First generation highways. Participation loans valuation in the framework of real options

Abstract

The concept of highway has been applied in Spain to a high capacity road that does not meet all the requirements of motorways. The Strategic Plan
of Infrastructure and Transport 2005-2020 has tackled as a priority the reform of these infrastructures in the form of public works concessions,
remunerating the concessionaire using a shadow toll scheme. As part of the project financing, concession companies had public equity loans to
finance initially unforeseen works. Traditional methods of investment valuation do not quantify accurately the extent and effectiveness of such
measures. The aim of this study is to provide a methodology based on the real options theory to quantify the real value provided by these loans to
concessionaires. The study shows that this type of public loans adds an important value to the contracts. So, an adequate design of this financial
support must be considered in order to have a balanced sharing of risks.