the rab model in financing transport infrastructure september 28th 2012 prepared for itf round table...
TRANSCRIPT
The RAB modelin financing transport infrastructure
September 28th 2012
Prepared for ITF round table
Andrew Meaney, Managing Consultant
Peter Hope, Senior Consultant
September 28th 20122
What is the RAB model?
- allows recovery of fixed costs
- overcomes time inconsistency problem: commitment device
- initial value and form of additions/depreciation critical
- needs regulator or similar
RAB
Cost of capital Return
DepreciationAsset lives
OPEXCAPEX
Efficiency assumptions
Efficiency assumptions
OPEX
Allowed revenues
September 28th 20123
Issues from yesterday: can RAB help?
Transaction costs
Problems with the bidding process
Lack of flexibility
Might be lower than with PPP if piggy-back on existing (competent, well-respected) regulators and the rule of law
Still an issue, but for different reasons (initial value)
Big advantage for RAB here—mechanism for changing tariffs as circumstances change. Enables upgrades/renewals
SustainabilityRecord of investments and liabilities. Can be used with ‘special administration’. Enables monitoring and transparency
Nervous capital markets
RAB model well understood by investors; needs credible and trustworthy regulatory framework
September 28th 20124
PPP and RAB: horses for courses
- both PPPs and the RAB model represent potential ways in which the time inconsistency problem may be solved
- investor familiarity with both models
- relative advantages of the approaches may depend on the specifics of the project
- RAB preferable where contracting inflexibility,high transaction costs
- high cost of regulation RAB not feasible
- small saving in the cost of capital large absolute saving
- important to evaluate a number of options
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Contact:
Peter Hope
+44 (0) 20 7776 [email protected]
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