as new partners with ownership stakes. Non-profit corpora-
tions permit tax-exempt bond issues and can help avoid monopoly franchisee abuses
by eliminating profit motives. On the other hand, they can also shift risk primarily
to bondholders, potentially promoting rational inattention or opportunistic behavior,
weakening risk assessments.
Third, policymakers should consider performing independent ex ante stress tests

to evaluate their projects’ debt sustainability. Even if the public sector does not
guarantee the debt, a PPP bankruptcy may affect the procuring agency’s reputation.
As a result, the public sector should conduct its own demand projections instead of
relying solely on those presented by the parties presenting unsolicited proposals. In
hindsight, the monorail case should have included stress tests conducted to deter-
mine the project’s financial sensitivity to large changes in ridership demand, includ-
ing comparisons with national and international experiences. Relying on studies
provided by the organizations benefiting from the project, or from sectors adversely
affected by the project, is not sufficient.
Finally, leaving aside concerns regarding rational inattentiveness, the public sec-
tor should consider how best to handle potential PPP bankruptcies. In particular,
policymakers should conduct analyses evaluating the costs and benefits presented
by PPP contract renegotiations, especially when concessionaires face financial dif-
ficulties. In general, such cost and benefit analyses would help identify what citizens
and the public sector might obtain from renegotiation and would also improve dis-
cussions surrounding such contract decisions. US state transportation agencies gen-
erally do not conduct these analyses, barring renegotiation impact assessments
(Gifford et al. 2014). Such analyses become especially important in situations where
PPP concessionaire bankruptcy appears imminent since the public should under-
stand any long-term consequences brought about by contract changes.
Acknowledgements The authors wish to extend their gratitude to Morghan Transue and Andy
Blevins who provided edits and feedback for draft versions of this paper.
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Public-Private Partnerships in Denver,
CO: Analysis of the Role of PPPs
in the Financing and Construction
of Transportation Infrastructure
in the USA
Sylvia A. Brady, Andrew R. Goetz, and Andrew E. G. Jonas
Abstract This chapter examines the expanding role of public-private partnerships

(PPPs or P3s) in metro transportation projects in the USA through the innovative
funding and financing of transit and highway infrastructure. The chapter draws on
research undertaken by the authors on the recent use of PPPs in the Denver Regional
Transportation District’s (RTD) Fast Tracks program, a 2004 voter-approved
$4.7 billion transit expansion program, and the Colorado Department of
Transportation (CDOT) highway expansion. After a shortfall in funding, RTD part-
nered with several private consortia to enable the Fast Tracks program to move
forward. PPPs were utilized in the building of the first commuter rail in Denver, a
highway bus rapid transit project and toll lanes, and Denver Union Station, a multi-
modal transportation hub.
The chapter discusses what the Denver experience tells us about the success of
PPPs in the context of US transportation infrastructure financing, construction, and
maintenance. We found Denver’s PPP projects were rated favorably by nearly all the
surveyed respondents, representing a sample of key regional stakeholders. The most
important benefits of utilizing a P3 delivery model were accelerated delivery of a
project and appropriate allocation of risk. The main shortcoming that we identified
was that P3s can be complex and opaque, especially to the general public. Overall,
we found that the Denver P3s can serve as a useful model for other transit agencies
S. A. Brady (*)
Department of Earth and Atmospheric Sciences, Metropolitan State University of Denver,
Denver, CO, USA
e-mail: sbrady16@msudenver.edu
A. R. Goetz
Department of Geography and the Environment, The University of Denver, Denver, CO, USA
e-mail: Andrew.Goetz@du.edu
A. E. G. Jonas
Department of Geography, Geology and Environment, University of Hull, Hull, UK
e-mail: A.E.Jonas@hull.ac.uk

https://doi.org/10.1007/978-3-030-83484-5_11
196 S. A. Brady et al.
seeking to expand their transit infrastructure. We recommend that agencies seeking

to follow Denver’s P3 example invest in specialized legal and financial expertise to
ensure the inclusion of appropriate safeguards for project quality and to protect the
public interest and that agencies should fully integrate P3s within existing structures
of regional collaboration.
Keywords Public-private partnership · Transportation infrastructure · Denver ·

Regional transit · Financing
Abbreviations
ARRA American Recovery and Reinvestment Act

BRT Bus rapid transit
CDOT Colorado Department of Transportation
COP Certificate of participation
DB Design-build
DIA Denver International Airport
DRCOG Denver Regional Council of Governments
DTP Denver Transit Partners
DUS Denver Union Station
FHWA Federal Highway Administration
FRA Federal Railroad Administration
FTA Federal Transit Administration
HOT High-occupancy toll lanes
HPTE High-Performance Transportation Enterprise
MMC Metro Mayors Caucus
NAO National Audit Office, UK
P3 Public-private partnership
PAB Private activity bonds
Penta P Public-Private Partnership Pilot Program
PTC Positive train control
RRIF Railroad Rehabilitation and Improvement Financing
RTD Regional Transportation District (Denver)
TABOR Colorado Taxpayer Bill of Rights
TIF Tax increment financing
TIFIA Transportation Infrastructure Finance and Innovation Act
TOD Transit-oriented development
USDOT United States Department of Transportation
USNC Union Station Neighborhood Company
Public-Private Partnerships in Denver, CO: Analysis of the Role of PPPs in… 197
Introduction
Throughout the USA, states and local governments are grappling with the chal-
lenges of funding and financing improvements in urban transportation in the context
of fluctuating passenger numbers and freight transport demands, aging infrastruc-
ture and, most recently, uncertainties associated with the coronavirus pandemic.
With responsibility for mass transit infrastructure within their jurisdictions, regional
transportation agencies and municipal governments are searching for innovative
funding and financing mechanisms to maintain and enhance urban transportation
infrastructure. Many are turning to public-private partnerships (PPPs or P3s) to
address ongoing shortfalls in public infrastructure funding, secure new sources of
finance, accelerate project build-out, and guarantee future revenue for operations
and maintenance.
This chapter is based on research which analyzed the role of PPPs in transit
infrastructure provision in the Denver, Colorado, metropolitan region. It examines
three PPP projects in the Denver Regional Transportation District (RTD) voter-
approved Fast Tracks program: Eagle P3 commuter rail, Denver Union Station rede-
velopment, and US 36 bus rapid transit and high-occupancy/toll (HOT) lanes. Each
of these transit projects has employed some form of a public-private partnership to
facilitate RTD’s transit expansion, and we discuss the nature of each PPP agreement.
Using in-depth interviews and surveys with key stakeholders and decision-
makers as well as analysis of data from relevant plans and documents through 2020,
we discuss what the Denver PPP experience tells us about the success of PPPs in the
context of US transportation infrastructure funding and construction. We analyze
the financial and social benefits of the projects for the public and private partners as
well as the Denver region public at large. We also discuss the benefits and shortcom-
ings of using the PPP delivery method and the extent to which Denver’s use of PPPs
can serve as a model for other transit agencies seeking alternative procurement
methods. In concluding, the chapter addresses the potential for similar PPP mecha-
nisms and policy implications in other metro areas in the USA, reflecting on poten-
tial opportunities and likely obstacles.
he Growing Importance of Transit PPPs in Financing

T
Transportation Infrastructure in the USA
This section discusses some key features of transportation PPPs in the USA. It then
briefly summarizes the findings of previous studies which have identified some of
their benefits and shortcomings.
Transit PPPs in the USA
Although PPPs are widely used in many other countries, the USA has often lagged
the rest of the world in the adoption of PPPs to deliver urban transportation infra-
structure. Instead, financing of transportation infrastructure has typically been
dependent upon federal and state fuel taxes, local property taxes, local sales taxes,
selling municipal and revenue bonds, and additional local funding sources. The
principal source of revenue historically has been the federal fuel tax in support of
the Highway Trust Fund that has been used to build and maintain highways, as well
as transit systems in more recent years. Because the federal fuel tax has not been
increased since 1991 and because vehicles have achieved greater fuel economy
standards, revenues from the fuel tax have not kept pace with infrastructure and
maintenance needs. This has, in turn, led to growing demands for greater state and
local sources of funding.
After revenue shortfalls and austerity measures following the 2008 global reces-
sion, interest in utilizing PPPs in transportation in the USA increased markedly.
Papajohn et al. (2011: 127) found that 25 of the 32 US states surveyed were either
currently adopting or had plans to implement transportation PPPs, while only 7
stated they did not plan to adopt such arrangements. Most US transportation public-
private partnerships have been for construction and renovation of highways, bridges,
and tunnels, with only about 20% of identified transport PPPs between 1989 and
2011 being rail transit projects (Istrate & Puentes, 2011.)
The definition that best applies to transit PPPs discussed in this chapter comes
from the US Department of Transportation (USDOT), which regards PPPs as a form
of procurement. According to the USDOT’s 2004 Report to Congress on Public-
Private Partnerships (FHWA, 2007):
A public-private partnership is a contractual agreement formed between public and private
sector partners, which allows more private sector participation than is traditional. The
agreements usually involve a government agency contracting with a private company to
renovate, construct, operate, maintain, and/or manage a facility or system.
The most common types of PPP in transit procurement are design-build (DB) and
design-build-operate-maintain (DBOM). These are considered “alternative meth-
ods” of project delivery because they differ significantly from the more traditional
design-bid-build method of contracting (Thomas & The Thomas Law Firm, 2014).
In a design-bid-build project, the public agency has more control over the design of
the infrastructure. The agency either designs it or contracts out the design according
to precise specifications, and then companies bid on the construction of that project.
In the DB and DBOM models, the public agency develops certain performance
specifications for the project, and the detailed design is left up to the private group,
which bids for it. DBOM includes operations and maintenance responsibilities in
the contract, which is usually for a longer term of 15 or more years. The Hudson-
Bergen light rail system in New Jersey is an example of the DBOM model.
Financing can be an important component of such alternative delivery methods
whereby the private sector brings in equity or takes on some of the debt burden of
the project. The public entity will use revenue generated from the project, usually
including farebox, toll, and/or tax revenue, to pay the private sector or issue avail-
ability payments over the course of the operational period. A full design-build-
finance-operate-maintain (DBFOM) delivery method can further transfer financial
risk to the private sector as well as generate life cycle cost savings (Thomas & The
Thomas Law Firm, 2014). According to our research, the experts tended to agree
that a “full PPP” must include financing, and indeed, basic DB contracts are becom-
ing the standard procurement method.
Mandri-Perrott (2009) reviewed the more common international light rail PPP1
projects, while in the USA such PPPs were fewer but growing in number (Thomas
& The Thomas Law Firm, 2014). Although much of the research on US transport
PPPs has focused on toll roads and highway infrastructure (Van der Hilst, 2012),
their results are, according to our interviews, often designed and applied to transit
PPPs. With the increasing interest in utilizing the private sector in transit infrastruc-
ture delivery, more research is needed on the implementation of transit-specific PPP
projects in the USA, especially long-term concessions (i.e., those typically covering
20 or more years) that include a financing element.
Some Benefits and Shortcomings of Transportation PPPs
The benefits of using PPPs to procure new transportation infrastructure have been
identified in several research articles and federal publications. Among other advan-
tages, PPPs are expected to deliver projects faster and at a lower price than tradi-
tional methods (FHWA, 2007; NAO, 2003). Increased innovation resulting from
input from the private sector in the construction and operation phases is another
benefit of PPPs (Thomas & The Thomas Law Firm, 2014: 6; Papajohn et al., 2011:
pp. 130–131). PPPs can also stretch limited capital funds of an agency by allowing
it to finance a project over a longer period, as well as utilize private financing and
capital to build more transportation infrastructure than through public financing
alone. PPPs also have the potential to allocate appropriately some risks to the pri-
vate sector (FHWA, 2007), albeit none of the states in Papajohn et al.’s (2011) sur-
vey identified risk transfer as the reason for setting up a PPP. Many states
implementing PPPs did so for financing reasons rather than cost-saving reasons
(Papajohn et al., 2011).
There are also potential drawbacks to PPP transportation projects. The initial
costs at the bidding stage and other transaction costs are much higher for a PPP
because of the need to hire experts in PPP contracts (Valila, 2005; Vining et al.,
2005). Critics of PPPs have further expressed concerns about the lack of public
accountability when the private sector takes over the operation of a public asset
1
We use the acronyms PPPs and P3s interchangeably throughout the chapter, but they are referring
to the same thing.
(Siemiatycki, 2006; Forrer et al., 2010) and that profit maximization will come at
the expense of the public good. PPPs are not a viable alternative of infrastructure
delivery in all cases; each infrastructure project should assess the viability of a PPP
delivery mechanism by weighing the costs and benefits in each situation (Reinhardt
& Utt, 2012). The remainder of this chapter evaluates specific costs and benefits
identified by stakeholders for the three examples of Denver transit PPPs.
Study Area and Background on Denver’s Transit PPP projects
After a 1997 attempt to pass a voter-approved transit sales tax to expand rail transit
in the Denver-Aurora and Boulder Metropolitan areas failed by 57 percent of the
vote, a 2004 ballot initiative passed with over 57 percent vote in favor of the mea-
sure. The $4.7 billion plan put forth by the Denver Regional Transportation District
(RTD) was called Fast Tracks, and the approved 0.4 percent increase in the regional
sales tax paved the way for the addition of 122 miles of light rail and commuter rail
to be built in the Denver metropolitan area (Fig. 1). Along with expanding rail tran-
sit, a new multimodal transit hub would be built at Denver’s Union Station along
with a bus rapid transit line connecting the cities of Boulder and Denver.
However, delays in construction soon led to an increase in the costs of the Fast
Tracks projects. Between 2003 and 2008, construction material costs rose much
faster than RTD had predicted. The global economic crisis of 2007–2008 further
exacerbated the situation by reducing sales tax revenues well below projections. By
2012, the cost estimate for Fast Tracks completion rose to $7.4 billion. As regional
officials looked to the federal government to help cover the growing gap in funding,
it was clear that further measures were required. In 2007, the Federal Transit
Administration (FTA) had launched its Public-Private Partnership Pilot Program
(Penta P) to encourage transit agencies to explore how PPPs could reduce risk on
federally funded projects. Denver RTD was one of three agencies selected for the
program and the only one that continued with it. In May of 2011, the FTA awarded
a $1.03 billion fully funded grant to the RTD for three major commuter rail corri-
dors in the Fast Tracks system, packaged as the Eagle P3. In awarding the money to
Denver, the head of the FTA praised the RTD’s plans as a “model of private-sector
involvement in transportation” (Lieb, 2011). The creation of a PPP having access to
nontraditional sources of capital was a centerpiece of the RTD’s plan (for a detailed
analysis, see Jonas et al., 2019).
The completion of the Fast Tracks system was primarily hindered by the failure
to build the Northwest rail line. Because of the increased construction and right-of-
way costs, decreased sales tax revenue, and lack of federal funding, full completion
of the Northwest commuter rail line to Boulder and Longmont was delayed to get
the rest of the system built. RTD officials have put a date of 2042 on the full comple-
tion of the Northwest rail line. Nonetheless, the first 6 miles of the Northwest rail
link, from Denver Union Station to the suburb of Westminster, was included in the
Eagle P3 project, one of three projects that have recently attracted novel PPP
arrangements.
Fig. 1 Original Fast Tracks program map (source RTD, 2004)
Eagle P3 Project
Central to the Eagle P3 project is the delivery and completion of three key compo-
nents of the Fast Tracks project (see Table 1), namely, the East Rail Line (now the
University of Colorado A Line),2 the Gold Line (now the G Line), and the first
segment of the Northwest Rail Line (B Line), along with the Commuter Rail
2
The University of Colorado acquired naming rights for the commuter rail line to Denver
International Airport as part of a 5-year, $5 million deal with RTD.
Table 1 Major transit corridors covered by the Eagle P3 PPP project

Local jurisdictions and
Distance major developments
Corridor name (miles) Corridor description served
East Rail Line (A 22.8 Electric commuter rail linking City/County of Denver,
Line) Denver Union Station and Denver downtown Denver, DIA
International Airport (DIA)
Gold Line (G Line) 11.2 Electric commuter rail linking City/County of Denver,
Denver Union Station and Wheat Adams County, Arvada,
Ridge Wheat Ridge
Northwest Line 6.2 Electric commuter rail linking City/County of Denver,
(first segment only) Denver Union Station and Westminster
(B Line) Westminster
Source: RTD, 2015c
Fig. 2 RTD map of Eagle P3 rail project (John Laing, 2015)
Maintenance Facility (a site for storing and maintaining the commuter rail vehicles
that serve parts of the Fast Tracks system). These lines are significant because they
connect downtown Denver to major urban and suburban developments, including
the Central Park (formerly Stapleton) neighborhood and Denver International
Airport (DIA), as well as the cities of Aurora, Arvada, Wheat Ridge, and South
Westminster (Fig. 2). They are integral to ongoing regional efforts to retrofit mass
transit to the new metropolitan geography of urban development, to promote smart
growth, and to encourage transit-oriented developments throughout the
Denver region.
The Eagle P3 Project is an example of the design, build, finance, operation, and
maintenance (DBFOM) PPP model (Fast Tracks, 2015c) insofar as it involves the
private sector participation in all stages from project construction to financing and
maintenance. Some $2.2 billion in capital has been committed to the project, which
is comprised of $1.03 billion in grant funding from the FTA, regional sales tax
bonds, and private equity of at least $450 million raised by the private consortium,
Denver Transit Partners [DTP] (Table 2; RTD Fast Tracks, 2015a, 2015b.) The RTD
makes payments to the private partners over the lifetime of the project while
Table 2 Sources of capital funding for Eagle P3

Amount ($US
Funding and financing sources millions)
Regional: RTD funds including bonds raised against regional sales tax 684
revenue
Federal: Federal Transit Administration Grant 1030
Global: private equities and revenue bonds 486
Total investment in Eagle P3 project 2200
Data sources: various including RTD Fast Tracks, 2015a, 2015b
retaining ownership of all assets relating to the Fast Tracks system. Phase 1 of the
project began in August 2010, while the remaining construction phase of the project
(phase 2) was completed in 2016. The A Line portion of the project opened as
scheduled in 2016 and the B Line portion in July of 2016. The G Line was signifi-
cantly delayed, until April of 2019, because of crossing gate issues that also affected
the A Line and B Line. DTP, the private consortium, will continue to operate the
project thereafter and for the remainder of its contracted lifetime of 29 years.
DTP represents in the Eagle P3 project a consortium of private concessionaires,
including Fluor Enterprises, Inc., Denver Rail (Eagle) Holdings, which is a subdivi-
sion of John Laing PLC, and Aberdeen Infrastructure Investments, a unit of
Aberdeen Global Infrastructure Partners LP (DTP, 2015; Jonas et al., 2019). John
Laing and Aberdeen Infrastructure Investments are the majority partners in DTP,
each with a 45% interest (John Laing, 2015). Concessionaire arrangements legally
bind together the Eagle P3 project into a consortium, but it is important to note that
this arrangement has already undergone some significant changes over the course of
the project.
Other Fast Tracks PPP Projects
Table 3 provides a description and overview of the two other Fast Tracks projects
that include private financing: Denver Union Station and US 36 HOT lanes.
Denver Union Station
Denver Union Station (DUS) is different from other Fast Track PPP projects because
it utilized innovative financing through real estate and development value. The DUS
public-private partnership included four public agencies: RTD, Colorado Department
of Transportation (CDOT), Denver Regional Council of Governments (DRCOG),
the City and County of Denver; and one private group, Union Station Neighborhood
Company (USNC), a joint venture of Continuum and East West Partners. The pri-
vate sector was engaged in the project as a “master developer.” DUS is the
Table 3 Overview of PPP projects in the Fast Tracks program

Funding Type of
Aims Partners sources PPP
Denver Union Station Create dense, RTD, DRCOG, RRIF and DBF
• Eight-track mixed-use transit- CDOT, City and TIFIA loans,
commuter rail oriented development County of Denver, FHWA
station around the station Union Station grant,
• Relocation of Create an intermodal Neighborhood ARRA grant,
light rail station hub for light rail, Company, Kiewit FTA grant,
• 22-bay commuter rail, Senate Bill 1
underground bus Amtrak, bus, taxi, (CO) funds,
concourse pedestrians, and bikes RTD
• MetroRide Renovate historic property
downtown Union Station building sales, and
circulator Fast Track
• Renovation of funds
historic Union
Station building
with hotel, retail,
and dining
US 36 bus rapid To reduce congestion CDOT, RTD, HPTE, RTD funds, DBFOM
transit/HOT lanes on US 36 corridor Plenary Roads, Aims TIGER grant
• Bus rapid transit Offer transportation Granite Joint (USDOT),
(BRT) Flatiron choices Venture Colorado
Flyer service Bridge
• Express HOV Enterprise
and toll lanes funds,
• US 36 Bikeway DRCOG,
• Intelligent TIFIA loans,
transportation CDOT funds
system solutions
Sources: RTD, 2016a, 2016b, 2016c, 2016d; FHWA, 2014a, 2014b, n.d.; CDOT, 2012, 2014a,
2014b; Khokhryakova, 2013; Lien, 2014; USDOT, 2016
intermodal hub of the RTD transit network, where light rail, commuter rail, bus
operations, and Amtrak service all converge. In addition, the historic Union Station
building and great hall were refurbished and now house a boutique hotel as well as
popular retail and dining options.
The financing of DUS came from several sources including federal and state
grants, property sale proceeds, and federal Transportation Infrastructure Finance
and Innovation Act (TIFIA) and Railroad Rehabilitation and Improvement Financing
(RRIF) loans (see Table 4). The money to repay these loans came from Fast Tracks
sales tax revenue and tax increment financing (TIF) revenue. DUS opened the light
rail facilities in 2011, the bus concourse and great hall in 2014, and commuter rail
service began in 2016.
Table 4 Sources of capital funding sources for Denver Union Station

Amount ($US
Funding sources for Denver Union Station millions)
Federal: Railroad Rehabilitation and Improvement Financing (RRIF) loan 155
Federal: TIFIA loan 145
Federal: FHWA grant (CDOT) 50
Federal: American Recovery and Reinvestment Act funds (ARRA) 28.6
(DRCOG and RTD)
Federal: Federal Transit Administration Grant 9.6
Federal: Transportation Improvement Program (TIP) funds (DRCOG and 2.5
RTD)
State: Senate Bill 1 (CO) 18.6
Regional: Property sale proceeds (RTD) 37.4
Total investment in Union Station project 446
Data sources: FHWA, n.d.; Khokhryakova, 2013; Lien, 2014; USDOT, 2016; RTD, 2016a
US 36 Bus Rapid Transit and HOT Lanes (Phase 2)
Phase 1 of the US 36 improvements was a DB agreement, while phase 2, including

BRT, bikeway, and high-occupancy/toll (HOT) lanes, was a DBFOM PPP with the
private partner Plenary Roads and the High-Performance Transportation Enterprise3
(HPTE) within CDOT. Plenary Roads has a 50-year concession agreement to oper-
ate the toll lane and maintain the toll lane and general purpose lanes. Also known as
the Flatiron Flyer (FF), the bus rapid transit service operated by RTD runs 18 miles
between Boulder and Denver Union Station. The BRT service was included in the
original Fast Tracks plan in conjunction with CDOT’s highway improvements and
began service in 2016, after the 2015 opening of the HOT lanes.
Total cost of phase 2 construction was $208.4 million. Plenary Roads assumed
the TIFIA loan from phase 1 (over $50 million) as well as issued a new TIFIA loan
for $60 million. In addition they issued $20 million in private activity bonds (PABs)
and contributed over $20 million in equity (FHWA, 2014b; Plenary Roads, 2020).
Other funding sources included state, federal, and local funds as well as RTD sales
tax revenue (see Table 5). The contract gives the toll revenue to Plenary Roads, with
the state sharing in revenues that are generated higher than expected rates of return.
CDOT pays Plenary for maintenance according to the contracted requirements. The
terms of the contract include financial penalties for not meeting maintenance or
operation standards (CDOT, 2014a, 2014b). Table 6 provides a summary of princi-
pal contract elements for all three Denver P3 projects.
3
The High-Performance Transportation Enterprise is a government-owned business within CDOT
that was formed to pursue innovative means of more efficiently financing important surface trans-
portation infrastructure projects.
Table 5 Sources of capital funding for US 36 improvements
Funding sources for US 36 (phase 2) Amount ($US millions)

Plenary funding
• PABs 20.6
• TIFIA loan 60
• HPTE capital payment 49.6
• Equity 20.6
• Subordinated debt 20.6
• I-25/ US 26 toll revenues 8.6
• Other 3.4
HPTE/CDOT funding
• State funds 18.9
• Federal funds 15
• RTD sales tax revenue 30.5
• Local funds 10.8
Total investment in US 36 improvements 208.4
(Phase 2)
Data sources: FHWA, 2014a, 2014b, CDOT, 2012, 2014a, 2014b, RTD, 2016d, Plenary
Roads, 2020
Table 6 Overview of contract elements for Denver P3 projects

Eagle P3 • DTP was paid lump sum for the design and build portion
• DTP operates and maintains the Eagle P3 lines for a 29-year contract
period
• RTD makes availability payments to DTP at the start of service
• DTP guarantees condition of the asset after the 29-year O&M period
• RTD retains ownership of all assets after the 29-year O&M period
• RTD controls fares and fare revenue risk; availability payments
provide certainty for DTP
• Contract includes provisions that allow the public agency to retain or
reassume control of strategic assets if the private sector fails to deliver
on their contractual duties
• Quality of service is specified in the contract with penalties if
performance requirements are not met by DTP
US 36 highway • 50-year concession agreement for Plenary Roads to operate and
toll lane and BRT maintain toll lane and general purpose lanes
• Plenary Roads earns toll revenue; State of Colorado shares revenues if
they exceed projected rates of return
• Financial penalties imposed for not meeting maintenance or operation
standards of contract
Denver Union • The master developer, Union Station Neighborhood Company
Station (USNC), agreed to pay for real estate that RTD owned in the area in
return for right to develop the land
• Development fee was paid to USNC to develop a new master plan and
transit solution
• Master developer led planning and design efforts of the public and
private spaces including the transit components
Research Methods
The study utilized multiple research methods. First, we conducted a desktop analy-
sis of transportation and transit public-private partnerships in the USA. Second, we
collected and analyzed data, plans, and relevant documents from Denver RTD
through 2020 for each of the selected projects. Third, we conducted a survey and a
sample of face-to-face interviews with at least 20 strategic actors and policymakers
in Denver to elicit their views on the structure and nature of the transit PPPs in the
region. The survey was administered face-to-face to control its dissemination and
preserve the quality of the data. We identified potential interviewees through per-
sonal knowledge and past work with RTD, and we then asked these interviewees to
suggest additional participants for our study. We interviewed and surveyed a variety
of stakeholders, with responses from members of the business community; local,
state, and federal government; community and advocacy groups; transit agency rep-
resentatives; and private contractors.
We then input the survey responses into survey analysis software called Qualtrics.
We used this software to analyze the survey data and generate summary statistics for
the close-ended survey questions. The survey used a Likert-type scale for close-
ended questions, and it also included several open-ended questions. We audio
recorded, transcribed, and coded the interview responses to identify common themes.
Findings: The Benefits of PPP Projects in Denver
In this section, we examine how survey respondents and stakeholder interviewees

evaluated the major benefits of the three PPP projects described above. Respondents
tended to highlight the financial benefits.
Financial Benefits
Overall, the financial benefit for the private consortium involved in the PPP projects
is generally regarded as favorable. Respondents were more conservative in their
assessment of the concessionaire’s finances because most stakeholders (except for
representatives from the private consortium) have no real way to know if they are
making money, but the consensus is that they are. The global investment firms
involved in the Eagle P3 have experience with these types of long-term infrastruc-
ture projects and are looking for a “steady, long stream revenue source with fairly
predictable and manageable risk” for investors like the California School Board
retirement group and the Australia Teachers Union. The consensus is that DTP got
“a good deal, but not a smoking deal” and “nobody is walking away broke,” even
with significant unexpected expenses for the private sector, such as having to rebuild
the Jersey Cutoff bridge in the Eagle P3 project at the cost of $10 million.4
The most important factor for DTP to make a sufficient return on their invest-
ment in the Eagle P3 project was to complete the project on time to begin receiving
availability payments to service their debt. Although construction was completed on
time, all lines were not in service according to the anticipated schedule. Since the
interviews were conducted before all the Eagle P3 lines entered into revenue ser-
vice, the responses were colored by the assumption that the lines would open on
time. There have since been several battles over the contract agreement and pay-
ments because of several issues relating to increased costs of operation and delayed
opening of the G line. The A Line and B line opened on time in April of 2016 and
July of 2016, respectively, but the lines were operating under a waiver from the
Federal Railroad Administration (FRA) for safety issues with the crossing gates.
The Eagle P3 lines were the first rail transit lines to implement wireless signaling to
the crossing gates, and it was integrated with the federally mandated positive train
control (PTC) technology.5 As a first of its kind system, there have been glitches.
According to the FRA, the crossing arms were going down too soon and staying
down too long. The waiver from the FRA required DTP to station human flaggers at
every grade crossing, and DTP continued to do so on and off for over 3 years. While
the exact cost to station flaggers at road crossings for nearly 24 h a day for 3 years
is not known, it is estimated that tens of millions of dollars have been spent by DTP
to keep the A Line in operation.
In addition, RTD has withheld over six million dollars from the availability pay-
ments to DTP for failure to meet contract terms in getting the G line open. Because
of the issues at the crossing gates, the G line opening was delayed until April of
2019, and it also operated with flaggers under the FRA waiver until August 2019. In
the fall of 2018, DTP sued RTD for $80 million for reimbursement of the costs of
the flaggers and withheld payments, arguing that federal regulations changed, and
they should not be liable for the additional costs due to FRA’s decision (Minor,
2019). RTD threatened to end its contract with DTP and countersued DTP for mil-
lions of dollars, claiming they had defaulted on their contract and rushed the testing
phase of operation. The net effect on the private sector partner’s finances is not
known, but it is clear that their operation costs have increased, and the delayed
opening of the G Line has affected their access to the availability payments from
RTD, enough to warrant a lawsuit. The contract is based on availability payments to
the private consortium, so the decline in transit ridership experienced in the
4
This bridge goes over the BNSF railway tracks just south of I-70 along the Gold line/Northwest
line alignment in the Eagle P3 project (Source: Eagle P3 update presented at RTD board update
Sept. 2, 2014:http://rtd.iqm2.com/Citizens/Detail_LegiFile.aspx?Frame=&MeetingID=1954&Me
diaPosition=&ID=2051&CssClass=).
5
Positive train control was mandated by Congress in the 2008 Rail Safety Improvement Act. The
technology is designed to automatically stop a train to avoid accidents. For more information see:
https://www.aar.org/campaigns/ptc/
COVID-19 pandemic does not affect the payments to DTP. Risk of low farebox
revenue falls on the transit agency.
Denver Union Station was assessed somewhat more favorably for the financial
benefit of the private sector because the property values of the real estate that was
sold around the station are known and published. The successful and explosive rede-
velopment of the Lower Downtown (LoDo) area in Denver is evident to all the
respondents. A representative of the private master developer, however, did com-
ment that while the private group did make a profit, it was only due to market condi-
tions and not from any money that RTD was paying them. The real estate developers
had a difficult time early on when the real estate market was still recovering from
the 2007–2008 financial crisis, and they had to wait until the end of the deal to real-
ize any profits. They assumed a lot of risk but ended up making money with a com-
bination of historical luck and effective solutions of the transit hub problem.
The US 36 toll lane project financials remain to be seen, and it is too early to tell
what toll revenues will be. Many respondents think this will be one of the last toll
road projects that transfers the toll revenue risk to the private sector because toll
project revenue projections can be “wildly inaccurate.” Recently, several large US
toll road projects have gone bankrupt, notably the Indiana Toll Road in 2014 and the
Texas Toll Road/SH 130 in 2016. The private sector is increasingly less likely to
bear the toll revenue risk in these arrangements.
Nonetheless, most respondents recognized the financial benefit for RTD in the
US 36 project because RTD was able to leverage about $200 million in investments
to get $500 million in improvements through the PPP. One even saw this as the best
financial deal for RTD because of the comparatively low investment in exchange for
high quality of service improvements. The highway improvements were achieved
20 years before they would have been without a PPP (CDOT, 2014a; Plenary Roads,
2020). CDOT will also share in the toll revenue if it achieves higher than projected
revenues (CDOT, 2014b). A few people did, however, see the US 36 BRT project as
financially unfavorable for RTD because it did not add much to the level of bus
service while sacrificing a lot of political goodwill.
In addition, DTP’s $54 million private equity that was used to finance a quarter
of the Eagle project reduced the debt burden of RTD so they could complete other
projects. Since the actual debt rates for the private financing were higher than RTD
could have raised itself (assuming strong bond ratings), the private financing is not
necessarily cheaper in the long-term. There is not really a cost savings through pri-
vate financing, but if the public sector needs capital from elsewhere because they
have reached their debt capacity, as was the case with RTD, then the financing ele-
ment is an important benefit. Private equity also gives the private sector “skin in the
game.” For the Eagle P3, if the private consortia walk away from the deal, it loses
its $54 million equity. One person noted that the financing element of the PPP is
overrated, and “if you (the transit agency) are doing it for money, you are doing it
for the wrong reasons.” The respondents were careful to point out that as a transit
agency, RTD does not financially profit from running their services. The financial
benefit of a PPP comes in the way of “bang for the buck” in spending on transit
projects. The FTA full-funding grant agreement awarded points for cost-effectiveness
or “bang for buck” efficiency, and the PPP financing structure helped RTD score
well on that part of FTA’s assessment for federal funding.
One key to realizing the full financial benefits of a PPP is to include financing,
operations, and maintenance in the partnership. The public sector benefits by being
able to pay for the full life cycle cost of operations and maintenance. In a DB con-
tract, some construction savings may be reaped but possibly at the expense of opera-
tions and maintenance. With a full DBFOM contract, the private sector is incentivized
to build a better product that will require less maintenance to increase their profit
over the long-term concession lease. There is also a guaranteed condition of the
asset in the Eagle P3 that requires the infrastructure to be returned to the agency in
a certain condition after the 30-year O&M period. Instead of building a system to
last 50 years and using it and abusing it, this contract funds a mid-life overhaul of
the system.
Overall, the biggest financial benefits for RTD in utilizing the PPP structure were
a lower total cost of the projects, reducing their debt burden, and financing the proj-
ects over a longer timeframe. The PPP projects were viewed as financially favorable
for RTD since all three came in under the internal cost estimates for RTD to com-
plete the projects itself. The Eagle P3 project came in $300 million below internal
cost estimates, and savings allowed RTD to fund more projects and accelerate the
delivery of the Fast Tracks program. Denver Union Station produced the highest
return on RTD’s investment according to some experts because RTD ended up get-
ting a half a billion-dollar project for half the cost. RTD was able to make use of the
real estate value of their property surrounding the station to fund DUS and make use
of federal loans and private sector investment. Therefore, RTD had to invest less
upfront cash to complete the project. The revenue from DUS TIF is already ahead
of performance schedule to pay back the TIFIA loans.
Other Benefits of Denver’s Approach to PPPs
The three most important and most cited benefits of the PPPs were accelerated
completion of the project, appropriate allocation of risk, and private sector exper-
tise. Denver RTD was able to deliver more infrastructure sooner than it could have
with traditional revenue streams. The private sector has a better ability to deliver
multiple projects on time and on budget because of incentives such as availability
payments that take effect when the project is complete. Most of the interviewees
believe that the private sector is “faster, smarter, and better,” and through their oper-
ating efficiencies plus incentives for profit, they can complete projects faster than
the transit agency alone. Even a design-build project, without the financing, operat-
ing, and maintenance agreements, gets built faster than a traditional design-bid-
build because of private sector efficiencies, such as utilizing the connection between
the designer and the contractor for smoother and faster implementation.
A few named allocation of risk as the primary reason to conduct a project as a
PPP. The risks must be shifted appropriately, with the private concessionaire (and its
constituent firms) assuming those risks that they can manage better and cheaper
than RTD. For example, the private sector is much more equipped to assume con-
struction risk or interest rate risk, while the public sector is better equipped to han-
dle risks such as environmental hazards and public utilities. Shifting some of the
risk to the private sector is a significant financial advantage in a PPP contract.
However, the distribution and allocation of risk should not undermine control of
public assets. The contracts negotiated in these PPPs had provisions that allowed the
regional public agency to retain or reassume control of strategic assets should the
private sector fail to deliver.
Another way the public sector benefits from partnering with the private sector is
the expertise that hired consultants and the private consortia bring to the table. The
knowledgeable resources that the private consortia contribute to the design, con-
struction, and operation phases result in a better overall team overseeing the project
and more innovation. These specialized individuals and companies are better at
executing projects at a higher level of skill and reliability. According to some
respondents, the public sector is used to doing things in a certain way, with a “this
is the way we have always done it” mentality. A PPP helps “get the bureaucratic
bologna out of the way.” The public sector provides robust design criteria for the
transit infrastructure, but the PPP model provides flexibility for the private sector to
find efficiencies and cost savings by building things the way they know how or by
coming up with innovative solutions to design or construction issues. In this way
they are not hamstrung by the agency’s design. One example of an innovation from
the private partner in the Eagle P3 was including wireless signaling technology with
positive train control. However, in this instance, the innovation has resulted in addi-
tional regulatory problems and costs since the technology was relatively untested
prior to the opening of the Eagle P3 lines. Neither the public nor private partner was
able to adequately address the technical issues with the crossing gate software until
several years later.
Nevertheless, Eagle P3 was highly rated—either extremely favorable or gener-
ally favorable by all respondents—because of the economic development and con-
nectivity it will bring to the region. Ridership on the A Line has exceeded
expectations, and two new train cars were added to the service in 2019 to meet
demand (Tinsley, 2018). The ridership increased from 4.1 million passengers’
boarding in 2016 (from April through December) to 6.6 million in 2017 to 7 million
in 2018 (Bosselman, 2019; RTD facts and figures booklet). As of December 2018,
cumulative ridership had surpassed 16 million, which RTD officials had not expected
to reach until 2020 (Tinsley, 2018). This ridership increase occurred during a time
when ridership for RTD’s other services declined similar to transit ridership declines
nationally, even before the onset of pandemic-induced declines in 2020. RTD
expressed their satisfaction with the A Line ridership numbers, as well as their on-
time percentage for the A line of 97 percent. Likewise, the success of the BRT is
attributed to high ridership and improved travel time in the corridor.
The interviewees agreed that PPP projects bring other benefits to the wider
Denver region. All of the transit projects deliver the benefit of facilitating cost-
effective mobility and livability in the region. The PPP delivery model has enabled
more transit to get built faster, without having to go back to the taxpayers after the
funding shortfall. The consensus is that Denver region taxpayers are getting a good
deal with these PPPs and seeing value for their tax dollars, especially since the
Eagle P3 contract shifted much of the financial risk to the private sector. The cost of
the crossing gate flaggers and the delay of the G line revenue service have been born
thus far by the private contractor, but they are suing RTD for reimbursement of these
costs and withheld availability payments. RTD is having to expend legal fees to
fight the lawsuits and may end up paying for some of the expenses, so the true cost
of these issues is likely being felt by both the public and private partners.
Major Shortcomings of PPPs in Denver
After considering all of the measures of success, meeting transportation needs,

