Expanding the Urban Transportation Infrastructure Through Concession Agreements: Lessons from Latin America

Abstract

Driven by fiscal constraints and disappointment with the performance of state-provided services, national and subnational governments have turned to the private sector for solutions in financing, constructing, and providing transportation services. Key concession package features and their effect on reaching closure in urban transportation agreements are analyzed. Case studies drawn from the major attempts to develop urban transportation infrastructures in Latin America through concession agreements are considered. Results indicate that features common to large infrastructure projects (e.g., high capital costs and asset indivisibility), urban transportation (e.g., high intermodal competition and the uncertainty of accurate demand forecasts), and developing countries (e.g., incipient financial markets) are negatively associated with reaching successful financial closure of the agreements. These results suggest that governments should pay close attention to risk allocation in a concession plan. By illustrating the intricate interdependencies among package features and how complex and tailored to a specific context successful concession agreements must be, it is concluded that governments face more rather than fewer decisions when developing an infrastructure through concession agreements.