Transport Policy xxx (xxxx) xxx–xxx

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Transport Policy
journal homepage: www.elsevier.com/locate/tranpol

Analysis of revenues, costs and average costs of highway concessions in

Chile
Cristian Vergara-Novoaa, Juan Pedro Sepúlveda-Rojasa,∗, Miguel D. Alfaroa, Pablo Sotoa,
Paulo Andrés Benitez-Fuentesb
a
Department of Industrial Engineering, University of Santiago of Chile, 3769 Ecuador Ave, Santiago de Chile, CP 7254758, Chile
b
Faculty of Engineering, Universidad Andres Bello, Santiago, Chile

A R T I C LE I N FO A B S T R A C T

Keywords: In this document we present an analysis of the revenues generated, the total costs and average costs incurred by
Highways Chile's highway concessionaires between the years of 1995 and 2014. We have collected financial data from the
Concessions Chilean Assets and Insurances Authority's website, and with this data, we have determined that the highway
Public private partnership concessions system (as a whole) generated revenues of around 25,137 million dollars and incurred total costs of
Highway costs
21,193 million dollars during this period. Therefore, they have gained a profit of 3944 million dollars. Moreover,
the accumulated investment by 2014 was approximately 12,000 million dollars and, therefore, the capital
revenue was 26%. However, since the concessionaires' capital structure, in general, considers 20% as equity and
80% as debt, then the equity's return rate could have been over 100%. Additionally, we estimated the average
costs (unitary costs), and found that this industry presents natural monopoly characteristics because its average
cost decreases as vehicle flow increases. Furthermore, we compared the average costs of main concessionaires
with their weighted average fares and discovered that some of fares are over valuated between 30 and 330%.

1. Introduction the producer's revenues and costs, we decided to research the total
revenues, total costs and average costs of the Chile's highway conces-
After The Melon Tunnel was contracted in 1995, a further 32 road sion system. Our objective is to explore the evolution of revenues and
projects were introduced in Chile. This has allowed Chile to improve its costs and to determine the approximate gap between average cost of
highway system, reduce its inland logistics cost and reduce the travel main highway concessions that form the system and the average fare
time in urban zones, thus increasing productivity and improving the paid by users in 2014.
standard of living. In order to achieve this, we collected the financial information of
By 2014, the amount of total investment allocated by private the highway concessionaire companies from the Chilean Assets and
companies to road concession projects was just over than 12.000 mil- Insurances Authority's website (www.svs.cl). We then constructed a
lion dollars, with 63% of this sum corresponding to interurban projects database with the revenues and costs of 33 companies between 1995
and 37% to urban highways. and 2014, which allowed us to do an aggregated analysis and determine
The highway concessions system plays an important role in the lives the gap between the fares paid by system users and the average costs for
of the Chilean people, since they use these highways as a way to reach main system players.
destinations and to carry out social or productive activities. For these This document is organized as follows. In section 2, we present a
reasons, the length of travel time, cost of fares, safety levels, and the review of the related literature associated with highway concessions,
quality of other such services provided by the system are important. the key indexes to express the output provided by highways and the
However, in Chile, travel time and fares have increased constantly regulation process about concessions. Section 3, presents the metho-
throughout the years, and this has been the main focus of claims and dology used in this research. In section 4, we present the aggregated
complaints from users who perceive high levels of congestion on the analysis of revenues and costs incurred by highway concessionaires.
roads (increment in travel time) and higher fares. Section 5, presents an analysis of concessionaire output and the esti-
Since we realized that the cost of fares must be directly related to mation of average costs for Chile's highway concessions. Section 6,

∗
Corresponding author.
E-mail address: juanpedro.sepulveda@usach.cl (J.P. Sepúlveda-Rojas).

https://doi.org/10.1016/j.tranpol.2019.08.008
Received 21 May 2019; Accepted 23 August 2019
0967-070X/ © 2019 Elsevier Ltd. All rights reserved.

Please cite this article as: Cristian Vergara-Novoa, et al., Transport Policy, https://doi.org/10.1016/j.tranpol.2019.08.008
C. Vergara-Novoa, et al. Transport Policy xxx (xxxx) xxx–xxx

