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

Abstract

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.

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