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Private traffic risk... guaranteed by taxpayers
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Private investors love traffic risk. Especially when the government carries it. India wants to revive private highway investment. Its traditional BOT model had collapsed. Less than 5% of highway projects got someone signing a BOT contract. So the government changed the model. Traffic-risk sharing. Revenue support. Government buyback. Suddenly, private investors are interested again. Funny how that happens. Let’s be fair. Sharing traffic risk may be exactly the right decision. Traffic is difficult to predict, almost impossible for the private sector to control, and spectacularly good at destroying financial models. But please don’t call it risk transfer. The risk has not disappeared. It has simply left the private balance sheet, crossed the road, and is now sitting inside Treasury pretending to be a footnote. If traffic performs, everyone celebrates private-sector efficiency. If traffic disappoints, the contingent liability removes its glasses and introduces itself to the taxpayer. “Hello. We’ve met before. I was on page 137 of the Board paper.” I come from Spain… I know this case very well… This is how governments make projects “bankable.” They provide a guarantee. They don’t properly price the guarantee. Then they describe the project as privately financed. Lovely. Bankability bought with an unpriced public guarantee is not free. It is a cost deferred. Usually until the road is open, the traffic is missing, the competitive tension is dead and everybody involved in the original decision has found another job. Before you send the Board paper calling the exposure “limited”… Before you recommend that Ministers approve the guarantee… Before you announce that the risk has been “transferred”… Ask three questions: Who keeps the toll? Who carries the downside? And who pays when the model is wrong? If the answers are buried in Appendix 41, you may have a problem. That is what Before You Send is for. A second pair of experienced eyes before your carefully drafted recommendation becomes somebody else’s very expensive reality.
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Vicente Valencia
Weekly insights on how to perform when it matters | High-stakes decisions. Real situations. No BS. | 👇JOIN +2k readers 👇
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