financial success, and public information, the PPP projects overall received high
marks from interviewees. Nonetheless a number of shortcomings were identified.
Three shortcomings are highlighted here: (1) issues of public accountability, (2)
potential loss of local control of key assets, and (3) high upfront costs.
Public Accountability and Transparency
Our research revealed that transportation PPPs, at least in Denver, are “complex and
opaque” and difficult to explain to the public because PPPs are misunderstood,
unfamiliar, and still novel. The agencies most heavily involved in these projects,
namely, RTD and CDOT, both felt that they did a good job informing citizens of the
impacts of the projects. However, the public did not always agree. An audit of the
US 36 project found that CDOT failed to provide enough information to the public,
“even though all [of the RTD transit projects] provided much less information- a lot
less,” according to one interviewee. Interviewees did feel that it is important for the
public to understand and be involved in PPPs, but because they are “complex and
opaque transactions that are difficult to explain and communicate,” it is hard to
know how much the public really wants to know. Keeping the public informed is
even harder with a PPP than with traditional projects because everything moves faster.
Toll lanes are inherently more controversial according to some interviewees.
With the US 36 project, some of the public got the wrong impression that they were
going to have to pay to drive on all the lanes on US 36. People were also confusing
CDOT and RTD, thinking that RTD was building toll lanes. Some interviewees also
attributed the backlash against the US 36 toll lanes and BRT to the failure of the
Northwest rail line to get built. People felt they had voted for rail, and now they
were getting buses, even though the BRT had always been a part of the Fast
Tracks plan.
The project was politicized at the state level when state legislators stepped in
questioning the PPP contract with the Plenary Roads group. Some elected officials
interviewed cited a “total lack of transparency” from CDOT, stating that the “agree-
ment was negotiated behind closed doors, nobody including legislators, got to see
the agreement until it was signed.” As a result, a few state legislators sponsored a
bill to restrict PPPs for CDOT in the future, but the governor vetoed the bill. The
public outreach part of the bill was kept, requiring at least two public meetings if a
project is delivered using a PPP. In hindsight, a few respondents felt that the private
and public partners failed to reach out to key stakeholders, including state legisla-
tors, to make sure they understood the procurement process and key contract terms.
RTD’s projects in general received higher marks for public information than the
CDOT project. Transit agency respondents also gave themselves high marks for
public information, citing RTD’s philosophy of active transparency. Every RTD
project has a public information team that is responsible for engaging with the com-
munity and local stakeholders. For the Eagle P3 project, RTD held a public meeting
in a large auditorium downtown for presentations from the private groups compet-
ing for the contract. People were interested in the high-profile A Line to the airport,
and the public could see it being built along the airport boulevard. Moreover, quite
detailed information—both about the project as well as the concessionaire—was
made publicly available on RTD and other websites. Nevertheless, the public and
even some elected officials still did not know many details about the projects,
including the procurement model or even the differences between light rail and
commuter rail. Light rail vehicles operate at lower speeds and are governed by the
FTA, while commuter rail vehicles travel at higher speeds up to 79 mph and are
governed by the rules of the FRA since they can utilized shared tracks with
freight rail.
Denver Union Station was “a different animal” because the PPP in this instance
was more real estate driven. The project had more scrutiny by more people, accord-
ing to individuals involved in the station redevelopment. The project has had mul-
tiple public and private stakeholders involved, so they felt they were always out
there explaining the project—to CDOT, RTD, Lower Downtown neighborhood
groups, etc. The project also had a citizens’ group, Union Station Alliance, which
has had input into what type of tenants they wanted to see in the station. Although
Eagle P3 and Denver Union Station were providing more information to the public,
some people were quick to point out that these projects were not controversial. In
the end, the public was mostly just glad the projects were being built, and there was
little opposition to them. People were not as concerned with the PPP delivery model
as they were with the perceived privatization of highways.
Less Control by the Public Agency
Transit agency representatives were asked if they could choose whether these proj-
ects would be conducted as PPPs or conducted by the transit agency alone, which
they would choose. There were two schools of thought. Some people would prefer
the transit agency to conduct the projects as design-bid-build because the agency
would have more control and involvement over the project and the agency’s ability
to control costs is better. Most people, however, said it depends on the project and
the circumstances surrounding it. For example, for the Eagle P3, it made sense to do
a DBFOM PPP because the agency was short on funding and electrified commuter
rail was a new technology that required coordination with the FRA, which RTD did
not have experience operating. Despite the benefit of the private sector’s experience
with electrified commuter rail, the commuter lines have not been immune to techni-
cal issues with the crossing gates and other unfortunate events including lightning
strikes and power outages. Furthermore, RTD decided to operate and maintain the
North Metro line (N line), another Fast Tracks commuter rail line that opened in
September of 2020, rather than use a private partner for that purpose (Minor, 2019).
The I-225 line (R line), however, would not have made sense to do with an operate
and maintain component because it is light rail technology, which RTD already runs
in several corridors. The decision to use a PPP as the delivery model should be con-
sidered as a part of the cost/benefit analysis, and if it makes sense, then do it. Even
though CDOT had gone with a PPP for the US 36 project, on another highway HOT
lane project, C-470, CDOT decided after analyzing the options that it would make
more sense for the agency to build and operate the lanes rather than a private entity.
A full DBFOM agreement does not make sense in every case, but DB agreements
also allow the agency to benefit from bringing in the private sector through risk
transference, efficiencies, lower cost, and the ability to complete multiple projects
at the same time.
Less control by the public agency means changes can be difficult in a PPP. The
public agency loses some flexibility and ability to request changes from their origi-
nal design. For example, the City of Denver and RTD wanted to add another station
at 61st and Pena Boulevard on the A Line to the airport (for the Panasonic Smart
City development) very late in the construction phase. While some change orders
can be done, it is not usually in the best interest of the private sector. In this instance,
the private side was able to add the station, but at a cost. Some people view this loss
of control by the agency as a shortcoming. The public entity has less control of the
design and building specifications compared to a design-bid-build contract, but one
response from RTD was “we have plenty of control over what we should worry
about.” RTD does not need to be concerned about the specific way the contractor
builds a bridge or station platform, as long as it is safe, reliable, and produces qual-
ity transit service.
Higher Upfront Costs and Debt Servicing
The public sector does not always have the expertise or experience to negotiate
these complex PPP contracts, so they bring together a group of very sharp legal and
financial minds to represent them, resulting in a better deal for the agency. The
expense to hire private experts in the negotiation phase can cost millions. The public
sector does not have the skills to negotiate these complex deals themselves. The risk
of ending up with a bad contract is more expensive than the cost of hiring the
experts, but there is also a risk that the project will never get to the bid phase and the
agency will have spent millions of dollars on lawyers, designers, bankers, consul-
tants, and other experts. There is no standardization of contracts for full DBFOM
agreements, so for the Eagle P3, financial and legal experts from Goldman Sachs,
JP Morgan, and Freshfields were required to ensure that the public entity was ade-
quately prepared to enter the PPP arena.
There is also the issue of determining cost savings. As discussed in the previous
benefits section, PPPs can result in a cost savings in the short term and allow proj-
ects to get completed that may have had funding issues. However, over the longer
term, the agency will end up paying more for a PPP project because they are paying
a higher debt rate through the private sector financing. As one expert put it, rarely
will the agency’s “green-visored accountant” in the back room look at the spread-
sheets and say that a PPP makes financial sense, because the agency will pay more
over time. But the agency should consider all of the other benefits of a PPP, espe-
cially the transfer of risk, which also adds to the increased cost. Experts agreed,
financing is not funding, and PPPs are not a magic bullet to address the lack of
transportation funding in US states and cities.
Policy Implications
There are several wider policy implications of our study of PPPs in the Denver
region. This section discusses whether Denver serves as a model for other regions
interested in exploring PPP mechanisms, the role of regional collaboration, and
whether the public interest can be safeguarded in PPP contracts.
Using Denver PPPs as a Model for Other PPPs in the USA
Many people stated that the Eagle and Denver Union Station PPPs could serve as
models for other US cities and regions looking to expand their transit infrastructure,
especially for transit agencies with constrained revenue streams. In fact, these
projects already are serving as models for projects such as the Maryland Purple
Line, outside of Washington D.C. RTD has hosted numerous transit officials from
other cities that have visited Denver to see how they were able to get these projects
done. RTD also produced a “Lessons Learned” document after the procurement
phase of Eagle P3 and hopes to produce another one after the transition to O&M.6
They have shared their experiences with others at conferences and shared transit
exchanges as well.
Public agencies hoping to copy Denver’s PPP successes should consider whether
a PPP is even the right delivery model for them. Not every transit agency needs to
do their project as a PPP. Because of revenue shortfalls and the Colorado Taxpayer
Bill of Rights (TABOR) law that requires all new tax requests to go to the voters for
approval, RTD had to be innovative with their financing structure.
The most common answer to whether Denver can serve as a model was “yes,
but…” Respondents cautioned that Denver and RTD had a special set of circum-
stances with the Eagle P3 and DUS that might not be replicable in other situations.
They stressed that every PPP deal is different, and as former RTD general manager,
Phil Washington was prone to say, “If you have done one P3, you have done one
P3.” Perhaps it would be better to call Denver an example, as suggested by some
interviewees. As the first full-scale transit PPP (DBFOM) in the United States, the
Eagle P3 can serve as a useful example of how a transit PPP can be done. It is con-
sidered a good model contractually and financially. The contract was based on toll
road and international deals, and the “risk transfer was nearly perfect,” according to
one expert. The way these projects were financed is also considered a model for
future transit PPPs. Denver and RTD were able to maximize all sources of funding
including federal funding and grants as well as private equity.
The federal Penta P program was one of a kind, and while other agencies can learn
from RTD by leveraging as much federal funding as possible, they may not be able to
replicate the exact circumstances and funding sources. RTD has produced a checklist
of things to address in PPP contracts, but not every agency will have to address the
issues in the same way as RTD. No one can pick up RTD’s contract and say, in effect,
“now we do not have to draft our own.” Transit agencies interested in PPPs can also
learn from Denver how transit can court private investment. Prior to entering into the
Eagle P3 agreement, the private sector already viewed RTD as a good business part-
ner based on their experience with DB contracts and contracting out some paratransit
and bus operations. Cities looking to replicate Denver Union Station’s success are
especially interested in how to use TIFIA loans and Certificates of Participation
(COPs) to leverage economic development dollars. The Eagle P3 and DUS projects
are also models of intergovernmental cooperation and regional collaboration.
6
See http://www.rtd-fastracks.com/media/uploads/main/Eagle_P3_Procurement_Lessons_
Learned_final_with_cover_letter.pdf.
Regional Collaboration
Part of the model of Denver’s success is the strong regionalism that has character-
ized regional governance and economic development for several decades (Jonas
et al., 2014). For instance, the Denver model was cited in an important national
study of metro regionalism published by the Brookings Institution (Katz & Bradley,
2013).7 Regionalism was credited by the interviewees with getting the initial Fast
Tracks ballot initiative passed in 2004. The Metro Mayors Caucus, an informal col-
laboration of the area’s mayors, the Metro Denver Chamber of Commerce, and
other regional organizations came together to address issues that cross jurisdictions,
including transportation.
After the Fast Tracks funding shortfall was discovered, it became evident that not
all the rail lines would be built on time, and there was potential for the hitherto
strong consensus built through regional collaboration to become fragmented based
on which corridors would move forward and which would not. The PPP delivery
mechanism affected the build-out of Fast Tracks because RTD made decisions about
which lines to build based on the availability of federal funding and private sector
interest in the projects. The lines eligible for federal funding in the PentaP project,
the Gold Line, part of the B line, and the A line were packaged together as the Eagle
P3. After the Eagle P3 project came together, there were some negative sentiments
expressed against the core city (Denver), but most people supported the airport line
getting built as a benefit to the region. RTD’s ability to get two additional Fast Track
lines, the R Line and North Metro line, built with savings from Eagle P3 was “bril-
liant” because it showed a good faith effort to get something built for surrounding
areas like Adams County and Aurora.
The opinions about PPP contribution to regional collaboration varied. Some
experts either thought that the PPP delivery model itself did not hurt regional col-
laboration or it did not affect it much at all. Others, however, said that a PPP is the
very definition of collaboration. It requires government to be more proactive with
regional partners and to think about the regional benefit of the transit lines rather
than what a certain jurisdiction wants. Another pointed out that RTD is regional by
definition and requires strong collaboration between many government entities.
Another felt that the mayors stood by one another and supported each other’s proj-
ects, not just their own. There were a few people who felt that regional collaboration
has suffered more recently because of the presence of a ‘corridor versus corridor’
mentality, with the southern part of metropolitan Denver arguably getting every-
thing, or so it has been claimed. The fact that the Northwest rail project to Boulder
and Longmont was being pushed beyond 2042 contributed to this “Mason-Dixon
type line.” The Fast Tracks plan was supposed to be funded as a regional system, but
instead was being funded, through FTA funding and private money, corridor by
corridor.
7
The Brookings study did discuss the Fast Tracks vote, but it did not assess the role of PPPs in
regional collaboration.
Contractual Elements That Safeguard the Public Interest
The Eagle P3 contract has robust requirements with default provisions and tender
provisions should something happen with the private sector’s ability to pay for or
run the service. The quality of service is also specified in the contract, with penalties
that apply if the service is not performing up to required levels. The contract was
negotiated by leading financial and legal experts that RTD hired, so the transit
agency felt that the contract fully protected the public interests. On the Eagle proj-
ect, RTD also had an oversight team of more than 60 people overseeing DTP and
conducting quality assurance/quality control, as well as four inspectors in the field
during the construction phase.
The transit agency was not concerned about the concessionaire defaulting
because of the numerous levels of protection in the contract. First, it would be
incredibly unlikely that the private consortium would intentionally bankrupt the
project because of the repercussions to the private firm and its parent company,
Fluor. If Fluor (or the other partners) were to walk away from the debt of over
$400 million in private activity bonds, they would never be allowed to work on a
federal contract for the next 10 years or borrow money from anyone. In addition,
they would lose the equity they previously invested in the project.
Second, the contract and financing agreement do not allow the private group to
foist its project debt on the transit agency. The bonds specifically state that RTD is
not responsible for repayment on the offering statement; all of the debt is with the
private sector. Third, even in the worst-case scenario, if the private concessionaire
did default or they do not perform up to contract requirements, RTD retains owner-
ship of the infrastructure asset. If they fire the private concessionaire or the private
group defaults, RTD has the right to re-tender and sell the lease to someone else or
operate the service itself. This is the scenario that would develop if RTD follows
through with their threat to terminate its contract with DTP, albeit not without
extensive legal wrangling in the courts. There is really no additional risk to the pub-
lic compared to the case if RTD owned the bonds.
Conclusion
Public-private partnerships have been utilized for public infrastructure projects

throughout the world, but they are relatively underutilized in the USA. However,
interest in PPPs is increasing in the USA, especially in the transportation sector due
to lack of sufficient federal, state, and local funding. In this chapter, we have exam-
ined the case of the Denver region where Denver’s RTD agency used PPPs to deliver
several of their Fast Tracks rail projects. Fast Tracks has thus far cost over $5 bil-
lion, with significant contributions from taxpayers, and the system has not yet been
fully built-out. After a funding shortfall following the global financial crisis and
increasing construction costs, partnering with the private sector to use innovative
procurement methods allowed the agency to deliver several of the rail lines that
were in jeopardy of not getting built. The Eagle P3 project included the region’s first
commuter rail service and was the nation’s first full DBFOM transit PPP.
Our research found that Denver’s recent transportation PPP projects were rated
favorably by most respondents. Denver Union Station has exceeded expectations in
several areas, notably economic development opportunities for the city and financial
benefits to the private and public partners. Respondents identified the most impor-
tant benefits of utilizing a PPP delivery model as accelerated delivery of a project,
appropriate allocation of risk, and private sector expertise. In addition, the projects
were delivered at a lower cost than if the transit agency alone had completed them.
The incentives for on-time project delivery facilitated faster completion by the pri-
vate sector. The allocation of risk for maintenance and operations using availability
payments incentivized the private partner to build a better, longer-lasting product.
The main shortcoming is that PPPs can be complex and opaque, especially to the
public. Public accountability and transparency were found to be lacking in the US
36 toll lane and BRT project. Overall, the Denver PPPs, especially the Eagle P3, can
serve as a useful model for other transit agencies seeking to expand their transit
infrastructure.
The research focused on the development of public-private partnerships and their
success thus far. This research was limited in scope by the level of completion for
each of the PPP projects at the time of the interview data collection in 2016. In some
cases, interviews and surveys were conducted before some of the lines went into
service, so the long-term benefits and success cannot be pinpointed from this study.
The success of the Fast Track lines was determined in the context of the design-
build-finance phases of the partnerships, but the success of the operate-and-main-
tain phases is yet to be seen. Recent issues surrounding the contractual agreement
and obligations of the public agency and private partner in the Eagle P3 suggest that
future studies should explore the long-term effects of the Eagle P3 and US 36 toll
road projects. These long-term concession agreements stretch over several decades,
and the financial benefit of the partnerships may not yet be realized at the start of the
service phase.
This chapter has considered whether the PPPs contracted to complete parts of the
Denver transit system have been successful and whether they could serve as models
for other transit agencies seeking to expand their infrastructure. It contributes to our
wider understanding of PPPs by filling in the research gap of transit PPPs in the
USA and provides public agencies and policymakers interested in implementing
PPPs with an independent critical assessment of the benefits and drawbacks of the
PPP approach. Policymakers and public agencies seeking to institute PPPs for tran-
sit infrastructure should consider the following wider implications and
recommendations:
Wider Implications and Policy Recommendations
1. The Denver experience with transit P3s can serve as a useful model. The
Eagle P-3 project was the first full-scale (design-build-finance-operate-maintain)
transit P3 created in the USA. Because the results from this study suggest that
these projects have been successful so far, the P3 approach to expanding transit
infrastructure should be given full consideration. Denver has been a pioneer in
the development of transit P3s, and there is much that other transit agencies can
learn from the Denver experience. Denver RTD has produced a “Lessons
Learned” guidebook that can be useful for transit agencies considering P3s.
2. Invest in specialized expertise if exploring a P3 approach. P3s are complex
and opaque and require specialized expertise to pursue a P3. Even though it may
be more costly for a transit agency to hire specialized P3 experts, it will be worth
the expense if the negotiations and contracts are conducted so that the transit
agency’s interests are ensured. The same can be said for the private sector part-
ner, and the increased scrutiny and attention to detail by experts on both sides
should enhance the quality of the final project.
3. Build in appropriate safeguards in the contracts to ensure project quality
and to protect the public interest. Respondents in our study maintained that
appropriate safeguards, such as providing availability payments based on sched-
uled opening of service, penalties that apply if the service is not performing up
to required levels, and default and tender provisions should something happen
with the private sector’s ability to pay for or run the service, are critical to the
success of the P3. The public interest can be protected if the contract is written
with these and other appropriate safeguards.
4. Ensure that P3 structures are fully integrated within existing structures of
regional collaboration. Given the concerns of local jurisdictions and the public
about the potential loss of local control of key regional economic development
assets, it is important to ensure that safeguards are built into P3 arrangements in
a manner that protects locally strategic public assets and does not undermine or
threaten existing models of regional collaboration.
5. Reach out early to stakeholders at all levels about the PPP process. The pub-
lic and private entities must spend a lot of time on public information, to ease the
suspicion of corruption and concern with the private sector taking over public
assets. From the public’s perspective, and as evidenced here by reactions to the
US 36 project, there is a lack of transparency in PPP agreements and
negotiations.
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Governance of Public-Private
Partnerships: Lessons from the Italian
Experience in Transportation Projects
Remy Cohen
Abstract This paper addresses the governance of public-private partnerships (PPP)

by looking at the Italian PPP experience in transportation projects. Literature and
practice tends to see PPP as a static exercise by the public sector, often under budget
constraints, to foster infrastructure development by relying on the private sector for
financing and management expertise. Very little attention is given to governance
issues within the PPP process: from the role of the public sector during and after
contract award to the best use of public funds to ensure proper project realization.
We will show that public authorities should take a dynamic attitude in pursuing a
PPP process and rely on more qualified public officials, to encourage the most effi-
cient participation of the private sector, while minimizing the public sector financial
exposure, as well as project costs. This attitude contributes to the reduction of asym-
metric information between the public and the private sectors and its implication for
investment cost reduction, accelerated project delivery, and financing negotiations.
After reviewing the main issues in the Italian infrastructure market, the paper dis-
cusses a successful PPP case study, the Milan Metro Line M4, and an unsuccessful
PPP process, the rail link between Terminal 1 and 2 of Milan Malpensa International
Airport.
Keywords Public-private partnerships · Governance and project delivery ·

Infrastructure · Concessions · Asymmetric information · Availability payments and
demand risk · Corruption · Milan Metro Line
Abbreviations
C Area An area around the city center of Milan subject to cordon pricing
FNM Ferrovie Nord Milano
SEA Società Esercizi Aeroportuali Milan, Airport operating company
R. Cohen (*)
Università LUM Giuseppe Degennaro, Casamassima, Italy
e-mail: rcohen@cohenandco.com

https://doi.org/10.1007/978-3-030-83484-5_12
224 R. Cohen
TEN-T EA Trans-European Transport Network Executive Agency

T1-T2 Rail link between Terminal 1 and Terminal 2 of Milan Malpensa
International Airport
Introduction
The economic benefits of PPP versus conventional budget financing have been
addressed in several books and papers in academia (Estache et al., 2007; Yescombe,
2007; Engel et al., 2014). However, very little has been addressed in relation to
governance of PPPs. The PPP model from a government point of view, notably in
countries with weak governments, has been little debated. Uncertainties in project
funding and the asymmetric information between the public and private sector tend
to create contract price inflation, delays in decision-making, delays in financial clo-
sure, and eventually collusion or corrupt practices. These issues and the lack of a
clear infrastructure policy of the Italian government have contributed to a large
infrastructure gap with other European countries. Italy has tried to fill this gap by
enhancing the role of PPPs. However, PPPs have been used primarily to look for
private sector financing to bypass the EU debt/GDP and deficit/GDP covenants,
rather than for searching for expertise and management to accelerate project deliv-
ery at reduced costs.
The paper will address some of the above issues by looking at the Milan Metro
Line M4 (M4) which has been among the most innovative transportation PPP cases
in Italy. It will initially show the main hurdles related to the Italian PPP market and
how the Milan M4 project findings addressed and helped resolve them. It will then
review the Malpensa airport rail link between terminal T1 and T2 which will show
how a PPP process could fail due to inappropriate governance and lack of a reliable
institutional framework and a proper policy coordination. We will then conclude
with policy recommendations.
Current Issues in PPP Projects in Italy
The Italian infrastructure market over the past 20 years has experienced a huge gap
compared to other European countries. The reasons are related to weak political
decisions in planning and development of projects and inefficient bidding systems,
combined with a lack of public funding to support required investments. Lack of
public funding has encouraged PPPs. However, compared to other countries, the
approach to PPPs in Italy has been dictated more by the necessity to complement
public funding with private financing, rather than by a desire to exploit the private
sector expertise, efficiency, and resources to accelerate project delivery. Therefore,
to develop an efficient PPP policy, the Italian authorities should deal with some of
the following hurdles which are hindering national infrastructure development.
Governance of Public-Private Partnerships: Lessons from the Italian Experience… 225
Minimizing Asymmetric Information
There is a growing asymmetric information gap between the public and private sec-
tor in negotiating infrastructure contracts, due to, among others, inadequate skills
within the public administration, tight budgets and inefficient selection procedures
to appoint advisers, and cumbersome procedures embedded in the Italian procure-
ment law. In addition, PPP contractual documentation is often incomplete. Often
project design at a very preliminary stage and/or legal or financial documents are
not sufficiently scrutinized, for their investment and bankability feasibility. The
result is the emergence of a very restrictive bureaucracy, which, besides delaying
project implementation and increasing projects costs, is often a feeding ground for
corruption or collusion practices. Minimizing information asymmetry reduces con-
tract uncertainties and hence contractual price. More complete bidding documenta-
tion (technical, legal, and financial) will favor more realistic bids and a better
handling of claims in case of contract renegotiation after tender award. The less
detailed is the bid documentation, the more likely it is that potential bidders will
include in their price the extra risk deriving from the non-complete assessment of
contractual risks. Thus, there is a high probability that the final bidding price could
be higher than anticipated.
External Consultants
Reduction of information asymmetry is closely tied to the inadequate professional

competence of public administration officials and to the use of external consultants
to support them. The public sector is seriously limited in the use of external consul-
tants as their selection procedure is cumbersome and subject to fee limitations
which are below ongoing market rates. The advisory contract is therefore awarded
to the lowest bid under the published ceiling, given a minimum set of expertise and
qualifications for the job. The private sector, on the other hand, is not bound by regu-
latory procedures and can select and pay the best possible advisers at current market
rates. In Italy, the number of qualified legal and financial advisers is limited, and
thus the first choice for the advisers is to respond to the private sector invitation for
bidding. This leaves the public sector, under budget constraints, with second best
options, which imply a negotiating bias in favor of the private party, notably in the
event of contract renegotiation, concession termination, or arbitration proceedings.
ublic Awareness, Project Transparency,

P
and Economic Feasibility
In Italy, there is a lengthy time span required from initial expression of interest to
tender issuance, bid evaluation, and final contract award. These delays and uncer-
tainties contribute to increased project costs since contractors and bidders tend to
226 R. Cohen
protect themselves by factoring this delay into their offers. These delays are often
due to lack of ex ante information and transparency on the project costs and objec-
tives, thus triggering unforeseen reactions by the population or project stakeholders
leading to delays in execution if not, sometimes, cancellation of a project.1
Negative reactions to a project are often due to a lack of an appropriate cost-
benefit analysis (CBA), as demonstrated in the recent debate on the Turin- Lyon
Trans Alp Tunnel. The Italian Government has issued a set of guidelines for cost-
benefit analysis (CBA), based on the European Union guidance, and requested local
public administration to abide by those guidelines.2 A proper CBA, besides assess-
ing the feasibility of a project, could convince the private sector to commit time and
resources to consider the attractiveness of a proposed investment. It also allows the
government to decide on the allocation of budget funding, as well as supporting
measures to assure the financial viability of a project.
Public Funds
In Italy, as in most countries, when considering infrastructure financing, there is a

continuous debate on the budget allocation supporting given projects. This debate is
usually exacerbated during election time. In Italy there are two additional hurdles to
be overcome when discussing public financing for infrastructure projects.
The first one relates to the uncertainty concerning budget appropriations and the
timely delivery of those funds. This uncertainty derives from too many government
announcements, from a complex bureaucracy, and from a general lack of trust by
contractors and stakeholders on government decisions. Uncertainty on public funds
availability implies decision-making delays by the contracting authorities that may
trigger price increases by potential bidders. The second hurdle relates to the optimal
use of public funds, particularly in PPP projects. The optimization of public funds
is a recent phenomenon that Italian contracting authorities are starting to consider to
better leverage public funds with private financing. Techniques such as land value
capture or joint venture in real estate developments, long-term loans versus grants,
and public-private concessionaires are currently being considered by contracting
authorities. This not only facilitates the financing of a project but also allows a
financial return on those public funds. In addition, as it will be shown in the Milan
1
A typical example is the high-speed rail tunnel between Lyon (France) and Turin (Italy), a portion
of the European Union Corridor 5 network. This project at a cost of about € 10 billion, is already
underway on both the French and Italian side, financed by grants from the EU and by the Italian
and French governments. The project encountered difficulties in Italy in 2018, given the opposition
to the project by the majority party leading the new government. This type of uncertainty caused
delays and price revisions at the expenses of the respective taxpayers, as well as increasing the
probability of contract renegotiation, also jeopardizing EU grants.
2
Notwithstanding the guidelines, the valuation of a CBA exercise is not an exact science and,
sometimes, could be heavily influenced by the school of thought of the CBA experts.
Metro Line M4 case below, flexibility in the use of public funds may also improve
governance and control of infrastructure projects under a PPP scheme.
Role of the Italian Financial System
In Italy, there are a few large corporations (but still small if compared with their
European or US competitors) and many small and medium size enterprises (SME)
capable of completing infrastructure projects. For large infrastructure projects,
where company size is a prerequisite to bid, only large corporations can compete,
while SMEs act primarily as subcontractors. Among the big contractors, only one,
Salini Impregilo, is a public company3 with sales in 2020 of around €6 billion. All
the other companies are predominantly family owned or cooperative businesses.
Given the low level of capitalization and the ownership structure, Italian construc-
tion companies depend heavily on local bank financing. Therefore, before submit-
ting a bid for a given project, contractors must pass the scrutiny of their lenders.
Financial support for large contracting companies, bidding on a large infrastructure
work, is given by a selected number of Italian and international banks. Those same
banks are most active in the PPP/project financing market: therefore, they have a
key role in determining the bankability of a given project and in finding innovative
solutions for their clients’ needs. The limited number of both lenders and eligible
infrastructure players for large projects tend to reduce competition, and, often, the
financial support to a bid tends to reflect more the corporate-lender relationship,
rather than the actual bankability of the project.
Experiences from Italy
We selected two projects in Italy, the Milan Metro Line M4 (M4) and the Milan
Malpensa International Airport T1-T2 (T1-T2) rail link, to address some of the
issues raised in the preceding paragraphs. The Milan Metro Line M4 is a PPP proj-
ect almost completed, while the T1-T2 could not be implemented as a PPP, due to
the institutional difficulties in addressing the PPP process. Table 1 (Responses to
PPP issues) shows how certain issues related to an Italian PPP process have been
dealt with, in the two cases.
3
In November 2019, Salini Impregilo acquired the then other public company Astaldi who has
been subsequently delisted. Salini Impregilo opened its share capital to Cassa Depositi e Prestiti,
the Italian development bank, not only to finance the acquisition but also to create a strong aggre-
gating pole to enhance the competitiveness of the Italian construction companies in Italy and
abroad (so-called Progetto Italia).
228 R. Cohen
The Case of Milan Metro Line M4 (M4)
The Milan Metro Line M4 (or M4) project is an example on how to incorporate a
better delivery system in establishing a PPP scheme.4
The Metro Line M4 PPP was conceived following dissatisfaction by the City of
Milan on how the concession for Metro Line M5 had been handled, leaving increased
costs and delays as a result of its implementation. Metro Line M4, as Metro Line
M5, is an underground driverless system that connects the southwestern part of
town to the Linate Milan City Airport on the eastern side. The total length of the line
is 14.2 km, with 21 stations (Fig. 1 Map of M4). The tender was published in 2007.
However, the official tender process started in 2010 after the problems with the
financial markets created by the 2008 financial crisis. At that time, Italy was experi-
encing a severe economic downturn. Borrowing financial conditions became expen-
sive for Italians, as reflected by the reduction in maturities and an increase in the
spreads on interest rates. This issue together with the financial crisis in Greece
caused many projects to be postponed. The contract was awarded to a consortium
formed by Salini Impregilo, Astaldi, Ansaldo STS (currently Hitachi STS), and
Hitachi Rail. The operator was ATM the incumbent operator of the Milan transit
system. The next qualified bidder was the Pizzarotti consortium which appealed the
award to Salini Impregilo. The judicial appeal, which was addressed to the regional
court, was rejected but delayed the contractual finalization of the project.
The total cost of Metro Line M4, as shown in Table 2 (M4 Source of funds), was
€2.030 billion, of which €958.1 million were from central government grants
(including VAT), €239.8 million were grants from the City of Milan (including
VAT), €160 million was equity contribution from the City of Milan, €466 million
was bank debt (base line), and €206 million was private sector contribution of which
€80 million was participation in the SPV equity and the balance (€126 million) was
subordinated debt. The institutional structure envisaged the creation of a
Table 1 Responses to PPP issues

M4 T1-T2
Information Asymmetry reduction Yes No
Alternative use of public funds Yes (Equity in SPV) No
Appointment of external consultants Yes No
issue
Political climate and interference Somewhat Yes (Strong)
Transparent information on project Yes Yes
Bureaucracy reduction Yes, somewhat Still existing
Institutional opposition No Strong opposition
Bank competition Somewhat N.a.
Renegotiation/Termination N.a. N.a.
4
For a more detailed analysis of this case, see (Cohen & Boast, 2016).
Fig. 1 Map of M4
Table 2 M4 source of funds. In million, exchange rate: €1 = US$1.13

Source of funds % of total Euro USD
Private bank loans 23% €466 $526.6
Private equity and subordinated debt 10.1% €206 $232.8
Central government grants 47.2% €958.1 $1,082.6
City of Milan grants 11.8% €239.8 $270.9
City of Milan equity stake 7.9% €160 $180.8
Total funding 100% €2030 $2293.7
public-private special purpose vehicle (SPV), acting as concessionaire of the Metro

Line M4, for a period of 31 years including 7.5 years of construction, under an
availability payment structure granted by the City of Milan. Financing was arranged
by a consortium of foreign and Italian banks led by BNP Paribas and including
Intesa Sanpaolo Bank and Cassa Depositi e Prestiti. Indirect funding support was
provided by the European Investment Bank (EIB) to other Italian commercial banks.
The senior loan had a maturity of 20 years and a margin over Euribor (Euro Interbank
Offered Rate) of about 320 bp (Fig. 1 Map of M4 and Table 2 M4 source of funds).
SPV equity was underwritten by the City of Milan and by the private consortium
in a proportion of 2/3 and 1/3, respectively. The SPV capital shares were divided
into class A shares (City of Milan), class B shares (private parties), and class C
shares (ATM, the incumbent transit operator). In accordance with the financial plan
and the shareholders’ agreement, return on class B and C shares was privileged in
the dividend distribution, while in case of losses, class B and C shares would bear
the first losses, relative to class A shares. The bylaws of the SPV gave a special right
to the vice-chairman appointed by the private party to override the SPV board in the
case of contractual claims with the City of Milan which was acting as contracting
authority. The novelty of the Milan structure was to convey and use part of the gov-
ernment and city grants to pay for the city’s equity participation. The city to comply
with the national budget restrictions could not borrow to fund its participation. In
230 R. Cohen
this way the grant element satisfied two conditions: contributing to the equity of the
SPV to finance the project and strengthening the control of the city on the project
implementation. This was the first case of flexibility in the use of public grants in
financing an infrastructure project in Italy.
By creating two layers of control, at the city level and at the SPV level, the city
was able to monitor the construction of the project, avoid renegotiations, and
develop an additional tool against potential corruption practices. To reach this result,
the city, together with technical, legal, and financial advisers, developed and deliv-
ered a detailed set of documentation including final design, a concession contract,
other project documents, and a sophisticated financial model.
The financial model, and the assumption book, indicated the variables which
could be changed by the bidders and those to be left unchanged (such as the payout
ratio or hedging costs, for instance) to have a common comparative basis for the
financial valuation of the project. The awarding criteria of the contract was based on
the lowest tariff presented by bidders. Once the contract was awarded, the winning
consortium could submit, within 3 months of the awarding date, a “modified” finan-
cial model. In the model certain variables could be modified but not the capex and
the winning tariff, in order to determine a “modified” IRR. The “modified” IRR
would then become the contractual IRR governing the concession. The contractual
IRR could be modified only to reflect changes in financial market conditions. The
modification involved a greater or smaller availability payment if, at financial clos-
ing, the financial markets conditions were higher or lower compared to the time of
contract award. The return to the private investor was based on an availability pay-
ment paid by the City of Milan. Demand risk was unacceptable to the lending banks.
The initial IRR developed by the city was not satisfactory and was below market
expectations. Therefore, the city decided to increase the IRR by granting the private
investor preference in dividend distribution. Accordingly, 98.5% of the cash flow
available for distribution was allocated to the private investor and 1.5% to the city.
In this way the equity IRR of the private investor was in line with current returns on
similar projects.
The initial projected passenger flow was 84 million per year and expected to
grow at a rate of 0.43% per year. SPV revenues from the availability payments were
indexed to inflation, with a mechanism for recouping 70% of the inflation rate in the
previous 3 years.
The double layer of control made sure that the city was always aware of the pos-
sible actions to be taken, to maintain the availability payment at the level agreed
contractually and to reduce its impact on the city budget. Therefore, the city had an
incentive to make sure that ridership was growing and, in this sense, designed a
mobility plan in favor of public transportation. For example, they introduced bus
feeder routes to the metro stations at the periphery of the city or increasing public
parking spaces near the metro stations.
The financial model was structured to allow the lowest tariff which multiplied by
the given passengers’ flow would give the lowest availability payment by the city.
Bidders were requested to formulate their offer to place the lowest burden on the
city. However, it is noted that the availability payment paid by the city was a gross
figure, as all revenues from the fares were flowing directly to the city, not to the
SPV. Therefore, the actual impact on the city budget was about half the actual avail-
ability payment disbursement, since fare revenues covered almost 50% of the metro
operating costs.
The Milan Metro Line M4 project introduced some novel features as follows:
1. A common valuation platform, given by the financial model, which included the
variables which could be changed by the bidders. Inclusion of a feasibility study
and a detailed financial plan became a requirement in the new Italian procure-
ment and PPP legislation.
2. A new flexibility in the use of grants, which were partly channeled through the
equity of the SPV, thus allowing the public administration to have firmer control
of project development. This was true both at the city (contracting authority) and
SPV levels, where the city appointed 3 out of 5 directors. The chairman is
appointed by the city, and the managing director is appointed by the private par-
ties. Of interest, for future use in infrastructure delivery, is the ability to combine
the need for a grant to ensure the bankability and return on the project, with a
way to control and accelerate project implementation through an equity stake in
the SPV. This structure maintains and highlights the role of the private sector in
terms of efficiency in the development, management, and operation of the
project.
3. The presence of the two layers of control (city and SPV levels) was also designed
to prevent renegotiations and to minimize corrupt practices, which had been
common in the Italian infrastructure market. Since then, a National Anticorruption
Authority has been set up to supervise the tender path and implementation of
given projects. The Milan Metro Line M4 structure contributed to that approach.
4. The Milan Metro Line M4 project reduced the information asymmetry between
the private and public sectors. The city hired competent legal and financial advis-
ers which were useful not only in supporting the city during bidding and conces-
sion negotiations but also in contributing to create a PPP/project finance team
within the city financial department which is still being used to monitor all the
infrastructure projects promoted by the city. Thus, the city’s team contributed to
create, through greater access to information, a competitive climate and a gover-
nance framework to control project costs and implementation.
5. Attention was given to alignment with market returns, of private sector equity
IRR, by distributing a preferred dividend to the private party. A clear recognition
by the city that, for a proper development of a PPP, the needs of the private sector
should be carefully considered, for a successful cooperation with the pub-
lic sector.
6. The majority participation of the City of Milan and the availability payment paid
by the city provided for a stronger dialogue with the lending banks to achieve
better financing conditions. This mitigated the risk for lenders. In addition, the
banks were obliged to give a full commitment to financing within 6 months from
contract award. This latter aspect (deadline on the financing) was subsequently
introduced into the Italian procurement law (18 months from contract award).
232 R. Cohen
Following the financial close of 2015, the construction companies raised a series
of claims against the city, which were negotiated between 2016 and 2018. A final
settlement was reached in February 2019 where claims and variation orders amount-
ing to an overall amount of about €280 million were agreed between the SPV and
the city. The variation orders related to a new design to connect line M4 with line
M3 which was not foreseen in the bidding documentation. The financing of these
extra sums was made primarily through additional government grants and use of
contingency funds. They depended very little on increased equity or sub-debt by the
private parties. Moreover, banks did not increase the loan amounts. The negotiation
of claims and variation orders were further complicated by the financial difficulties
(receivership) of Astaldi, one of the civil sponsors of the SPV (see Footnote 3). The
Milan experience has been positive so far, and work is progressing according to
schedule. Initial opening of the M4 line is foreseen in early 2021, and the full open-
ing is expected in July 2023. The appointed project finance team for the city is
working quite well, and the relationship between Metro Line M4 and the city is
positive. It is worth also noting the transparent relationship with the population. All
major decisions as well as all relevant project documentations are posted on the
website of Milan Metro Line M4. In addition, the SPV opened up construction sites
at certain dates during the year to show the work progress to the population.
he Case of Milan Malpensa International Airport Terminal 1

