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Concession tenure extension
What it is
Extending the period for which a private operator holds an airport, road or port concession, usually granted to compensate for traffic shortfalls, delayed handover or additional investment required of the concessionaire
Because the asset reverts to the government at expiry, tenure directly determines how long the operator earns from it
Impact on industries
- Adds years of mature, high-margin cash flow at the far end of the J-curve, when capex is written down and traffic is established
- Allows fresh capex to be funded, since an operator will only invest late in a concession if the payback period extends beyond it
- Granting extensions rather than re-tendering removes competitive pressure and can entrench incumbents
- Valuation of a concession asset is extremely sensitive to remaining tenure, so an extension is often worth more than any operating improvement