Private Toll Roads, British-Style

Sunday, August 14, 2005

The proposal by a consortium of road builders and operators to pay Virginia $1 billion to operate the Dulles Toll Road in return for the revenue generated during the next 50 years [front page, July 26] ups the ante in the debate about public-private partnerships. While the private sector has built and operated toll roads -- in this area, the Dulles Greenway -- this is the first proposed buyout of a successful public toll road.

It has been suggested that the $1 billion paid by the consortium to Virginia could be used to help finance at least a portion of the proposed Metrorail extension to Tysons Corner. However, Virginia policymakers should look across the pond to Britain's approach to building and operating roads before accepting this proposed deal.

Since the mid-1990s, under the banner of the Private Finance Initiative (PFI), the private sector has been the major builder and operator of new roads in Britain. Unlike publicly funded road projects -- usually over budget and behind schedule -- more than 80 percent of PFI projects (more than 600 to date) have been built on time and on or under budget.

The British experience offers critical lessons for Virginia. For example:

· The private sector, which invests in the projects, should bear the risk of operating the roads. In that way, the investors have a stake in ensuring that roads are built on time, without cost overruns, and are run efficiently.

· The private sector should demonstrate expertise and access to technology to create "value for money" in building and operating the project.

· The government should define what is to be built in terms of what it wants to accomplish, but it should allow the private sector to design the most cost-effective solution for the life of the project, usually 25 to 30 years or more. Service criteria, such as lane availability and safety, should be spelled out in the contract.

· Payments from the government to the contractor should not commence until the project is complete and the services are delivered. Payments for operating a road should decrease if the operator fails to meet agreed-to performance indicators.

The Dulles Toll Road buyout proposal offers no sharing of risk, no demonstrated value for money and no performance benchmarks, all of which makes it look like a bad deal for Virginia taxpayers. However, the proposal might be restructured to bring in private investors and contractors in a British-style partnership.

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