Bypassing the Toll Booth: How Governments Shift Infrastructure Risk Without Charging Drivers

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]