Highway Robbery? A Financial Analysis of Design, Build, Finance and Operate (DBFO) in UK Roads

Jean Shaoul, Anne Stafford and Pamela Stapleton

Transport Reviews, 2005, vol. 26, issue 3, 257-274

Abstract: The ex‐post facto cost of using private finance in roads is examined using a case study approach. The paper focuses on the first eight design, build, finance and operate (DBFO) roads commissioned by the UK Government’s Highways Agency and paid for through a system of shadow tolls. It carries out a financial analysis of the publicly available accounting information from the Highways Agency and its private sector partners for the first 6 years since the start of the 30‐year schemes in 1997. Publicly available financial information about the schemes was found to be limited and opaque. In 3 years, the Highways Agency had paid more than the construction cost. It was unclear whether the payments were higher than expected at financial close. Its private sector partners reported a post‐tax return on capital of 29% and an effective cost of capital of 11% in 2002, twice the cost of public finance. However, operating through a complex web of subcontracting creates additional, undisclosed sources of profit for their parent companies that make it difficult to establish the total cost of using private finance. The paper questions the wisdom of using private finance by providing evidence about the cost, including the cost of risk transfer.

Date: 2005
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DOI: 10.1080/01441640500415243

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