Transportation Infrastructure Financing: Evaluation of Alternatives

Abstract

As part of the transportation infrastructure modernization program, a 24-km Colombo-Katunayake Expressway (CKE), is being envisaged between the Colombo International Airport (CIA) and the city center. The Road Development Authority (RDA) has identified an alignment for the facility, which would become the nation's first access controlled road toll. However, the RDA, whose total annual budget is $100,000,000, must seek funds from nontraditional sources to initiate this estimated $90,000,000 project. This paper presents the findings of a financial viability and investment risk analysis of CKE under different financing options. Four of the financing options available to the RDA are discussed in light of experience with privately financed roads elsewhere. The sensitivity of the project's financial returns and risk to variables governing cash flows under the four options are tested using the Monte Carlo simulation. It is shown that expected demand and project cost have a profound effect on return and risk. Thus, it is concluded that the project can only materialize either as a joint venture with a large equity stake from the government or as a public facility.