Bypassing the Toll Booth: How Governments Shift Infrastructure Risk Without Charging Drivers
Public-private partnerships increasingly rely on availability payments and shadow tolls to fund major infrastructure projects. These financial models determine whether taxpayers or private developers absorb the cost when a new road or bridge fails to attract expected traffic.
By Tiago Sousa
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In short
- Availability payments compensate private developers based on the condition and uptime of an asset, not its usage.
- Shadow tolls pay developers per user, transferring the financial risk of low traffic to the private sector.
- Transferring demand risk via shadow tolls requires governments to pay a high risk premium to private investors.
Governments pay private developers to build and maintain infrastructure through availability payments—fixed fees for keeping an asset open—or shadow tolls, which charge the state per user. The difference dictates whether taxpayers or private investors lose money when a new highway or transit line fails to attract its forecasted traffic. When a municipality signs a 30-year public-private partnership (PPP), the chosen model defines the financial future of the region.[1][2]
The traditional toll road, where drivers toss coins into a basket or scan an RFID tag, transfers the cost of infrastructure directly to the people using it. But many essential projects, from local bypasses to courthouse buildings, cannot support direct user fees. To attract private capital to these non-tolled projects, public agencies rely on alternative revenue streams to compensate the developers who design, build, finance, and operate the assets.[1]
The World Bank’s Public Private Partnership Handbook defines the core tension in these agreements as risk allocation. "The guiding principle of a successful PPP is allocating risk to the party best able to manage it," the handbook states. Construction delays, cost overruns, and routine maintenance are operational risks that private contractors can control. Traffic volume, however, is a macroeconomic variable that neither the state nor the builder can entirely dictate.[1]
Under an availability payment structure, the public sector retains that demand risk. The government agrees to pay the private consortium a fixed annual fee, provided the infrastructure is available for use and meets strict performance standards. If a new bridge is open, well-lit, and free of potholes, the developer gets paid their full monthly installment, regardless of whether ten cars or ten thousand cross it.[2][4]
This mechanism relies heavily on performance deductions. If a lane is closed for unscheduled repairs or the lighting fails, the government docks the payment. According to the APMG International PPP Certification Guide, this guarantees the public gets a functioning asset, while the private partner gets a predictable revenue stream to service their debt. The developer's profit depends entirely on their maintenance efficiency, not on regional population growth.[2]
Shadow tolls operate on a completely different philosophy. Instead of a fixed fee, the government pays the private operator a set amount per vehicle or user that utilizes the infrastructure. The driver pays nothing at the point of use, but the state treasury acts as a proxy, transferring funds based on actual demand.[3]
This model theoretically shifts the demand risk to the private sector. If the road is empty, the developer loses money. If traffic exceeds expectations, the developer reaps a windfall. The ifo Institut’s analysis of risk in PPPs highlights that shadow tolls were originally designed to incentivize private partners to build high-quality, high-capacity routes that would naturally attract more drivers.[3]
However, transferring demand risk comes at a steep price. Private investors require higher returns to compensate for the uncertainty of traffic forecasts. While a developer might accept an 8% return on an availability payment contract due to its bond-like predictability, they may demand a 12% to 15% target equity return to absorb the volatility of a shadow toll arrangement.[3][6]
That risk premium is directly borne by the taxpayer. Furthermore, traffic forecasting is notoriously inaccurate. A 2026 review of major infrastructure projects reveals that early traffic estimates frequently miss actual usage by 20% to 30%. When private developers take on this unpredictable variable, they price the worst-case scenario into their bids, driving up the total cost of the project.[6]
Practical Law’s briefing on availability payments notes that the model has become the dominant structure for social infrastructure—such as schools and hospitals—where demand is entirely dictated by public policy rather than market forces. You cannot pay a hospital developer a shadow toll based on the number of patients without creating perverse incentives.[4]
The engineering and consulting firm Jacobs emphasizes that availability payments are increasingly preferred for transportation networks as well. In their 2026 analysis of aging roads, they argue that separating the revenue stream from traffic volumes allows governments to pursue broader policy goals, such as reducing congestion or encouraging public transit, without violating the terms of a shadow toll contract.[5]
If a city builds a new light rail line parallel to a shadow-tolled highway, the resulting drop in vehicle traffic would trigger compensation claims from the highway operator. Under an availability payment model, the city is free to manage its transportation network holistically, because the highway operator is paid for the road's condition, not its throughput.[5][6]
The transition toward availability payments reflects a maturing understanding of public finance. Early PPPs often utilized shadow tolls under the illusion that the government was entirely offloading the financial burden. In practice, when a shadow toll project faces bankruptcy due to low traffic, the state is usually forced to step in and rescue the asset to prevent a critical infrastructure collapse.[1][6]
The public sector thus retains the implicit downside risk while paying a premium to transfer the theoretical risk. By embracing availability payments, governments accept the demand risk upfront, secure lower financing costs from private partners, and maintain the flexibility to adapt their infrastructure networks to future needs. The focus shifts entirely to what the private sector does best: building efficiently and maintaining rigorously.[6]
Key terms
- Availability Payment
- A fixed periodic fee paid by a government to a private contractor for making an infrastructure asset available and maintaining it to a specified standard.
