Top 7 considerations to achieve commercial sustainability for toll roads

The economic dynamic in Asian countries is more often associated with the progression of infrastructure development. A World Bank study suggested that infrastructure has a more significant impact on developing than developed economies¹. Toll roads, in particular, have the potential positive impact on regional economic development by improving connectivity, reducing travel time, and decreasing logistics costs. The effect of toll road development is not only to alleviate the congestion to a broader network, but is often the case that it also stimulates economic growth of zones with direct connectivity to the toll road. There have been several studies showing the positive impacts that toll roads bring to regional economic development².

From an investment perspective, toll roads are believed to be highly able to attract private investment since they can recover the costs of their operation and construction directly through toll charges³. However, toll road development can only be attractive to investors and lenders if long-term operation sustainability is achieved.

To ensure the long-term operation sustainability of toll roads, there are at least several key areas must be assessed thoroughly to form a solid commercial and financial foundation for the sustainability and long-term viability of toll roads⁴.

• Is the toll road strategically the best option? While this is more applicable to a new project, understanding the strategic transport supply and demand will give a broader sense of whether or not a currently operated toll road may sustain itself in its remaining concession period. Therefore, it will provide investors with insights before deciding to invest.
• How affordable is the toll road from the cost and revenue perspective? Financially, it is vital to understand how much traffic demand and revenue can cover the cost of building, operating, and maintaining the toll road.
• How robust is the demand forecast in considering the various micro and macroeconomic contexts that will influence traffic demand? While demand forecast may involve a great deal of uncertainty and is highly susceptible to poor-quality input data, the establishment of a robust demand forecast should take into consideration the more comprehensive range of relevant assumptions covering historical data, the impact due to development driver, economic growth, user segmentation, utilization rate due to dynamic over the year, the toll rate, and so forth.
• How has the toll rate setting been optimized to address various economic and financing perspectives? Several priority factors can be considered in setting toll rates. These include the historical trend of increase, subsidy amount, sensitivity to traffic demand, and the overall expected revenue.
• What other financing opportunities can be explored to ensure the affordability and bankability of the toll road project? This can be in government support, financial institution subsidy loans or grants, etc.
• How can toll road user segmentation address the objective? This will explain how toll rates can be set to address different target markets, such as light or heavy vehicles, low or high occupancy vehicles, peak or off-peak usage, green or non-green vehicles, and other possible considerations.
• Last but not least, what will the duration of the toll road concession be to ensure such operational sustainability? This will take into consideration the above vital aspects.

Toll road planning and implementation come with challenges and complexities; however, they can be avoided by applying a strategic and proactive approach to planning.

Whilst this article focused greatly on the key considerations to ensure the commercial and financial viability and sustainability of toll road projects, other areas such as policy and regulatory climate, environment and social impact, technology and adaptability, and capacity building can’t be overlooked either.

Ramboll Smart Mobility in APAC has delivered technical aspects of toll road advisory services for hundreds of assets in Asian and Southeast Asian countries, including India, Indonesia, and Myanmar.

Learn more here.

¹ How Much does Physical Infrastructure Contribute to Economic Growth? An Empirical Analysis (worldbank.org)

² Toll road impact on regional economic development. Journal of Economics & Management Research, 1–7 (researchgate.net)

³ Success factors for financial sustainability of toll road projects: empirical evidence from China, (Sciencedirect.com)

⁴ ADB DECISION MAKERS’ GUIDE TO ROAD TOLLING IN CAREC COUNTRIES (ADB.org)