T
and 2 Rail Link
While the Milan Metro Line M4 has been a major success in the Italian PPP market,
the rail link between Terminals 1 and 2 of Milan Malpensa International Airport
(T1-T2) is considered a failure in a correct PPP process implementation. The failure
could be attributed primarily to the public authorities’ behavior.
In 2012, the City of Milan and the Lombardy Region initiated the project to con-
nect Milan with Terminal 2 of Malpensa airport, by extending the 3-km rail link
from Terminal 1 to Terminal 2. The project was needed since Terminal 2 was grow-
ing in passenger traffic flows after EasyJet created a hub at Milan Malpensa
International Airport Terminal 2. The project was supported by the EU TEN-T EA
(European Union Trans-European Transport Network Executive Agency). The rail
link would not only ease the connection between Milan and Malpensa airport, but it
would be part of a larger rail system connecting Milan to Switzerland, via the
Malpensa airport. This would also increase the catchment area of the airport. TEN-T
EA was very interested in exploring a PPP project and eventually funding it through
an EIB project bond.5The project bond was a financial instrument developed by the
5
Under the project bond scheme, EIB could underwrite a sub-debt tranche of the overall debt or
grant a shortfall guarantee, which, if triggered, could be transformed in a funded sub-debt portion.
Both solutions would enhance the soundness of the senior loan bond repayment profile.
European Investment Bank (EIB) to raise project financing outside the credit mar-
ket. Preliminary discussions with the TEN-T EA were conducted around a possible
PPP (Cohen & Croce, 2013). The co-sponsors of the project were the Lombardy
Region-owned Ferrovie Nord Milano (FNM), current operator of the rail link from
Milan to Terminal 1 and of the Lombardy rail network, and SEA, the Milan airports
operator, majority owned by the City of Milan. Total cost of the project was
€115 million of which the EU was supposed to contribute 20% of the cost. FNM and
SEA obtained financing from the European Union to commission a feasibility study
of the rail link between T1 and T2 under a PPP arrangement. FNM and SEA
appointed Bocconi University to execute the study. Besides FNM and SEA, the
Lombardy Region was involved in its capacity of FNM’s shareholder, regulator of
the regional rail network, and provider of regional financial resources.
The preliminary financial model envisaged a SPV jointly owned by FNM and
SEA, acting as concessionaire for the rail link. In that capacity, the SPV would
undertake to construct and operate the project. The actual operation of the line was
to be outsourced to FNM, current operator of the Lombardy rail infrastructure, and
of the Milan to Malpensa Terminal 1 rail link, while the station at Terminal T2 was
to be managed by SEA. The capital of the SPV could then be opened also to private
sector investors. Two financing options were considered: one based on market rev-
enues and the other one based on an availability payment scheme as can be seen in
Figs. 2 and 3.
In the market revenue option, revenues depended on the track access fees paid by
the train operators. However, a Lombardy Region guarantee was required to meet
eventual payment shortfalls. Under the availability payment scheme, the Lombardy
Region was supposed to step in by covering the revenues of the SPV. They would
cash in all the actual track access payments by the train operators, which in the first
option were going to the SPV. The role of the region therefore was to guarantee the
adequate return to private investors by granting an implicit subsidy. This subsidy
was the difference between the availability payment amount and the amount of the
track access fee paid by the train operators eventually charged back on the passen-
ger’s fares. For the model to become viable, several hurdles had to be overcome as
discussed below:
1. Concession length: SEA and FNM had two different concession periods (2041
and 2016, respectively). The different lengths of the concession periods were
preventing a possible bankable solution due to the risk associated with one con-
cession expiring (FNM) and not being renewed. Both FNM and SEA suggested
adding in the Lombardy Region as guarantor for the interim period between the
end of the FNM (2016) concession and its renewal. In this way the two conces-
sion lengths could be aligned.
2. Regional undertaking: In terms of demand guarantee or availability payment,
there was no clear indication from the sponsors of the preferred option. This cre-
ated delays in the application for the TEN-T EA funds and uncertainties on the
bankability of the project. Moreover, the Lombardy Region never clarified its
support for the PPP process versus the traditional procurement option.
234 R. Cohen
20% C ontribution to r
ran
G ua F INA NC IA L
INS T IT UT IONS
A s s et
S P V MXP F inanc ial Debt
EPC
T 1-T 2
B ond Holders
Access to infrastructure
through payment of Track
Access Fee and partial use
of ticket revenue
payments.
Fig. 2 T1-T2 market revenue model
20% Contribution
FINANCIAL
INSTITUTIONS
Asset
SPV MXP Financial Debt
EPC
T1-T2
Bond Holders
y
abilit
Avail
ent
Paym
All Revenues from track
acces s fee and/or
ridership goes to the
Region who issues the
availability payment
Fig. 3 T1-T2 availability payment model
3. Service contract: In addition to the problem of concession terms, the service

contract between FNM and the train operators was expiring. Therefore, there
was a necessity to include in the new renewal tender, also the operation of the rail
link between Terminal 1 and Terminal 2. Alternatively, the Lombardy Region
was required to guarantee the revenues between the expiring of the incumbent
service contract and the establishment of the new service contract with the train
operator.
4. Bus competition: The Lombardy Region was reluctant to deal with the competi-
tion between buses and train for the Milan and Malpensa airport destination. Bus
fares were lower than train fares, but buses carried a risk of traffic congestions,
causing possible delays in reaching the airport terminals and an overall increase
in air pollution. The solution required a review by the Region of its overall trans-
portation policy, notably within the catchment area of Milan Malpensa Airport.
5. Willingness to pay: An analysis of willingness to pay by the train operators was
undertaken to assess the actual possibility of using the increase in track access
fee as a possible source of revenue. However, as most operators were subsidized
by the region, this created a problem in the determination of the possible increase
in track access fees, which, at the end, the train operators were going to charge
back to the region. On the other hand, a survey on willingness to pay by passen-
gers travelling to and from Malpensa airport gave a positive indication. This
justified some increase in fares if accompanied by better service quality and
more frequent schedules. The increase in fares could have entailed the train oper-
ators to contribute totally or partially to the track access payments, minimizing
or nullifying the recourse to additional regional subsidies.
6. Equity commitment: During the negotiations, there were different approaches to
equity participation by FNM and by SEA, with the latter being financially in bet-
ter shape compared to FNM. This confused the discussion on the determination
of the optimal debt-to-equity ratio under the PPP arrangement.
7. FNM strong technical opposition: The technical staff of FNM disagreed with the
suggested PPP solution and claimed that rail projects should be funded only
from the government budget. The staff did not understand the implications of a
PPP approach and was strongly opposed to innovative financing solutions.
Given the uncertainty associated with the election, the region decided to with-
draw from the project and obliged FNM to do the same. SEA submitted its applica-
tion to TEN-T EA with the understanding that, after the elections, FNM and the
region would finalize their decision. After the election, however, the region and the
new elected central government (both governed by the same political party) decided
to increase public funds and to return to traditional procurement and financing. The
project has been completed under a traditional procurement and works very satis-
factorily. Table 3 shows the breakdown of the final funding.
The T1-T2 lessons for a successful PPP process were the following:
(a) Institutional framework matters: It is difficult to implement a PPP scheme when
the interest and vision of the different stakeholders are misaligned.
(b) PPP education: Public sponsors and technical staff need a deeper educational
process to enable them to understand advantages and procedures of a PPP struc-
ture. This takes some time to be implemented.
(c) Public support: Public sector support might be needed to overcome hurdles in
bankability issues such as guarantees or administrative undertakings (not neces-
sarily financial commitments). This support should be clear at the onset of the
PPP decision-making concerning the project.
236 R. Cohen
Table 3 T1-T2 final source of funds. In million, exchange rate: €1 = US$1.13
CAPEX Euros USD

TEN-T EA Grants €23 $26
Lombardy Region Grants €30 $34
SEA Grants €15 $17
State Grants €46 $52
TOTAL €115 $130
(d) Management of political climate: The T1-T2 experience shows that political
uncertainty stemming from election outcomes and the lack of accountability by
public officials are a basic stumbling block when undertaking a PPP.
(e) Static attitude: The Malpensa T1-T2 lesson confirms that when grants are avail-
able, and with a static attitude of the public authorities, a straightforward design
and build contract is certainly preferable.
Policy Recommendations and Concluding Remarks
The conclusions of Milan Metro Line M4 and of Malpensa Airport Terminal T1-T2
rail link project led us to consider possible policy recommendations that might
accelerate and govern infrastructure project delivery.
• Dynamic attitude. The Milan municipality has undertaken, for the first time in
Italy, a dynamic approach to PPP, avoiding the static6 approach adopted in most
project financing. The dynamic attitude of the local policymakers created a cul-
tural and technical environment to enhance the role of the public sector in sup-
port of a project.7 The enhancement derived from a better understanding of the
City of Milan mobility needs and of the project complexity, thus applying more
flexibility in the use of public funds, keeping in mind also the financial c onstraints
of the city. In this way, the role of the private sector was reconsidered, searching
for efficacy and know-how rather than for financing. This new dynamic attitude,
as a second step, helped to narrow the information asymmetry gap between the
public and the private sectors. This resulted in the possibility of increasing the
available information to bidders, through a detailed technical, financial, and con-
tractual documentation, thus laying a negotiating path suitable for the city and
the bidders.
6
In a static approach, the contracting authority tends only to secure the appropriation of public
funds and thus takes a sort of neglecting or passive attitude towards the project monitoring and
implementation, once the public funds are allocated and the project awarded. The T1-T2 project is
an example of static approach.
7
For dynamic or flexible approaches to PPP governance in other countries, see Cohen and Porath
(2018), Cohen and Boast (2016), and Cohen and Percoco (2004).
• Another policy consideration embedded in the City of Milan approach is the

flexible use of grants, needed for the financial sustainability of the PPP project.
In the M4 project, grants, before being used to contribute to capital expenditures
of the project, were partly channeled to underwrite the City of Milan equity con-
tribution to the joint public-private SPV. This bypassed the government borrow-
ing restrictions of the city. In addition, the city granted an availability payment to
the SPV to enable the banks to finance the project without considering demand
risks. The availability payment adopted by the city was designed as a gross liabil-
ity figure (ridership revenues belong to the city not to the SPV), and therefore the
city initiated a transportation policy to reduce the impact of the availability pay-
ment on the city budget. The city imposed a series of measures such as (a) a
cordon pricing mechanism (C Area) to limit access to the city center and used
revenues from the cordon pricing to invest in new ecofriendly transit vehicles, (b)
reducing on-street parking space within the C Area and increasing parking fees,
and (c) encouraging soft mobility (bike and car sharing, etc.). The overall result
of such policy since 2012 has been an average increase in ridership on the metro
lines by 17% and an average increase in transit speed of up to 6%.
• Further signs of dynamism in the M4 project could be found in the attention
given by the city to align the private sector equity IRR, through a preferred divi-
dend distribution, to market returns for that type of risk. Moreover, the M4 struc-
ture allowed the City of Milan to acquire an asset ex ante on its balance sheet.
This would enable the city to recover the equity invested, not only at the end of
the concession but also during operation, by selling part of its stake to qualified
investors or infrastructure funds.8 As an ex post consideration, while the city
majority stake in the concessionaire contributed to a greater dynamism, from a
corporate governance standpoint, “the City could have achieved the same results
with a qualified minority stake, thus easing somewhat the potential conflict of
interest embedded in the City dual role of contracting authority and majority
shareholder in the SPV concessionaire” (Cohen & Boast, 2016).
• Contractual clarity. There is currently a debate among PPP experts on the use of
standard contractual documentation. Standard documentation could certainly
help reducing legal costs but may lack the flexibility necessary in dealing with
highly complex projects. However, the Milan experience shows that there are
certain clauses (such as penalties, incentives, compensation for contract termina-
tion or re-equilibrium of the financial model, change in law, etc.), which could be
accommodated within a standard contract and subject to little changes. However,
these clauses should not create a bias towards one or the other contractual party
nor jeopardize the project bankability. The accuracy and transparency of the con-
tractual documentation should be set ex ante for the protection of both parties
(and/ or also of their potential successors) in case of breaches of the terms of the
8
See, for instance, the acquisition of part of the Astaldi stake by Ferrovie dello Stato, the Italian
Railways Corporation, in the share capital of Milan Metro Line M5 concessionaire.
238 R. Cohen
concession contracts or, in case of renegotiation, adaptation or arbitration clauses

being triggered.9
• The Milan experience shows that documentation clarity, proper risk allocation,
and posting a realistic price help avoiding underpricing by bidders. It eliminates
the expectation of a price recovery during contract negotiation. The City of
Milan, in programming the project delivery, aimed, as much as possible, at
reducing the infrastructure costs while preserving work quality and showed how
this could be accomplished by better information to the private sector.
• Bureaucracy, corruption prevention, and role of the contracting authority. The
reduction in information asymmetry obtained by optimizing the management of
contractual/tender information is a powerful objective. The public sector should
try to achieve this in PPP projects. The Milan experience shows that a competent
team is required to implement a successful project. To this end, as a policy rec-
ommendation, investment in the contracting, technical, and financial education
of the public authorities’ management team becomes a priority. Increased com-
petence of the contracting authorities and clarity of the tender documentation is
of paramount importance to improve negotiation efficacy with the private sector,
to reduce infrastructure costs, and to better control renegotiation requests.10
• Contracting authorities often look for external consultants to support their
decision-making. To get the best advice, the selection of consultants should be
made at market rates, as in the private sector, and not at below market rates under
a price cap, as currently used in Italy. “To search for legal advisers through a
public tender at rates much below market rates, exposes the public administra-
tion to suboptimal bids and doubtful advisory outcome. Thus, rather than reduce
the information asymmetry with the private party, this inefficient search would
increase such a gap and would have negative effects on the public administration
in the event of concession renegotiation” (Cohen & Boast, 2016). The Milan
Metro Line M4 experience tendered the advisory selection under a market rate
cap but attached a specific time frame to the pre-bid advisory work. Bidders were
9
In Italy in August 2018, a large tragedy occurred when a bridge collapsed in Genoa causing 43
casualties and interrupting the traffic flow from east to west of the City of Genoa. The bridge was
part of a concession contract between the largest concessionaire in Italy and one of the most impor-
tant in Europe, Autostrade per l’Italia (Atlantia Group) and the government, following the privati-
zation of the toll roads in Italy in 1999. There is now an ongoing discussion on the responsibility
and whether the government has the power to terminate the concession, and if so, at what costs or
penalties. The discussion raised several issues related to the correct interpretation of the concession
legal clauses (for instance, the price cap mechanism for the toll price determination). The matter
will certainly take years of discussions in courts; however what seems to appear after the publica-
tion of the concession contract is some imbalances in the negotiation of the original concession
contract in terms of maintenance and other responsibilities between the concessionaire and the
government.
10
The issue of concession renegotiations has been dealt at length in the literature (see Guasch et al.,
2003, seminal paper). Renegotiation may happen for a number of reasons due to contracts incom-
pleteness: however, public authorities and taxpayers should be aware of the use of opportunistic
renegotiations carried on by the concessionaire aiming at recouping price discounts, increasing
project costs, or extracting additional financial benefits.
requested to include in their bids the costs of external advisers, to refund the city
pre-bid expenses, similar to what happens in many countries. This is a new prac-
tice in Italy.
• Lack of clarity, incompetence of the public authorities, and cumbersome admin-
istrative procedures constitute a feeding ground for corruption or collusion in
public work projects. The fight against corruption is a top priority in Italy and
other countries, but there is no simple solution to overcome it. Greater documen-
tation accuracy and increased competition among contractors and financiers,
combined with a firmer control by the contracting authorities, should reduce or
mitigate this behavior. The double layer of control created in the Milan Metro
Line M4 (at City and SPV levels) is certainly a positive step forward in avoiding
or minimizing corruption practices. However, the success of these actions
depends heavily on the rule of law in the country and the efficiency of the judicial
system in addressing and solving contractual disputes.
• Bankability and credibility. An additional point that can be learned from the two
Italian PPP cases concerns the issue of project bankability and public authority
credibility. Transportation projects may often require public support to become
profitable to private investors and bankable for lenders. The role of banks in
project financing is quite significant but often involves conflicting roles. They
often act as both advisers and lenders to the private sector. As independent advis-
ers (not lenders), they work for the benefit of the project and their respective
clients. If on the other hand, banks are also lenders, then a possible conflict may
arise. Their advice may be influenced by the lending policy of the bank towards
the project, the project country, or the corporate relationship with the sponsors.
This attitude often may lead to different terms and conditions from the one antic-
ipated in the bidding offer of their clients. It may create a delay in the financial
closing, irrespective of the soundness of the project cash flow.11 A better defini-
tion of the banks’ role together with a greater project finance competition should
be considered to minimize conflicts of interest for the benefit of the project and
their clients. The bankability of a PPP project however, besides the credit policy
of the lenders, requires a strong credibility on the part of the public sponsors
should they give any guarantee, availability payment, or any undertaking in the
concession contract. The credibility of the government bodies and the enforce-
ability of their decisions is a major building block in arranging the financing
through a private sector participation. The Milan Metro Line M4 has been a posi-
tive case since the City of Milan through its participation in the concessionaire
SPV demonstrated its strong commitment to the PPP structure.
11
For instance, in 2011–2012, as the economic situation in Italy was very difficult, international
banks were reluctant to take long maturities on Italian risks, and Italian banks were not able to get
long-term funding in support of their clients’ projects. This situation caused not only an increase
in the perceived margin on loans but also caused a reduction in maturities (soft or hard mini perm
structures), implying a revision in the project financial model and above all a postponement of the
project funding decisions by the banks’ credit committees, which were not linked to the soundness
or security package of the underlying project.
240 R. Cohen
• PPP Post COVID-19. The COVID-19 pandemic of 2020–2021, besides the

heavy death toll, has caused tremendous damages to the world economies. The
European Union has launched the Next Generation EU, a recovery program
(NGEU) to be implemented over a 6 years’ time horizon. The program deploys
an unprecedent number of financial resources (€750 billions) to boost economic
recovery in member states. The program stresses the growth objectives based on
digital transformation in the public administration, green sustainable investment
in transportation and infrastructure, improvement in healthcare, gender equality,
and social inclusion. We are witnessing a stronger and deeper involvement of the
state to accelerate infrastructure project delivery: is there a future for PPP? PPPs
are an interesting policy tools but require a long time for their implementation
and often are most costly than traditional procurement. Europe cannot wait and
need shovel-ready projects. In addition, construction companies, in Italy and in
most European countries, have been strongly negatively affected by the pan-
demic closures. Most projects in 2020 have been cancelled or delayed.
Construction companies need capital to offset the losses incurred and to resume
a growth pattern. So, there is less capital available to support equity participation
in PPP projects. The likely outcome in infrastructure projects, given the amount
of financing available from the EU, is a strong commitment by public authorities
to implement projects under traditional procurement tools. We are going to see
more design-build-maintain types of projects rather than PPP, as financing will
no longer be an issue. The private sector will resume its role as catalyst of effi-
ciency and innovation to accelerate project delivery. Since debt-to-GDP ratios
will undoubtedly increase, governments will have to think on how to reduce and
maintain sustainable the debt in the future 10/15 years. Therefore, it is very likely
that after the heavy boost of public infrastructure investments, there is going to
be a new wave of infrastructure asset privatization as a mean to reduce public
debt alongside a growth path of the economy. However, for those privatizations
to be successful, public authorities should ascertain at the onset of the project its
economic and financial viability to allow interested investors to step in at the
appropriate time. In addition, for certain countries, the privatization rules and
concession regulation should be revised.
• Concluding remarks. We have shown that PPP could be a useful tool for acceler-
ating project delivery with or without public budget constraints. However, the
standard PPP selection criteria based on public sector comparator, risk transfer,
and value for money are no longer suitable (EPEC, 2015). They are all necessary
but not sufficient conditions to implement PPP policies. Public authorities should
adopt a dynamic approach, rather than a static one, to project selection, imple-
mentation, and operation.
• Under a dynamic approach, the private sector should be chosen for its ability to
manage and accelerate project delivery, rather than for its capacity to raise
financing to circumvent government borrowing restrictions or complement pub-
lic grants. Moreover, a dynamic approach can help in minimizing or delaying the
triggering of guarantees given by the public authorities to facilitate the bankabil-
ity and the implementation of the project, (management of contingent liabilities).
In this sense, ex post analyses and reviews of the completed projects should be
undertaken to understand the eventual errors made and to prevent their reoccur-
rence in future projects.
• The Italian experiences confirm that PPP policies could work if there is a general
institutional and regulatory framework, including an efficient and competent
public sector supporting them. Financing issues and bypassing of budgetary con-
straints should not be the driving force in selecting a PPP project. Selection cri-
teria should consider appropriate mechanisms of governance and control of
public interests and end users.
• Finally, it is important that the public and the private sector understands each
other and shares each other’s expectations. In a PPP, the third “P” means partner-
ships: and a partnership can be successful only if both parties are satisfied and
cooperate in a constructive manner for the success of their common goals.
References
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Analysis. Presentation at the Alrov Institute Transport Infrastructure Conference. Coller
School of Management, Tel Aviv University
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recommendations for Latin America and the Caribbean. In (J. Benavides (ed.) Recouping infra-
structure investments in Latin America and the Caribbean: Selected papers from 2004 IDB
Infrastructure Conference Series. Washington D.C.
Cohen, R., & Boast, T. (2016). “Governance of public-private partnerships and infrastructure
delivery—Case of the Milan, Italy, Metro Line M4” Transportation Research Record: Journal
of the Transportation Research Board Washington, D.C.
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openknowledge.worldbank.org/handle/10986/7602License:CCBY3.0IGO
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Publishing.
Developing Urban Rail Using
Public-Private Partnership: A Case Study
of the Gold Coast Light Rail Project
Tingting Liu and Suzanne J. Wilkinson
Abstract Urban rail development plays an important role in fostering a region’s

social and economic development. PPPs as innovative procurement methodologies
have been used for urban rail projects around the globe. Among the various PPP
models, design-build-finance-operate (DBFO) is a commonly used model for urban
rail projects. However, it remains unclear whether this model is suitable for urban
rail development. This research aims to examine the application of DBFO model in
the urban rail sector, analyze their suitability for urban rail transit projects, and rec-
ommend strategies for improved use of DBFO models. The Gold Coast Light Rail
was selected as the case study. Document analysis was used as the main data collec-
tion method. This research shows that the use of PPP delivers good social and eco-
nomic impacts. The use of the DBFO model exhibited both benefits and limitations.
The research suggests that to better use the DBFO model, equitable risk allocation,
flexible contract design, and extensive community engagement and public consulta-
tion are required. The results from this research will provide useful reference for the
public sector on the selection of procurement model for urban rail projects. The
research also offers practical guidance on how to plan and structure a PPP project in
urban rail development.
Keywords Urban rail · Public-private partnership · Design-build-finance-operate ·

Gold Coast Light Rail
T. Liu (*)
Griffith University, Gold Coast, Queensland, Australia
e-mail: tingting.liu@griffith.edu.au
S. J. Wilkinson
Massey University, Auckland, New Zealand
e-mail: s.wilkinson@massey.ac.nz

https://doi.org/10.1007/978-3-030-83484-5_13
244 T. Liu and S. J. Wilkinson
Abbreviations
BOT Build-operate-transfer
BOO Build-operate-own
DBFO Design-build-finance-operate
D&C Design and construct
KPI Key performance indicators
O&M Operate and manage
Introduction
Gold Coast is the sixth largest city in Australia with a current population of more
than 546,000. As one of the fastest growing cities in Australia, its population is
forecasted to reach 800,000 by 2031 (Department of Transport and Main Roads,
2015). On top of the residential population growth, there are 12 million tourists
attracted each year (Department of Transport and Main Roads, 2015). The rapid
growth of population and visitors creates increased travel demand and significant
pressure to the transport network. Thus, an efficient transport system is essential to
accommodate the increased travel demand in a safe and sustainable way. Further,
the majority of Gold Coast residents are car dependents, which heavily compress
the road network and environment. To relieve this pressure, public transport is a
better alternative to private vehicles on reducing the congestion and emissions.
Previous public transport system in Gold Coast was found not enough to accom-
modate the travel demand in terms of the capacity, connectivity, and reliability. As
suggested by the Infrastructure Australia (2019), the poor public transport connec-
tivity results in significant road congestion and poor journey reliability. The road
traffic levels are expected to reach the network capacity soon if there are no improve-
ments in public transport connectivity. Besides, public transport plays a critical role
in providing benefits in terms of economy, society, and environment. First, public
transport can serve as a facilitator of the economy, which plays a critical role in
maximizing productivity and competitiveness, reducing the cost of congestion, and
increasing the land/property values along transport corridors. Second, public trans-
port can benefit the communities and enhance social cohesion through providing
individuals more opportunities to access economic and employment opportunities,
services, and social activities. Also, a traffic mode shift from private to public trans-
port can be the fastest and safest way to reduce transport-related emissions and miti-
gate the effects of transport-related climate change.
Developing Urban Rail Using Public-Private Partnership: A Case Study of the Gold… 245
Urban rail transit has capabilities to accommodate the increasing demand for
public transport by providing a long-term solution to traffic congestion and improv-
ing the connectivity and reliability. Despite that urban rail transit can provide sig-
nificant benefits in economy, society, and environment, it also brings considerable
financial pressure to governments due to its large capital investment and operation
and maintenance expenditure. Also, the construction and operation of urban rail
projects is complex, requiring multidisciplinary expertise and technical and mana-
gerial capabilities (Chong & Poole, 2013). Governments are facing challenges in
providing high-quality public services in relation to urban rail projects (Liu &
Wilkinson, 2014; Li & Love, 2020).
Due to the importance of urban rail transit, governments have been seeking alter-
native solution to fund, implement, and operate the urban rail transit projects for
many years. The private section was found as a capable actor to not only reduce the
fiscal risk but also to improve the business performance (Asian Development Bank,
2008; PPP Knowledge Lab, 2017). The urban rail transit project can be benefited
through the continuous financing and commercial practice brought by the private
sector on enhancing the long-term performance. With the increasing growth of
urban rail transit systems, the performance-based, privately funded public-private
partnerships (PPP) have been widely adopted in the past two decades (Chang, 2013;
De Jong et al., 2010; Phang, 2007; Yuan et al., 2010). Australian governments have
increasingly turned to PPPs to design, construct, operate, and maintain urban rail
transit projects in Australia cities, such as Sydney, Canberra, Adelaide, and
Newcastle (Barbaric & Alizadeh, 2017).
There are a range of PPP models available for urban rail development, including
build-operate-transfer (BOT), build-own-operate (BOO), design-build-finance-
maintain (DBFM), design-build-finance-operate (DBFO), and joint venture
PPP. Since the 1990s, the DBFO model has become a common PPP model for the
delivery of public infrastructure and associated services (Lesley, 1995; Cruz &
Marques, 2013; Carpintero & Petersen, 2014; Hong, 2016; Bian, 2016). In the
DBFO model of project delivery, the private sector is responsible to design a tech-
nological solution that best meets the public objectives at the lowest cost. The pri-
vate sector concessionaire is also invited to finance and operate the project. Once
the contractual time is completed, the public sector agency can then either retender
or operate the system using public sector employees (Pekka, 2002).
As opposed to other PPP models, researchers found that the DBFO model pro-
vides greater incentives for the private sector partner to utilize their expertise and
skills in the service delivery. However, in the meantime, there are critics and suspi-
cions against the DBFO model (Pekka, 2002; Murphy, 2008; Vining et al., 2006;
Ross & Yan, 2015). It is facing considerable challenges due to large uncertainty in
term of conflicts of interest, accountability, risk management, and transaction costs.
A partnership might fail if the project is not well managed with time delays and cost
overruns. Besides, since the public and private sector set completely different priori-
ties stemming from their different value systems, the project success cannot be
achieved due to conflicts of interest as well as democratic and structural issues

(Claudia, London, 2009). In addition, economic limitations are imposed through the
cost of transaction, regulation, and monitoring. In light of the benefits and possible
pitfalls of the DBFO model, it remains unknown whether the DBFO model is suit-
able for urban rail project. This research aims to examine the application of DBFO
model in the urban rail sector, analyze their suitability for urban rail transit projects,
and recommend strategies for improved use of DBFO models. The Gold Coast
Light Rail was selected as the case study. Document analysis was used as the main
data collection method. The results from this research will provide useful guidance
for the public sector in the selection of procurement model for urban rail projects.
The research also offers practical guidance on how to plan and structure a PPP proj-
ect in urban rail development.
Special Characteristics of Urban Rail Development
The unban rail transit forms an integral part of urban public transport network.
Social objectives, such as the efficient and optimum use of transport, need to be
thoroughly considered in the design, construction, and operation of urban rail sys-
tem (Macário, 2010; Liu & Wilkinson, 2014). In the development of urban rail
project, key decisions should be made based on careful considerations of communi-
ties’ needs to safeguard public interest.
Due to the nature of urban rail as public goods, the public transport fare is nor-
mally charged at a relatively low level. Urban rail is not a strict public good, since
those unwilling to pay can be excluded. Hence, the revenues obtained from ticket
sales are reasonably insufficient to afford the high capital and operating costs, and
the urban rail transit project will not be economically viable without operating sub-
sidies provided by the government (Gil, 2010; Liu & Wilkinson, 2014). This
imposes considerable pressure on the urban rail operators as innovative operation
and maintenance strategies should be in place to reduce operating costs and increase
the profit level, so that economic sustainability can be achieved.
Besides, the construction of urban rail transit is usually a high-risk venture due
to the complicated geotechnical issues and impacts on adjacent existing buildings,
which exacerbates the pressure on engineers, construction contractors, and subcon-
tractors (Solino & Vassallo, 2009). The design and construction team should have
the required technical capabilities and experiences to complete the complex projects.
Urban rail projects are usually part of wider public rail transport systems (Liu &
Wilkinson, 2014). The operation of the projects is highly relevant and linked to the
operation of other public urban rail lines. If the operators of different urban rail lines
differ, interface issues are likely to occur. Thus, the selection and structuring the
procurement model for urban rail projects is largely dependent on the service provi-
sion practices of current urban rail lines.
Application of PPP in Urban Rail Development
PPP, an innovative procurement methodology, is defined as a cooperative venture

