← Business Models: Industry Specific (Infrastructure, Transport & Utilities) (all topics)
Toll concession models & traffic risk
What it is
Road assets are held under toll concessions where the developer collects user charges and carries traffic risk, annuity concessions where the authority pays fixed sums regardless of traffic, or hybrid annuity combining both. InvITs then hold the operating assets and distribute cash flows
Toll-Operate-Transfer auctions monetise existing highways
Impact on industries
- Annuity and HAM assets carry no traffic risk, so cash flow is contracted and predictable - which is what makes them suitable for InvIT holding
- Toll assets capture traffic growth and periodic rate revisions, giving inflation-linked upside that annuity structures forgo
- Traffic risk on toll concessions is real and one-directional - a forecast shortfall cannot be renegotiated, and the early-2010s experience showed how badly it can go
- Leveraged long-duration assets move against the holder when rates rise, and concession disputes over scope and compensation take years to resolve