Traffic Risk Mitigation in Highway Concession Projects: The Experience of Chile

Abstract

(Harvard University) for proposing the idea for this paper and for reading and correct-ing with extreme patience all the drafts he gave him. A special debt of gratitude is owed to Mark Fagan, my colleague as a visiting fellow at Harvard, for the countless hours spent helping with the structure of the paper, as well as for the thankless task of editing its final version. Finally, Alvaro González, former director of concession pro-jects at the MOP and the first person to approach the LPVR mechanism, helped obtain the information necessary to write the paper and also made useful comments about highway concessions in Chile. Traffic risk mitigation remains a challenging aspect of highway concessions. This paper evaluates three mechanisms applied in Chile to mitigate traffic risk: the ‘Minimum Income Guarantee ’ (MIG); the ‘Least Present Value of the Revenues ’ (LPVR); and the ‘Revenue Distribution Mechanism ’ (RDM). Specifically, the paper focuses on the performance of LPVR and MIG during the economic recession that took place between 1998 and 2002. In the context of this recession, the paper explains the reasons that led the government to implement the RDM mechanism. The paper gives some guidelines about the applicability of these mechanisms in other countries, highlights the beneficial features of LPVR in reducing traffic risk and avoiding concession contract renegotiations, and finally provides some recommendations as to how to make LPVR more attractive to private promoters.