and typically long-term relationship between public and private sectors. Under a
PPP, both parties bring complementary resources, skills, and expertise in the plan-
ning, financing, design, construction, operation, and management of public infra-
structure projects (World Bank, 2015). In recent decades, PPPs have been widely
used for the provision of public services in a broad range of infrastructure sectors,
such as schools, hospitals, roads, water and wastewater, and urban rail.
On account of the nature of urban rail transit projects, PPP is widely used glob-
ally due to such advantages as better risk allocation, improved operation efficiency,
and reduced delivery time (Carpintero & Petersen, 2014, 2015; Fombad, 2015;
Hong, 2016; Neto et al., 2016; Ke et al., 2017; Sturup, 2017). There are many urban
rail transit projects delivered through PPPs in Australia, such as the Sydney Metro
Northwest, the Sydney CBD and South East Light Rail, the Canberra Metro, the
Melbourne’s Tram system, and the Gold Coast Light Rail (PwC, 2017; Li &
Love, 2020).
There are various PPP models applied in urban rail transit development. These
models vary in the public and private sectors’ tasks in terms of design, construction,
finance, operation, and ownership. From the 1980s, to reduce the expenditures and
increase the rationality of projects, the private sectors were encouraged to take a
larger role in participating in the financing and operation process of public sector
infrastructure. The BOT approach was usually used to deliver public projects, in
which the private sector was selected to design, finance, and operate the new infra-
structure depending on their ability to meet the public interest and generate profits
(Gatti, 2007; Bian, 2016). Comparatively, the private sector often owns the infra-
structure in the BOO approach and normally does not return the ownership rights to
the public sector unless a specified contractual period exists.
DBFM and DBFO models are the variations of design-build-finance (DBF)
model in which the private sector has authority and responsibility to design, build,
finance, maintain/operate an asset, and then return it back to the government.
Through DBFs, the long-term risk of public sector is greatly reduced, while the
regular payments over a 25–30-year period make it an attractive option to the pri-
vate sector. The difference between DBFM and DBFO relies on whether the private
sector operates the projects or not. The DBFO model is adopted in most of the urban
rail transit projects. Besides, the joint venture PPP is a joint ownership structure in
which the government and private sector share the ownership of the asset. Under
joint venture PPP, a contractual arrangement is defined to specify the assets and
resources as well as the share in profit and loss for the private and public sector,
respectively. It is often used when the government prefers to take or maintain a
substantial stake and exercise some degree of control over day-to-day operations.
The major advantage of joint ventures is that both the private and public sectors
invest in the project. Thus, both parties have an incentive to cooperate with each
other and operate efficiently. However, because the government both owns and
regulates the joint venture, conflicts of interest can arise. Moreover, joint ventures
are prone to corruption since they often have less rigorous and formal procurement
methods (Gatti, 2007; Bian, 2016).
Research Methods
This research aims to evaluate PPP experiences and identify the critical factors for
using PPPs in the process of building, management, and operation in the urban rail
development. A number of methods have been applied in the field of transport
research, such as literature review (Evenhuis & Vickerman, 2010; Macário, 2010),
case studies (Phang, 2007), international scanning tour (Garvin, 2010), in-depth
interviews with senior practitioners (Chung et al., 2010), and a quantitative ques-
tionnaire survey (Yuan et al., 2010).
As suggested by Yin (2009), a case study approach is usually used when a holis-
tic and in-depth investigation is needed and the research topic is closely related to
its real-life context, while a qualitative method is applied to solicit in-depth insights
and perspectives from experts on a subject matter. It is appropriate to apply a case
study approach when an in-depth understanding of a complex phenomenon is
required to be gained (Eisenhardt & Graebner, 2007; Yin, 2017). In addition, as an
empirical query into the contemporary phenomenon in the real-world context (Yin,
2017), a case study can make up for the gap due to the lack of empirical studies on
PPP projects. Besides, it can produce specific and contextual knowledge, which is
valuable for the study of human affairs (Flyvbjerg, 2006). It can make a complete
description of a phenomenon in its context and explain it (Yin, 2017). Representing
the “force of example,” a case study can clarify the underlying causes and conse-
quences of a specific problem and helps people understand the problem better
(Flyvbjerg, 2006). In this paper, in-depth description and explanation are very use-
ful for people to understand the PPP application in urban rail projects. In this regard,
this paper adopts a case study method to examine the use of DBFO model in urban
transport development.
Document analysis was used as the main method of data collection. Since the
Gold Coast Light Rail project (stage 1) was completed in 2014, large volumn of
documents on the project and the PPP policies, processes, and transactions are pub-
licly available. The review of these documents can provide rich information to per-
form an in-depth case analysis. In this research, the content analysis approach is
adopted to have an in-depth understanding of the application of PPP in the urban rail
development and identify the possible problems. The content analysis method iden-
tifies the patterns or problems, using the systematically collected data as a set of
written, oral, or visual texts. The analysis can be conducted either quantitatively or
qualitatively, focusing on measuring or interpreting concepts and themes. The con-
tent analysis method uses the systematic and objective means to make qualitative
references and describe specific phenomena. Through analyzing the meaning and
semantic relationship of words and concepts, the content analysis can be used in
various fields field to identify the correlations, intentions, bias, and differences. In
this research, the content analysis approach is adopted to have an in-depth under-
standing of the application of PPPs in the urban transport development and identify
the possible problems.
Case Study Description
An Overview of the Gold Coast Light Rail Project
Light rail is known as a form of urban rail transit with the characteristics of both
tram and metro. During the recent decades, light rail has become popular through-
out the world by taking advantages of its capacity, speed, reliability, safety, value for
money, and sustainability. To accommodate the growing travel demand, the City of
Gold Coast needs a safe and efficient transport system to relieve the increasing traf-
fic congestion in a sustainable manner.
The Gold Coast Light Rail is in the City of Gold Coast which is situated on the
southeast coast of Queensland. Gold Coast is the sixth largest city in Australia by
population and the second largest local government area (City of Gold Coast, 2013).
Gold Coast Light Rail is recognized as the main part of public transport on the Gold
Coast, and it consists of three stages. Operating since 2014, stage one is a 13-km
long corridor with 16 stations included, connecting Gold Coast University Hospital
and Broadbeach. The light rail line passes through fast-growing commercial, retail,
and recreational centers between Southport and Broadbeach, as well as the key tour-
ist area of Surfers Paradise by connecting Gold Coast University Hospital and
Broadbeach South. Stage two was delivered in 2018, successfully connecting the
light rail to heavy train system at the Helensvale station, from Broadbeach to
Brisbane. Stage three which is subject to future planning and funding allocation
proposes to link Burleigh Heads to Coolangatta.
The Gold Coast Light Rail is the first public transport infrastructure project in
Australia to be jointly funded by all three levels of government and was the first PPP
undertaken following the height of the Global Financial Crisis (McConnell Dowell,
2015). In 2015, the Department of Infrastructure and Regional Development issued
the detailed national PPP policy (, 2015b) and guidelines (, 2015a) to standardize
the PPP implementation and development. The project was procured and executed
in line with the policies and guidelines.
Based on the agreement between the state of Queensland and GoldLinQ consor-
tium, the project objectives contained in the project include (1) delivering a recog-
nizable, accessible light rail system to enhance the integrated transport network; (2)
providing a rapid transit system to motivate more people to use the public transport
and sustainably develop the transport network on the Gold Coast; (3) delivering an
integrated transport system to enhance the urban environment and support urban
regeneration and sustainable development; (4) improving accessibility to key
activity centers and contributing to economic growth and maintain the Gold Coast’s
competitive advantage; (5) guaranteeing the value for money and optimizing the
risk allocation with innovative and affordable solutions; and (6) creating and main-
taining a partnership relationship which will benefit and enhance the reputation of
participants which could be expanded through the delivery of future stages of the
light rail system deed (The State of Queensland and GoldLinQ Pty Ltd, 2011).
Procurement Process
The Gold Coast Light Rail project was established by the Queensland state govern-
ment. This project was originated by the Gold Coast City Council and the state
government in 1998, followed by a feasibility study in 2004. In June 2006, the state
government released the South East Queensland Infrastructure Plan and Program
2006–2026 including the funding commitments of $550 million for a 40-kilometer
Gold Coast Light Rail project (Gold Coast Rapid Transit Office, 2012). In 2009, the
state government announced that the project would be constructed and operated,
and public-private partnership was chosen as the preferred delivery method.
In December 2009, the state government (Department of Transport and Main
Roads) invited Expressions of Interest (EoI) for the delivery of the project. Six con-
sortia responded to the EoI, and three consortia were shortlisted and invited to sub-
mit binding bids by November 2010. Following the Queensland government’s
Public Private Partnership policy—achieving value for money in public infrastruc-
ture and service delivery, the detailed evaluation criteria were designed and used to
assess tenderer’s technical solutions in accordance with the pre-established techni-
cal requirements, as well as the competitive tender price (Queensland Parliament,
2011). The contract evaluation and finalization processes were overseen by the proj-
ect’s probity auditor (Queensland Parliament, 2011). In May 2011, the state govern-
ment entered a PPP contract with the private consortium, GoldLinQ Pty Ltd
(GoldLinQ), to design, build, partially finance, operate, and maintain the system for
18 years. Stage one was constructed from January 2012 and completed in June 2014.
Financial and Contractual Arrangements
This project was jointly funded by the public and private sectors. As for the public
sector investment, the federal government, the state government, and the City of
Gold Coast committed $365 million, $464 million, and $120 million, respectively.
The total amount of government funding for stage one of the Gold Coast Light Rail
project was about $949 million (Barbaric & Alizadeh, 2017; Gold Coast Rapid
Transit Office, 2012). The rest of the project funding was provided through private
finance, which includes about 85% of debt and 15% of equity investment (Plenary
Group, 2011).
Fig. 1 Contractual structure of Gold Coast Light Rail project
In the Gold Coast Light Rail project, the state government of Queensland signed
an 18-year PPP project deed with the private consortium, GoldLinQ. McConnell
Dowell Constructors Pty Ltd (McConnell Dowell) and Bombardier Transportation
Australia Pty Ltd (Bombardier) formed a nonintegrated design and construct (D&C)
joint venture with GoldLinQ to deliver the system over 3 years. The operations and
maintenance (O&M) is delivered by Keolis SA and Downer EDI Limited (Downer
EDI) under a 15-year contract ending on 31 May 2029. The PPP contractual struc-
ture is shown in Fig. 1, demonstrating the contractual relationship among the state,
the operator franchisee, and the contractors.
Payment Mechanism and Performance Measurement
The Gold Coast Light Rail project deed (The State of Queensland and GoldLinQ
Pty Ltd, 2011) states the performance-based PPP contractual relationship between
the state government and GoldLinQ consortium, outlining the terms, objectives, and
conditions of design, construction, finance, operation, and maintenance of the proj-
ect. The state government provided a capital contribution via capital contribution
payments (state construction payments) during the D&C phase and has been paying
the operator franchisee GoldLinQ a performance-based monthly payment for its
obligations under the project deed during the operations phase until the end of the
contract term on 31 May 2029. To better measure and evaluate the operator franchi-
see’s performance, the detailed categorized key performance indicators (KPIs) have
been designed for different stages of project life. Those KPIs are used to determine
the performance abatements which are applied to the monthly service payments. A
deduction will be made if the specific KPIs are not met, according to the abatement
regime engaged schedule of the project deed. Further, a benchmarking will be
conducted every 3 years to adjust the monthly service payments based on market
conditions.
In this project, ticketing and fare collection has been provided by the TransLink
Transit Authority (TTA), a public transit agency for Queensland and a part of the
Department of Transport and Main Roads. The state and TTA was responsible for
setting fares; establishing fare policies, off-site ticket, and pass sales; and providing
electronic ticketing system (ETS), credit card and debit card transactions, and tick-
ets (The State of Queensland & GoldLinQ Pty Ltd, 2011). Ticketing and pricing are
based on TransLink’s zone fare structure for South East Queensland. It has both
single-use paper tickets and TransLink’s “go card” system. For example, if the
travel distance is within one zone, the single paper ticket for adult is $4.6, and the
fare for “go card” users is $3.2.
Risk Allocation Scheme
With the application of PPP, the public sector has successfully transferred the main
risks to the private sector. As stated in the Gold Coast Light Rail project deed (The
State of Queensland and GoldLinQ Pty Ltd, 2011), the operator franchisee
GoldLinQ has accepted risks associated with the project including (1) risks associ-
ated with the costs of financing, designing, constructing, installing, manufacturing,
and commissioning the light rail system; (2) the operation, maintenance, and repair
of the light rail system; (3) the hand back off the light rail system in a condition as
specified in the project deed; and (4) the risk of liability for taxes or duty being
greater than estimated by the operator franchisee. The risks retained by the state
include the site conditions and change in law, including any loss suffered by the
inadequacy, inaccuracy, or incompleteness of information provided by the state, and
any increased operating costs or capital expenditure as a result of change in law or
legislation.
It is notable that the public sector retained the demand risk. As shown in the
project deed, the TTA was responsible for setting pricing policies and fare collec-
tion. The private sector did not need to take the risk in relation to ridership. One of
the main reasons for the arrangements was that the public sector regarded the Gold
Coast Light Rail project a key public transport solution and services. They intended
to remain control of the ticket price to safeguard the public interests. Another reason
was that this project was initiated just after the Global Financial Crisis. The project
would not have sufficient attractions to private sector bidders if the demand risk was
transferred to the private sector.
Modification Regime
The project deed also includes the related modification regimes outlining the
requirements and procedures when modifications are initiated by the state and oper-
ator franchisee. In accordance with the modification initiated by the state, the opera-
tor franchisee GoldLinQ must outline the effects, time consequences, and estimated
cost of the proposed modification. The state decides to accept, reject, or negotiate to
get an acceptable solution. When the capital works is involved with a cost of more
than $1 million in the D&C phase or operation phase, the state may ask for a tender
where a third-party contractor is required to conduct the modification. Both the
operator franchisee and external contractor are required to sign a coordination and
interface agreement. The operator franchisee has responsibility not to hinder, pre-
vent, or delay the state or its contractor in undertaking the work. However, the oper-
ator franchisee has to follow the procedure to request a modification with its reasons
and potential effects clearly stated. The operator franchisee must afford all costs and
expenses incurred by the proposed modification, unless otherwise granted by the
stated. The operator franchisee must share the saving equally with the state if any
saving arises by the modification.
Case Analysis and Discussion
Social and Economic Impacts
As a fast, reliable, and affordable public transport option, Gold Cost Light Rail has
provided an alternative way for the residents and travelers to move around the city
and opportunity for people who are unable to drive. It has had an immediate success
on ridership and integrating the transport system of the city. As stated by the City of
Gold Coast (2017), there has been an increase of 27 per cent in public patronage,
with a total of 2.37 million trips taken on the network since 18 December 2017 to
11 March 2018. According to the government report (City of Gold Coast, 2019), the
year-on-year growth in public patronage significantly increased with an average
number of trips increasing by 61.8% across the route of Gold Coast Light Rail
between 2014/2015 and 2018/2019. Further, the number of vehicles has a continual
drop along the route light rail route corridor.
The City of Gold Coast (2019) suggests that most economic benefits of Gold
Coast Light Rail have been fully or partially delivered. With the significant increase
of domestic and international visitors, the light rail played a critical role in provid-
ing safe, reliable, and comfortable transportation during citywide events. Further,
Burke (2017) revealed the property value gains of more than 30% between 1996
(project inception) and 2016 could be attributed to Gold Coast Light Rail project,
through comparing the residential property sales data on within 800 m of light rail
corridor. The number of dwelling approvals has increased from around 476 per
month during the 3-year period of 2013–2015, to 508 per month in 2016–2017,
which can be a sign of light rail as a catalyst for economic development (City of
Gold Coast, 2019).
Benefits of the DBFO Model
As a typical PPP model, DBFO shares the general features of a PPP. Firstly, it can
help to upgrade fundamental infrastructure with minimized upfront capital invest-
ment to meet the demands of increasing population. According to the final reports,
the reported construction costs is between $1.2 billion (GoldLinQ, 2017) and
$1.3 billion (McConnell Dowell, 2015). As stated by Gold Coast Rapid Transit
Office (2012), a total of $949 million was funded by Gold Coast City Council
($120 million), federal government committed ($365 million), and Queensland
government ($464 million) and the rest of the funding relied on the private sector
investment. Without the private sector’s financial contribution, this project might
not be financially viable.
By leveraging private finance, governments’ public debt can be greatly reduced
by transferring the pressure to the private sectors, so that the governments can have
more budgetary capacity to fund more infrastructure projects. For example, follow-
ing the Gold Coast Light Rail stage 1, the governments continue to finance stage 2
and stage 3 development. Stage 2 was completed in late 2017, which was believed
to be critical in meeting the increasing need for public transport and supporting the
Gold Coast 2018 Commonwealth Games (CPB Contractors, 2017). The federal,
state, and local governments continue to finance stage 3 development. The construc-
tion of the stage 3 starts in early 2021.
Under a DBFO model, the risks associated with the financing, design, construc-
tion, operation, and maintenance are transferred to the private sector. Compared to
the DBFM model, in which the private sector is not involved in operational services,
DBFO provides more incentives for the private sector to utilize their financial, tech-
nical, and managerial capabilities to achieve innovation and provide better service
quality. For example, in this case, the project was initiated during the Global
Financial Crisis. The private sector utilizes a senior debt package for the full term of
the project, which largely mitigates the refinancing risks (Plenary Group, 2021).
According to McConnell Dower, the D&C contractor, the project was recognized as
one of the top 10 most innovative urban mobility projects by Infrastructure 100:
World Cities Edition. The project also adopted a range of design and construction
principles and strategies to achieve higher sustainability performance. For example,
by using innovative and collaborative design to avoid moving a sewer pipe from an
old landfill site, 40% reduction in the quantity of concrete and steel required was
achieved. The project receives “Excellent” rating in 2014 under the Infrastructure
Sustainability As-Built Rating Tool.
Problems Associated with DBFO Model
Like other PPP models, the DBFO model is characterized by long-term contract
period and obligations. Both parties have less flexibility on the execution and man-
agement of contract when new circumstances emerge (Ross & Yan, 2015). Due to
the nature of urban rail infrastructure and services, it is difficult to change the con-
tent or method for service delivery in a short time. Thus, an appropriate solution
might not be available timely when the unexpected circumstance occurs. As stated
in the project deed, a modification regime is established to create an environment
for both the state and GoldLinQ to initiate the modification following specific pro-
cedures and requirements. However, the established modification regime does not
encourage GoldLinQ to make modifications. The modification process and require-
ments established for GoldLinQ is more restrictive, compared to that of the public
sector. GoldLinQ was obligated to reduce, mitigate, and eliminate the effects of
delay and required to complete construction by the predetermined completion date.
In comparison, the state has higher level of power and flexibility to accept or reject
the modification proposed. GoldLinQ must be responsible for all cost incurred for
the modification initiated by itself while sharing the saving produced by the modifi-
cation with the state. Those difference might restrict GoldLinQ to initiate a modifi-
cation. In this circumstance, GoldLinQ may actively eschew any modifications
during the process, which might cause negative effects on the quality and efficiency
of project delivery.
Under the DBFO model, the private sector is responsible for providing opera-
tional services. To stay competitive in the market, they usually focus more on the
profits when delivering public services and infrastructure. However, since urban rail
projects are critical public infrastructure, the public sector retains the ultimate
accountability for the project and protects public interests. As opposed to a joint
venture PPP, such as the Beijing Metro Line 4 project, where the public sector has
51% share in the PPP project company and decision-making rights in key decision-
making points, the government retains less control of the asset and services under a
DBFO model, as the operation responsibility is transferred to the private sector
(Murphy, 2008). Concerns may rise as to how to effectively monitor and measure
the private sector performance, especially during the operational stage to ensure
their compliance with contractual obligations and safeguard public interests.
Another problem in relation to the DBFO model is concerned with the interface
issue (Zheng et al., 2008). Since urban rail projects usually form an integral part of
the wider urban rail networks, a coordinated and consistent urban transport manage-
ment or system, such as charging mechanism, is needed across the urban rail net-
works. There are inevitably frequent interactions between different operational
service providers (if they vary). If a private operator is introduced to the operation
of the PPP project, interface issues and conflicts are likely to occur. Considerable
coordination will be needed between the private operator and existing operators
(such as the public sector). Although this problem is not evident in the Gold Coast
Light Rail project as no urban rail lines existed prior to the stage 1 development, the
contractual and commercial arrangements were carefully structured to allow flexi-

bility around operational models and future expansion of the network (e.g., stage 2
and 3 development) (Plenary Group, 2021). In other projects where there are exist-
ing urban rail line operators, challenges will arise as to how to design the DBFO
transaction to ensure effective communication and coordination between the private
sector and existing operators.
Recommended Strategies for Improved Use of DBFO
• Equitable risk allocation. The success of PPP projects heavily relies on appropri-
ate and effective risk allocation. Under a PPP model, the risks in financing,
design, construction, and operation are largely transferred to the private sector.
The risk transfer is important to incentivize the private sector to adopt innovative
solutions. It is of equal significance that the public sector retains the risks that are
beyond the control of the private sector partner.
• Flexible contract design. The long-term nature of PPP contract determines that
the design of the contract needs to consider the unexpected events occurring over
long-term life span. Indeed, it is critical that clear performance criteria and pay-
ment mechanism are set up in the contract clauses to ensure private sector com-
pliance. The contract should have enough flexibility to deal with contingencies
and ensure contract continuity. For example, in the case study project, relatively
flexible commercial and contractual arrangements were established at the outset
to allow for future expansion of the urban rail networks.
• Extensive community engagement and public consultation. A major concern of
the DBFO model is whether the public interests and communities’ needs are
satisfied in the development of the project. In the Gold Coast Light Rail project,
a series of community consultation and engagement activities were conducted to
make sure that the public opinion was heard and incorporated in the project’s
design and development. Also, key parties and stakeholders were involved in
decision-making so that relevant issues such as pipelines and telecommunica-
tions were resolved in time.
Conclusion
This research provides the analysis of Gold Coast Light Rail project and evaluates
the DBFO model used in this project. The results show the delivery of project has
significantly improved the connectivity, accessibility, and efficiency of the inte-
grated transport system on the Gold Coast. In addition, Gold Coast Light Rail suc-
cessfully enhanced the urban renewal, bringing considerable economic benefits and
providing more opportunities for the future development.
Despite the positive outcomes achieved in this project, there is room for improve-
ment at some points through the whole process. Like other PPP models, the DBFO
model is characterized by long-term contract periods and obligations and less flex-
ibility to deal with modifications. This calls for flexible contract design to allow for
mechanisms and systems to tackle contingencies and ensure contract continuity.
Although most risks in relation to financing, design, construction, operation, and
maintenance are transferred to the private sector, it is important to make sure the
public sector retains risks that are beyond the control of the private sector partner
and closely monitors their performance during the contract management stage.
Given the possible interface issue of the DBFO model, albeit not evident in the Gold
Coast Light Rail project, it is critical to establish mechanisms to ensure effective
coordination between the private sector and existing operators. Also, the relevant
stakeholders and community need to be engaged at various decision-making points
to guarantee their interests and needs are incorporated.
Suggesting more flexibility in the PPP contractual structure to promote a best-
practice approach with more innovation initiated, this research recognizes the need
for further analysis, based on the in-depth investigation of more confidential
resources as business plans, tender submissions, and internal communications.
Those analysis and discussion have the potential to optimize the PPP-based delivery
of light rail infrastructure and associated services.
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For Hire Vehicle Regulation,
Misunderstanding, Mismatch, Control
and Capture: The Case of Vehicles for Hire
and PPP
James M. Cooper and Wim Faber
Abstract The involvement of taxis and other vehicles for hire in public-private
partnerships (PPPs) may appear to differ from more common examples of the con-
cept. Even in the public transport arena, the taxi plays a distinct role in personal
on-demand transport that falls outside the most common examples of PPP. This
should not detract, however, from the role that the taxi mode can, and does, play, not
least in light of revolutionary changes in the market and shifts in regulation that
have accompanied the arrival of transportation network companies (TNCs).
Historic evolution in transport partnership, as exampled by the provision of
social and specialist transport under contract to an authority, has been replaced by a
more revolutionary approach of shared risk and private operator investment that
would not follow from the basic operation of the taxi service alone. Service innova-
tion is also apparent, building on the booking systems synonymous with new market
entrants, significantly improving fleet efficiencies and rebalancing the opportunities
for PPPs. New and updated examples where partnerships are likely include educa-
tion, health and a range of transit supporting services, first and last mile and fill-in
and replacement transport to the extent that falls within, may be tolerated alongside
or be subject to new regulatory control.
Keywords Taxis and vehicles for hire · Transportation network companies ·

Public-private partnerships · Regulation · Regulated competition
J. M. Cooper (*)
Transport Research Partners, Belfast, Northern Ireland, UK
e-mail: james@transportresearch.org
W. Faber
Personenvervoer Journal, Challans & Faber BV, Brussels, Belgium
e-mail: wim.faber@challans-faber.eu

https://doi.org/10.1007/978-3-030-83484-5_14
262 J. M. Cooper and W. Faber
Abbreviations
DBFO Design, build, finance and operate

DRT Demand-responsive transportation
EU European Union
FIFO First in first out
FT Flexible transport
MaaS Mobility as a Service
NEMT Non-emergency medical transport
PHC/PHV Private hire car/private hire vehicle
TNC Transportation network company
UK United Kingdom of Great Britain and Northern Ireland
VFH Vehicle for hire
WAV Wheelchair accessible vehicle
Background
The taxi and its ‘sister’ modes—private hire car (PHC), limousine and TNC, col-
lectively the vehicle for hire (VFH) market—are generally privately owned and can
operate on-demand or at short notice for trips defined at, or close to, the time of use.
This pattern of use, ownership and control distinguishes the VFH from most other
forms of public transport, though the vehicle can be, and has been, integrated into
transit partnerships over time. Such partnerships can replace or be complementary
to existing transit and may be formed on the basis of traditional contracted services
or through public-private partnerships (PPPs). A majority of contracted services
appear evolutionary, changing only slowly over time to reflect a relative consis-
tency in the markets they serve. In contrast, PPP operations, in which the private
operator assumes elements of risk and management responsibility (McQuaid &
Scherrer, 2014), have developed rapidly, often as a result of revolutionary innova-
tions, including in dispatch and location technologies. The extent to which such
partnerships may be developed is likely to reflect local priorities as well as the
historical approaches to regulation and management of a city, district or regional
government.
Changes in the context, ownership patterns and regulations within which part-
nerships are developed are also likely to impact on the extent to which the VFH
market may wish, or be permitted, to participate. Best, and worst, practices can be
observed from examples worldwide and are illustrated using experiences in Europe
and the USA. The analysis concentrates on the changing nature of the VFH market
itself, exploring the present-day impact of regulatory history, and the effects of
market disruption made possible and encouraged by new and emerging
technologies.
For Hire Vehicle Regulation, Misunderstanding, Mismatch, Control and Capture… 263
Defining the VFH Market
The VFH market relates to the supply and use of vehicles for hire with a driver. It is
distinct from other forms of passenger transport in that each journey is unique—it
operates from differing origins to differing destinations rather than following fixed
or semiflexible routes. The VFH vehicle itself is typically in private ownership and
often associated with an identifiable ‘taxi company’ or TNC app (platform) pro-
vider, including cooperatives and associations, that carry a single brand and may
offer booking, dispatch and customer support services. In most circumstances the
driver works as an independent contractor, with only limited control applied by the
taxi ‘company’.
The mode has a historical role in contracted and partnership provision, including
PPP, though it has not always been recognized or badged as such, often playing a
minor role compared to flagship infrastructure projects. It may also be challenging
to distinguish between a traditional procurement and PPP as both models can be
used for similar projects and may be difficult to distinguish to the user. This said,
specific examples can be identified by type and are illustrated in the case of acces-
sible transport dispatch in Chicago and New York, being developed and operated by
the private sector with public funding.
It is also appropriate to identify regulatory constraints which may limit the extent
to which the industry has sought to develop partnerships. Regulations have a signifi-
cant history, developed over decades and centuries, and will typically include a
combination of quantity, quality and/or economic controls (QQE). The pattern of
many, if not most, VFH regulations has remained broadly unchanged over time,
even with a series of deregulations observed in the 1970s and 1980s (USA) and
1980s and 1990s (Europe), with current changes (2010–2020) affecting the extent,
rather than pattern, of regulations applied.
The 1970s/1980s’ moves to deregulate appear to follow as extensions of utility
deregulation, a move away from public ownership of utilities and coined as a
‘deregulation movement’ in some accounts (Keeler, 1984). Peltzman (1976) links
utility deregulation to a shift in competition policy, in favour of open market provi-
sion, a policy approach that has remained in place in the period since. Examples
include the privatization of gas, water, electricity and telecom companies, though
not all countries privatized the same range of utilities nor do all privatizations result
in the removal of government control. Indeed, many have resulted in an increase in
formal controls and regulations applied.
Transport service reforms can also be observed in the period of utility deregula-
tion, though the sector is frequently associated with public control, not least in
respect of relatively high levels of subsidy that remained and continue regardless of
the ownership pattern in the sector. Transport regulations can be applied overtly, as
is the case in licenced transport, and covertly, including through the availability and
granting of subsidies or access rights to infrastructure, while many regulatory bod-
ies will also maintain control of timetables and service levels. Regulatory changes
applied to the taxi industry, being neither state owned nor operated by monopolies
(in the main), appear to follow as an afterthought and most frequently where the
open market aspects of deregulation appeared at odds with the imposed regulatory
controls typical of the taxi industry. Early examples of taxi deregulation include a
number of high-profile cases in the USA (Teal & Berglund, 1987) and in similar, but
less visible, European examples (Toner, 1996). In contrast recent examples of VFH/
TNC reform appear significantly more visible, potentially as a result of multina-
tional TNC involvement and the relative weight of the TNC in terms of policy influ-
ence, including lobbying reach (Nix et al., 2019).
Transport deregulation has also provided a focus on the relationships between
the private and public sectors. While contracted relationships had already existed
between taxis and some public sector transportation, recent growth in the market
appears to have prompted a range of new and extended PPP programmes. Taxis and
other VFH vehicles can be well suited to such partnerships and provide flexibility in
supply based on the immediate availability of vehicles not apparent in other modes.
The same vehicle may also be suited to contracted supply over longer periods to
reflect the relatively short lead in and out times and increasingly detailed tracking
and monitoring systems available to the mode. Examples include the provision of
transportation to schools (education transport) and healthcare (non-emergency
medical transport (NEMT)) as well as social transport including ‘equivalent para-
transit’, the operation of accessible services in the route corridors of traditional
transit. The emergence of new dispatch technologies, including TNC platforms, has
placed a renewed focus on VFH use in transit and regulation.
Operational and Licencing Distinctions
While the term ‘taxi’ is, broadly, generic to the pattern of movement, many loca-
tions define what a taxi can do in law. Four regulatory categories appear common
and follow similar operating patterns and constraints; see Table 1. While none of the
categories preclude the use of booking technologies, the use of newer location and
dispatch systems appears increasingly prevalent to the later categories.
Table 1 Common VFH categories

Category Description Common terms
I Vehicle for hire and reward with driver, available Taxi, hackney carriage, public
for engagement on the street (hailed taxi), at a hire
public taxi stand/rank or by pre-booking
II Vehicle for hire and reward with driver, available Private hire car/vehicle (PHC/V),
by pre-booking minicab, black car
III Specialist vehicle with driver used in exclusive Limousine, Executive Car
hire
IIIa Specialist vehicle with driver used in specific use Taxibus, DRT, Shuttle
scenarios
IV App/online booked vehicles for hire and reward Transportation network company
with driver (TNC, e.g. Uber/Lyft), [for profit]
Rideshare
In addition to the patterns defined in Table 1, vehicles from any of the categories can
enter negotiated contracts for the provision of additional services in a majority of
locations, including education, NEMT and similar. Taxi-specific partnerships (VFH
category I) appear to be most often focused on the supply of supported and socially
required transport. TNCs (category IV) have, in contrast, sought involvement in the
design, development and delivery of more significant infrastructure projects, while
VFH involvement in transit, from any category, may also be used to illustrate the
introduction of private sector ownership into state-controlled businesses. VFH/tran-
sit partnerships appear to have developed more rapidly as the taxi market itself has
become more contested. Such partnerships are illustrated by TNC and taxi compa-
nies extending and replacing traditional transit routes and include the examples of
Uber Transit replacing more traditional Denver Regional Transit District services on
some routes and the Dutch Railways’ ‘ZoneTaxi’.
Replacement and Supplementary Transport
VFH partnerships can often be used to replace or supplement social transport,

including disabled and paratransit agency transit. Replacement transport can be
used to operate a single service, a route line or area, while supplementary transport
implies an additional supply over and above that in place. Examples can be seen in
Finland, where taxis are widely used in the provision of social transport including
medical trips, as well as equivalent paratransit paid for by the Finnish social security
agency Kansaneläkelaitos (KELA). In the United Kingdom, it is common for taxis
to be used for NEMT, supplementing ambulance service vehicles, and in many loca-
tions for the provision of school pupil transport (Northern Ireland Executive, 2020),
in a mix of supplementary and replacement roles. Supplementary equivalent trans-
port is also a feature of paratransit in the USA, being a legislated requirement to
supplement existing fixed line transit services where accessibility is limited (Section
223, Americans with Disabilities Act, 1990).
TNC examples include recent involvement in the Boston RIDE programme
(MassDOT, 2019), an authority-led scheme in which the TNC is financially sup-
ported by per trip subsidies, and in the co-opting of WAV fleets across providers as
the owner and operator of the dispatch system, typically owned and operated by the
TNC. The Uber Transit platform can also be used to illustrate the private develop-
ment of a replacement service platform where development risks are born by the
private supplier, though this does not preclude public support nor control of services
provided via the platform.
Complementary and Integrated Transit
Complementary transport falls more directly under the definition of transit. The
concept extends transit routes by providing access to a transit hub, while more
advanced models include timetable and/or ticketing integration. Integration is also
a feature of Mobility as a Service (MaaS), a relatively new term applied to informa-
tion and planning platforms, though the actual allocation of risk may differ and will
vary by location and agency.
First and last mile travel to/from transit can be seen in many EU cities. The con-
cept provides integrated access to national operators at defined interchange points,
typically a railway station or bus stop, effectively extending access to that service.
Examples include taxi access to railways in the Netherlands NS ZoneTaxi; Berlkönig
in Berlin (www.berlkoenig.de), a partnership between the transit authority BVG,
taxi companies and ViaVan (www.viavan.com); Collecto in Brussels (www.taxi-
verts.be/en/collecto-en), a partnership between STIB and Taxi Verts to provide
night-time ‘bus services’ operated by taxis; and MyShuttle, operating in Karlsruhe,
Germany (www.kvv.de/service/angebote-aktionen/myshuttle.html).
Regulations can differ between and within countries, reflecting the extent of
regulation and its reform in each. The regulatory structure applied to one mode can
also be affected by changes in others. The nature of regulation within the VFH mode
may, for example, be affected by structural changes in transit, such as privatization,
and within the VFH market where one vehicle type, e.g. taxis, can be materially
affected by changes to another, e.g. the introduction of TNCs (OECD, 2018).
Recent reforms can be observed in a significant number of locations in both
North America and Europe. This balanced against the historic nature of taxi regula-
tion, which can also play a role in influencing policy. Indeed, the nature of current
regulation and its reform can be deeply entwined with the decades and centuries of
control applied to the mode, with the resulting, deeply held, positions complicat-
ing reform.
Nature of Change in the Taxi Market
Change has often been led by a regulatory ‘ideal’, often appearing linked to a politi-
cal imperative as much as a pragmatic need. Such needs can be couched in terms of
the conflict between free and constrained markets, with many ‘reforms’ argued as
supporting free(er) approaches. Their counter can also be couched in market eco-
nomic terms and include a paradox of market failure (Dempsey, 1996), related to a
potential lack of supply, in the more open market, and a lack of price competition,
despite the presence of multiple, individual and independent suppliers. The alterna-
tive approach requires ‘… a significant raft of regulations’ to ensure the mode oper-
ates in the public interest. Other authors highlight similar contradictions arising
from a lack of price competition (Cairns & Liston-Heyes, 1996; Wallsten, 2015),
largely observed in the hail market, and a lack of incentive to innovate (Staley et al.,
2018), though the latter, lack of innovation, does not appear to apply to some areas
of the market.
Regulatory structures may also be at odds with efficient delivery. Most current
taxi-specific regulation is focused on ‘regulated competition’, a differing approach
to ‘free market competition’ espoused for the TNC market (National Academies of
Science, 2016). Some authors go further, attributing the paradoxical nature of the
market to perverse effects of regulation including regulatory capture, being the reg-
ulation of an industry in the interests of the industry rather than the public
(McDonald, 2018), and deep-rooted historical operating practices not suited to
cycles of regulation and its reform. This said, it does not appear completely accurate
to associate market paradoxes, where these may exist, purely to the cyclical nature
of regulation. Regulatory reforms may be driven by any combination of the practi-
cal, pragmatic or political, while a more fundamental review should also include
technologies in this assessment.
Market Development Over Time
It may also be appropriate to tease out the impacts and lessons of change over time.
Structural changes in the VFH market are not new and can be charted to include the
move from horse drawn to motorized traction, at or around the turn of the nineteenth
century (Mom, 2009), telephone booking and radio systems and the Internet (Jinxing
et al., 2015) in the last century and right up to the current and continuing develop-
ments associated with smartphone dispatch platforms of today. Potential impacts
may also be predicted with the introduction of autonomous vehicles (AVs) in the
near future. Not all changes have been achieved easily (Cooper, 2015), with some
facing significant opposition and challenge likely to delay or reduce the benefits of
such changes (Daily Californian, 2021).
In the case of the most recent, the development of smartphone apps, significant
divergence exists between the traditional industry, regulatory authorities and the
public. While the new services appear to be both wanted by the public and serve to
expand the market (Berger et al., 2018), not all market participants stand to benefit
by their introduction. Market effects of the new technologies can be illustrated, as
in the case of New York (see Fig. 1), to increase market demand, but at a long-term
cost to the traditional industry. The chart illustrates the level of change, from a base-
line of 15 million taxi pick-ups per month in 2010 to a mean of 26 million across all
VFH modes in 2018, of which 9 million remain with taxis, a gain in total trip num-
ber but a significant loss of 35% to the taxi sector alone (Harding et al., 2016).
Established changes can also be helpful in informing the development of future
policies, including precedents with significant history. The most common
approaches, which focus on licenced or permit based operations, date from the early
seventeenth century and follow from the French practice of licencing Sedans
(Martin, 1894). The Sedan “authorisation” defined and set quantity controls and
Fig. 1 New York taxi market monthly pick-ups. Source: https://toddwschneider.com/posts/

analyzing-1-1-billion-nyc-taxi-and-uber-trips-with-a-vengeance/
was broadly copied in England from 1635, by the Hackney Carriage Act, which
applied quantity controls to London (Sivasakthi et al., 2019), and the 1654 Ordinance
for Regulation, which applied regulations to drivers.
The parallel developments in the United Kingdom and France defined two of the
fundamental principles of regulation, being quantity and quality control, that remain
in discussion today. The third element, economic control, broadly followed after the
emergence of a standardized system of metered charging and the invention, 1891, of
the Bruhn ‘taximeter’ which provided a standard measure of distance to be applied
against a tariff and giving rise to the common term ‘taxi’.
Today’s focal points remain remarkably similar to those first seen in the seven-
teenth century and encompass vehicle and driver numbers (quantity), vehicle and
driver standard (quality) and price or fare (economic) controls. Equally notable, the
need for and role(s) of a regulatory authority remain under discussion in much the
same way as seen throughout the history of the mode. This said, differences do exist
between locations and countries. Route(s) to market can differ by location, as can
the controls limiting the extent to which a service can be developed. In recent years
the underlying regulatory arguments have been joined by a technical one, being the
extent to which an app-based system/supplier can and should operate under the
same regulations as stand and hailed operators. In many cases these developments
have prompted regulators to review their approaches to control, including the fun-
damental questions whether regulations remain ‘fit for purpose’ and, in a number of
instances, whether a deregulation is now appropriate.
Regulatory Description Examples of most frequent application by tier