- Shadow Toll
- A payment structure where the government pays a private operator a set fee per vehicle or user, rather than charging the user directly.
- Demand Risk
- The financial uncertainty associated with how many people will actually use a piece of infrastructure once it is built.
- Performance Deduction
- A financial penalty subtracted from an availability payment if the private operator fails to meet maintenance or operational standards, such as leaving a pothole unfixed.
Frequently asked
Do drivers pay a toll under an availability payment model?
No. The government pays the private developer a fixed fee from general tax revenues to keep the road open and maintained. The driver pays nothing at the point of use.
What happens if a shadow-tolled road gets no traffic?
The private developer absorbs the financial loss because their revenue is tied directly to the number of users. However, if the developer faces bankruptcy, the government often has to step in to keep the infrastructure running.
Why do private companies prefer availability payments?
They provide a highly predictable, bond-like revenue stream that makes it easier and cheaper to secure bank loans for construction, removing the risk of inaccurate traffic forecasts.
Viewpoints in depth
The Public Finance View
Government treasuries prioritize long-term budget certainty and policy flexibility.
For public finance officials, the primary appeal of an availability payment is predictability. By retaining the demand risk, the government avoids paying the steep risk premiums that private investors demand for absorbing traffic volatility. Furthermore, separating the developer's revenue from the asset's usage preserves the government's right to alter regional policy. If a city decides to implement congestion pricing or build a competing rail line, it can do so without triggering massive compensation claims from a shadow-toll operator who relies on high vehicle counts.
The Private Investor View
Infrastructure funds seek stable, bond-like yields backed by sovereign credit.
Institutional investors, such as pension funds and life insurance companies, increasingly favor availability payments because they transform complex infrastructure projects into stable, fixed-income assets. These investors are highly capable of pricing and managing construction delays or maintenance costs, but they view macroeconomic traffic forecasting as a gamble. By accepting an availability payment, they trade the potential windfall of a shadow toll for a guaranteed, lower-yield return that perfectly matches their long-term liability obligations.
The Taxpayer Advocate View
Watchdogs focus on the hidden long-term liabilities created by off-balance-sheet financing.
Taxpayer advocacy groups often scrutinize both models, warning that PPPs can obscure the true cost of public works. While they generally prefer availability payments over shadow tolls—which have historically resulted in massive overpayments when traffic exceeds expectations—they caution that availability payments still lock municipalities into decades of mandatory spending. If a region experiences an economic downturn, the fixed availability payment must still be made, potentially forcing cuts to other essential public services.
- Public Finance Officials
- Prioritize budget certainty, lower financing costs, and the flexibility to build competing transit without triggering penalty clauses.
- Private Infrastructure Investors
- Seek predictable, bond-like returns backed by government credit, preferring to manage construction and maintenance rather than unpredictable traffic demand.
- Taxpayer Advocates
- Focus on the long-term liabilities created by PPPs, warning against models that allow private developers to reap windfall profits from public assets.
Perspectives this story doesn't cover
- Environmental Groups
- Urban Planners
Sources
[1]World BankPublic Finance OfficialsPublic Private Partnership Handbook
Read on World Bank →
[2]APMG InternationalPrivate Infrastructure Investors4.10 Availability Payments
Read on APMG International →
[3]ifo InstitutTaxpayer AdvocatesRisk and Public-Private Partnerships
Read on ifo Institut →
[4]Practical LawPrivate Infrastructure InvestorsAvailability Payment
Read on Practical Law →
[5]JacobsPublic Finance OfficialsDriving results: How public private partnership agreements improve aging roads
Read on Jacobs →
[6]Factlen Editorial TeamSynthesis by Factlen editorial team
Read on Factlen Editorial Team →
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