Project Financing Models for Toll Road Investments: A State-of-the-Art Literature Review

Lukas B Sihombing,Ayomi D Rarasati,Andreas Wibowo,Yusuf Latief

doi:10.13189/cea.2018.060301

Abstract

In greenfield toll-road projects, financial sustainability has been a major issue. Many toll roads cannot be operated. Although most of Indonesia's 24 toll road concessions have already been signed by the Toll Road Authority, most of them were caused by financing problems. Three problems have been identified as potential sources of this unsustainability, such as the uncertainty of long-term project revenues, budget constraints provided by the government, and inadequate government support for land acquisitions. This paper aims to investigate the state-of-the-art innovative financing models recently introduced to address financial problems by using a desk study and meta-analysis. The findings are an earmarked tax revenue system, deep discount bonds, take-out financing, tax increment financing, land leases, deferred debts, and private donations.

Highlights

The project is a legally and economically independent project company, either as independent assets under an economic unit or as a special purpose vehicle (SPV); it services the debt from the project cash flow alone, known as project finance
The objective of this paper is to present state-of-the-art literature related to project financing models for toll roads
A state-of-the-art literature review of toll road financing model (TRFM) is presented in this paper, discussing the major infrastructure project financing issues for toll road financing

Summary

Introduction

The project is a legally and economically independent project company, either as independent assets under an economic unit or as a special purpose vehicle (SPV); it services the debt from the project cash flow alone, known as project finance. A project financing scheme application was used in English road systems in the 18th and early 19th centuries. It is not a new concept, especially for a public infrastructure project [4]. The Government of Indonesia (GoI) built the 60 km Jakarta-Bogor-Ciawi (Jagorawi) toll road in 1978. It was well-known as the first application of project financing in Indonesia [5]. The toll road financing model uses either a build-operate-transfer (BOT) contract or a public-private partnership (PPP) [7]

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