Domain Taxi Private Hire/Limo TNC
Quality Safety and physical appearance of Vehicle mechanical Vehicle mechanical Vehicle mechanical
vehicle fitness based on fitness based on fitness based on 3rd
agency inspection agency inspection party inspection
Driver ability / suitability Driver licensing and Driver licensing and Driver licensing and
background checks background checks by background checks by
by agency agency 3rd party
Vehicle Insurance 3rd party confirmed 3rd party confirmed by 3rd party confirmed by
by agency3 agency TNC
Quantity Constraints on the numbers of License cap applied License cap applied Mainly unlimited in
vehicles permitted to operate by agency by agency number
Economic Defined fares, usually applied as Defined fares based Approved fares, TNC set fares,
maxima on Taxi Tariff. Must typically distance required to be notified
be visible in vehicle based required to be in advance
notified in advance
Fig. 2 Regulatory domain definitions and their application
Suitability and Impact of Regulation
It is broadly observable that a vast majority of industries exist within some form of
regulatory structure. Such structures can range from the simple, where operations
are legal and conform to minimal standards, to the complex where regulation
extends to include controls applied to multiple aspects of operations, outputs and
price. In the VFH market, a minimum level of regulation is applied to vehicle safety
standards, driver knowledge and fitness, while more complex markets may include
vehicle appearance, availability and fare. Multiple levels of control can apply within
the same market, often differentiated by vehicle type, giving rise to the definition of
single, dual and multiple tier approaches, illustrated in Fig. 2.
Closed and Restricted Markets
Heavily controlled markets apply controls within all three of the regulatory domains
(QQE) and are the most likely to restrict entry to the TNC sector. A number of
European countries fall into this category, including in some areas of Belgium, the
United Kingdom and Germany. TNCs can face challenges in gaining access to more
restricted markets, and a range of legal actions can be observed, including highly
consequential judgements (ECJ, 2018), both for and against the TNC sector.
Hybrid and Transforming Markets
A hybrid classification is included to describe locations that have applied some

reform or are in the process of reforming/derestricting their markets but have are not
fully deregulated. Hybrid markets may include locations where some aspects of
quantity control have been removed, for example, where caps on the numbers of
(some) vehicle types or operating patterns have been lifted or reduced, while other
areas of control and regulation remain. It is notable that market transformations are
seen prior to TNCs, not only as a result of app development, with earlier examples
including the removal of quantity control in the Republic of Ireland in 2000 (Barrett,
2010). Equally, the loosening of quantity controls does not necessarily indicate a
path to market for TNCs, as other intrinsic and/or regulated barriers may exist pre-
venting their entry.
Open/Deregulated Markets
Deregulated markets are those in which (a majority of) regulations have been
removed. In the VFH sector, deregulated markets are typified by a removal of con-
straints on the number of vehicles that may operate and/or reduced constraints on
fares that can be charged. A number of markets that have relaxed price controls have
done so for some vehicle types but not others, being less likely to be applied to taxis
than to private hire vehicles. The vast majority of markets do not apply price con-
trols to TNCs, other than to specify a customer must be informed of a fare or the
method of its calculation prior to a trip being made. Examples of locations with high
levels of deregulation include New Zealand (from 1989), Sweden (1990), The
Netherlands (2000) and Finland (2017).
The removal of quantity and economic controls does not imply the removal of all
aspects of safety regulation, with defined vehicle and driver standards remaining in
all of the deregulated markets. This said, many reforms have included a shift in the
responsibilities for TNCs from cities to states, with an additional role given to oper-
ators to become engaged in some aspects of certification, a common practice for
TNCs across the USA.
Regulatory Reform
In addition to defining the types of regulation available, the impact any change need
be considered in its reform. Impacts can affect any of the public, industry and
authority, with differing levels of severity over time. Differences exist between
short-term benefit weighed against longer-term sustainability, while both may be
desirable, some aspects may be unique to one. Regulatory bodies themselves are
also open to critique, whether a regulator will, in reality, protect the interest of the
public or the most influential voice, the latter concern giving rise to concerns of
market capture, where the regulator reflects the interest of the incumbent operator,
at one end, and the interest/lobby group influences at the other.
Reform of Quality Controls
Quality control is predicated on the need for vehicles to be safe and drivers compe-
tent. Testing and inspections are carried out in all jurisdictions, with current reform
focused on certification, by whom and with what authority. The nature of testing can
also be open to discussion, an example of which being the need for additional topo-
graphical tests, argued as unnecessary where GPS guidance systems are in use. The
need for driver background and fitness testing, over and above the basic ability to
pass a driving test, is also open for discussion, though it appears less easy to justify
a reduced level of control in the transport of vulnerable passengers or children. An
extension of this argument applies to the carriage of disabled passengers, with a
common theme emerging of qualification and/or certification for vulnerable pas-
senger groups.
Economic Control and Quantity Constraint
Unlike the general acceptance that (some form of) quality control may be necessary,
constrains applied to quantity and economic controls are more regularly discussed
in terms of their reform.
The underlying justification for price control is generally based on a lack of
opportunity for the (intending) passenger to compare prices prior to use. The oppor-
tunity for price comparison is particularly limited in the hailed market, where sup-
ply is limited to the next available vehicle. A similar argument may also apply to
taxi stands, where a first in first out principle may also restrict price competition,
justifying, it may be argued, some form of price control. The lack of immediate
opportunities for price comparison may be overcome by app-based alternatives in
some markets, but not all, while arguments of abusive pricing may also exist in
instances of limited competition, small numbers of suppliers or a single large
supplier.
The most challenging regulation to justify, however, appears to be that of quan-
tity control. This form of regulation is focused on the issue of oversupply, some-
times argued as being in the public interest, e.g. to reduce price gouging, extended
and circuitous routes (Mundy, 2014). Quantity controls have been linked to a series
of impacts, including low levels of supply in suburban locations, though the inverse
may also be true that derestricted supply results in concentrations in known, city
centre, locations (Cooper et al., 2010). Some authors also link a need for quantity
controls to re-regulation, prompted as a result of previous, unsuccessful, deregula-
tion (Cairns & Liston-Heyes, 1996). The extent to which observed experience can
be used to assess current performance must also be treated with caution, however,
as many of the current technologies driving change were absent in previous rounds
of regulatory reform.
I mpact of Reform on Market Equilibrium

and Industry Partnerships
The third element of review relates to the impact of regulatory structure on the mar-
ket itself. The rapid expansion of TNCs as transport providers has sparked a new
interest in the VFH mode, while the TNCs themselves have grown rapidly. Current
trends include the consolidation and expansion of the app-based booking platform
to a wider range of services, adopting the term Software as a Service (SaaS) to
reflect this extension of its capabilities. Inherent efficiency gains associated with the
expansion of the platform can also increase the commercial viability of the
TNC. Current examples of wider application include restaurant deliveries, NEMT,
accessible and social transportation.
Some differentiation in PPP can be observed between the VFH segments.
Traditional taxi companies have concentrated much of their efforts on public con-
tracted transport, while the TNC sector appears focused on wheelchair accessible
vehicle (WAV) and social transport provision. Public agencies may also play a role
in this choice, by seeking to develop specific programmes that are then supplied by
specific vehicles and/or sectors.
In Washington DC the Transport DC programme was originally envisioned as
transport to dialysis appointments and supplied by the taxi sector. In contrast the
Boston RIDE programme is open to both taxis and TNCs. The T2E transport to
employment service in Scotland was provided by PHCs, while the Collecto transit
service in Belgium is provided by the taxi market. Public agencies may also engage
both taxis and TNCs into ‘enhanced mobility’ programmes linked and complemen-
tary to their mainline transit programmes, including the BART bay area integrated
carpool to transit access programme and the Dallas DART First and Last Mile
Solution, amongst others (Deakin et al., 2020), each of these being examples of
‘pull’ engagement where the transport supply follows defined programme
opportunities.
‘Push’ engagement also exists, where the transport provider takes the initiative to
seek public partnerships outside of designated programmes. Push activities may
also reflect the practical issues faced by the operator and location and may actually
follow from tangential operational requirements. Thus, the need, and pressure, that
TNCs operate WAV services may be linked to TNCs seeking to access public pro-
grammes as a method of increasing use efficiencies and justify large-scale invest-
ment in WAV vehicles.
Insofar as regulations permit, or where such engagement is not prohibited, mar-
ket and commercial benefits can arise from the development of strategic and opera-
tional partnerships. Examples of these exist in most jurisdictions, though the extent
and precise nature of such partnerships will vary by location to reflect the impacts
of prevailing regulations in each case. Traditional and strict regulation may have the
effect of creating barriers to partnership operations, for example, the definition of
service type may preclude the taxi company from offering bus services, while other
regulations, such as the Americans with Disabilities Act (ADA), may create circum-
stances that would support additional PPPs.
Conflicts Between Regulations
The development of the app platform, and the TNC services it has facilitated, has
created a number of competing interests in the regulation of the VFH market. The
app provides the means for both geolocation and booking that has allowed for a
significant change in the customer/supplier relationship. Regardless of any pres-
sures on or conflict between regulations, the availability of geo-localisation and its
application has brought a significant benefit to the VFH sector.
Early iterations of TNC regulation required services to be provided via the app
alone, providing a regulatory distinction from ‘taxis’, but also having the effect of
isolating the TNC mode from other methods of engagement that may be suited to
PPP. More recent regulation have reworded this requirement, examples including
North Carolina, removing the reference to an app to specify an ‘… online-enabled
platform’, or Texas, ‘… any online-enabled application, software, website or system
offered or utilized by a transportation network company that enables pre-arranged
rides with transportation network drivers’ (Texas, 2017). While the more recent
iterations increase the opportunity for PPP, both the NC and TX examples may still
preclude some operations, such as fixed route transit or other engagement normally
used without pre-booking. A further requirement included in some regulations, to
return to a physical base can be problematic (Taxi Defence Barristers, 2020), as is
the need to have a physical base at all in others. Some locations may also specify
requirements for accessibility and may include vehicle design, a percentage of fleet
required to be accessible and driver standards minima.
This said, the continuing development of smartphone apps has been significant,
vastly improving speed and accuracy of booking. Transport users, including author-
ity ‘customers’, benefit from multiple competitive offers presented almost instanta-
neously and frequently able to offer a greater level of service responsiveness than
would be possible using the traditional hailed taxi alone. The competitive nature of
the market is thus expanded, arguably reducing the need for regulations that sought
to approximate market competition but also expanding the areas in which regula-
tions may need to be applied to include, but not necessarily limited to:
–– Electronic data collection, storage and use
–– Personal privacy and identifiable user tracking
–– Discriminatory and abusive pricing that may include first screen capture
–– Monopolistic pricing
It is also observable that some of the new market entrants do little to avoid con-
troversy, seeking to confront rather than concede to an existing regulatory frame-
work, the TNC contention that it provides a ‘technology platform’ rather than a
transportation service being a case in point. The challenges presented by a heads-on

approach results in distinct differences in opinion as to the correct regulatory author-
ity or regulations that apply. Does the TNC qualify, for example, to provide trans-
port services under PPPs where it is purely regulated as a technology company or,
as an alternative view, does the involvement of the TNC in specific transit and para-
transit programmes necessarily define the company as a transportation provider.
Deregulation of the industry, whether applied to the taxi or TNC sector, may also
add to this discussion, not least in the instance of price controls, regularly applied to
the taxi sector, but absent for TNCs. Arguments may also exist to move regulation
to discipline specific regulators. Thus, issues of price abuse may be adjudicated by
antitrust regulators such as the Competition and Markets Authority (UK), Federal
Trade Commission (USA) or the EU Directorate-General for Competition (DG
COMP). In addition to an argument of scope, regulatory competences may also be
challenged in terms of their scale. Is it appropriate, for example, that TNCs are regu-
lated at a city level or more efficient to apply TNC regulation at a statewide level,
with potential economies of scale? The dissipation of control from city to other
competent authorities may also affect the pro- or reactive nature of the regulator,
while removing a central focus, but may also contribute to perceptions of compe-
tence in the subject(s) thus litigated.
While unresolved in some locations, the choice of regulatory authority will be
significant. Multiple and competing regulatory authorities presiding over similar
market participants (taxi/TNC) in the same location will likely result in conflicts
between the two ‘halves’ of the industry and potentially contradictory conclusions
between differing regulators. This is illustrated in the European Court of Justice
decision of 2017 (ECJ, 2018), concluding that TNC operators in Europe accept
regulation as a transport service, rather than as a platform. The decision has the
effect that TNCs need to conform to prevailing transport regulations as dictated in
the place of operation, rather than as an ‘information society service’ conforming to
EU regulations applicable to technology companies alone. Similar arguments are
observed upholding the French decision to ban the UberPop service; company-wide
bans applied in Bulgaria, Latvia, Denmark and Hungary, amongst others; and in a
UK supreme court decision to grant drivers employee status (Penman and
Peyton, 2021).
Defining the Principles for an Optimal Regulatory Structure
It is likely that any similar review of regulation, including those focused on the VFH
market, will naturally identify several contradictions and apparent non-sequiturs.
The VFH market is both long established with minor outward change and has
observed rapid modernization and fundamental shift. VFH regulations, and regula-
tors, follow similar patterns developed over decades, including some that predate
motorization, while also are being rewritten at breakneck speed to accommodate
technologies that were unthought of as taxis were first regulated. In reality, the
apparent divergence of concept and practice, regulation and operation may actually
reflect the fundamentals of the industry itself. That people have, do and will con-
tinue to seek to travel on-demand, individually or in small groups—a pattern well
suited to VFH. The regulation of the industry has and will continue to change to
accommodate the development of those technologies, but need do so while consid-
ering the fundamentals of the mode itself.
Considering the range of experiences observed, it appears reasonable to define
processes to identify optimal regulations of FHV in light of the changing nature of
the industry. Increased interest in PPP operations, particularly amongst the TNC
sector, should not be hindered, by a regulatory framework, but rather the framework
itself developed so as to support development while maintaining public protections.
This should not imply that one set of regulations would work for all locations, nor
that each area of regulation is in need of reform, but rather the common standards
that can be applied as reflecting identified needs, values and priorities. Regulatory
development necessarily requires a view on the ultimate aim of regulation against
which controls may be assessed, including its impacts on transport users, the gen-
eral public and public sector, including those tangentially affected by any change
(OECD, 2005).
The concept of ‘change’, often associated with the term ‘reform’, occurs fre-
quently and needs to be assessed in its own right. The implication that change is
necessary, however, or that new regulation will be better than that already in place
will not always withstand scrutiny, and a constant desire to change should be bal-
anced against the actual benefits of so doing.
Structural Efficiencies
The principle of structural efficiency follows from the effectiveness of the market to
function. Regulations can be advocated for a variety of reasons associated with
efficiency gain, including the avoidance of market failure, though the same argu-
ments may apply differently across segments or not apply at all to some areas of the
VFH industry.
Market volatility, resulting from rapid changes in supply, have moved some regu-
lated locations to seek oversupply, while others maintain a measure of ‘reasonable-
ness’ or ‘significance’ when measuring desirable fleet sizes. Demand side peaks,
outpacing supply, can be observed in identifiable time periods certain market seg-
ments. Night-time and weekend peaks in demand are frequently observed in city
centre and entertainment district locations but may not, in themselves, provide suf-
ficient market incentive to increase supply across all time periods. The gap between
demand and supply leads to the development of ‘significant unmet demand’, as a
consistent model, applied in many UK cities, providing a basis for changes to the
quantity cap, though this too may come under scrutiny with the open and free entry
of TNCs into the same market. Surpluses in supply at other times reinforce trade
demand for licence caps, applied to both taxis and to PHCs (including TNCs), in
some markets including Scotland. In other locations, the opposite argument has
been used to derestrict the licence cap applied to taxis thereby allowing the same
(derestricted) access to the market as available to the TNC sector.
Conflict Resolution
A third principle relates to the ability of the market to identify and reduce conflicts
that may impact on the market itself. This broadly follows the public interest argu-
ments discussed above and applied from the earliest regulation of the taxi industry
but also need be considered in respect of the most appropriate bodies to identify and
resolve such conflicts. Three models are common: (i) self-regulation, being the abil-
ity of the industry to police itself, currently applied in some aspects of TNC opera-
tion; (ii) industry-specific regulation, being the role of a taxi or FHV regulator to
identify and adjudicate on the industry, being broadly consistent with the current
forms of taxi regulation; or (iii) theme specific regulation. The third approach pass-
ing specific areas of conflict resolution to an external body, of which competition
authorities are an example. Theme specific regulation can be illustrated for price
abuse, where anticompetitive behaviour, on the part of a VFH company, would be
identified by or to an antitrust regulatory body with the power to respond and impose
resolution. This model removes issues of monopolistic abuse from the transport
regulator to the antitrust body, assuming capacity exists, while reinforcing percep-
tion of competence in the subject area.
The principles thus defined are applied, in Fig. 3, to the existing forms of VFH
operation alongside the traditional regulatory domains.
Segment Regulation and Optimization
In the opening sections, we described the concept of market categorization, intro-

ducing a link between category and market type. In this section we discuss the
potential for optimizing regulation according to segment and suppler type, using the
most common operational distinctions: hail, stand and pre-booked market. In addi-
tion, we discuss TNC and PPP markets separately as these may be supplied from a
cross section of supplier types.
Taxi Hail Market
In addition to the need for a common regulation of safety standards, the market for
hailed taxis is often cited as requiring economic regulation to avoid negative impacts
of market failure.
Principle Regulatory Hail Stand Pre- App based App based PPP PPP
form market Market booked WAV Transit Accessible
Structural Quantity Regulated Regulated Regulated Generally Generally, Contracted Contracted
Efficiency number number in larger uncontrolle uncontrolle numbers numbers
cities d company d company
led led, some
minimums
by location
Quality Regulated Regulated Regulated Company Company As defined As defined
minimum minimum minimum led led by contract by contract
safety safety safety minimum minimum
standards standards standards standards standards
Economic Regulated Defined Advertised Agreed Agreed Agreed Agreed
tariff tariff fare / tariff rate rate rate rate
Market Quantity Regulated Regulated Regulated Company Company As As
Stability method of method of method of led entry led entry contracted contracted
entry entry entry
Quality Regulated Regulated Regulated Company Company Contracted Legislated
vehicle vehicle vehicle defined defined standards standards
type type type controls controls
controls controls controls plus
legislated
standards
Economic Defined or Defined or Defined or Recourse Recourse As defined As defined
maximum maximum maximum against against by contract by contract
tariff tariff tariff monopolist monopolist
where where not where ic pricing ic or
market separable required to discriminat
failure a from hail avoid ory pricing
possibility market market
failure
Conflict Quantity Significant Significant Market Generally Generally As As
resolution unmet unmet specific uncontrolle uncontrolle contracted contracted
demand / demand / d company d company
Convenien Convenien led led
ce and ce and
necessity necessity
measure measure
where
applied
Quality Vehicle Vehicle Vehicle Vehicle Vehicle Vehicle Vehicle
safety safety safety safety safety / safety safety /
inspection inspection inspection regulation, conformity regulation conformity
or 3rd party inspection inspection
regulation or or
regulation regulation
Economic Regulator Regulator Regulator TNC self- TNC self- As As
enforceme enforceme enforceme regulation, regulation, contracted contracted
nt to nt to nt to regulator regulator
reduce reduce reduce or anti- or anti-
Price Price Price trust trust
gouging / gouging / gouging / agency agency
circuitous circuitous circuitous
routes routes routes
where where
applied applied
Fig. 3 Regulatory principle and application by sector most frequently observed
Where it is accepted that the hail market is distinct from other VFH segments,
and prone to instant monopolies at point of use, it follows that some form of price
control may be necessary to avoid instances of abusive pricing. The result has been
the development of taxi tariffs, theoretically matched to the market rate that would
follow in free competition, sometimes referred to as market equivalent pricing.
Tariffs are measured and applied by the licencing authority and may be observed, in
many instances, to be defined against a measure of changes in cost of production.
To the extent that the taxi hail market remains separate from other forms of
engagement, the underlying justifications remain. This will, in turn, support a con-
tinuation of economic controls, albeit with a need to regularly update measurement
and methodology to reflect external factors. The interaction between economic
controls applied to taxis and the pricing structures applied in other segments may
also need further consideration. The existence of fare control in the taxi segment
may also limit the ability of the traditional taxi to compete in other sectors, rather
than deliver the approximation of a competitive market it was intended to provide.
Further conflicts may be suggested between the quantity controls applied to the taxi
industry and the open entry approach seen in other market segments, not least in the
implicit link between market size and driver income. This therefore argues for an
update, at a minimum, of the methodologies applied to tariff definition and update
and to the continued use of quantity controls as a method of ensuring regulated
competition more generally.
Taxi Stand Market
The second segment, stand engagement, is often closely tied to the hail market.
Both hail and stand markets are supplied exclusively by taxis and tend to be treated
as a single entity to avoid a need to apply separate regulation to each.
The possibility of an instant monopoly, one of the principles underpinning regu-
lation of the hail market, need not apply to the stand market, though the design and
use of a stand is likely to influence the extent to which a consumer may, in reality,
shop between individual taxis. Traditional patterns of taxi stand operation, includ-
ing ‘first in first out’ (FIFO), and physical design, of the stand, may both act to limit
the ability of a taxi to depart until it reaches the head of the queue, reducing oppor-
tunity for price competition between vehicles on the stand. Drivers may also be
argued to have little to benefit from price discounting at point of use, highlighting a
separation of the interests of the individual driver and the wider industry.
A number of markets have sought to encourage competition from stands, open-
ing the stands to other vehicle types, including app-based services, whether at a
common location or in parallel locations in close proximity. The stand market may
also benefit from defined ‘tariff discounters’, distinct companies operating a set
discount on tariff rates, as exampled by Capital Cars in Edinburgh. Discounters
would/could compete for customers on street and at stands, though the exact nature
of such competition may be tempered against the potential for conflict at the
point of use.
Pre-booked Market (Not TNCs)
The pre-booked market can include or be separate to TNCs dependent on the

approach of the location under consideration. In this section we address the regula-
tion of pre-booked market for PHCs and taxis.
Pre-booked services can be provided by taxis or the PHC fleet and is roughly
equivalent to the black car and limousine markets in the USA and Canada. TNC
services are provided as a part of the PHC fleet in the United Kingdom, though this
relationship differs in other EU countries, the USA and Canada. The market seg-
ment is based on the dispatch of services in response to a specific request for travel,
which can be made through a variety of booking means and technologies. The seg-
ment includes transport provided under the banner of demand-responsive transport
(DRT), flexible transport (FT) and Mobility as a Service (MaaS), including PPP
services, though the terms DRT, FT and MaaS can reflect specific patterns of use
beyond the traditional VFH market.
The pre-booked market tends to operate without quantity and only limited eco-
nomic controls, meaning that any number of PHC vehicles can operate at any fare.
Most authorities require PHCs to publish and notify passengers of trip fares or the
method of their calculation prior to a trip being made. Taxis operating in the sector
will generally be required to apply the same tariffs as for hail and stand markets.
Given the relative flexibility of the sector in terms of number and price, it has
become a popular method of market entry, albeit to a limited range of engage-
ment types.
The lack of access for PHCs to the hail and stand market has not prevented the
market segment from growth, often through the use of apps, though it may also be
observed that the use of PHC specific apps falls significantly below that of TNCs
where these are separate. The market segment can demonstrate a number of PPP
partnerships, alongside more traditional services, but will typically compete with
taxis for service contacts including workplace travel, corporate entertainment and
similar service types.
Transportation Network Companies
TNCs are similar to other pre-booked services, but will often, but not always, oper-
ate under separate regulation. Most North American locations apply separate regu-
lation to TNCs, compared to other pre-booked VFH types, while many EU countries
have incorporated TNCs into the existing PHC regulation or an update thereof. The
TNC is most commonly distinguished by the exclusive use of an online platform for
booking and dispatch, though it is not unique in the development of an app, which
can also be observed in other supplier types. The TNC does appear, however, to be
the most innovative in its use of the booking platform.
US locations have, in contrast to their European counterparts, tended to apply a
system of separate regulation, generally at state level, reducing the potential for
conflict within a regulatory bracket, but equally increasing conflict between very
similar operating practices. The identification of TNCs as a separate has allowed for
regulations to be developed in line with the needs of the new mode but may also
ignore the apparent similarities between the TNC and other pre-booked services.
It should be noted that VFH involvement in contracted services is not new. Long-
standing examples of partnership working include NEMT and education transport
and can be illustrated in the Glasgow Taxi’s operation of NEMT, first operated in
1958. Other examples, specific to transit partnerships, include NS ZoneTaxi/
Treintaxi, a subsidized first/last mile service operated for the state railway company
in the Netherlands, MyShuttle in Karlsruhe and Berlkönig in Berlin. TNC-specific
examples are more visible in the USA, including participation in paratransit such as
the Boston RIDE programme. Differences in approaches between the taxi and TNC
sector, though not unique nor always the case, may reflect differing regulatory
regimes between locations or a difference in the route to market adopted by each.
A distinction can be made between traditional ‘partnerships’ in which an agency
service is contracted to a third party without risk, or with minimal risk, to the opera-
tor and PPPs where the risk is shared in part or fully passed on to the supplier.
NEMT provision bears additional cost risks to the operator where it includes and
requires specialist vehicle purchase and/or driver training, above those required for
‘regular’ taxi supply, as does education transport, where a driver is normally required
to meet additional training and certification requirements including criminal record
checks. Accessible vehicle services may also fall under the PPP categorization
where WAV vehicle types are defined specifically for the service and not normally a
requirement for normal operation. Accessible services may also fall under ‘design,
finance, build and operate’ (DBFO) definitions in instances where the VFH com-
pany is responsible for dispatch infrastructure, rather than the authority in which the
service is provided.
External circumstances, as much as regulation, may also impact on PPP develop-
ment. Traditional markets may not always have the capacity to support the partner-
ships, while other market barriers may exist. Education and NEMT services both
require a level of specialist knowledge that may not be required of drivers in gen-
eral, while a raft of additional vehicle requirements can be seen in respect to acces-
sible vehicles. The latter, accessible transportation, is subject to specific national
and federal legislation, such as the Disability Discrimination and Americans with
Disabilities Acts- both impacting on trip specification and cost. This does not take
away from the importance of such requirements legislating toward equality but rec-
ognizes the fact that such supply can come at additional costs to the transport
company.
Other issues include reliability of owned platforms versus the use of a third-party
system. A TNC company operating an efficient and known in-house dispatch plat-
form may, for example, find it hard to move to a third-party system, such as a cen-
tralized service dispatching to multiple operators. Linking to another system gives
rise to concerns of data privacy and commercial confidentiality, while the reverse
may be preferred, where the TNC itself becomes the centralized system offering
third-party services from its platform, e.g. UberTaxi.
Wider concerns may reflect simple issues, such as the availability of wheelchair
accessible vehicles, particularly where the transport company does not own nor
lease vehicles in its own right. This would be typical of most TNCs where vehicle
supply is broadly reliant on the company’s drivers using their own vehicles and
partially true in the taxi market. It would be unlikely, for example, that a TNC would
wish to enter a PPP arrangement where the supply of appropriate vehicles was
uncertain. A counter to this exists, however, where the act of entering into the agree-
ment would provide a commercial justification for the TNC itself to invest in acces-
sible vehicle purchase and leasing.
Individual sector history will also affect the nature and willingness to develop
partnerships including PPPs in the present, changing, regulatory climate. Taxi com-
panies have a significant history, including in partnership arrangements. Sector
weaknesses may arise as a result of the historical barriers to entry and exit devel-
oped over time. The nature of the taxi sector separation from other forms of transit
may also interfere, as may specific rules on cross-operator integration, ticketing or
fares, e.g. UK Transport Act 1985, thus limiting opportunities for ZoneTaxi (NL) or
taxi bus (NI) service types seen in some locations. Vehicle size specifications may
also play a role, where the definition of a taxi being limited to 8 seats in many loca-
tions would limit the use of the mode as a replacement bus service on a busy route.
Legal interpretations also need be considered where the involvement of the VFH in
transit service may rebalance command relationships within the company and lead
to a potential for reclassification as an employer and/or as a transport company,
rather than a technology platform without direct control of drivers.
While it is clear that challenges may exist for the full development of PPP in the
VFH market, including those listed above, it is also apparent that the desire and
willingness to invest in PPP exists. Legal clarification may be of assistance, includ-
ing, but not limited to whether the driver is a contractor or an employee, or similar
clarification of command structures that are supported or precluded in regulation, or
whether the transport company operating in the VFH market is obliged to follow the
same accessibility standards as the public agency, etc. Such clarity is likely to be a
prerequisite in the further development of PPP in the industry, but not its genesis. In
short, to develop new/more appropriate regulatory structures, it is necessary to
understand the full meaning and consequence of those that already exist. Benefits
arise from the removal of obstructive regulation, but not from supportive or protec-
tive control. It would be inappropriate to remove controls on driver background
checks for the transport of vulnerable passengers or to remove minimum vehicle
standards for the carriage of wheelchairs. Other regulations are more open to review,
whether a fare control resulting in an uncompetitive rate is required or even appro-
priate. Market barriers to WAV supply should also be considered for review, includ-
ing the knock-on effects of such barriers or underlying market pressures preventing
entry. It is also apparent that the increased interest in PPP by all VFH operators over
the past 10 years has and can create a positive outcome where the interests of all
market participants are taken into account.
Vehicles for hire worldwide present a series of opportunities and challenges to their
control, use and development. The mode is both remarkably consistent, even out-
wardly staid, and in rapid development at the same time. Conflicts arise in the regu-
lation of the industry, both contributing to and arising from the contradictions of
the sector.
The sector appears to operate amongst a series of paradoxes. The first being the
outward nature of the mode remains remarkably unchanged over time, regardless of
technological development, while the operational structures that support it have
been challenged and changed completely. The last 10 years were associated with the
development of apps and the tumultuous ‘under-the-hood’ change that this implies.
The engagement of the VFH in PPP can be seen in a similar light, both estab-
lished over an extended period and in rapid development today. Aggressive market
growth appears to be pushed by newer entrants, catalysing new opportunities for
PPP, often beyond the scope and scale of those of the past. Some of the new oppor-
tunities is facilitated by the regulatory structures emerging, others being limited
by them.
Differing regulatory structures and focuses are visible between locations.
Countries that have maintained a more proactive approach, including Germany and
Spain, appear to have done so based on market equity that some forms of commu-
nity controls are appropriate to deliver equitable access, while others, including
many US states, have moved to more of a laissez-faire approach of less regulation
at a higher level, particularly amongst TNCs. For their part TNC companies appear
to have moved from direct confrontation to an ‘inform and conform’ approach that
continues to lobby for TNC-specific rules while conforming to prevailing regula-
tion. In so doing the TNCs appear to have acknowledged that variations in supply
are both possible and demonstrated. Here, therefore, is the second paradox; while
the passenger seeks the easiest most advantageous service at point of use, the regu-
latory frameworks in which such services exist are contended, slow to change and
potentially poorly suited to the passenger interest.
Regulators, for their part, have also moved toward a more proactive approach to
rule making, albeit slowly. Many have updated, or are in the process of rewriting,
regulations so as to remove immediate barriers to entry to the newer market partici-
pants, while some are also addressing apparent barriers to PPP development. This
said, it remains apparent that not all regulation nor all cities are ready for, or even
desirous of, partnership operations. Barriers remain in the management of services
and in the willingness of market participants to develop services further. Necessary
underlying protections that include accessibility requirements are routinely avoided,
while disputes over employment status and legal sanctions arising from a definitive
status appear to be actively avoided in order to deter legal and financial liabilities.
Commercially provided pooling services may appear to be in conflict with sub-
sidized line-based transit services. Meanwhile, the baselines, route definitions and
minimum service levels previously applied to transit may no longer be appropriate
to current market demands. Transit agencies may need to recast their own
operations or establish PPPs in order to effectively compete. In such a case, it is

likely that the VFH market share will shrink.
It is the blending of historic precedent, current trajectories and future challenges,
however, that is most likely to inform the development of the VFH. The past 10
years provide an indication of the speed of change and general direction of the
industry and observed conflicts between newer methods of engagement, and the
structures in place have gradually been reduced, as the benefits of the newer tech-
nologies become apparent and demanded. Confrontations and an ‘unwillingness’ to
participate amongst some newcomers also appears to be declining, though this itself
may take time to be fully achieved. Where these factors can be resolved the future
appears positive on many fronts. Regulation will continue to be required for the
same reasons of public interest as have existed over decades and centuries but will
need to be updated to reflect new understandings as to what the public interest actu-
ally is. On the supply side, operators should also reflect on their obligations and
benefits of equitable supply. The cost of accessibility, as an example, is not an add-
on cost incidental to the business, but a cost of doing business itself. This said the
opportunities for additional trips resulting from accessibility, including from PPP
contracts, may negate any additional operating cost. Given the public interest and
that of the operator and regulator, it is important to maximize fleet efficiencies,
integrate transport options whether public or private and deliver a more cost-efficient
‘network’ to the benefit of all. This, it would appear, is well suited to PPPs and to
the role of the VFH sector in its delivery.
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Using History to Develop Future
Regulation of TNCs and Autonomous Taxis
Ray A. Mundy
Abstract With the advent of ridesharing, or transportation network companies

(TNCs) as they are legally labeled by the State of California, there have been con-
siderable discussions, legislative actions, and lawsuits regarding their attempts to
operate without being subject to local taxi, sedan, limousine, or private for hire
regulations. Indeed, across the United States, Uber and Lyft, the two largest TNCs,
disregarded local city and airport rules and regulations established for all commer-
cial ground passenger transportation carriers, but were successful in changing state
laws that would permit them to use a more flexible business model. TNCs success-
fully argued that they were not transportation companies, but rather, technology
companies, so by definition not subject to the commercial vehicle regulations. As a
result, fierce legal and legislative battles were fought bitterly and expensively.
However, as of 2020, most of these legal battles for operating authority in North
America have been settled in favor of greater flexibility for TNCs to use personal
automobiles and self-vetted drivers. The result has been that regulations for TNCs,
or ridesharing companies as they are called in different states, are regulated primar-
ily at the state level with limited flexibility relegated to municipal or airport
regulations.
These legal proceedings, however, rarely address just why we have regulations
for commercial for hire vehicles and their drivers. An understanding of past attempts
to regulate commercial coach and taxi services at the local level and the impacts of
statewide regulation of TNCs can assist in determining the appropriate level of reg-
ulations to ultimately apply to TNCs. This background information might addition-
ally aid in better regulating the emergence of autonomous taxis and personal
automobiles as they enter the marketplace in coming decades.
R. A. Mundy (*)
Center for Transportation Studies, University of Missouri, St. Louis, USA
University of Tennessee, Knoxville, USA
Pennsylvania State University, State College, PA, USA
Bowling Green State University, Bowling Green, OH, USA
Airport Ground Transportation Association, Powell, OH, USA
e-mail: rmundy@agtaweb.org

https://doi.org/10.1007/978-3-030-83484-5_15
286 R. A. Mundy
Keywords Taxis · Jitneys · Regulations · TNCs · Autonomous taxis
Abbreviations
ADA Americans with Disabilities Act

NYC New York City
TNCs Transportation network companies
USDOTs United States Department of Transportation’s
Introduction
The transportation industry is about to undergo the greatest innovation since the
introduction of the automobile—the autonomous automobile. Driverless vehicles
have the potential to drastically lower the cost of transportation of our goods and
services. How these new vehicles will be introduced and operated will depend
largely upon what governmental regulations and policies are adopted. It can be
expected that the initial introduction of these autonomous vehicles will be in the
form of commercial taxi-type services, primarily transportation network companies
(TNCs) such as Uber and Lyft. This chapter utilizes the history of taxi and TNC
regulations as a platform to suggest how the operation of these vehicles should be
managed in the future.
This chapter depicts the regulatory history of taxi-type commercial services as
one of oversupply, regulation then deregulation, and then once again regulation as
the cycle of market oversupply is regenerated. The advent of jitneys last century,
and today’s transportation network companies (TNCs) such as Uber and Lyft, pro-
vides us with even further examples of this cycle of regulation/deregulation.
Through the study of these regulatory styles, we can and should provide a more
enlightened approach to the introduction and regulation of autonomous vehicles.
Findings from this analysis suggest that autonomous vehicles should not be regu-
lated at the local or state level, but rather loosely coordinated and supported at the
federal level. The term, “loosely coordinated” is used specifically to point out that
initial overregulation and influences of special interest groups could hinder the natu-
ral evolutionary development of driverless vehicles as this dramatically improved
transportation mode for goods and people entering the marketplace.
Early Coach-Drawn Service Regulations
The necessity for taxi-type service regulation within metropolitan areas originated
long ago. Romans relegated chariot traffic to outside the walls of Rome due to con-
gestion and horse-made pollution. As for the regulation of commercial or vehicles
Using History to Develop Future Regulation of TNCs and Autonomous Taxis 287
for hire, much of the current regulatory structure in Great Britain, North America,
and many parts of the world stems from King Charles I of England who in 1635
forbade that any hired coach be used or suffered in London.
He later softened this by decreeing that there could be 50 coachmen for hire in
London, but they could not transport anyone less than three miles. He followed up
shortly with Royal preferences on horse and buggy specifications. Later, Charles II
issued more licenses and also licensing fees and standards. However, Londoners
ignored the King and continued hiring any coach they could, often from “innkeep-
ers, brokers and other tradesmen, intruders into the profession of coachmen”
(Mingardi, 2013).
This ease of entry and lack of enforcement resulted in further congestion and
pollution. Thus, 20 years later the British Parliament introduced an Ordinance for
the Regulation of Hackney-Coachmen in London and adjacent places, which was
approved in 1654. This legislation paved the way for the first licensing of the horse-
drawn carriages in 1662, making it the oldest regulated public transport system in
the world (Baker, 2020). This act was the forerunner of every future act of Parliament
concerning hackney carriages, including coaches, horse-drawn cabs, and later taxis
until the present day (Butcher, Louise).
Surprisingly, very little is written about taxi regulations from the early years of
King Charles until the turn of the nineteenth century and the birth of the automobile.
Similar to London, most cities had adopted some form of hackney regulations for
horse-drawn carriages. Most city officials, like those in London, sought to bring
order and to ensure public safety to the horse-drawn for hire carriage industry. This
was done through limitations on the number of coaches or coachmen or both, ensur-
ing the public safety that only individuals without criminal backgrounds were per-
mitted to drive and that carriages were to be inspected to ensure the public’s safe
carriage. Later, in 1831, fare regulation was introduced in London through a bill
fixing the rate of one shilling a mile and sixpence extra for every additional half-
mile or part of half-mile (Moore, 1831). One should note that the problems which
led to our earliest forms of public transportation regulations were congestion, pollu-
tion, fares, and lack of driver and vehicle standards.
Birth of the Automotive Jitney
The swift development of the automobile brought a relatively quick end to the
horse-drawn carriage industry. Early gas-powered vehicles were faster, cheaper to
provide, and surprisingly very abundant in both England and North America. This
quickly gave rise to the gas-powered taxicab and the taxicab meter which was
invented by Gottlieb Daimler. It was called the Daimler Victoria. Gas-powered taxis
came first to Germany, Paris, and London and then to New York in the year 1907
(Cab, 2015).
However, it was probably not taxi services that brought about initial regulation of
gas-powered taxis, but rather the turn of the century jitney services that motivated
288 R. A. Mundy
cities and state public officials to revamp their outdated horse-drawn coach regula-
tions to restrict what taxis and the quickly growing jitneys could and could not do in
serving the general public. The swift growth of jitney cab services provides an inter-
esting parallel to the swift growth of transportation network companies/TNCs,
of today.
It is suggested that the first jitney cab ride was provided in Los Angeles,
California, in July, 1914, when L.P. Draper provided a passenger with a ride in his
Model T Ford. He accepted a nickel, known as the “jitney nickel” for payment
because that was the city’s streetcar fare (Mitchell & Farren, 2014). Thus was born
a hybrid service. This service choice was between the taxi, which would take you
from point-to-point over any route you or the driver chose, or a fixed-line transit
service. This jitney hybrid would follow the streetcar line to pick up passengers who
would otherwise take the streetcar, but paid the same fare to the jitney driver for
what was considered a better, faster, service. It was hybrid because it did not stay
strictly on the streetcar line, but often deviated a few streets to either side of the line
to pick up and drop off passengers. However, once loaded inbound, the jitney would
proceed directly to city center, while the streetcar continued its laborious procedure
of stopping and starting every few streets.
Streetcar lines were also very crowded at peak times during this turn of the twen-
tieth century and slow as they stopped often to pick up and drop off passengers.
Jitneys were a huge success because one could ride in relative comfort – although
people were willing to, and often did, stand on the sideboards for a ride on the jitney
as opposed to the streetcar.
Initially, it would seem that everyone who owned a Model T Ford in 1914 real-
ized that they could make significant money as a jitney operator. Not only those who
were unemployed but Model T owners quit their jobs and went to work with their
car. Jitneys were such a spontaneous and profitable service that they spread all
across the country in less than a year. Historians estimate that there were 62,000
jitneys in the USA in over 175 cities by 1915 (Mitchell & Farren, 2014). It is sur-
prising to note that 1905 jitneys had a growth pattern similar to TNCs of 2015.
It is also important to understand why jitneys grew so fast. Existing public transit
service was felt to be poor, and taxicabs were expensive, so jitneys were considered
a better, more responsive, and less expensive service. Also, there were no barriers to
entry, or if these existed in some cities, they were initially ignored due to the wide-
spread popularity of the jitney and the ready supply of thousands of individual driv-
ers who felt they could make easy money with their car. These were the very same
conditions existing when TNCs began service.
Streetcar line owners were devastated by the loss of revenue to these thousands
of unregulated upstarts. Streetcar line owners paid considerable fees and taxes to
their city so there was tremendous political pressure to stop this unregulated “dan-
gerous” jitney service. Newspapers reported every accident, and officials decried
that jitneys should not be permitted to operate along streetcar lines and that they
should not deviate from their routes once operating. It was also argued that jitneys
were violating existing taxi regulations by their acceptance of a flat fare and multi-
ple passengers. Jitney drivers were forced to purchase insurance and pay for licenses
and, in some cities, to be bonded. These drives to save streetcar company revenues
and taxes for the cities were successful, and by 1918 jitney operation in the USA
dropped to 90% of their peak numbers and were mostly eliminated within a few
years. It was estimated that of the 62,000 jitneys in operation in 1915, only 39,000
were still in operation by January 1916 and fewer than 6000 by October 1918
(Echert & Hilton, 1972).
Thus, jitneys were innovative for their time. They were brought about by the new
automobile technology, and entrepreneurial innovators saw the opportunity to make
considerable money offering a service immensely popular and desired by the popu-
lation. Their services rose quickly in numbers. They were, however, driven out of
business by local regulations designed to protect existing services of streetcars and
traditional coach/taxi services.
This scenario should sound familiar. However, the one thing Jitneys did not have
were multibillion-dollar corporations with enormous financial resources to over-
come local laws and counteract negative publicity. Perhaps this history is why Uber
and Lyft lobbyists argued so hard for statewide, very limited regulation of their
modern jitney services in addition to producing huge marketing programs highlight-
ing their popularity.
To be objective, jitneys were not always safe, with people riding on sideboards
and reckless driver behavior. Any accident, however minor, resulted in significant
injury, and there was really no one to manage or control the behavior of the many
independent jitney service providers who simply hopped into their private cars and
immediately became commercial common carriers, plying the streetcar lines with-
out any rules, training, or real vetting as to their past criminal records. Their num-
bers overwhelmed and congested the streets, often stopping in front of streetcars to
pick up their passengers. Accidents with other jitneys and streetcars became more
prevalent as their numbers swelled to thousands in many major cities. Traffic often
reached gridlock due to the presence of so many jitneys. This, too, should sound
familiar to current issues surrounding TNCs in some of our largest cities.
Models of Taxi Regulations
Throughout the 1920s, with the threat from jitneys soundly defeated and streetcar
service modernized with better and more equipment, there was relative peace in the
taxi market which was expanding nicely to most US cities of any size. Historians
suggest that there was a relative balance between the number of taxi drivers and the
demand for taxi services. This was the “Roaring 20’s” with relative full employ-
ment, and taxicab driving was considered a good full-time job, often with benefits
that were better than those for the factory worker of the time.
Just before the Great Depression, it is estimated that there were 163, 000 taxi
drivers in the USA (Shaller Consulting, 2004). With the Great Depression however
came very high unemployment rates, which severely decreased the demand for taxi
services. Within the taxi industry, there is the old adage that when the economy
290 R. A. Mundy
flourishes, it is hard to attract qualified workers for the taxi industry, although there
is plenty of demand for services. However, when the economy is poor, there are
plenty of drivers but little demand. This was certainly the case during the Great
Depression. There was growth in the taxi industry but very little prosperity, and
service often suffered.
Another major factor in the growth of taxis in the USA during the Great
Depression was that competing car manufactures had geared up production during
the 1920s, and when the Great Depression started, they had very large lots of unsold
inventory. Desperate to get these vehicles off their books, these companies pushed
out these unsold vehicles to cab operators at breakeven prices, or even at a loss, to
get them out of inventory. Many of these cars were bought by taxi garages. These
taxi garages equipped the cars with a taxi package, usually paint, radio, and meter,
then leased the vehicles to taxi drivers for only a few dollars per day, making the taxi
industry extremely easy to enter. Taxi garages, utilizing this huge oversupply of
vehicles, became car-leasing firms, thereby making their money from leasing the
vehicles, not from whether there was a demand for taxi services, to fill these vehi-
cles with passengers.
City streets became crowded with cut-rate taxis that were independent of any
company. Fierce price competition broke out in many cities as different groups of
taxi drivers sought to protect what they considered their geographic market[s].
Gilbert and Samuels reported on these conditions in their taxi text, The Taxicab: An
Urban Transportation Survivor (Gilbert & Samuels, 2011). They showed that taxi
fares in many cities shrank from 40 to 70 cents per mile to 15 cents or less per
mile—decimating the incomes of all drivers. Some cities had what Gilbert and
Samuels report as “nickel” fares that provided a trip anywhere in the city for five
cents. Such conditions led to a period of US and Canadian history as the “taxi wars”
(Davis, 1998).
The Era of Modern Taxi Regulations
City officials, pressured by employee-oriented cab companies and the public

