Minimum Income Guarantee in Transportation Infrastructure Concessions in Chile

Abstract

Many governments are increasing private participation in providing and financing transportation infrastructure through concession contracts. One of the main challenges in the definition of those contracts is the correct allocation of risks between the public and the private sectors. Traffic risk has usually been difficult to allocate because neither the concessionaire nor the government can reasonably control it. In addition, traffic forecasts have proved to be inaccurate. Consequently, many governments are implementing traffic risk mitigation mechanisms in concession contracts. One of these mechanisms is based on the establishment by the government of a minimum income guarantee. Results of the implementation of a minimum income guarantee in Chile are presented: 38 transportation concessions were awarded in the past 12 years. The economic crisis that struck Chile from 1998 to 2002, reducing traffic levels below forecasts, makes the analysis of the performance of that mechanism particularly interesting. De...