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They forgot a small detail...
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One of my fauvorites… A toll road PPP. Beautiful business model. Traffic studies. Economic growth projections. Sophisticated demand modelling. Consultants everywhere. Like queuing for free ice-cream… The road opened in 2007. The project was the South Bay Expressway SR‑125 toll road. Everything looked perfect on paper. Except for one small detail. Drivers. They didn’t show up. The financial model predicted tens of thousands of vehicles per day. Reality? Sometimes traffic was 70–80% lower than forecast. Which is a polite way of saying: The road was empty. Very empty. And the consultants “la j0dieron”… The investors were led by Macquarie Infrastructure Group, one of the most sophisticated infrastructure investors in the world. If anyone knew how to forecast traffic… It should have been them. But toll road forecasting has a nasty habit. It looks scientific. Spreadsheets. Elasticity curves. GDP projections. Population growth. But at the end of the day… It’s still a prediction about human behaviour. And humans are stubborn creatures. They will happily sit in traffic for 40 minutes… Just to avoid paying $4 in tolls. Three years after opening… The project filed for bankruptcy. Billions invested. Years of work. All because the most important assumption in the model was wrong: That people would actually use the road. Which is why experienced PPP investors always say the same thing. Construction risk? Manageable. Financing risk? Manageable. Political risk? Annoying, but manageable. Demand risk? Terrifying. Now, you know why availability payments is the “new big thing”… Because when traffic is 90% below forecast… There is no clever refinancing that can save you. Only a very expensive lesson. Cheaper lessons, but also full of knowledge, below: ​The 100 Q&A You Must Know about PPPs​ PD 1: If you liked this email, don't keep it in secret and forward it to a friend. They will thank you enormously one day. PD 2: If somebody has sent you this email and you want to receive emails like this yourself, visit vicentevalencia.com PD 3: If you want unsubscribe, click the link below. |
Vicente Valencia
I talk about Personal Growth, Management, Infrastructure and More | 👇JOIN +2k readers 👇
Selling used stuff online is hard work. A lottery. A candy box. I tried it once. In less than 5 minutes, I got a message. 30 seconds later, I knew it was a scam. Emoticons. Broken grammar. Asking for my number immediately… when the platform literally tells you not to. Block the user. Close the chat. And then do what a good SPV CEO does… Subcontract. Pass it to someone who knows better. Create the right incentives. Supervise. Manage issues. Etc. Life is just another PPP. Your standards say a...
The pattern... Different country. Different name. Same movie. A “strategic” project. Big announcements. Strong political backing. Aggressive bids. Beautiful financial models. Everyone smiling at financial close. And then… After bonuses paid and elections won… Reality. Costs go up. Time disappears. Risks… yes, those that were “managed” and “transferred to the party better able to deal with”, start showing up. Suddenly: - contracts are “reinterpreted” - assumptions were “too optimistic” -...
When people talk about successful projects, these are the usual suspects: The deal was clear from day one Risks were allocated… not hidden The wrong bidders didn’t show up Time was respected Decisions were made early The contract was readable Banks believed the story Equity had skin in the game The public side knew what it wanted Advisors added value (for once) Construction was not “optimistic” Problems were solved fast Ego was controlled Operations were considered from day one Someone owned...