demand for some order in this industry, moved to regulate taxis. The New York
Times, for example, declared, “The industry cries aloud for regulation.” The City of
New York, passed the Haas Act in 1937 which capped the number of taxicab per-
mits, creating the current medallion system. Additionally, standards for uniform
fares, vehicle standards, and drivers were established (Wikipedia—Taxicabs of
New York City).
Most other North American cities followed with similar taxi regulations which
restricted the number of permits in order to balance the supply of taxis with what
was felt to be the demand for taxis, thereby eliminating the cutthroat competition
and dangerous behavior of some taxi companies and drivers. Similar to railroad,
trucking, and later airline regulations at the US national level, entry into the industry
at the local level required state or local governmental approval of an operat-
ing permit.
Only so many taxi firms and taxis were permitted to provide service. Rates were
standardized so as to provide the lowest fare possible but still yield a reasonable
profit for the taxi company. Usually the “reasonable profit” was determined by regu-
lators to be the cost of borrowing capital plus a percentage or two more. The reason-
ing was that investors would invest in these firms because they would earn a return
more than simply loaning out their monies at the standard borrowing rates.
Taxi drivers were also regulated as to the minimum standards for obtaining a
driver’s permit. Ironically, these requirements were some of the same general non-
criminal background requirements previously introduced in London some 300 or
more years earlier.
Deregulation and Re-Regulation of the Taxi Industry
These taxi regulations quelled the taxi wars, and the industry was relatively placid
for a number of decades. However, by the 1970s, there was significant displeasure
by the general public as to the taxi quality and fares. There was also a movement by
leasing taxi drivers to form their own taxi companies as a way to own their own
vehicle and thereby reduce their costs. The major barrier for these owner-operator
type taxi firms and anyone else getting into the taxi business was typically the dif-
ficulty of obtaining authority to do so from the local regulatory commissions.
Applicants had to prove there was an unmet need for the additional taxi services and
that existing taxi companies would not serve that demand. This was an almost insur-
mountable barrier to entry for all but well-funded applicants.
Applicants and public officials were asking why they needed to limit the number
of taxi permits in a city. Why shouldn’t drivers have their own permit and drive for
whomever they want? Numerous cities deregulated entry into their taxi industries.
North American cities permitted many more taxi companies and drivers to enter
their markets, resulting in general deregulation of the industry. Fortunately, the fail-
ure of the US taxicab industry opened entry deregulation. To a lesser extent, the use
of independent medallion or individual operator permits is well documented. Dr.
Sandra Rosenbloom of the University of Texas and Dr. Roger Teal of the California
State University (Lane & Rosenbloom, 1984) (Teal & Berglund, 1987) have sepa-
rately concluded that taxi deregulation had failed to demonstrate any substantial
benefits to drivers, taxi firms, or users (Lane & Rosenbloom, 1984; Teal & Berglund,
1987). Dempsey, in summarizing the empirical data from these researchers’ studies
and other commissioned studies (Dempsey, 1996), listed the results of taxi deregu-
lation in 21 major US cities prior to 1983 as:
1. A significant increase in new entry
2. A decline in operational efficiency and productivity
292 R. A. Mundy
3. An increase in highway congestion, energy consumption, and environmental

pollution
4. An increase in rates
5. A decline in driver income
6. A deterioration in service
7. Little or no improvement in administrative costs (Dempsey Op. Lite, n.d., p. 115)
Other notable authors, having once advocated taxi deregulation by removing the
maximum number of cabs authorized to provide service and recognizing single
owner/drivers as a cab company, changed their minds based on the empirical evi-
dence and the failure of their own recommendations. The taxicab industry had
undergone significant changes in the last decade or so. It passed from a regulated
industry to a deregulated one in many cities and municipalities and back again to the
regulated environment. A lot of economists who were arguing that regulation causes
perverse effects on taxicab industry performance had changed their minds after hav-
ing observed this industry operating without entry and fare regulations and having
invoked back the regime of regulation.
Another early supporter of open entry proponent of taxicab deregulation, Teal
and Berglund (1987) wrote, “By the late 1980’s, the returns were in on the taxi
deregulation experiences. These took two forms. The first was actual data on the
post-deregulation experiences, obtained in part through studies sponsored by the US
Department of Transportation. The second involved the responses of the local gov-
ernments that had initiated the regulatory changes, namely, continuation, modifica-
tion, or abandonment of these policies”.
Both analytically and politically, economic deregulation fared relatively poorly, particu-
larly compared to the expectations of its proponents. The local governments that had
adopted the most far-reaching forms of deregulation eventually either completely aban-
doned this policy or sharply scaled back the most significant features of deregulation. In
addition, the only comprehensive empirical study of the deregulation experiences came to
the conclusion that the benefits of deregulation were "insubstantial" in most locales.
Teal (1992)
By 1992, no large American city had deregulated its taxi industry within the past
several years, and the issue essentially disappeared from the active urban transporta-
tion policy agenda (Gentzoglanis, 1982; Teal, 1992). As seen later though, the taxi
deregulation issue resurfaced with the advent of TNCs and ridesharing companies.
The deregulation and then re-regulation of taxicabs in the City of Seattle is indic-
ative of the taxicab deregulation experienced by many major US cities. Buck
(1992), writes:
In 1979, the Seattle City Council adopted legislation which eliminated the population ratio
as an entry limitation for taxicab licenses. You could license as many cabs as met the licens-
ing requirements, i.e., application fee, insurance, inspected and approved vehicle and taxi-
meter, approved name and color scheme, and approved ownership. At the same time, rates
were whatever the licensee filed with the City, as long as the rate followed the prescribed
form and was reflected on the taximeter.
Did the market regulate entry and rates? NO. Were there problems? YES. Rate goug-
ing … short haul refusals … surly and discourteous treatment of passengers … fights at cab
stands at the airport. Experiential data concerning accidents and safety became very dam-
aging, impacting insurance rates and coverage. Government regulators were constantly
barraged by industry complaints that “deregulation” wasn’t working—they couldn't make
any money, unsafe vehicles were on the street, tension and animosity arose among drivers
with the potential for violence, etc. Pleas for reviews were frequent.. (Buck, 1992)
By 1984, taxicab deregulation in King County was dead—completely reversed,

with a fixed limit on taxicab licenses.
By far, the most comprehensive analysis at this time of taxicab deregulation and
re-regulation was prepared by Price Waterhouse’ Office of Government Services.
Six US cities that had deregulated their taxicabs previously through open entry were
examined in depth. The executive summary of this Price Waterhouse report
concludes:
Service quality declined. Trips refusals, a decline in vehicle age and condition, and aggres-
sive passenger solicitation associated with an over-supply of taxis are characteristic of a
worsening in service quality following deregulation. (Price Waterhouse, 1993)
The negative aspects of deregulation were especially evident at some airports and
major tourist attractions. These effects were most closely associated with cities and
airports that implemented an “open entry” policy that enabled influx of independent
owner-operator taxi drivers that were unaffiliated with companies or taxi
cooperatives.
The open entry deregulated taxi period also had a negative effect on low-income
and residential users, the primary market for non-airport taxicabs. Gorman
(1084) wrote:
Increasing fares to residential areas means that the impact of more taxicabs is borne dis-
proportionately by low-income persons. In other words, those who can least afford to pay
would be charged the most … Those who follow the academic argument of ‘letting the
market decide’ taxicab fares are really ‘letting the poor pay more. (Gilbert, 1984)
What Does History Tell Us?
Public sentiment has poured out for TNC services that users believe to be better and
cheaper than taxis and in that they are driven by people like themselves—much like
the jitneys of 1912! A common thread that can be traced throughout the history of
coach and taxi regulation is that regulations occur when the public and politicians
perceive that there is an overwhelming problem that must be addressed. Most often
this problem has been congestion, safety, driver behavior and/or unrest, lack of ser-
vice, or all of these situations. However, history has shown us that open entry to
commercially provided taxi-type trips has not been the answer many economists
thought it would be.
Another historical thread woven into the fabric of taxi regulations is the resis-
tance of the regulated to embrace new technologies or to limit new competitive
providers. This is normal for any industry, but a special problem for regulated
294 R. A. Mundy
industries since their regulatory boards can and often do support this by limiting
entry and thus suppliers with new or innovative solutions. Over time, regulatory
boards become supporters of the existing firms and laborers within these firms. For
example, limiting the number of taxis and granting permits or medallions to compa-
nies and/or drivers was felt by local officials as a way to help companies attract capi-
tal and drivers with a way to build a retirement fund when the permit or medallion
increased in value over time.
Unfortunately, for many taxi companies and drivers, especially those in commu-
nities where taxi medallion values grew to great sums over time, the logic behind
this approach is economically unsustainable. For example, if a taxi driver were to
purchase the medallion at an initial “reasonable” price and have it increase in value
over time while still driving and then sell the medallion to another driver or taxi
company, the system worked for him as a retirement nest egg. But the increased
value of that medallion now must be added into the cost of the taxi service in order
to pay for it. This becomes a non-value-added cost to the taxi system, driving up the
cost of the service. This may work for a generation or even two until the taxi fare
rate becomes high enough to attract competition in the form of additional taxi com-
panies, drivers, or a new competitive mode—like TNCs. Consumers suffer under
this taxi medallion scheme because there is great political pressure or regulatory
boards to maintain and continue to increase the value of the medallion for the ben-
efit of the companies, drivers, and even third-party investors who purchased taxi
medallions as an investment vehicle with a good track record—often providing
increases in value of 10% or more per year. Taxi fares thus have to be raised, the
supply constricted, or both, as there is an attempt to keep the artificial value of the
taxi medallion upward. For these reasons, potential new entrants seek to change
existing laws which provide a path for their participation in this demand for taxi-
type trips.
Sooner or later, the medallion value bubble burst due to the increased supply or
innovators with lower operating costs. How rapid this is depends upon whenever
there is a sudden deregulation through an unlimited number of new taxi-type vehi-
cles entering the market or simple deregulation, such as permitting more capacity
through additional taxi companies or drivers who must operate under the same
requirements as existing taxi companies.
Additional taxi companies and drivers will dilute the value of taxi medallions
but, in most cases, will not destroy their value completely because taxi competitors
have roughly the same operating costs.
Impacts of TNCs
The introduction of an unlimited new supply of drivers and vehicles with substan-
tially lower fares through subsidized operating costs will severely, if not completely,
obliterate the value of the taxi medallion. Taxi drivers had often been encouraged to
purchase their own medallion by local city officials as a way to save for their
retirement. These drivers had made investments to purchase a taxi medallion through
loans, but were no longer able to make their payments and were financially ruined.
The most notorious case was that in New York City (NYC) where the Yellow
Taxi Medallion was approaching a value of over a million dollars just prior to the
introduction of an unlimited number of TNCs to their market. In fewer than 2 years,
the value of the NYC taxi medallion market collapsed to about ten percent of its
former value, resulting in eight taxi drivers committing suicide over their financial
ruin (Harstedt, 2018). In response, NYC placed a temporary limit on the total num-
ber of private, for hire, vehicles, including TNCs (Reichert, 2019).
In the case of New York’s TNCs, the sudden entry into the taxi-type trips market
was a form of open entry and deregulation, but it did not result in the increase in taxi
fares and a decrease of services that was seen in the 1980s style taxi deregulation.
When just additional taxis were introduced through taxi deregulation, demand
remained the same, spreading the available revenues across a larger number of taxis
and creating pressure to increase rates. As individual drivers lost revenue, there was
pressure on local taxi regulatory boards to raise taxi fares. This time, artificially low
fares and simplicity of use due to the new technologies of the smart phone and apps
had expanded the market considerably for taxi-type trips. Unlike the English
coaches and jitneys, TNCs had a central command and control over drivers and
services through the modern technology of the app and the smart phone. Rather than
feel subject to what taxi drivers provided, users were able to immediately rate the
quality of service, and TNC drivers were aware that anything below 4 stars might
result in their being taken off the TNC booking system, thereby encouraging exem-
plary service. This time, deregulation of the market through unlimited entry of sub-
sidized costs and high service standards resulted in lower fares and increased demand.
Due to this business strategy, TNCs quickly dominated the market and enjoyed
immense public support and usage. The traditional taxi industry in the USA fought
a losing legal battle to prohibit TNCs through their local regulatory boards, but were
thwarted at the state level through immense lobbying and legislative efforts to
remove TNCs from local taxi and commercial vehicle regulations.
Limousine company owners also found it difficult to compete with Uber’s lower
fares. Only today are progressive taxi and limousine companies responding with
newer customer technologies and lower pricing of their own. Some are joining with
TNCs to offer hybrid services. For example, Mears Transportation, Orlando’s larg-
est taxi company, has joined forces with Uber to offer taxi service on the Uber app.
Users will now be able to summon a Mears Taxi as one of the several Uber options
on their app (Carrzana, 2019).
However, other negative aspects of open entry deregulation to the taxi-type trip
markets by TNCs are now becoming evident. The large number of TNCs on airport
curbs and city streets prior to the national pandemic had aggravated traffic conges-
tion and pollution, with so many TNCs plying the streets for fares. For example, as
previously mentioned, NYC felt the need to cap the number of all commercial for
hire vehicles, including TNC vehicles in early 2018 as a measure to reduce the
increased traffic congestion and pollution in their lower boroughs (Burns 2018).
296 R. A. Mundy
It should be noted that NYC is one of the only US cities able to restrict the num-
ber of TNCs. As previously mentioned, most other US cities are governed by new
state laws which removed jurisdiction of TNCs from local municipalities to the state
level. Thus, while other major US cities considered a cap on the number of TNCs,
they would have to amend their state laws to do so.
Nowhere was TNC traffic congestion become more evident than at airport curbs.
As airline travelers embraced TNCs, a common major airport curb sight was TNC
drivers stopping two and three lanes deep as their customers, cell phones in hand,
sought to connect with their drivers. Compared to the traditional airport taxi cus-
tomer line, with customers entering cabs one at a time, chaos now reigned on the
airport curb as customers, seeking their app-appointed driver and vehicle, appeared
all at one time. Still, airline passengers preferred the TNC—so much so that TNCs
grew to represent 70% or more of the commercial per capita traffic at the airport
curb (Gensler Consulting, 2017).
Their popularity also caused a shift in consumer preferences for other forms of
airport ground transportation. The widespread use of airport TNCs reduced the need
for airport parking or car rentals when travelers choose a TNC option (Walker
Consultants, 2018).
It should be noted that TNCs are relatively new; in 2021, 10 years since their
initiation, they are still highly subsidized through investor financing. The primary
companies are Uber and Lyft, but there are others that utilize the regulatory oppor-
tunity and have similar business strategies to serve the taxi-type trip markets. The
yearly losses of Uber and Lyft, reported to be eight to nine billion dollars each,
would suggest that their survival depends on their ability to ultimately turn a profit
(Hawkins 2020, Kindig 2019). However, some investors argue that Uber and Lyft
are like Amazon—a company that operated at a significant loss until it gained
nationwide density and dominance in its marketplace (Feiner 2019). Others argue
that Uber is broadening its revenue base away from ridesharing into home food
delivery and other transportation ventures (Bond 2020). Also, Lyft is now turning to
airport car rentals as new source of revenues (Lyft, 2020). Both companies have
raised fares most recently in line with taxi fares in order to turn a profit. Lyft, for
example, has maintained that it will be able to turn a profit by the 4th quarter of
2021 (Baker 2020).
In addition, TNCs face costly legal challenges to their business strategy that
could significantly impact their costs and hope of gaining profitability. These would
be state challenges to their classification of TNC drivers as independent contractors
and not employees. Uber, for example, has in the past successfully argued and lob-
bied that they are a technology company—not a transportation company—and thus
should not be regulated as a transportation company (Expert Mind, 2019).
The outcome of these challenges to the driver classification of TNC drivers as
independent contractors hinges on whether the courts believe these companies exer-
cise control over their drivers, hence making them employees entitled to numerous
benefits provided through state or city legislation. The future of TNCs in their cur-
rent business strategy may very well depend upon whether they can convince courts
that they are transportation brokers like any asset light trucking company, local
delivery company, hair dressing salon, etc. which utilize independent contract work-
ers. The elimination of the role of independent contractors in the ground transporta-
tion industry would surely increase the costs of all forms of taxis, TNCs, and
limousines.
Beyond TNCs to Autonomous Taxi Vehicle Regulations
The history of regulations for TNCs is not very long—only a few years—but certain
trends are emerging. While state lawmakers felt initially that it was in their best
public interest to permit TNCs to have more vehicles and drivers and to vet their
own drivers and vehicles, the mood of many city politicians and urban planners
appears to be changing as more experience is gained with TNC operations.
As North America embraces TNCs as the modern equivalent of jitneys with lim-
ited regulatory controls but strong company central control, there is the popular
belief that autonomous vehicles, due to their initial cost, will first be deployed as
TNC-type taxis as a way to recover their initial costs and to generate greater utiliza-
tion. By eliminating the driver, which may make up 40% or more of the taxi-type
trip costs, it is felt these vehicles can recover their cost and deliver significant profit
to firms that deploy them.
It is therefore incumbent upon public officials to learn from this phenomenon of
taxi and TNC regulatory history. They need to design a regulatory system that offers
a fair income opportunity to companies and maximum, efficient, utilization from
vehicles—yet ensures the public that they are safe and, in fact, safer than in the
personally driven private car or taxi. Autonomous TNCs and taxis must be able to
offer and maintain a high level of safe service at reasonable rates without causing
excessive congestion if they are to be successful. Due to the level of technology and
liability involved, it is apparent that only large and financially secure companies will
be able to offer autonomous TNCs and taxis. Like many emerging technologies,
there will be economies of scale. Competing firms will be developing nationwide
and worldwide business plans similar to the business strategies of TNCs, Uber and
Lyft. Therefore, to foster and support the nationwide development of autonomous
for hire common carriers, a uniform regulatory system will be a necessity.
In 2021, for most urban areas, there is the legal responsibility prescribed by a
state legislature that creates and empowers a city to regulate its taxicab companies,
but 48 states and the District of Columbia have passed some form of legislation
removing local jurisdiction in favor of statewide regulation of TNCs (Texas A&M
Transportation Policy Research, 2017). As such, the city is vested with responsibil-
ity to not only ensure the safe use of public taxis and generally promote the provi-
sion of public taxi services within the community, but they have no authority to
regulate the newer competing TNC services. The one notable exception is
New York City.
298 R. A. Mundy
For traditional taxicab services utilizing a human driver or vehicle attendant to

assist passengers, especially those with transportation disabilities, local regulation
will continue through the decades of transition to autonomous taxis. As shown ear-
lier, open and unfettered entry into the taxi-type market produced a race to the bot-
tom. Open markets and unfettered competition work well when there are repeat
customers for the same store, good, or service. Under complete taxi deregulation,
many drivers consider the customer a one-time customer and treat them as such.
Regulation will still be needed to vet driver backgrounds and monitor behavior as
long as they are required to perform duties other than driving.
Historically, the position of taxicab economic regulation in North America for
many cities has been what economists refer to as that of “managed competition.”
That is, the city officials desired competition within the taxi industry, thereby foster-
ing a choice of taxi companies for those wishing to use taxi services. The simple
logic behind this economic theory is that the presence of one or more competitors
forces all taxi companies to compete for the user’s business.
This approach also implies that the city will attempt to manage the overall supply
from this competition through limitations on entry into this marketplace and the
total number of taxis within their system. There may also be an understanding that
there is little economies of scale once a minimum number of vehicles is achieved
per company. A minimum number of vehicles per company has often been a part of
this limited competition approach to local taxi regulations.
Regulations also specified operating rules and procedures, as well as setting the
actual rates or range of fares all the companies may charge. The current situation
with TNCs being beyond their control and allowing an unlimited number of drivers
and vehicles into the taxi-type trip market renders this regulatory policy of managed
competition obsolete.
So, Why Regulate?
The evolution of state and nationwide TNCs has yet to yield a profitable business
model for current firms. Going forward, as TNCs raise their rates to eliminate their
subsidies, and the taxi industry is able to offer similar customer amenities through
their own apps, there will still be a need to regulate taxis, vehicles, and drivers, at
the local level. The need to regulate taxi services, however, runs counterintuitive to
simple economic theory and some loosely held popular opinions. One could argue
that citizens need other generally available goods and services such as grocery
stores, restaurants, car rental firms, etc. They are not regulated economically, in the
belief that unlimited competitive forces improve quality and the lowest prices if
government intervention is kept to a minimum. Why then is there the need to regu-
late any city’s ground transportation services?
The simple, but yet most effective, answer lies in the rationale that it is in the
public’s interest to regulate taxicabs and these other forms of ground transporta-
tion, TNCs. There is the commitment of the community to both its citizens and its
visitors that these vital public transportation services are available, safe, economical
to use, and not a source of immense traffic congestion. Such may become more dif-
ficult as our transport system evolves to support autonomous taxis and personal autos.
Entries into taxi services, for example, are developed and balanced to protect the
user not only from onerous services or arbitrary fares but also to yield the provider
sufficient funds to continue in business and make a modest profit. Like any good
transportation service, taxi services must be appropriately planned for, coordinated
through service-based regulation, and continually upgraded if they are to attract and
support the needs of both the community and visitors. History is telling us once
more that in an era of unlimited entry into the taxi-type trip markets, it will once
more become important that all providers meet minimal standards of driver and
vehicle specifications.
Therefore, it is both the public’s need and its preference to have a modern, posi-
tive image for its TNCs and taxicab operations. These services should reflect the
community’s desire for clean, efficient, and responsible privately provided public
transportation services that meets the needs of all—especially those with physical
disabilities. With the advent of autonomous taxis, the industry will have the oppor-
tunity to once more have a positive image along with wide usage and demand.
Additionally, there are many public transit systems having special services for
the transportation disadvantaged, and there are many social organizations that pro-
vide Americans with Disabilities (ADA)-approved transportation trips. But often
these require pre-qualification, involve preplanning for both departure and return,
and typically consume large amounts of time and cost. Proper regulation for effi-
cient taxis, TNCs, and for that matter, for all vehicles providing commercial for hire
services is one way the community can ensure that its citizens have access to pri-
vately provided public transportation services that are convenient and easy to use.
When all costs are considered, these are significantly less expensive to provide than
publicly provided transportations services—especially those which require the use
of a wheelchair capable vehicle.
Through efficient and effective dispatch and balancing the appropriate number of
autonomous taxis and TNCs in the marketplace, more revenues can be generated
per vehicle, reducing the energy required and pollution effects. Also, modern taxi
dispatch technology, if employed, can route the closest cab to a caller and design the
shortest route to the caller, thereby decreasing fuel usage and emissions. Such regu-
lations could therefore be in effect as autonomous vehicles are brought online.
A final, and very important rationale for regulation of taxi-type trip providers, is
control of traffic congestion. Just as experienced with the open entry and rapid
growth of English coaches, jitneys, depression era taxis, and now TNCs, the current
approach to only slight statewide regulation may result in gridlock traffic conges-
tion at peak times of the day in several of our nation’s largest cities and airports.
300 R. A. Mundy
Recent release of traffic data by Uber and Lyft has confirmed this suspicion by
city planners and researchers that the rapid growth of TNCs is slowing traffic in
major US cities. In cities like New York, TNCs are accused of slowing Manhattan
traffic to a crawl (Shaller Consulting 2017). Thus, as history repeats itself, we see
once more the open entry approach to commercial for hire taxi-type services results
in unwanted traffic congestion.
For Hire Service Congestion Cycles
As initially stated, it is hard to recognize vehicle for hire industry service cycles of
deregulation and re-regulation as they are occurring. Often, they have taken decades
to complete. But the obvious fact is that the service and rates must go through a
period of decline due to oversupply and the resulting poor service, congestion,
insurance, and security concerns then re-surfacing to become political issues. Once
this happens, the cycle of re-regulation occurs much along the lines of previous
restrictions on entry, rate setting, and driver vetting.
Will the use of modern cell phone app technology and the collection of feedback
data on each taxi trip help in eliminating some of the undesired driver behavioral
issues? Will modern technology platforms, TNCs, and taxi brokers enable cities to
allow unlimited commercial taxi operators whenever and wherever they desire,
without flooding the market and creating the downward spiral of taxi-type services
once more? Or alternatively, will states amend their TNC laws to permit cities to
regulate the amount of low-cost TNC-type providers and service levels as a mecha-
nism to avoid traffic gridlock?
The common thread that can be traced throughout the history of taxi regulation
is that newer technologies, poor service, high fares, driver unrest, or some combina-
tion of the foregoing bring about public pressure for the regulation of the industry.
From this history, we learn that open entry deregulation eventually leads to a race to
the bottom of service levels, safety, and congestion, resulting in calls for some form
of re-regulation.
It should be noted, however, that the former cycles of deregulation, new entry,
and decline, only to re-regulate in an effort to bring about stability in the market-
place and reduce congestion, always involved drivers. As we move to autonomous
taxis, the driver is removed, and many of these past issues will not be part of the
equation in the future.
It is therefore incumbent upon public officials to learn from this phenomenon
and design local taxi and TNC system regulations that offer a fair income opportu-
nity to drivers in the near term and obtain maximum utilization from vehicles, offer-
ing and maintaining high-level service at reasonable rates to residents and
visitors alike.
A likely prediction is that the taxi-type trip industry will experience a form of
hybrid taxi/TNC-type transportation firm that offers services in competition with
existing TNC brands. There may be an opportunity for statewide or even a national
form of taxi/TNC regulations, but as in the past, drivers will be vetted, entry will be
restricted, and public safety in the form of commercial liability insurance for all
drivers will be a standard requirement.
The Future with Autonomous Vehicles
This period of transition to autonomous taxis and TNCs will provide transportation
regulators with the time to assess how autonomous vehicles should be regulated.
Given the experience gained from the light regulation of TNCs at the state level, it
is difficult to see that local taxi regulations will be the format for the regulation of
autonomous vehicles. Autonomous vehicles will be developed by very large compa-
nies that invest billions of dollars into their development. It seems likely that, after
some state laws permitting the research and demonstration of autonomous vehicles,
there will be a combined industry application for federal rules and guidelines
regarding the introduction and operation of autonomous vehicles with the logical
regulator being the United States Department of Transportation’s (USDOT’s)
Federal Highway Safety Administration.
Given the enormity of cost and benefits associated with autonomous commercial
vehicles and later personal autonomous vehicles, it can only be a federal-level issue
providing for a smooth transition to safe, well-insured, commercial autonomous
vehicles and personal autonomous vehicles. Similar to the rapid transfer from horse
and buggies to gas-powered cars and trucks, the nation will experience similar dra-
matic changes through the application of these vehicles and their economic and
social impacts on the way we live, work, and travel.
This transition is too vital to leave up to cities and states to deal with on a piece-
meal basis. But federal-level regulation itself is no guarantee of an industry-level
playing field and the smooth introduction of autonomous vehicles. After establish-
ing minimum financial, safety, and insurance levels for the commercial autonomous
vehicle industry, even the federal government must have the courage to step back
and let private companies compete in a free market system without overly burden-
some local restrictions. Federal officials and lawmakers must not let the autono-
mous vehicle industry be co-opted by special interest groups that insist that all
public commercial vehicles use only a certain fuel or be built to accommodate ADA
vehicle standards. Current regulation of the nation’s motor carrier industry, with the
federal government setting and enforcing safety standards, may be a partial model
for federal regulations for the emerging autonomous vehicle industry. There is free-
dom of entry and exit with participants coming and going. There are a number of
large carriers but many small ones also that come and go in that industry.
Alternatively, the nonregulation of our nation’s current car rental companies may be
the long-run future model of autonomous vehicle regulation adopted by the federal
government once safety issues have been addressed.
A final comment would be that we have over 2000 years, starting with the Roman
Empire, to know of the need for the regulation of vehicles for hire. The cycles of
302 R. A. Mundy
oversupply followed by regulation, and then deregulation later, are lessons we can
embrace through the movement of TNCs into autonomous vehicles for hire. Such
driverless vehicles, without the cost of a driver, hold out yet another complete revo-
lution in the mobility of people once again – one that promises greater flexibility
and mobility for all.
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Distinguishing Between Demand Risk
and Availability Payment Public-Private
Partnerships
Randal O’Toole
Abstract Popular accounts of public-private partnerships fail to distinguish

between two very different types of partnerships. In one, known as demand risk, the
risk of cost overruns and demand shortfalls is borne by the private party. This type
of PPP has successfully been used to build many roads and bridges in Europe and
elsewhere at little or no cost to taxpayers. In the other, known as availability pay-
ment, the risk is borne by the public. In contrast with the demand risk PPP, there is
little evidence that the availability payment PPP saves taxpayers money or provides
any useful benefits other than allowing public agencies to sidestep legal debt limits.
Public officials and members of the public should take care not to confuse these two
very different financial tools.
Keywords Highways and transit · Demand risk · Availability payments
Abbreviations

RTD Denver Regional Transit District
istinguishing Between Demand Risk and Availability

D
Payment Public-Private Partnerships
France’s Millau Viaduct is one the world’s outstanding examples of civil engineer-
ing. One-and-a-half miles (2.5 km) long, the bridge is supported by seven piers, the
tallest of which is more than 1,100 feet (336 meters) high, making it the tallest
bridge in the world (Structurae, 2004).
R. O’Toole (*)
Cato Institute, Washington, DC, USA
e-mail: rot@cato.org

https://doi.org/10.1007/978-3-030-83484-5_16
306 R. O’Toole
The Millau Viaduct is also an outstanding example of financial engineering. In a

world where most highways and highway bridges have been financed by govern-
ments, the cost of constructing the viaduct was entirely financed with private funds.
The bridge and toll plaza cost about €414 million in 2005, which in today’s money
is more than $700 million. All of this cost was paid for by a construction company
named Eiffage, in exchange for which Eiffage gets to collect tolls for the bridge for
up to 75 years (PlanerGo, 2012). Under the concession contract, tolls are adjusted
each year based on the consumer price index.
Although this was far from the first such public-private partnership (PPP) in
Europe, the publicity generated by the bridge raised public awareness of public-
private partnerships in the United States, where such partnerships had been rare.
Since then, public-private partnerships have been proposed in the United States for
new highways, new lanes on existing highways, bridges, light rail, heavy rail, and
high-speed rail, among other transportation projects.
Few members of the public, however, understand that the term “public-private
partnership” embraces two very different financial structures that bear little relation
to one another. While both involve a government agency granting a concession to a
private entity, the incentives created by the two are completely different. Both may
have a role in various public services, but too often advocates of one attribute ben-
efits that really come only from the other.
Demand Risk Public-Private Partnerships
The Millau Viaduct public-private partnership is known as a demand risk

