Flexible concession expiry date to create cost-plus-profit model for project sponsor

Ruta del Maipo

Following a 1997 study, the Government of Chile sought to improve the country’s main North- South axis between the cities of Santiago and Talca
The 237km project consisted of three main deliverables: The Santiago Southern Access road, the Rancagua bypass, and the widening of portions of Route 5 south of Santiago

Pressure on government finances due to a variety of economic factors, including regional crises in Latin America, currency fluctuations, and the Asian Financial Crisis (impacting copper prices, Chile’s main export)
Desire to build a national network without straining public finances

Initial concession granted was more traditional in setup, with the project sponsor expected to recoup construction and operating costs from toll income over a fixed period of time
However, the agreement was revised in 2003 due to cost overruns to not have a fixed expiry date, and would only terminate once the sponsor had recouped the capital invested plus an agreed upon profit

Ruta del Maipo Sociedad Concesionaria — SPV in charge of building and later operating the concession
Intervial Chile — Owner of the SPV and of other SPVs along the country's North-South axis for a total
of 907km
Interconexión Eléctrica — Colombian concession operator and owner of the above (previous owners included Ferrovial, similar Spanish company)
Ministry of Public Works (Chile) — Scheme regulator

The project raised investment of c. USD 706M for the construction of the artery
Travel time from Santiago to Talca was reduced from c. 5 hours to c. 3 hours
The route has seen a traffic increase of 40% in the period between 2013 and 2018
The project's success grew investor confidence in the development of other highway PPP schemes in Chile and Latin America

Operating with an indefinite concession timeline, ending only upon achieving an agreed cost-recoup plus profit amount for the project sponsor, removes the financial risk for investors that toll income will be insufficient to provide cost recoup plus ROI within the agreed concession time-period
The target value to be reached for the concession to end can also include provisions for cost overruns, or be revised to reflect significant updates or project scope amendments, thus further protecting investor ROI
The successful modification of the contract in 2003, after the inauguration of a significant part of the project, demonstrates that although not ideal, modification of PPP agreements mid-stream can occur and can be successful long-term if parties approach the matter seeking mutual benefit