University of Oulu

Leviäkangas, Pekka (2007) Private finance of transport infrastructure projects : value and risk analysis of a Finnish shadow toll road project. VTT Publications 624. URI:

Private finance of transport infrastructure projects : value and risk analysis of a Finnish shadow toll road project

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Author: Leviäkangas, Pekka1
Organizations: 1University of Oulu, Faculty of Technology, Department of Industrial Engineering and Management
Format: ebook
Version: published version
Language: English
Published: Espoo : VTT Technical Research Centre of Finland, 2007
Publish Date: 2007-02-13
Thesis type: Doctoral Dissertation
Defence Note: Academic dissertation to be presented, with the assent of the Faculty of Technology of the University of Oulu, Department of Industrial Engineering and Management, for public defence in Lecture Room of VTT, Kaitoväylä 1, Oulu, on March 2nd, 2007, at 12 noon.
Opponent: Professor Antti Talvitie
Professor Harri Kallberg
Kustos: Professor Harri Haapasalo


There is a growing interest to find ways and methods to finance capital investments in infrastructure by deploying private capital. Entering private capital into transport infrastructure planning, construction, and maintenance markets requires that the investors’ behaviour and motives are understood. Private sector financing of infrastructure and other larger-scale investments have increasingly taken the form of project finance. The project cash flows are divided by equity investors, debt investors, contractors and suppliers and the users that receive the service.

This research investigates the characteristics of a feasible framework for private finance of road infrastructure projects using one case project as an aid, which is analysed in depth. The research makes an effort to find out whether private finance of road infrastructure projects is able to bring additional benefits for the state and the project investors and whether private finance is applicable from the viewpoint of the aforementioned.

The concept of risk is presented in the framework of financial theory. The relevant project cash flows are identified, as their volatility builds the risks of the project. The project cash flows are studied in detail as to how they form the value of the project. One essential outcome is the project model. The empirical model is built in view of the decision making point on case project in 1996, when the bidding for the project was officially initiated. Recent observed, real data is used to validate the project model. The sub-models of the project model include the cash flow model and the risk structure model, the former based on financial theory and Capital Asset Pricing Model, the latter based on the cash flow model and literature on risk. Simulation is used as the primary method of analysis.

The primary source of time series data for economic variables, traffic volumes and road operating and construction is the Finnish Road Administration’s production statistics.

The case project finance is evaluated from multiple angles — what type of projects and what type of investors seem to be appropriate for shadow toll finance. Also some policy recommendations are provided. The private investors can gain by financing infrastructure projects, but it comes with a price, which is always paid by the taxpayers or users. To justify private finance, the beneficial aspects of private capital deployment must be substantial. The projects must be the best projects from a socio-economic viewpoint and not the ones that do not survive the competition in the normal budgetary process.

Different risk factors are behind the long-term value risk and short-term insolvency risk of the project company. Project-specific risk factors are at least as important as economy level factors.

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Series: VTT Publications
ISSN: 1235-0621
ISSN-E: 1455-0849
ISSN-L: 1235-0621
ISBN: 978-951-38-6881-9
ISBN Print: 978-951-38-6880-2
Issue: 624