PPP. “Demand risk” is a general term meaning “the potential for a loss due to a gap
between forecast and actual demand” (Spacey, 2017). In terms of a public-private
partnership, demand risk refers to the fact that the private partner accepts the demand
risk—the potential that actual demand will be less than the forecast demand.
Demand risk PPPs should work for any project that can reasonably be expected
to pay for itself out of user fees. Since the private partner is accepting the risk, it will
have an incentive to ensure that user fees are likely to cover the costs of the project.
It will also have an incentive to contain costs and provide users with an optimal
experience. In the rare cases where the private partner goes bankrupt or out of busi-
ness, the assets are usually transferred to another private partner.
Some argue that private entrepreneurs are inherently more efficient than public
agencies, and there is some evidence this is true. For example, the Denver Regional
Transit District (RTD) is required by state law to contract out half of its bus opera-
tions to private operators. Unlike the public agency, the private operators have to
pay taxes on fuel and the land they own for vehicle maintenance and storage. Union
opposition to private contractors prevents RTD from expanding the program beyond
what the law requires. Ironically, both public and private operators are unionized,
although this was not a requirement for the private operators.
In 2017, RTD spent $11.72 per vehicle revenue mile for the buses it operated
itself, but only paid the private operators $5.64 per vehicle revenue mile for the
Distinguishing Between Demand Risk and Availability Payment Public-Private… 307
buses they operated (calculated from FTA, 2018a). If anything, the private operators
have a cost disadvantage as they have to pay property, sales, and fuel taxes that RTD
is exempted from. Yet since RTD began contracting out buses in the 1990s, the pri-
vate buses have consistently saved taxpayers about 45–50 percent, per vehicle rev-
enue mile, compared with the RTD-operated buses.
Another clear advantage of a demand risk PPP is that it guards against the strong
tendency of project advocates to engage in the optimism bias that typically afflicts
publicly funded projects. This bias can cause project planners to dramatically under-
estimate the cost and wildly overestimate the benefits of such projects.
Such bias has been so consistent for certain types of projects that some planning
critics describe it as “strategic misrepresentation, that is, lying” (Flyvbjerg et al.,
2002). In other words, planners deliberately underestimate the costs and overesti-
mate the benefits in order to persuade elected officials and members of the public to
support the projects. More realistic estimates are made only after the government is
committed to the projects.
For example, since 1990 the Federal Transit Administration has issued a series of
reports comparing the projected and actual costs and ridership figures of nearly 50
different rail transit projects. Government-owned transit agencies significantly
underestimated costs for almost every project and overestimated ridership for the
vast majority. Actual costs averaged about 50 percent more than projected at the time
the decision was made to build the project, while projected ridership averaged about
70 percent more than actual ridership (Pickrell, 1990; FTA, 2003, 2007, 2011, 2013).
“The systematic tendency to over-estimate ridership and to under-estimate capi-
tal and operating costs introduces a distinct bias toward the selection of capital-
intensive transit improvements such as rail lines,” noted US Department of
Transportation analyst D. H. Pickrell in 1990 (Pickrell, 1990). A demand risk PPP
puts all of the risks of cost overruns and ridership shortfalls on the private parties,
who are more likely to avoid such risks than public officials who can fall back on
taxpayers to pay for cost overruns and rely on short memories to gloss over rider-
ship shortfalls. This can help filter out good projects from bad ones.
For example, the 2008 business plan for the California high-speed rail project
(California High-Speed Rail Project, 2008) predicted that the line would carry so
many riders that a private partner would be willing to put up $6.5 billion to $7.5 bil-
lion out of the then-estimated cost of $33.6 billion to build it in exchange for which
it would operate it and keep the operating profits (CHSRA, 2008). In fact, no private
partners were ever found who were willing to put up any of the capital costs, which
should have given the state a clue that its ridership projections were overly optimistic.
Availability Payment Public-Private Partnerships
Transit agencies have attempted to capitalize on the positive publicity generated by

projects such as the Millau Viaduct by engaging in public-private partnerships of
their own. But these PPPs are not demand risk partnerships that place the burden of
risk on the private parties. Instead, all of the risk is borne by the taxpayers and gen-
eral public.
308 R. O’Toole
Such projects are known as availability payment PPPs (Dochia, 2009). In this
case, a private partner finances, builds, and, usually, operates a project, while a pub-
lic agency contractually agrees to make annual payments to the private partner after
the project is “available,” that is, open to public use. Such annual payments are
calculated to be sufficient to cover both the capital costs and operating losses of the
project.
Advocates of availability payment PPPs often imply that they have the same
benefits for taxpayers as demand risk PPPs, but that’s simply not true. Most notably,
all of the cost and demand risk is retained by the public rather than the private
partner.
Most cost overruns take place either between the preliminary and final engineer-
ing stages of a project or during construction as a result of change orders issued by
the public agency. Since a private party would bid on a project only after the final
engineering was done and would ensure that the contract requires extra payments
for any change orders, availability payment PPPs do nothing to guard against such
cost overruns.
While private partners have been shown to operate some transportation facilities
for less money than public agencies, there is little evidence that private partners in
an availability payment PPP can build a project for less money than a public agency.
It isn’t even clear that the benefits Denver’s transit agency has enjoyed by contract-
ing out some of its bus routes to private partners extend to similarly contracted rail
transit lines.
In 2017, transit buses nationwide that were contracted to private partners cost 64
percent as much, per vehicle revenue mile, as buses operated directly by transit
agencies. But, light rail lines that were contracted out all cost 38 percent more, per
vehicle revenue mile, than rail lines operated by transit agencies. For example, New
Jersey Transit has two light rail lines, one that it operates itself and the other is a
privately operated line under an availability payment PPP. There is little reason why
the cost per vehicle mile of operating the lines should be different, yet the PPP line
costs 14 percent more, per vehicle revenue mile, than the line operated by New
Jersey Transit (FTA, 2018a).
Similarly, contracted heavy rail lines cost 166 percent more, and contracted com-
muter rail lines cost 5 percent more than directly operated lines (FTA, 2018a).
However, it should be noted that the sample size for light and heavy rail lines is
small: just one heavy rail and two light rail lines are contracted out. More than a
dozen commuter rail lines are contracted out, but at 5 percent the difference in costs
for commuter rail is small relative to other rail costs. Thus, it isn’t absolutely clear
that lines that are contracted out cost significantly more than lines directly operated
by transit agencies. Conversely, there is no evidence to indicate that availability pay-
ment PPPs of rail transit projects save money.
In many if not most cases of availability payment PPPs, the real purpose isn’t to
save money. Instead, as noted in a review of availability payment high-speed rail
projects in Europe, “The principal task of a PPP is to ‘mask’ public debt” (Crozet,
2017). The European Union requires that nations in the Euro zone limit public debt
to a specific percentage of gross domestic product. In availability payment PPPs for
building high-speed rail, the debt appears on the books of the private partner, not the
public agency, and so avoids the Euro debt limits.
American transit agencies have also used availability payment PPPs to mask
public debt. In 2004, Denver area voters approved a plan to build six new rail lines
at a projected cost of $4.7 billion. For example, the line known as the Gold Line was
expected to cost $463.5 million, while the line known as the East Line to Denver’s
airport was expected to cost $702.1 million (RTD, 2004).
By 2008, the projected costs of all of the lines had risen considerably. The Gold
Line was then projected to cost $666 million, while the East Line was projected to
cost $1.673 million (RTD, 2008). The voter-approved increase in sales taxes to fund
these lines had no time limit, but the ballot measure limited RTD’s debt to about
$3.5 billion (RTD, 2017).
To build the proposed lines without exceeding this debt limit, RTD contracted
out the Gold and East lines to a private partner known as Denver Transit Partners.
As of 2017, RTD and Denver Transit Partners had spent $3.1 billion in capital costs
on these two lines, far more than the projected costs (FTA, 2018b). (The $3.1 billion
figure is the total spent on commuter rail, and the Gold and East lines are the only
Denver commuter rail lines to have had any construction work done by that date.)
This suggests that the public-private partnership did not save taxpayers any money,
but it did allow RTD to avoid counting the debt incurred by Denver Transit Partners
against its own debt limit.
Infrastructure as Public Goods
Some infrastructure projects produce benefits that can be described as public goods,
meaning goods that benefit everyone whether or not they pay the costs. For exam-
ple, sewer lines and sewage treatment plants provide public health benefits to people
even if they don’t contribute to the cost. For such infrastructure, availability pay-
ment PPPs may make sense if it can be shown that the private parties are more
efficient than public agencies.
Transportation projects, however, are not public goods. The primary benefits of
transportation projects are gained by the transportation users themselves, and it is
reasonable to expect them to pay the costs. As with any private good, there may be
secondary side benefits such as reductions in congestion or air pollution. However,
allowing government agencies to subsidize otherwise money-losing projects solely
on the basis of such side benefits gives them an incentive to fabricate evidence for
such benefits in order to get the subsidies.
A good example is the Purple Line, a light rail line that the state of Maryland is
building in the northern suburbs of Washington, DC. The state’s original analysis
found that the line would not be a cost-effective way of relieving congestion, so the
Federal Transit Administration refused to provide federal funding for the project.
Maryland responded by hiring a new consultant that developed an unrealistic rider-
ship estimate that was higher than any other light rail line in the country (Shaver,
310 R. O’Toole
2015). The state also reduced its cost estimates, thus making it appear to be
cost-effective.
With federal funds in hand, the state arranged for an availability payment public-
private partnership, saying that such a partnership would save taxpayers’ money.
Instead, construction predictably suffered from cost overruns, and the private part-
ners quit the project. Now the state has to decide whether to finish the project itself
when it was based on overestimated benefits and underestimated costs (Peck, 2020).
Demand risk public-private partnerships contain a built-in safeguard against
bridges to nowhere and other projects whose benefits would fall short of the costs.
The availability payment PPP bypasses this safeguard and allows public agencies to
build empires that consume taxpayer dollars while providing few public benefits.
Public officials and members of the public should avoid confusing demand risk and
availability payment PPPs and should be wary of proposals to use availability pay-
ment PPPs to build transportation or other infrastructure that ought to be able to pay
its way out of user fees.
Demand risk public-private partnerships can play an important role in financing

transportation infrastructure projects and saving taxpayers’ money. There may also
be a role for availability payment projects in financing infrastructure, such as sew-
ers, that is largely a public good. But for transportation projects whose main benefi-
ciaries are the transportation users, availability payment projects serve no useful
role other than to mask the debt incurred by the public agency to finance the project.
References
California High-Speed Rail Authority (CHSRA). (2008). California high-speed train business plan
(p. 22).
Crozet, Y. (2017). High-speed rail and PPPs: Between optimization and opportunism. In
D. Albalate & G. Bel (Eds.), Evaluating high-speed rail: Interdisciplinary perspectives
(p. 176). Routledge.
Dochia, S. (2009). Introduction to public-private partnerships with availability payments. Jeffrey
A. Parker & Associates, tinyurl.com/y6ptdvvz.
Federal Transit Administration (FTA). (2003). Predicted and Actual Impacts of New Starts
Projects–2003.
Federal Transit Administration (FTA). (2007). The predicted and actual impacts of new starts
projects–2007. Federal Transit Administration.
Federal Transit Administration (FTA). (2011). Before and after studies of new starts projects:
Report to congress.
Federal Transit Administration (FTA). (2013). Before and after studies of new starts projects:
Report to Congress.
Federal Transit Administration (FTA). (2018a). 2017 National transit database “operating cost”
and “service” spreadsheets.
Federal Transit Administration (FTA). (2018b). National transit database historic time series,
TS3.1, “Uses of Capital,” spreadsheet.
Flyvbjerg, B., Holm, M. S., & Buhl, S. (2002). Underestimating costs in public works projects
error or lie? Journal of the American Planning Association, 68(3), 279.
Peck, L. (September 16, 2020). Tracking the ups and downs of the purple line’s roller coaster his-
tory, Bethesda Magazine. tinyurl.com/PurpleUpsDowns.
Pickrell, D. H. (1990). Urban rail transit projects: Forecast versus actual ridership and cost (p.
xi). U.S. Department of Transportation.
PlanerGo. (2012). Millau Viaduct. Retrieved from planergo.com/en/sights/millau-viaduct/.
Regional Transit District (RTD). (2004). FasTracks Plan (p. ES-3).
Regional Transit District (RTD). (2008). Review of FasTracks options and additional analyses
(p. 19).
Regional Transit District (RTD). (2017). Adopted budget 2017 (p. 213).
Shaver, Katherine (September 26, 2015). “How many people will ride the purple line?” Washington
Post. tinyurl.com/osf833o.
Spacey, J. (2017). 5 Types of demand risk. Simplicable. Retrieved from simplicable.com/new/
demand-risk.
Structurae. (2004). Millau Viaduct. Retrieved from structurae.net/structures/millau-viaduct.
Public Private Partnerships for Airports,
Water Ports, Rail, Buses, and Taxis:
A Policy Perspective
Simon Hakim, Erwin A. Blackstone, and Robert M. Clark
Abstract This chapter describes, analyzes, and provides policy implications on

Public Private Partnerships (P3s) in airports, taxicabs, buses, rail, and water ports. It
provides the history of P3s, the advantages and disadvantages as reflected in the
worldwide case studies analyzed. P3s combine efforts and risk sharing of public and
private entities where each provides its comparative advantage. An advantage of P3
is reducing investments in “white elephants” requiring avoidance of availability
payments. Currently, governments, mostly for historical reasons, provide services
that could be privately provided where users fees are possible with low transaction
costs attributed to recent technological innovations. Government could shift most
transportation services from a monopolistic provider to a small number of experts
that oversee the contracts of P3s in the public interest. Noteworthy, transportation
services are interrelated. For example, P3s in rail would increase available resources,
improve services to distant airports, thereby decrease current regional airport
monopolies, and raise competition among them. Similarly, autonomous vehicles
could reduce rail, bus, and taxicab monopolies, leading to greater competition
among them and productivity gains.
Abbreviations
BOT Build-Operate-Transfer
BRIC Brazil, Russia, India, and China
DFBOMT Design-finance-build-operate-maintain-transfer
EU European Union
S. Hakim (*) · E. A. Blackstone

Center for Competitive Government, Department of Economics
in the College of Liberal Arts, Temple University, Philadelphia, PA, USA
e-mail: hakim@temple.edu; erwin.blackstone@temple.edu
R. M. Clark
Environmental Engineering and Public Health Consultant, Cincinnati, OH, USA
e-mail: rmclark@fuse.net

https://doi.org/10.1007/978-3-030-83484-5_17
314 S. Hakim et al.
GDP Gross domestic product

GPS Geographic Positioning System
NYC New York City
OECD Organisation for Economic Co-operation and Development
PM Prime Minister
PPP Public Private Partnerships
TNC Transportation Network Company
UK United Kingdom
US United States
Introduction
I want to preach a new doctrine. A complete separation of business and government—

Franklin D. Roosevelt
Well, let us now dispute it…
The modern version of Public Private Partnerships (PPPs) in Transportation

seems to have begun in the late 1990s in the United Kingdom (UK) and the United
States (US). The earlier trend of privatization, which was initiated in the early 1980s
by Prime Minister (PM) Margaret Thatcher of Great Britain and President Ronald
Reagan of the US, has shifted ownership and operations of public infrastructure
from the public to the private sector (Edwards, 2017). Unease about creating on
occasion private monopolies that could transfer Consumer Surplus from users to the
corporate owners and operators and thereby establishing a significant deadweight
loss prompted the creation of PPPs where the public sector remains as a major
stakeholder of the infrastructure. PPPs are intended to introduce more efficient
production and incentives for technological innovations, which are usually lacking
under monopolistic government operation. This use of PPPs requires sufficient
competition or government regulation. A competitively selected private partner in a
PPP strives for efficient construction and operation of the traditional public
infrastructure, should reduce bureaucracy, and provide appropriate risk sharing. In
many cases, government agencies lack the initial investment or are prohibited from
borrowing by regulations. A very good reason for PPPs is to try to avoid constructing
an infrastructure with negative net social benefits, usually caused by political
pressures or lobbying efforts. Profit-seeking firms will presumably reject
participating in such a project. This avoidance is predicated on the private firm’s
seeking profits and wanting to avoid losses. If the firm is compensated by availability
payments that are based on completion of some benchmarks like opening to traffic,
the normal incentives are absent. A weakness of a PPP relative to government is that
the latter can borrow at a lower interest rate. For example, in the US, state and local
governments can float tax exempt bonds while PPPs usually must borrow at a
higher rate.
A Public Private Partnership is defined by the Organisation for Economic
Co-operation and Development (OECD) as “long term contractual arrangements
between the government and a private partner whereby the latter delivers and funds
Public Private Partnerships for Airports, Water Ports, Rail, Buses, and Taxis: A Policy… 315
public services using a capital asset, sharing the associated risk” (Wikipedia, n.d.-a).
Based on several sources we define a PPP as a vehicle to enable public infrastructure
where both partners contribute their comparative strengths and share the risk,
avoiding the rigidity of the public sector while introducing innovations, management,
and financial contribution of the private partner.
Historical Trends
In the US, PPPs have a long history beginning with the Charles River Bridge
Company in Massachusetts that requested a charter from the state legislature in
1785. The charter was granted, and the bridge was built, giving the company a
40-year period of complete control including price setting. At end of the 40 years
the bridge was supposed to be turned over to the state. The concession period was
presumably intended to cover the initial investment and operating costs and provide
reasonable profits. The bridge was very profitable while the users complained about
the high prices. The huge profits of the Charles River Bridge led to the privately
funded construction of the competing Warren bridge, which only had a concession
period of 6 years, just long enough to cover the construction costs of the bridge
when it was then to be turned over to the state. The owners of the Charles River
Bridge company sued the Commonwealth of Massachusetts, arguing that the
original charter provided monopolistic power. The case was eventually decided by
the US Supreme Court which rejected the claim of the plaintiffs (Lorman, 2018.)
In 1790, the first private toll road was built between Philadelphia and Lancaster
Pennsylvania. However, private participation in transportation projects diminished
over time. In the 1860s, the US government effectively created a PPP with the
transcontinental railroad. It provided the private railroad company the immediate
and the adjoining land, which helped the private company finance the substantial
construction costs (Kentucky Transportation Center, 2006: 13). Beginning in the
early 1900s, the government role in building and maintaining roads increased while
limited contracting out of specific construction tasks occurred. The Federal
Highways Acts of the early 1900s required professional engineers and managers to
be state employees to receive federal support (Lorman, 2018). States planned, built,
and managed many turnpikes in the 1940s through the 1950s. The Intermodal
Surface Transportation Efficiency Act of 1991, which allowed federal support to
PPPs, contributed to their resurgent in the 1990 (Buxbaum & Ortiz, 2009).
316 S. Hakim et al.
Advantages and Disadvantages of PPPs
Evaluating the Expected Performance of PPPs
Advantages:
1. Governments are often in fiscal stress lacking funds to construct new or signifi-
cant rebuild of major infrastructures. For example, many EU nations and many
US states debt limitations prevent substantial borrowing.
2. The public sector engages in PPPs to take advantage of the private sector’s effi-
ciency because of its competitive market behaviors. The private sector has more
experience in certain areas than does government.
3. Government has historically carried on its own or contracted out parts of trans-
portation infrastructure projects. Government and its officials were solely
responsible for failures or overspending beyond the budgeted amount. A PPP
enables sharing the risk with the private partners and helps avoid or lowers
damages. The private partner contributes its professional executives and
managers that, arguably, are more focused on increasing income and reducing
costs than their public counterparts.
4. Government involves rigid procedures in procurement, employment, and com-
petitive bidding requirements and cannot take advantage of immediate market
opportunities. Partnership with private sector entities enables government to take
advantage of such opportunities, which can save on resources and reduce time to
completion.
5. When government budgets are tight, partnering with the private sector on lucra-
tive projects involving airports or water ports can involve monetizing govern-
ment assets.
6. Under pressures from legislators or lobbying groups, government may advance
the construction of a transportation project with a low social rate of return.
Private partners that are focused on commercial returns will avoid partnering in
such “white elephant” projects if they face demand risk. Given limited public
resources such projects are likely to be scrapped.
The disadvantages of PPPs include:
1. Government professionals ordinarily do not have the specific knowledge required
to draft the contract with the private partner and thus must hire experts to
represent it. The transaction costs of forming the PPP are high and could take
considerable time. Any monitoring of contract performance also involves costs
and takes time.
2. Even though the contract may specifically state the risk shared by both sides,
when a real financial disaster occurs, government is the ultimate source for
saving the project regardless of the initial contract.
3. The private partner in a PPP often has a small equity share with most of the
resource’s debt financed. Moreover, a separate corporation is sometimes created
for the PPP project. Thus, the private partner’s actual risk is usually small.
4. PPPs are usually of small magnitude. Indeed, a private investment in a large

project is likely to incur significantly large losses that endanger the existence of
a private company. It is important to state that a relatively small project is likely
to attract more competing private entities and thus establish bids with closer to
normal returns. For example, in the case of a large airport, PPPs could be
established for individual terminals and not for the entire airport. An entire
airport PPP could yield a private monopoly with above normal profits and thus
negative social welfare considerations. More firms are expected to compete for a
terminal than for a large airport where the risk factor is larger. On the other hand,
in the case of a small, competitive airport, a PPP for the entire airport could be
desirable and several companies may compete to join such a PPP.
5. The PPP normally incurs a higher borrowing interest rate than does government.
In the US to overcome higher rates for private companies that provides public
services, like PPPs, the companies are sometime allowed to issue Private Activity
Bonds, which are exempt from federal income tax.
6. Often, special legislation may be required for the establishment of PPPs, a pro-
cess that incurs high transaction costs like lobbying, increases the approval time,
and adds costs.
7. If the PPP enjoys monopolistic power, it tends to restrict output below the
socially desired level. Thus, government needs to regulate the PPP’s prices to
increase the quantity provided.
8. The PPP contracts often involve renegotiation. This may encourage low bidding
to obtain the contract and even permit socially undesirable projects or white
elephants.
Why PPPs Now?
The main reason for PPPs for all transportation modes is the lack of government
ability to fund large projects and the significant time delay until revenues occur.
Based upon the Council of Foreign Relations report, we calculated the shortfall of
infrastructure investment as a percentage of Gross Domestic Product (GDP) for a
number of countries (McBride & Moss, 2020.) Most G-20 nations exhibit low or no
gap between their projected investment between 2016 and 2040 and what is required.
For example, Canada, Germany, and France values are zero, Japan 3%, UK is 10%,
and Italy 22%. Among the Brazil, Russia, India, and China group (BRIC) and
developing countries, Russia has a 40% gap, Turkey 42%, Argentina 44%, and
Mexico 52%. Interestingly, the US with 32% is like the less developed countries in
their unfulfilled gap in needed infrastructure investment, standardized for the
differences in GDP. Thus, it is most urgent to establish additional funding sources
to reduce the gap for the less developed nations and the US. Drawing on private
sources will have fewer distorting effects than other options like increased taxes or
diverting resources from other governmental spending. Clearly, partnering with
private sector requires market returns and appropriate sharing of risks and responsi-
bilities where each partner contributes its comparative advantage.
318 S. Hakim et al.
We shall now discuss the various modes of transportation and analyze how con-
ditions could be improved based upon experiences and economic theory. The condi-
tions include introducing profit motives, increasing competition that leads to
improved efficiency of production and innovations, reducing monopolistic power,
preferably by encouraging entry of additional providers or, if impossible, introducing
appropriate regulation, and internalizing external benefits and costs. Thus, the
proposed changes would increase the role of the private sector while internalizing
external costs and benefits.
Commercial Airports
Commercial airports, which include those serving passengers and cargo, are often
regional monopolies, and in the US, they are self-sustained entities that are usually
owned by the local government where they are located. The only fully PPP operated
commercial airport in the US is San Juan Airport in Puerto Rico. Internationally,
such airports are often owned and operated by the national governments. However,
in 2016, 614 large commercial airports worldwide were privatized including in the
form of PPPs, amounting to 14% of all such airports, handling more than 40% of
global volume. The usual form is BOT where a private consortium invests in
building or modernizing and then operating terminals while eventually transferring
them to the national government. In Jordan, Saudi Arabia, and Puerto Rico, the
entire airport is under private control while government exercises overall control. In
Europe in 2016, 75% of passengers traffic flew through privatized or PPP airports.
Comparable figures for Asia-Pacific and Latin America-Caribbean regions were,
respectively, 45% and 50%. Meanwhile, Africa and the Middle East had 11% and
13%, respectively. North America had only 1% flying through privatized or PPP
airports (ICAO, n.d.). Most general aviation airports in the US are typically small
and are privately owned and operated, usually by a private company or by an
association.
In the US, several problems face commercial airports. Airports on average are
40 years old and require a total of $115 billion in renovations through 2026 to
modernize them for the twenty-first century. Interestingly, President Biden suggested
$25 Billion support for major airport renovations but did not raise the possibility of
PPPs to help fund the renovations and manage the airports (Hemmerdinger, 2021).
Twenty percent of all arrivals and departures are already delayed (McBride & Moss,
2020). There are insufficient gates and take-off and landing slots, insufficient
parking, and lack of activities for stranded travellers. At the same time, as congestion
and delays occur at major airports, other regional airports are often insufficiently
utilized. This issue is beyond the scope of this volume, but their increased use is
something to consider.
In any event, the most common reasons for resorting to partnership with the pri-
vate sector are the lack of government financial resources to build new, rebuild, or
expand existing facilities and introduce competition both in the contracting stage to
select the private partner and between the private and the public terminals.
Competition yields improved efficiency in service delivery and innovations.
In Europe, Japan, India, Costa Rica, South Africa, and the Middle East airport
PPPs are quite common and often involve terminal construction and operation. In
the US, an impediment for PPPs has been the limitation until 1996 on Federal grants
to non-government owned and controlled airports. An airport had to be a closed
system, meaning that all profits remain within the airport. Further, if an airport was
privatized, it had to repay all previous federal grants. Recently, these rules have
been relaxed permitting PPPs (Kirsch & Fischer in this volume; Congressional
Research Service, 2021). However, regulatory requirements still make this approval
an uncertain process.
Shifting to a PPP from the City’s control introduces profit incentives while
increasing and improving the services for the travellers. For example, a PPP usually
increases commercial activities in the terminal, including, for example, adding
movie theaters and health clubs to service passengers that are waiting for their
flights. Thus, PPPs for airports are expected to improve the performance of the
entire airport which should control all the strongly interrelated airport facilities. For
example, the airport for Madinah and Mecca that accommodates pilgrims to both
cities is managed by one PPP (chapter “The Role of Individual Actors in Public-
Private Partnership (PPP) Projects: Insights From Madinah Airport in Saudi Arabia”,
this volume). However, facilities that lack strong interactions could be split into
separate PPPs. For example, in Ghana the cargo terminal, in which its services are
mostly independent, is controlled by a PPP while the passengers’ terminal is sepa-
rately controlled. In a small airport, a PPP could have control over all the facilities
and activities of the airport. For most airports of moderate size economies of scale
suggest maintaining the entire operation under one PPP. However, when the airport
is very large, economies of scale may be exhausted, and separate PPPs could be
established for parts of the airports, like terminals, that are relatively independent of
the other parts of the airports and separate PPPs could be formed. For example,
chapter “Legal Impediments to Airport P3s in the United States” (this volume)
describes a successful design-build-finance-operate-maintain (DBFOM) PPP of a
single terminal at New York City’s LaGuardia Airport.
In large government-operated airports, various agencies may control various ser-
vices. Our argument has been that all the facilities within the airport should be under
the control of the airport management and not by various city agencies. However, it
is common that public agencies other than the airport management control activities
and land use within the airport. From an optimal management viewpoint, the airport
and all its facilities, including revenues and expenses, should be under the control of
the airport’s executives. This way the executives have spending jurisdiction on the
entire airport and allocate the resources in a way that maximizes the airport’s overall
performance.
An intriguing question is what is wrong with the City Parking Authority control-
ling prices, managing employment, and introducing technology and thereby affect-
ing profitability of the airport. The airport’s objective is to maximize profits through
improving the comfort of its passengers and thus should be able to solely control all
320 S. Hakim et al.
its functions. For example, assuming that the parking authority wants to maximize
profit from parking and is allowed to do so, maximizing profit from parking alone
may not maximize overall airport profitability. It is conceivable that overall airport
profitability would be greater with lower parking fees than an independent parking
authority would choose. A similar issue could arise in terms of investment in new
technology in parking.
The city’s parking authority could charge high prices for the short-term parking,
taking advantage of the monopolistic stance of the airport. Often, the long-run or
remote airport parking experience faces significant competition from private parking
facilities that offer prompt service to and from the terminals, competitive prices as
well as providing other services to the parked vehicles. Moreover, if airport
management controls the short-term parking, it may resort to a PPP to improve
parking performance. Any profits could be used to improve other dimensions of
airport performance like adding terminals.
Partnering with a private parking company with expertise could increase reve-
nues, introduce technology, and make the parking experience more satisfactory.
Indeed, PPPs for entire airports or specific functions or infrastructures like terminals
appeared to improve the attractiveness of airports. Queen Alia Airport in Amman,
Jordan, was entirely converted to a PPP under a 25-year BOT where a consortium
of investors spent a total of $850 million for 45% share of the gross revenues. The
concession added 6000 square meters and increased the number of retail outlets
from 29 to 39. The airport won two international prizes for good service (ICAO, n.d.).
Airports PPPs inject capital into construction and improvements, that often gov-
ernment owners lack. Also, PPPs in their operation and management activities pro-
vide private sector initiatives and competitive behavior. Since commercial airports
usually enjoy regional monopoly power, the control should not be shifted from pub-
lic to unregulated private monopolies. If regulation is required, it should be what is
termed price cap regulation, which involves government setting a fixed price that
encourages cost cutting. The airport could keep any profits and prices would be
adjusted annually considering normal productivity growth and some index of
inflation. Clearly, if a region could sustain more than one airport or improved
transportation is provided to connect to other airports, competition among airports
would rise, efficiency in service delivery would improve, power of workers’ unions
would diminish, prices for all services at the airport would decline, government
could then shed ownership, and operation of airports, and PPPs, would become less
attractive. Further, the current hub and spoke system often provides monopolistic
pricing power as well as congestion at hub airport. Introducing greater competition
among airports could diminish such power and possibly introduce more airlines
operating at the airports, leading to lower flight prices. For now, PPPs are desired
since they introduce private expertise and some competition to the airports. However,
in the long run when airports compete, or travel to/from airports improves, the
relevance of PPPs should diminish. Interestingly, improved rail service among
airports may increase competition among airports and airlines, almost like building
another airport in each region. If passenger rail becomes competitive, it is likely that
profitable high-speed lines are introduced with competitive prices so that travel to
currently distant airports becomes easier. Again, in such a case, the increased com-
petition among airports replacing the existing monopolistic airports, therefore,
allows government to consider shedding ownership and operation, leading to PPPs
possibly losing their advantages and being replaced by competitive airports. Thus,
PPPs may be an interim stage between the current situation where governments
commonly own and operate entire airports to a likely future scenario of competitive
airports structured as PPPs or privatized airports. In either case, government may
monetize their investment in airports.
To conclude, commercial airports are most often regional monopolies that
require significant and continuous investment, maintenance, improved technology,
and infrastructure construction to meet rising demand for passengers and cargo
services. The significant investments are beyond the ability of local authorities that
own the airport, even considering the limited federal aid. In most countries the
investment, operation, and maintenance activities are under public control where
some concession activities, mostly commercial, are under public control.
Government operation of the monopolistic airports lacks the private sector’s
competitive culture that often yields more rapid adoption of new technology and
behavior that is more responsive to consumer desires. Noteworthy, it is ill conceived
to replace a government monopoly with a private unregulated monopoly that will
extract any extra profits and lower consumer surplus from airports. Based on the
chapters in this volume and our evaluate of PPP experiences, we believe PPPs are a
useful approach. They provide financial resources for profitable expansions, enable
the use of the private sector’s efficient competitive market management, and attract
commercial establishments. The public sector retains control over security and
safety, maintaining the public interest by restricting monopolistic behavior, pricing,
and profit taking of the private partners. Finally, PPPs have expanded rapidly
throughout the world while US federal regulatory policy through grants has inhibited
their development.
Taxicabs
When Uber started service in 2010 in San Francisco, it changed the landscape of taxi
service. Historically, when the automobile became available at the end of the nine-
teenth century, taxis or more generally vehicles for hire started to replace horse-
drawn carriages. In the Great Depression, prices for rides plummeted and drivers
could not make a living, since everyone with a vehicle could offer the service. In the
US, states allow cities to license cabs to increase drivers’ earnings and in part to con-
trol road congestion. That practice is not limited to the US. We shall describe and
evaluate taxicabs in New York City as an example for the current changes to the
industry. The number of licenses to pick up and discharge passengers or medallions
has remained the same at about 13,600 since 1937. Most of the current drivers do not
own the cab and 95.5% are immigrants from developing countries like Pakistan,
Bangladesh, Haiti, and India (Parra, 2019) with average weekly pay of just $583 in
322 S. Hakim et al.
2021 (Indeed, How much does a taxi driver make in New York, NY?, n.d.). Thus,
owners of taxicab medallions face almost a perfectly elastic supply of unskilled
workers to become drivers at competitive wages. The essentially fixed number of
medallions while the number of passengers and incomes in NYC grew substantially
resulted in marked increases in the value of medallions. The nominal price was
$5000 in 1950, $25,000 in 1962, growing to $1.3 million in 2014 (Wikipedia, n.d.-b;
Parra, 2019.) If the industry were competitive with easy entry, only normal profits
would then have been earned and the value of the medallions would be zero. Clearly,
congestion of taxicabs on the streets would rise but fewer private vehicles would
probably be used. Given the regulatory entry barriers, which yields monopolistic
profits, the taxicab industry operations have basically stayed the same with little
adoption of technology. Given the monopolistic power of the industry there was
little pressure and incentive to change the operation of the industry.
The idea to start Uber originated in a December 2009 snowstorm in Paris when
the two founders had difficulties hailing a taxicab, making them realize how the
smartphone could make a connection between the passenger and available taxicabs
easier and faster. A significant technological innovation involved providing
passengers information before the ride on both the exact price and a convenient
payment method. The driver has no discretion about price or the route of the trip.
Uber started operation in San Francisco in 2010, utilizing the technology offered by
the smartphone. After only 10 years, Uber operated in 83 countries, had annual
revenues of more than $11 billion, and had 3 million drivers, 19,000 employees, 75
million global customers, and a market capitalization of $74 billion (O’Connell,
2020). In 2021, Uber and Lyft, its principal competitor, have market shares of 68%
and 32%, respectively, in the Transportation Network Company (TNC) industry
they created. The regular taxicabs business has significantly declined, reflected in
the price of a NYC medallion declining from over a million dollars in 2014 to
$137,000 in 2019. At the same time, 16 medallions attracted no bids at all (Wikipedia,
n.d.-b). This suggests that the industry approached normal profits. Indeed, the
market share of the TNCs in the overall ridesharing industry rose from 12% in 2015
to 89% in 2021 (New York City (NYC) Taxi & Limousine Commission, n.d.). Thus,
the increased competition suggests that the taxicab industry must adopt the
technology of the TNCs or develop alternative methods of improved service to
passengers.
Uber and Lyft face many legal and regulatory challenges, including the right to
operate taxicabs, restrictions on hailing of taxicab, and minimum wage for drivers,
among others (Reuters, 2021.) Uber and Lyft consider themselves as TNCs part of
the ridesharing industry while they create significant competition to the regulated
taxicab industry. In any case, regardless of semantics, both industries serve the same
purpose of transporting people and increasingly food. Thus, it seems that the need
to regulate the taxicab industry has become questionable. On the other hand, since
passengers cannot know about the conditions of the vehicle and driver, safety
regulations are appropriate for both TNCs and taxicabs. Intensely used vehicles and
drivers also create safety concerns for the public as well as environmental issues.
Obviously, if all possible faults are transmitted through the internet to the operations
center, the mechanisms of regulation may change but the necessity remains.
Existing public buses operate on fixed routes and schedules. Since most riders
use their smartphones, the TNCs may offer flexible ridesharing in smaller vehicles
that could effectively compete with existing buses. For example, when privatization
occurred in England, private vans replaced full-size public buses on unprofitable
and lightly used routes. Since the TNCs rely on Geographic Positioning System
(GPS) technology, they may choose less congested routes. Indeed, much of existing
congestion on major arterial roads at rush hours has been exacerbated by buses and
commuters unfamiliar with alternative roads. Existing GPS apps, like Waze, could
suggest a variety of routes to avoid congestion.
Autonomous vehicles are already being road tested in 2021 and are expected to
be widely in use by 2035 (Kearny, n.d.). The expected entry to the market of the
autonomous automobile could serve as an alternative to TNCs serving passengers
since drivers are not required. Uber’s drivers account for 80% of its spending,
prompting the company to engage in the development of autonomous vehicles.
Further, by using driverless vehicles, other adverse issues related to drivers like
minimum wages, contractors versus employee status, and unions become irrelevant.
The vast amounts of capital required, and the complete development of all the facets
of technology, led Uber to partner with Aurora, a Silicon Valley company, and
contribute $400 million to the company. The partnership also includes Toyota and
Volvo where the technology will be installed (Bellon, 2020; Metz & Conger, 2020).
Existing taxicabs may face gloomy prospects unable to survive in the price war if
they do not join the technology age. Noteworthy, automobile manufacturers and
their dealers already have the infrastructure to and do lease vehicles. Accordingly,
they are likely entrants to offer autonomous vehicles for short- and long-distance
travel as well as leasing autonomous vehicles for longer periods. In the future,
owning vehicles may be far less common.
The rise of the autonomous vehicles and the likely expansion of driverless vehi-
cles may adversely affect public buses and urban rail. Mass transportation on rigid
routes will become less attractive under the new circumstances. Again, road conges-
tion is likely to be reduced when autonomous vehicles choose less congested routes.
Significant competition from autonomous vehicles and possibly the TNCs could
reduce substantially the demand for public transit in at least some metropolitan
areas. If enough autonomous vehicle companies for both long-term leasing and
short-term trips exist in a metropolitan area, the competitive prices could yield a
significant decline in demand for urban mass public transit. The expected further
improvement in both batteries and solar usage could lower the prices of driverless
service and pose a threat to the farebox income of the current urban mass transit
service. The higher quality of driverless service compared to mass transit further
reduces the attractiveness of public transit. Drawbacks from such a scenario could
be significant economies of scale of the driverless companies stemming from high
initial investment that yields high concentration, entry barriers and possibly non-
competitive prices. The other possible drawback may be continued government
budgetary support of public transit regardless of its reduced patronage. Clearly,
government support of mass transit may maintain less efficient and less convenient
service than reliance on market pricing.
324 S. Hakim et al.
In a market-oriented economy, transit technology will be further developed,

