Comparison of toll and annuity PPPs: a case study of highway projects in India

Purpose: The use of public–private partnership (PPP) approaches for developing infrastructure has been well recognized. The allocation of risk between public authority and private sector differs among the different types of PPP projects. The objective of the paper is to analyze the factors that influence the type of PPP and the performance of different types of PPP contracts. Design/methodology/approach: A unique data set of 202 national highway PPP projects from India, comprising 154 toll and 48 annuity projects formed the basis of the study. Findings: There are significant differences between toll and annuity PPP projects. The former are longer, are implemented in better developed states but are also characterized by higher cost over-runs. The latter are characterized by higher debt–equity ratio. Practical implications: Mitigating revenue risk can significantly enhance the debt capacity of the projects, thereby reducing the overall cost of capital. To make toll roads attractive for bidders, they have to be developed as longer stretches. Toll projects that are immediately ready for development at the time of award would reduce cost overruns of toll projects and sustain the interest of private developers. Originality/value: Comparison of toll and annuity PPP road projects has never been done previously. The unique data set used in this study highlights the differences in characterization and performance for both the project types. The study provides evidence support to “intuition” and enables policymakers to choose the right form of PPP to realize their objectives.