Kazuaki MIYAMOTO Tokyo City University miyamoto@tcu.ac.jp

1. OECDInternational Transport ForumPublic Private Partnerships for Funding Transport Infrastructure:Sources of Funding, Managing Risk and Optimism Bias(27-28 September 2012) The Nature of The Japanese Toll Road PPPs Kazuaki MIYAMOTO Tokyo City University miyamoto@tcu.ac.jp

2. Purpose of Presentation • To explain the privatization of Japan Highway Public Corporations after 2005 • Contents • Objective • Outline • Roles of Agency and Companies • Lease Fees • Trend of Debts, Plan & Performance • Business Conditions • Toll and Affiliated Business Revenues of Companies • Concluding Remarks

3. Main Sources for this Presentation Reference 1 Reference 2 http://www.jehdra.go.jp/panfu2011_english.html http://global.c-nexco.co.jp/en/aboutus/index.html

4. Objective of Privatization • To secure the repayment of interest-bearing debts amounting to about 40 trillionYen. • 40 trillion Yen (US$ 500 billion): 8% of GDP • To construct, without delay, genuinely needed expressways with minimum fiscal burden on the general public, while paying due respect to the autonomy of the Companies. • To offer diverse and flexible prices and services to expressway users by utilizing the private sector’s know-how.

5. Outline of Privatization Metropolitan-wide /Trans-island Networks Nation-wide Network NEXCOs West East Central Reference 1

6. Reference 2

7. Reference 2

8. Scheme for the Implementation of Expressway Business Activities by Agency and Companies Efficient implementation of business activities Secure repayment of debts within 45 years Reference 1

9. Flow of Expressway Assets/Debts between the Agency and Companies Refinance 20% is not guaranteed by the government. Disclosure Market Modified from Reference 1

10. Initial Setting of Lease Fees • Tolls are determined by the following principles; • Tolls should be reasonable and acceptable by the public in comparison with other transport prices • The debt should be paid back within a limited term • Debts of individual routes are “pooled” into those of the network to which they belong. • A term of 45 years is set to pay back all the debts within the toll road scheme. • Lease fees are determined basically, Lease fee= (planned) toll revenue – (planned)(operating and maintenance costs)

11. Floating Rent System(Lease Fees) Within the agreement term: 5 years Source: Japan Expressway Holding and Debt Repayment Agency

12. Update of the Agreements • Lease fees are to be updated by around 5 years, based on the performance in the previous years. • Toll may be changed according to the performance with the condition that all the debts are to be paid back within 45years (by 2050).

13. Trend of Debts, Plan & Performance Source: Japan Expressway Holding and Debt Repayment Agency

14. Reasons for the Recent Performance in Debt Repayments • Successful finance with lower interest rates. • Reductions in construction costs (by incentive scheme to be explained in the next slide).

15. Business Conditions • Expressway companies are not expected to earn profits or make losses through expressway construction and operation. (Act on Special Measures concerning Road Construction and Improvement) • However, expressway companies are eligible for • certain incentive payments if construction is completed at a lower cost than originally estimated, as and when the Agency recognizes that such cost reductionsare due to the companies’ efforts. • Also, the companies may earn profits through other activities, such as the operation of rest areas.

16. Revenues from other activities Reference 2

17. Toll and Affiliated Business Revenues of NEXCOs (Billion Yen) 150.1 1 562.9 4 (Sources: each NEXCO’s publicized information)

18. Sales Revenues from Non-transport Businesses in the cases of Railways Life-Style Business Development Headquarters, East Japan Railway Company: Overview of JR East’s Life-Style Business–Present Situation and Future Prospects–October 13, 2011

19. Concluding Remarks • The scheme was devised in order to fit to the conditions of toll highway network in Japan. • The privatization program has been well managed so far. • When the sources of funding are discussed, affiliated businesses cannot be neglected as the cases in Japan show.