yielding lower prices for driverless trips over time. Granted, it is unclear whether
prices in the driverless era will be lower than subsidized public transit systems.
Therefore, there could be an equity issue where lower income passengers face
higher prices if government chooses to discontinue subsidizing public transit.
Government should then provide direct income subsidies to adversely affected
lower income households. In effect, the driverless industry will likely reduce the
necessity of public involvement and even PPPs for public transit. We often witness
lobbying pressures on government to raise its support for public transit. Recognizing
the improvements enabled by such subsidies, they nevertheless will reduce
incentives to develop alternative efficient, higher quality personal
transportation modes.
To conclude, the development of TNCs has reshaped the ridesharing industry,
reducing monopoly power of taxicabs, and contributing to more efficient and
consumer friendly services. The experience suggests the power of competition and
innovation to improve consumer welfare and the benefits of ending regulation that
allows the creation of artificial entry barriers. The development of autonomous
vehicles has the potential to reduce reliance on urban mass transit. Consumers could
simply call for a vehicle that would drive them to their destination. Whether prices
would be low enough to reduce the demand for mass transit is the unknown element.
Buses
We now turn to urban mass transit. This Handbook provides success and failures of
PPPs in metropolitan transit systems around the world. Beijing, Hong Kong, and
Denver could be considered successful while London, Singapore, and Las Vegas
were less successful. We will separate our discussion of buses from rail. In the case
of buses, the routes should be self-sustained, and each such route should be
financially independent. There is little justification for cross subsidization by the
travellers among the various routes. Bus routes that do not cover their operating
costs should be candidates for reduced frequency of service or shifting to smaller
vehicles or at the extreme, to elimination of the routes. Buses provide a private
service to individuals, and therefore there is little reason to subsidize a financially
losing route. Competition of bus companies should be allowed for such private
service, and if enough companies operate on a route, regulation could be reduced or
possibly eliminated. Usually, adverse environmental effects are limited. Also, recent
technological improvement adopted in Israel allows specially equipped buses to be
electrically charged by charges installed under the surface of the road, eliminating
any environmental concerns. In the absence of such technology, negative externality
costs can be charged to the relevant bus companies. As addressed earlier, the
expected diffusion of autonomous cars and their usage for individual and for groups
of travellers for commuting to work and other purposes could reduce patronage of
the more rigid bus services.
Clearly, rail requires much higher fixed costs, and its routes are inherently rigid,
unlike bus routes. Again, prices on each route should cover the variable costs, while
replacement of equipment and reinvestment could be covered by commercial
income and increased real estate values captured by the rail system. The main rail
hub or terminal could be developed as a prime commercial venue and the profits
could be used to cover capital improvements. Individual stations might also generate
increased land values that can be used to cover capital costs. In the case of Hong
Kong, increased land values practically financed the entire capital outlays. Allowing
rail stations to use the income generated by commercial establishments at the
station, including their parking, may prompt profit incentives. PPPs formed for
individual stations could provide incentives to increase the productivity of the
premises by establishing food and entertainment services in the evening and non-
rush hours where the profits could partially be used for capital investments at the
premises. If every station is an independent PPP, competition among stations in the
same vicinity could improve services to passengers and enhance other initiatives.
For example, currently parking at the station generates some revenues for 10 h a day
with minimal costs. Expanding the use of the parking that serves restaurants and
other entertainment services would increase its stream of revenues.
The initial infrastructure in buses and rail is high and could be partially financed
by government, representing its share of public goods. The reason is that transit is
intended, among other reasons, to reduce negative externalities like congestion, air
pollution, noise, and other environmental impacts that would result if passengers
drove to their destinations, and are avoided when they use the rail. There is also the
option demand for rail, the willingness to pay some amount to have rail available in
inclement weather. Thus, using just public funds in transit is justified only if the
total costs, mostly the initial investment, is the same as the discounted present value
of the increased social costs of time wasted because of traffic congestion option
demand, and associated environmental costs. Clearly, in some cases, like in Hong
Kong (Phang and Tam in this volume), the entire project was financed by the PPP in
expectation of the flow of profits to follow. Government could justify its financing
the initial investment if future profits will result at the premises and on future
increased land values it owns in the vicinity of the stations. Alternatively, the PPP
could finance the entire investment, including the public good share, by a longer
concession period. In the Hong King’s case, the PPP was responsible for the initial
investment while the concession period was extended to 50 years from the common
25 years. Again, any increased values on real estate that is owned by the transit
authority or the PPP caused by new or improved transit are appropriately captured
by the transit system and could be used to cover the fixed costs.
The private sector’s contribution to transit often includes efficient management,
easier and lower acquisition cost of supplies, often made possible by taking
advantage of short notice discounted sales, employment of part-time workers, easier
hiring and firing of workers, and faster adoption of relevant technology. Phang and
Tan (this volume) suggested that PPPs should be of the form of Design-Finance-
Build-Operate-Maintain-Transfer (DFBOMT). Several private companies may then
compete for the concession, and the most suited company is selected to partner with
326 S. Hakim et al.
the government. Interestingly, experience shows that for-profit partners are pre-
ferred over non-profit companies that lack residual claimants and have “skin in the
game” along with entrepreneurial spirit. Gifford and Boland (this volume) showed
the problems raised with the non-profit partner in the Las Vegas monorail.
Each transit line should be an independent profit unit. Thus, beyond the initial
investment, government should be relieved of any additional spending on transit.
Operating costs should be covered by the farebox, and private partners should
operate the system as a viable business. The partnership is of limited duration, so
rebidding could occur and thus the company has an incentive to perform well to
avoid the rebidding. On the other hand, if the private company invests in the PPP, the
concession period is extended to reward the private partner for its investment and
risk taking.
The Las Vegas Monorail was entirely financed by private sources including its
initial high infrastructure costs. Like the Hong Kong case, both projects were fully
privately financed. The Las Vegas Monorail failed while the Hong Kong project was
a success. The main reasons for the Las Vegas failure were the insufficient demand
for the service, the non-profit nature of the PPP, which reduced incentives for
efficiency, and the lack of ownership of lucrative surrounding land. These differences
caused the monorail to become bankrupt after 5 years of operation. The Hong Kong
project had none of these defects, and thus was successful.
The entire rail and subway systems in most American cities have changed only
modestly since the turn of the twentieth century. For example, New York City’s
subway system was completed in 1904 and Philadelphia’s in 1907. The suburban
rail systems in these two cities have been in operation since the early nineteenth
century. The greatest challenge for the transit PPPs is to reconstruct the stations, the
tracks, the electric components, the signal systems, safety and security and
communications systems to be competitive with the technology-based new
autonomous vehicles for hire (Bradsher, 2017). Obviously, the length of the
concession will have to be for many years due to the significant capital costs that
must be recovered. There is an opportunity to use PPPs to modernize and make
more competitive urban transit. The experience of Hong Kong and Beijing suggests
a model for such a move. Establishing many small PPPs for individual transit
stations, individual bus and rail routes, single terminals in airports and water ports
will increase competition, prevent major crises like a failure of an entire water port,
or labor strikes that are common in both public and private large monopolistic
entities.
To conclude, in the long run, when driverless taxicabs are available to transport
multiple passengers on nonrigid routes, we expect demand for the “conventional”
rigid route buses to decline. Depending on the origin and destination of the passen-
gers and their preferences for factors like the speed of travel, vehicles of various
sizes, and the number of passengers carried, a particular vehicle could be designated
for each passenger. In the case of rail, short trips are likely to be replaced by the
autonomous vehicles. In the foreseeable future, “conventional” rail service will
remain while demand may decline. To become more competitive with the technol-
ogy enriched autonomous ridesharing vehicles, public transit may need greater
participation of the private sector in managing the operation of transit while the
limitation on government borrowing adds to the rising use of PPPs. The profit incen-
tive of PPPs induces greater use of technology and efficient production in compari-
son to monopolistic government. The competition among private companies wishing
to participate in the PPPs may provide ideas to improve transit performance. Further,
successful rail PPPs may establish a kind of benchmark competition. It is likely that
other cities will adopt the practices of successful PPPs. Success of one or few PPPs
may serve as a model for imitation and even additional improvements for publicly
owned and managed transit systems and induce the creation of similar PPPs.
Water Ports
The current problem with ports is the long delays experienced by cargo vessels
waiting for loading and unloading, which increases costs and results in high port
fees. Security issues also exist when examining containers for possible contraband.
The monopolistic stance of ports in some countries leads to strong labor unions that
can on occasion involve disputes and disruptions as unions try to improve workers’
conditions (for example, the two ports in Israel.) In the 2022 US contract negotiation,
labor may challenge additional automation for loading and unloading the containers
(Ramp, 2021). The congestion in ports leads to the need for new terminals, dredging,
increasing port capacity, and equipment modernization. Existing competition with
other ports requires modernization, expansion, and efficient production, which are
costly, often beyond the financial ability of public ports, requiring other solutions.
Partnering with private entities is expected to provide the initial capital, efficient
management and operation, and incentives for growth by modernization, and help
avoid unprofitable ventures (“white elephants”).
Indeed, data from Latin America and the Caribbean show that their PPPs handle
91% of containerized cargo in state owned terminals. Further, 61% of the
containerized cargo traffic is managed by international private partners. The typical
PPP has a concession agreement of 25 years, and the operator competed with just
one other bidder to obtain the concession. The government received fixed and
variable payments amounting to as much as 30% of total revenue. Finally,
renegotiations occurred in 90% of cases, ranging from 1 to 15 amendments (Aleman
et al., 2020.) Clearly, if the PPPs were smaller and more private firms compete, the
bargaining power of private contractors will be reduced, followed by reduced
demand for renegotiation.
PPPs can increase efficiency of port operations, which can allow exploitation of
comparative advantage and thereby increase exports. At the same time, imports of
some overseas products may also increase, yielding an improvement in domestic
social welfare. Currently, since ports require significant investment in infrastructure,
equipment, and technology and are an important engine for economic growth,
governments have an incentive to subsidize the ports’ capital and operating spend-
ing, leading to lower port fees and less efficient production. Indeed, Hooydonk (this
328 S. Hakim et al.
book) suggests that because nations in the European Union (EU) have an incentive
to subsidize their own ports to attract business from other EU nations, the EU has
established policies to prevent such subsidization, enabling greater competition
among ports within the EU. However, one may argue that some degree of port
market power may be desirable to enable the necessary high capital outlays. On the
other hand, some ports may enjoy regional monopoly power, which also can distort
efficient allocation of resources.
The current congestion of cargo ships caused by the lack of terminals and equip-
ment and on occasion inefficient production requires modification. In 2021 follow-
ing the recovery from the Covid-19 global reduction in trade, the excess demand for
goods and the absence of workers exacerbated even more the congestion, raising
costs of the port operations and providing power to workers unions to seek improved
work conditions.
PPPs are used to overcome the lack of capital to increase capacity and quality of
services and enhance exposure towards free markets in managing the terminals
while sharing risk with the private sector. The increased number of ports that have
shifted from government owned and operated to PPPs may indicate the success of
such ventures. At the same time, it is important to indicate the possible weaknesses
of port PPPs. PPPs that have some monopolistic power due to location vis-a-vis
other ports could establish higher than competitive prices, reduce consumer surplus,
and distort the efficient use of resources. Another problem associated with PPPs is
the higher interest costs private firms pay compared to the reliance on government
bonds. PPPs require addition monitoring costs of the private partner’s activities to
assure compliance with the contract. Security, safety, and environmental issues,
namely negative social externalities, are more likely to be adequately incorporated
by the government partner.
Finally, Chinese companies have rejuvenated China’s ancient silk roads program
by investing in various nations’ ports, highways, rail, airports, and pipelines. Such
projects include ports in Asia, Middle East, Europe, and Africa. The probable rea-
son for this massive Chinese investment is to reduce transportation costs of Chinese
products and obtain easier access to these countries. In fact, private Chinese inves-
tors partner in these PPPs, while it is possible that the Chinese government is
involved, raising concerns about its control of strategic infrastructure. As the Deputy
US Assistant Secretary of Défense for China testified in October 2019, “…the
expanding Chinese influence could limit our ability to use ports, access ships,
expose data, and the like. Additionally, it could strain or change our relationships
with partners and allies.” (US Subcommittee on Coast Guard and Maritime
Transportation, 2019).
Concluding Thoughts
The two major reasons for involving private partners in the investment and opera-
tion of transportation projects are the shortage of public resources and the desire to
improve production, including adoption of technology of the services by shifting
from monopolistic to more competitive partners. Perception was that mass transit
transportation modes are consumed by moderate income people, and the trust that
government ownership and operation satisfies equity consideration. This perception
led to the use of government’s general tax funding of transportation. However, the
shortage in sufficient resources, and the need to improve services, and avoid “white
elephants,” namely investing in socially negative net benefit projects, has led, since
the mid-1980s, to wider use of PPPs. Now, to attract private partners, such projects
need to generate revenues through the adoption of users’ fees that replace availabil-
ity payments. Replacement of government dictated prices with market prices
improves social welfare. User fees assures that those that directly and indirectly use
and enjoy the benefits of transportation indeed pay for it.
Usage of PPPs in transportation has some weaknesses. The most important are
government’s transaction and monitoring costs. Many contracts are renegotiated
when the actual costs are higher than anticipated at the contracting stage. Clearly,
the possibility of renegotiations could lead to greater bidding participation of private
entities, and reduce the incentives for efficiency in the construction and the operation
of the project. It could even allow for the provision of white elephants, or socially
undesirable projects. Further, PPPs can be established for a transportation link that
has no other alternative for users or when only one private partner participates in the
auctioning of a PPP concession. If a private monopoly replaces a public monopoly,
the PPP needs to be regulated by government. Regulation on a price cap basis is
recommended. Also, insufficient competition for the concession may permit the
private company to obtain an unduly favorable contract, akin to a monopoly.
Looking into the future, the mere existence and spread of PPPs may change the
structure and responsibilities of government. Now, government is still involved in
investment and operation of a large number of services. PPPs allows government to
become smaller, concentrating on monitoring its partnerships while shedding much
of its actual management and operation. The reduced operating and capital
governmental budgets could enable government to pay market wages for highly
professional employees who regulate their PPPs.
The shift from government financing, investment, and operation of all modes of
transportation would improve the use of resources in line with consumers’
preferences. Users’ fees that based upon average total costs are preferred to prices
that are arbitrarily set by government officials. Cross subsidization that is currently
practiced like using some turnpike revenue to subsidize mass transit should be
eliminated. Indeed, there are claims that raising fees on mass transit systems could
increase roads congestion and cause adverse environmental impacts. However, the
price inelasticity of demand in the relevant price range precludes a significant shift
from mass transit to automobiles. The lump sum subsidy that addresses equity
concerns could be achieved by a progressive income tax and higher welfare
payments. Shifting to users’ fees makes PPPs an important policy option. The
shortcomings of PPPs do not negatively reflect the principle of PPPs but rather on
how they are implemented. Efforts should occur to improve the contracting between
the public and the private entities involved (see Cohen this volume.)
330 S. Hakim et al.
At the writing of this book, US President Biden proposed a long-needed recon-

struction plan to fund highways, ports, airports, and mass transit systems. Biden’s
requested funding of $2.25 trillion while the Republicans initially suggested a $568
billion package with greater reliance on PPPs and thus perhaps on users’ fees.
Indeed, economic theory and experiences support greater reliance on market forces
by shifting towards PPPs in delivering transportation systems.
A shift from monopolistic government to competitive and smaller government
will increase efficiency in production, yield technological innovations and thereby
expand GDP, lower taxation, and raise personal income. Production of “pure” public
goods, where all residents receive similar services, could be competitively contracted
out, while government oversees and funds the providers. Production of private
goods where users are identified could be shed for competitive service. Government
may change from producing and providing services to mostly regulating and
overseeing private and public entities’ compliance with their contracts. This is
indeed the preferred solution where competition among public and private entities
prevails for currently monopolistic government services provision. However, in a
practical manner it is difficult to make such a significant leap from government
control and provision to a competitive setting. Indeed, PPPs offer a viable
intermediate and practical stage towards the preferred solution where both
government and private entities share the risk, and each partner contributes its
comparative advantage towards the project. Success of government adapting to
competitive behavior, and businesses readiness in sharing risks and serving
“traditional” governmental services could pave the way to achieving the desired
stage of government competing in markets and reducing much of its investment and
operation of services.
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Taxi_medallion
Index
A Airport transactions, 54
Accra’s urban morphology, 26 American Society of Civil Engineers, 2
Aéroports de Paris (ADP), 61 Americans with Disabilities (ADA)-approved
AHS Menzies, 22 transportation trips, 299
Air Ghana Limited (AGL), 18 Anglo-Saxon approach, 131
Airline traffic, 23, 24 Asset specificity, 187
Airport Improvement Program, 90 Austin-Bergstrom International Airport, 98
Airport International Group (AIG), 61 Autonomous commercial vehicles, 301
Airport Investment Partnership Program Autonomous taxis, 11
(AIPP), 100 Autonomous vehicles, 301
Airport ownership and management, 56–58 Availability payment, 11
Airport PPPs Aviance, 22
airport ownership and management, 56, 58 Aviance Ghana Limited, formerly African Group
ANA airports, Portugal, 58, 59 Operation (AFGO) Limited, 18
government motivations, 63, 64
Greenfield vs. Brownfield, 62
Hubs vs. Regional, 63 B
Pristina, Kosovo, 60 Bankruptcy, 182, 183
Queen Alia Airport, Jordan, 61 Beijing Infrastructure Investment Corporation
single vs airport system, 62 (BIIC), 169
Airport privatization Beijing Line Number 4 PPP, 156
air travel resumes and airport Beijing MTR Corporation (BMTRC),
operations, 82 169, 170
Chicago Midway International BENEFIT approach, 121
Airport, 77, 78 BENEFIT framework, 120
public-private partnerships (PPP), 71 BENEFIT indicators, 121
safety of passengers, 82 BENEFIT project, 116–119
San Juan Luis Muñoz Marín British Airport Authority (BAA), 52, 99
Airport, 75–77 Build-operate-transfer (BOT) scheme, 140
Stewart International Airport, 74, 75
US airport governance, 71
Westchester County Airport, 79 C
Airport revenue, 92 California high-speed rail project, 307
Airports Council International-North America Capital assets, 72
(ACI), 87 Capital expenditures, 91

https://doi.org/10.1007/978-3-030-83484-5
334 Index
Capital improvement, 93, 94, 102 European Investment Bank (EIB), 229, 233
Central Line upgrades, 163 European PPP Expertise Centre (EPEC), 146
Chicago Midway International Airport, 77, 78 European Sea Ports Organisation, 131
Chinese airports, 55 European Union (EU)
Chinese Yuan (CNY), 160, 169 control of foreign investment, 146, 147
Classic port terminal contracts, 142, 143 dispute settlement, 150
Colorado Department of Transportation exclusive rights, 147, 148
(CDOT), 8 labor, 149
Commercial airports, 70 performance standards, 150
Commercialization, 132 port management systems, 130–132
Common law countries, 139 port reform, 133
Concession, lease, or royalty fees, 149 commercialization, 132
Construction risk, 156 corporatization, 132
Consumer Price Index, 169 port infrastructure, 134
Corporatization, 132 port superstructure, 133, 135
Cost-benefit analysis (CBA), 6, 120 private infrastructure, 135
Cost of accessibility, 283 privatization, 133
COVID-19, 70, 81, 209, 240 pricing policy, 148, 149
Critical success factors (CSFs), 32–34, 46, 47 public service and minimum throughput
obligations, 148
regulatory framework
D aims, 136
Demand overestimation, 187 award process, 141–143
Demand risk, 11, 252 contract duration, 143, 144
Denver Regional Transit District contract type, 139–141
(RTD), 8, 306 national frameworks, 137, 138
Design risk, 156 primary EU law, 136
Design, finance, build and operate public funding, 144–146
(DBFO), 280 secondary EU law, 136
Design-build (DB), 96, 198 state property, 138, 139
Design-build-finance (DBF) seaport PPPs in, 7
mechanism, 98, 247 types of port, 130
Design-build-finance-operate (DBFO) Express Rail Link, high-speed rail in Hong
model, 9 Kong, 168
Design-build-finance-operate-maintain
(DBFOM) delivery method, 158,
172, 198, 199 F
Disability Discrimination and Americans with Fare revenue (farebox), 159
Disabilities Acts, 280 Fast Track program, 8
Driverless vehicles, 286 Federal Aviation Administration (FAA), 5, 72
Federal funding, 90
Federal involvement, 87
E Federal Transit Administration (FTA),
Earnings before interest, tax, depreciation, and 200, 307
amortization (EBITDA), 38, 53, 54 Financial-economic conditions
Economic Community of West African States (FEI), 119, 122
(ECOWAS), 20 Financing Scheme (FSI), 120, 126
Entrepreneur Rail Model, 168 Finnish Fund for Industrial Development
Equipment supply risk, 156 Limited and Access Bank Ghana
EU Concessions Directive, 136, 138–141, 143 Limited (FINNFUND), 19
EU rule of law mission in Kosovo Fitch ratings, 181
(EULEX), 60 For-hire vehicles, 10
EU Seaports Regulation, 136, 137, 140, 142, Full service, integrated, or comprehensive
145–147, 149 port, 132
Index 335
G I
Gateway Partners contract, 86 Infrastructure Service Charge (ISC), 163
General Authority for Civil Aviation Institutional entrepreneurs, 32, 34, 35
(GACA), 36 International Air Traffic Control Association
General Block Exemption Regulation study, 3
(GEBR), 145 International Civil Aviation Organization
General port infrastructure, 144 (ICAO) regulations, 21
Ghana Airport Cargo Centre (GACC), International Transport Forum, 2
PPPs, 4 Inter-port competition, 148
competitiveness, 22 Intra-port competition, 147
construction, 18 Islamic Development Bank (IDB), 61
costs and benefits accruing to each Italian Financial System, 227
partner, 19, 20
COVID-19 pandemic, 25, 26
GACL, 18 J
local and potential competition within the Japan International Cooperation Agency
west African subregion, 26 (JICA), 163
local content and technology transfer, 23 John F. Kennedy (JFK) International
peace, democracy, and economic Airport, 99
stability, 24, 25 Jubilee Line Extension, 163
policy implications, 26–28
political interference, 25
relative cargo volumes, 23, 24 K
safety and security, 20, 21 Key performance indicators (KPIs), 251
state-of-the-art cargo terminal, 21 Kieldrecht Lock (KDL), 112, 113
SWOT analysis, 20 Kirby, Scott, 93
Ghana Airport Company Limited Kotoka International Airport (KIA), 4, 18,
(GACL), 18–22 20–23, 26–27
Gold Coast Light Rail Project, 9, 246
in Australia, 249
financial and contractual arrangements, L
250, 251 Land Transport Authority (LTA), 159
integrated transport network, 249 Land value capture in Hong Kong, 166–168
modification regime, 253 Las Vegas Monorail
payment mechanism and performance bankruptcy, 182, 183
measurement, 251, 252 construction and early years, 180, 181
planning and funding allocation, 249 demand for, 179
procurement process, 250 demand risk, 184
risk allocation scheme, 252 franchise agreement and building
social and economic impacts, 253 ordinances, 178
GoldLinQ, 255 non-profit corporation, 176
Government Tendering and Procurement Law project’s bonds repayment, 179
(GTPL), 41 stakeholders’ attentiveness, 188
Grant Assurances, 90 Las Vegas Monorail bankruptcy case, 8
Great Recession, 184 Las Vegas Monorail Corporation
(LVMC), 179
Las Vegas monorail system, 178
H Liberalization, 132
Hendry County Airglades Airport, 101 Liefkenshoek Rail Tunnel (LHRT), 109, 111
High-Performance Transportation Enterprise London Underground Infracos, 163–165
(HPTE), 205 London Underground Limited (LUL),
Highway Trust Fund, 198 163, 165
Houston Airport System, 98 London’s Crossrail, 7
Hudson-Bergen light rail system, 198 Lyft, 3, 11, 286, 300
336 Index
M Millau Viaduct public-private partnership, 306

Madinah Airport in Saudi Arabia Minimum technical requirements (MTRs), 44
airport’s administration and staff, 45 Ministry of Finance (MoF), 43
BTO agreement, 43, 44
critical success factors, 40
data collection, 39 N
effective negotiations and National Council for Public-Private
communication, 44, 45 Partnerships (NCPPP), 2
GACA, 36, 37 National Examination Board in Occupational
alliance building and bargaining Safety and Health (NEBOSH)
strategies, 42, 43 certification programme, 23
“authoritative figure” as “social Nikola Tesla Airport, Belgrade, 59
position, 42
internal commitment and capacity
establishment, 41 O
mobilizing political support, 41 Office of Economic Cooperation and
GTPL, 41 Development (OECD), 2
IFC involvement, 43, 44 Open market provision, 263
implications, 46, 47 Operating risk, 156
institutional entrepreneurship, 34, 35
mechanistic approach, 33
research context, 35, 36 P
TAV, 37 Paine Field, 97, 98
Market barriers, 281 Passenger Facility Charge (PFC), 87
Market categorization, 276 Piraeus Port Authority, 134
Market development, 267, 268 Port authority, 87, 131, 132
Market Economy Operator Principle, 144 Port dues, 149
Market growth, 282 Port finance, 130, 134, 151
Market volatility, 275 Port infrastructure, 133–135, 139, 145,
Mass rapid transit (MRT), 7, 8 149, 151
analysis of two failed MRT PPPs Port of Antwerp, 110
renationalization of London Port of Zeebrugge (Belgium), 134
underground infracos, 163, 165 Port terminal, 130, 133, 140, 143, 150
revenue risk in Singapore’s Urban Rail Portuguese Airports (ANA), 58, 59
System, 159, 162 Positive train control (PTC) technology, 208
analysis of two successful MRT PPPs Power Distribution Services (PDS), 25
land value capture in Hong Price water house Coopers (PwC), 2
Kong, 166–168 Primary EU law, 136, 144
revenue risk sharing in Beijing line No. Pristina, Kosovo, 60
4, 169, 170 Private activity bonds (PABs), 205
challenges Private finance initiative (PFI), 133
DBFOMT-bundled approach, 158 Privatisation of airport, 52–56, 58
heterogeneity of metro PPP, 157 Public authority-type services, 144
revenue service, 155 Public-private partnership (P3) airport
risk allocation, 157 airline-as-investor, 98
risks, 156 airport investment partnership
MEAI, 125 program, 99–102
Medina Airport facility, 37 capital improvements, 96
Metro Line M4 PPP, 228 financial and regulatory environment,
Metronet, 164, 165 89, 91–94
Miami International Airport, 101 Paine Field project, 98
Milan Malpensa International regulatory environment, 95, 96
Airport, 9, 232 risk for allocation, 97
Milan Metro line M4, 9, 231 Public-private partnership (P3) structures, 88
Index 337
Public-private partnerships (PPP), 71 revenue shortfalls and austerity, 198

airport study area and background, 200
in airport construction and operation, 3 development of, 52
Ghana’s Airport Cargo Centre, 4 federal funds, 178
legal impediments in the United financial burdens, 177
States, 5 financial responsibilities, 177
Madinah Airport in Saudi Arabia, 4 franchise agreement and building
models, expectations, and reality in, 4 ordinances, 178
privatization in United States, 5 Gold Coast Light Rail Project in
asset specificity, 187 Australia, 9, 10
autonomous taxis, 11 investor confidence, 180
availability payment, 11 Italian experience, 9
bankruptcy, 182, 183 in Italy
bond types, 180 bankability and credibility, 239, 240
bondholders’ expense, 186 bus competition, 235
bonds’ issuance, 179 common valuation platform, 231
concurrent economic events, 188 concession periods, 233
cost-benefit analysis (CBA), 113–115 contractual clarity, 237–239
cost escalation and questionable projection cost-benefit analysis (CBA), 226
assumptions, 188 equity commitment, 235
definition, 16 external consultants, 225
demand overestimation and unsustainable financing options, 233
debt, 187, 188 FNM and region, 235
demand risk and availability institutional framework, 235
availability payment PPPs, 308, 309 Italian Financial System, 227
capital-intensive transit lack of public funding, 224
improvements, 307 market returns, 231
infrastructure, 309, 310 minimizing information
demand risks, 11, 184 asymmetry, 225
in Denver national budget restrictions, 229
allocation of risk, 210 policy recommendations, 236, 237
benefits and shortcomings of political climate, 236
transportation, 199 PPP education, 235
cost-effective mobility and preliminary financial model, 233
livability, 211 public funds, 226, 227
Denver Union Station (DUS), 203, 205 public sector, 235
design-bid-build project, 198 regional undertaking, 233
Eagle P3 project, 201–203 service contract, 234
financial benefit, 207, 208, 210 static attitude, 236
financing, 198 willingness to pay, analysis, 235
higher upfront costs and debt joint ventures, 16
servicing, 215 Kieldrecht Lock (KDL), 112, 113
infrastructure and maintenance Las Vegas Monorail bankruptcy case, 8
needs, 198 Liefkenshoek Rail Tunnel (LHRT),
innovative funding and financing 109, 111
mechanisms, 197 monorail revenue forecasts, 179
policy implications, 215, 217, 218 MRT, 7, 8
policy recommendations, 220 policy issues and application of, 11
private sector efficiencies, 210 project demand overestimations, 186
public accountability and rails and buses, 7
transparency, 212 revenue bond repayment, 179
public agency, 214 ridesharing companies, 3
public sector benefits, 211 risk and management responsibility, 262
research methods, 207 Second Maasvlakte (MV2), 111, 112
338 Index
Public-private partnerships (PPP) (cont.) Q

strategic behavior hypothesis, 188 Quality control, 271
strategic overestimation Qualtrics, 207
hypothesis, 186 Queen Alia Airport, Jordan, 61
technical problems, 181
three forms of transit services, 3
TNCs, 10 R
transaction frequencies, 187 Rail plus Property’ model, 167
transportation systems, 177 Railroad Rehabilitation and Improvement
types, 16 Financing (RRIF), 204
uncertainty, 187 Regional markets, 81
vehicles for hire, 10 Regional Transportation Commission
VFH market (RTC), 179
change, nature of, 266, 267 Regionalism, 217
closed and restricted markets, 269 Remuneration attractiveness (RAI), 120, 125
complementary and integrated Revenue robustness (RRI), 120, 125
transit, 266 Revenue support (RSI), 120, 124
conflict resolution, 276 Ridesharing companies, 3
cooperatives and associations, 263 Royal Order, 41
cost of accessibility, 283
deregulation movement, 263
economic control and quantity S
constraint, 271 San Juan Luis Muñoz Marín Airport, 75–77
flagship infrastructure projects, 263 Saudi Industrial Development Fund, 39
hybrid and transforming Second Maasvlakte (MV2), 111, 112, 120
markets, 269 Secondary EU law, 136
market development, 267, 268 Shadow price (SP) mechanism, 169
market equilibrium and industry Shadow ridership (SQ) mechanism, 169
partnerships, 272 Singapore MRT Limited (SMRT), 159,
open/deregulated markets, 270 161, 162
operational and licencing Singapore’s MRT system, 159, 161, 162
distinctions, 264 Skepticism, 92
optimal regulatory structure, 274, 275 Social transport, 264
pre-booked market, 278, 279 South East Queensland Infrastructure Plan and
quality control, 271 Program, 250
quantity, quality and/or economic SPV equity, 229
controls (QQE), 263 Standards and Recommended Practices
regulatory reform, 270 (SARPS), 21
replacement and supplementary State aid, 131, 136, 144–146
transport, 265 State-owned enterprises (SOE), 56
segment regulation and Stewart International Airport, 74, 75
optimization, 276 Strengths, weaknesses, opportunities, and
structural efficiency, 275 threats (SWOT) analysis tool, 4, 19
suitability and regulation, Structural efficiency, 275
impact of, 269 Swissport Ghana, 18–21, 25, 26
taxi hail market, 277
taxi stand market, 278
transportation network T
companies, 279 Tax-exempt bonds, 93
water ports, 6 Taxi hail market, 277
in Antwerp and Rotterdam, 6 Taxi medallion values, 294
European Union (EU), 7 Telaustria doctrine, 142
Public funds, 226, 227 Tepe Akfen Vie (TAV), 37
Index 339
Terminal infrastructure, 134 Union Internationale des Transports Publics

Terminal monopoly, 147 (The International Association of
Tool port model, 132 Public Transport), 154
Total factor productivity (TFP), 55 Urban rail development
Trans-European Transport Network application of, 247
(TEN-T), 147 DBFO model, 254, 255
Transit agencies, 282 community engagement and public
TransLink Transit Authority (TTA), 252 consultation, 256
Transport deregulation, 264 equitable risk allocation, 256
Transport for London (TfL), 157, 164, 165 flexible contract design, 256
Transportation Infrastructure Finance and democratic and structural issues, 246
Innovation Act (TIFIA), 204 productivity and competitiveness, 244
Transportation network companies (TNCs), 10 research methods, 248
commitment of community, 299 traffic congestion, 245
deregulation and re-regulation, 291–293 Urban rail transit (URT) systems, 154–156,
hire service congestion cycles, 300 158, 165, 166
impact of, 294–297 US airports
jitney services, 287–289 capital improvements, 88
legal responsibility, 297 construction costs and inflation, 87
model of taxi regulation, 289, 290 US Department of Transportation
modern taxi regulation, 290, 291 (USDOT), 198
profitable business model, 298 US Government Accountability Office
regulations, 286 (GAO), 2
regulatory system, 297 US Maritime Transportation System (MTS), 6
taxicab economic regulation, 298 User-specific port infrastructure, 145
taxi-type trip providers, 299
traditional taxicab services, 298
Transportation Security Agency (TSA), 21 V
Treaty on the Functioning of the European Vehicles for hire (VFH), 10
Union (TFEU), 136, 146
W
U West Island Line Extension, 167
Uber, 3, 11, 286, 300 Westchester County Airport, 79
UberPop service, 274 Westchester County privatization, 101
UK National Audit Office (UKNAO), 164 World Bank’s International Centre for
UK Transport Act, 281 Settlement, 151
Uncertainty, 187 World Economic Forum, 2

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Competitive Government: Public Private Partnerships

More information about this series at http://www.springer.com/series/16085

Handbook on Public Private

ISSN 2524-4183 ISSN 2524-4191 (electronic)

© Springer Nature Switzerland AG 2022

An important use of Public-Private Partnerships (P3s) throughout the world is for

Philadelphia, PA, USA Simon Hakim

Public-Private Partnerships in Transportation—Airports,

Ernest Agyemang is a Senior Lecturer at the Department of Geography and

Isaac K. Arthur is a Senior Lecturer of Geography and Resource Development at

Mhamed Biygautane is a Lecturer (Assistant Professor) in Public Policy at the

of children, private policing, airlines, pharmaceuticals including biologics, physi-

L. Bolaños currently serves as the Vice Minister of Investment and Competition at

Sylvia A. Brady is a lecturer at Metropolitan State University of Denver in the

Robert M. Clark is currently an independent consultant in environmental engi-

James M. Cooper has a Masters in Transportation from Cardiff University,

Carlos Oliveira Cruz is an Associate Professor of Construction and Infrastructure

Jonathan L. Gifford is a Professor in the Schar School of Policy and Government

Andrew R. Goetz is a Professor in the Department of Geography and the

Eric Van Hooydonk is a Professor of Law at the Maritime Institute of the

wishes to focus on international and European seaport law, on which he is preparing

Andrew E. G. Jonas is Professor of Human Geography in the Department of

Tingting Liu is a lecturer in construction management at the School of Engineering

Project Management, Journal of Management in Engineering, and Journal of

Niek Mouter is an assistant professor of Infrastructure Policy Appraisal at TU

Ray A. Mundy, Ph.D. is the Executive Director of the Airport Ground

Ebenezer G. A. Nikoi is a Senior Lecturer in the Department of Geography and

Joaquim Miranda Sarmento is an Assistant Professor of Finance at ISEG—

Thierry Vanelslander is a professor at the Department of Transport and Regional

Stefan Verweij is Assistant Professor of Infrastructure Planning, Governance, and

Bart Wiegmans is Senior Researcher at the Department of Transport and Planning,

Suzanne J. Wilkinson is a Professor of Construction Management and Director of

Suzanne’s research focuses on construction innovation, resilience, and smart cit-

Simon Hakim, Erwin Blackstone, and Robert M. Clark

Keyword Transportation · Infrastructure · Public-private partnerships · Airports ·

ATC Air traffic control

© Springer Nature Switzerland AG 2022 1

KIA Kotoka International Airport

Public-Private Partnerships for Transportation

According to Feigenbaum (2019), the private provision of transit services comes in

The Potential for P3s in Airport Construction and Operation

Ghana’s Airport Cargo Centre as a P3

Insights From Madinah Airport in Saudi Arabia

Models, Expectations, and Reality in Airport P3s

Airport Privatization in the United States

Legal Impediments to Airport P3s in the United States

 3s in Port Areas: Lessons from Case Studies in Antwerp

 eaport PPPs in the EU: Policy, Regulatory,

Rails and Buses

As road congestion and environmental pollution become an increasing problem

Sustainable Strategies for Mass Rapid Transit PPPs

additional governance improvement and risk mitigation measures in place when

The Las Vegas Monorail Bankruptcy Case

Public-Private Partnerships in Denver, CO

Governance of P3s: Lessons From the Italian Experience

 evelopment of Urban Rail: A Case Study of the Gold Coast

The Case of Vehicles for Hire and P3

 sing History to Develop Future Regulation of TNCs

Policy Issues and the Application of the P3 Process

 istinguishing Between Demand Risk

Public-Private Partnerships: A Policy Perspective

Summary and Conclusions

Infrastructure investment in transportation systems is critically important to the

Philadelphia, PA, USA Simon Hakim

Public-Private Partnerships in Transportation—Airports,

Public-Private Partnerships for Transportation

The Potential for P3s in Airport Construction and Operation

Ghana’s Airport Cargo Centre as a P3

Insights From Madinah Airport in Saudi Arabia

Models, Expectations, and Reality in Airport P3s

Airport Privatization in the United States

Legal Impediments to Airport P3s in the United States

3s in Port Areas: Lessons from Case Studies in Antwerp

eaport PPPs in the EU: Policy, Regulatory,

Rails and Buses

Sustainable Strategies for Mass Rapid Transit PPPs

The Las Vegas Monorail Bankruptcy Case

Public-Private Partnerships in Denver, CO

Governance of P3s: Lessons From the Italian Experience

evelopment of Urban Rail: A Case Study of the Gold Coast

The Case of Vehicles for Hire and P3

sing History to Develop Future Regulation of TNCs

Policy Issues and the Application of the P3 Process

istinguishing Between Demand Risk

Summary and Conclusions

he Nature of Public-Private Partnership in the Ghana

Costs and Benefits Accruing to Each Partner

Findings and Policy Implications

Safety and Security

State-of-the-Art Cargo Terminal

Local Content and Technology Transfer

Relative Cargo Volumes

Local and Potential Competition Within the West African Subregion

Accra’s urban morphology is changing due to increasing constructions of ultra-

heoretical Background: Prevalence of a Mechanistic

Conceptual Framework: Institutional Entrepreneurship

Description of the Case Study and Its Performance

Medina Airport After the PPP

he Genesis of the PPP Idea and Its Rationale

ow Did Institutional Entrepreneurs Within the GACA

Mobilizing Political Support

Appointment of an Authoritative Figure with a Strong “Social Position”

uilding Alliances and Bargaining Strategies to Overcome

ow Did Institutional Entrepreneurs Gain the Trust

omprehensive Build-Transfer-Operate (BTO) Agreement

Effective Negotiations and Communication

vercoming the Resistance of the Airport’s Administration

Discussion: Implications for Theory

Summary and Conclusions

Airport Ownership and Management

Selected PPP Case Studies

ANA Airports, Portugal

Nikola Tesla Airport, Belgrade, Serbia