OECD International Transport Forum Public Private Partnerships for Funding Transport Infrastructure: Sources of Funding, Managing Risk and Optimism Bias (27-28 September 2012) The Nature of The Japanese Toll Road PPPs Kazuaki MIYAMOTO Tokyo City University [email protected] Purpose of Presentation • To explain the privatization of Japan Highway Public Corporations after 2005 • Contents – – – – – – – – Objective Outline Roles of Agency and Companies Lease Fees Trend of Debts, Plan & Performance Business Conditions Toll and Affiliated Business Revenues of Companies Concluding Remarks Main Sources for this Presentation Reference 1 http://www.jehdra.go.jp/panfu2011_english.html Reference 2 http://global.c-nexco.co.jp/en/aboutus/index.html Objective of Privatization • To secure the repayment of interest-bearing debts amounting to about 40 trillion Yen. – 40 trillion Yen (US$ 500 billion): 8% of GDP • To construct, without delay, genuinely needed expressways with minimum fiscal burden on the general public, while paying due respect to the autonomy of the Companies. • To offer diverse and flexible prices and services to expressway users by utilizing the private sector’s know-how. Outline of Privatization Metropolitan-wide /Trans-island Networks Nation-wide Network NEXCOs East Central West Reference 1 Reference 2 Reference 2 Scheme for the Implementation of Expressway Business Activities by Agency and Companies Efficient implementation of business activities Secure repayment of debts within 45 years Reference 1 Flow of Expressway Assets/Debts between the Agency and Companies Refinance 20% is not guaranteed by the government. Disclosure Market Modified from Reference 1 Initial Setting of Lease Fees • Tolls are determined by the following principles; – Tolls should be reasonable and acceptable by the public in comparison with other transport prices – The debt should be paid back within a limited term – Debts of individual routes are “pooled” into those of the network to which they belong. • A term of 45 years is set to pay back all the debts within the toll road scheme. • Lease fees are determined basically, Lease fee= (planned) toll revenue – (planned)(operating and maintenance costs) Within the agreement term: 5 years Floating Rent System (Lease Fees) Source: Japan Expressway Holding and Debt Repayment Agency Update of the Agreements • Lease fees are to be updated by around 5 years, based on the performance in the previous years. • Toll may be changed according to the performance with the condition that all the debts are to be paid back within 45years (by 2050). Trend of Debts, Plan & Performance Source: Japan Expressway Holding and Debt Repayment Agency Reasons for the Recent Performance in Debt Repayments • Successful finance with lower interest rates. • Reductions in construction costs (by incentive scheme to be explained in the next slide). Business Conditions • Expressway companies are not expected to earn profits or make losses through expressway construction and operation. (Act on Special Measures concerning Road Construction and Improvement) • However, expressway companies are eligible for – certain incentive payments if construction is completed at a lower cost than originally estimated, as and when the Agency recognizes that such cost reductions are due to the companies’ efforts. – Also, the companies may earn profits through other activities, such as the operation of rest areas. Revenues from other activities Reference 2 Toll and Affiliated Business Revenues of NEXCOs (Billion Yen) East Toll Revenue Affiliated Business Revenue SAs and PAs Others Total Sales in SAs and PAs (including tenant shops) Central West 562.9 476.7 568.0 61.9 51.7 52.7 43.5 36.1 34.5 18.3 15.5 18.1 150.1 161.3 141.3 150.1 1 562.9 4 (Sources: each NEXCO’s publicized information) Sales Revenues from Non-transport Businesses in the cases of Railways Life-Style Business Development Headquarters, East Japan Railway Company: Overview of JR East’s LifeStyle Business–Present Situation and Future Prospects–October 13, 2011 Concluding Remarks • The scheme was devised in order to fit to the conditions of toll highway network in Japan. • The privatization program has been well managed so far. • When the sources of funding are discussed, affiliated businesses cannot be neglected as the cases in Japan show.