The Study On Shadow Tolls In Non-Profit Urban Infrastructure Financing

Non-profit urban infrastructure, which is an indispensable material carrier of economy and society development, has a prominent impact on economic growth of a city. At present, traditional financing methods can't efficiently solve the problems of non-profit urban infrastructure financing; thus shadow tolls can be an effective attempt. It brings in positive cash flows in the provision of such infrastructure; therefore attract private capital to join in long-term contractual agreements of these capital intensive projects. This rescues the government from lack of public funds. The essential of shadow tolls is that government clarifies property right by establishing Project Company, prices the project based on its social benefits, and then opens possibility of resource configure optimization.Pricing and risk evaluation are the core contents of the study on shadow tolls. Shadow tolls payment structure of the projects whose service quantity can be measured will be set out based on the following steps: service quantity measurement (i.e. traffic volume), definition of volume levels, payment bands pegged to volumes determination, etc. As for projects whose service quantity can not be measured, the payment structure will be set out based on some correlated industrial index or local index instead of explicit volume index. Results of pricing can be applied to estimate the future cash flows and expected capital cost paid by government; they are the basic inputs of risk evaluation. It is important to view at the nature and quantum of risk from the different perspectives of the main parties to the projects such as public sector, private sector and lenders. Interest rate is the main risk factor to the public sector and the fluctuating range of expected capital cost paid by government can be obtained from sensitivity analysis. Uncertainty of service quantity is the main risk factor to the private sector and Monte Carlo Simulation can generate the probability distributions of possible outcomes and calculate the value at risk. Operating cost is the main risk factor to the lenders and sensitivity analysis can indicate the relationship between cost factors and lenders' benefits. Results of risk evaluation reveal the characteristics of shadow tolls contractual arrangements. They are founded on the transfer of risk from the public to the private sector, thus risk premium is the core problem of business negotiations. It requires more political support from the government and less changes on those policies to make a fuller engagement of the private sector effective.