details a comparison between system average fares and average costs be generated by the fares paid by the users. Consequently, after the debt
for main players. Finally, in section 7 we establish the main conclusions (along with any interest) and the operational costs were paid, the SPV
of the analysis. might pay dividends.
Engel et al. (2014), mention that the money flow of a concession
2. Review of related literature system over time consists in high investment at the beginning of the
process, which finances the highway construction period, throughout
Infrastructure concessions fall into the literature field of Public years 3–5 of the project. After that, once the works begins to operate,
Private Partnerships (PPP), a financial mechanism that allows the State the SPV incurs operational, maintenance and financing costs, along
to save funds in infrastructure, by contracting private companies to with dividends.
make the investment and then paying them for having built the road With respect to the cost analysis (total and average costs), many of
and thereafter for operating it. In this context, by means of public the authors of papers relating to infrastructure projects measure the
tenders the State and a company sign a contract that establishes the costs using output indexes related to kilometers, kilometers-lane or
conditions for building and operating the highway. The private com- vehicle-kilometers per year. For example, Collier et al. (2013), in the
pany must finance the public work construction and after that, it can context of infrastructure financed by the State, use a database with
operate it and charge the travelers who use the highway by means of a more than 300 unitary costs, measured as cost per kilometer in devel-
fare for a period of time (World Bank, 2016; Coordinación de oping countries. This technique aims to estimate a unitary cost function
Concesiones, 2016). that depends on labor and capital (as inputs) and highway length (as
The use of PPP has spread across the world since the 1990s. output).
According to an estimation by Gatti (2013), based on World Bank sta- In the same way, the African Development Bank (2014) with the
tistics, the main regions that have used this mechanism are: South objective of forming a large unitary costs database from projects
America and the Caribbean, Asia and Central Europe. Some South launched between 2000 and 2010, ordered research that collected this
American countries have been able to increase their public works similar information from 112 launched projects in 29 African countries.
budget through the use of PPP because of privatization policies laun- The costs were measured using kilometers-lane. This research also de-
ched in the 1990s. The main focuses of PPP are economic sectors like termined that the unitary cost of construction or repaving decreases as
energy, telecommunications and transport. the kilometer-lane increases.
In the area of transport, PPP has allowed countries like Chile to Additionally, Heralova et al., 2014 show that highway building
improve the standard of its highway system by means of public work prices in the Czech Republic have increased around 30%, unlike general
concessions. There are several works that deal with PPP related to building prices, which have decreased. Besides that, they show the
highways. For example, in the work of Rouhani et al. (2015) are studied main costs in this type of project are design, land and construction.
the effects of different tolling approaches on profit maximization and Specifically, they estimated unitary cost by kilometer and lane-kilo-
the optimization of the system. In Bonnafous (2015) is analyzed the meter, and demonstrated that the unitary cost of construction is 88%
impact on economic regulation caused by a European directive that led over the unitary total cost.
France to open this market to private companies. In Garrido et al. In Italy, Massiani and Regazzi (2008) instead chose to determine
(2017) is studied if the financial support of the European Union im- operational cost estimations for highway concessionaires using data
proves the economic performance of the PPP. In Kumar et al. (2018) the from 2006, which measures cost in vehicle-kilometer. In Germany, Link
financial risk of highway projects is analyzed and is simulated the un- (2006), in the context of the UNITE project (UNIfication of accounts
certainty in real cases of highways PPP in India. and marginal costs for Transport Efficiency), estimated infrastructure
In microeconomics literature, a concession highway must be con- marginal costs for trucks, measure in kilometers-truck. In the same way,
sidered a natural monopoly (Engel et al., 2014; Mankiw, 2002), since it the consultant company Ce Delft, in Doll and Van Hessen (2008),
allows concessionaires to discriminate between those who can pay and compared revenues and costs for several highways in Europe, as re-
those who cannot. Given this, the highway could not be classed as a quested by the DG Tren European Commission, and they also de-
public good. Additionally, natural monopolies are associated with high termined the average cost for trucks measured in vehicle-kilometer.
investment costs (fixed costs) and, therefore, their average costs de- Lastly, regarding fares and revenues regulations in a natural
crease as the product increases. That is, they have decreasing unitary monopoly context where the average cost curve decreases, micro-
costs (Frank, 1992). Thus, natural monopolies have scale economies economic literature suggests two kinds of regulations (Varian, 2010;
and, therefore, their marginal costs are lower than their average costs. Frank, 1992). Firstly, it proposes setting the fare according to the
For this reason, it becomes necessary to regulate their revenues or fares. average or marginal cost incurred by the monopoly. Another alternative
This kind of monopoly classification would be a sufficient condition in a suggests setting the capital revenue rate in such a way that the mono-
single output context over a wide range of the output, according to poly's profits are fixed. With regard to the production scale, Frank
Joskow (2007). However, highways concessionaries’ output might be (1992) says that in a natural monopoly context, the company with the
multiple and additional conditions should be verified. greatest share of the market might remove its competitors from the
In order to launch a highway concession contract within a PPP market, and for this reason, we think a hard regulation would be ne-
context, the financial and administrative organization of private com- cessary within an infrastructure context.
panies must start a new company denominated as Special Purpose To summarize the literature related to highway concessions, it is
Vehicle (SPV), whose one and only objective is to run the business possible to conclude that concessions can be defined as projects fi-
which will construct and operate the new highway. To that end, the nanced mainly by PPP, in which the sponsor company is created for the
SPV acts as a sponsor for the project. The SPV ought to obtain financing sole purpose of launching and operating the works, with high levels of
and will also have to sign several contracts with building and highway debt (70–90%) and low levels of equity (10–30%). With regard to the
operating companies (Engel et al., 2014). costs, the output has been measured in kilometer-lane, vehicle-kilo-
According to Yescombe (2002) SPVs are high debt businesses, since, meter and kilometers; terms which have been found in several projects.
in general, they have debt to equity rates ranging from 70 to 90% be- Microeconomic literature recommends two alternatives for regulating
cause infrastructure projects require high investment. Therefore, the natural monopolies. These alternatives are setting fares using the
equity from sponsors must be complemented with debt. In these cases, average or marginal cost, or establishing a capital revenue rate. Finally,
Gatti (2013) says the infrastructure acts as collateral for financiers and regulators must be careful in a natural monopoly context because
that the debt must be repaid with the money flow generated by the companies who have a greater market share might eliminate the others
project once in operation. In highway projects, said money flow would competitors due to the advantage of scale economies.

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C. Vergara-Novoa, et al. Transport Policy xxx (xxxx) xxx–xxx

Table 1
Chile's highway concessions under analysis.
Concessionaire

Number Name Project Name Type Investment (million dollars)

1 Sociedad Concesionaria Autopista Del Sol S.A. Ruta 78 Santiago-San Antonio Interurban 271
2 Sociedad Concesionaria Autopista Del Itata S.A. Acceso Norte a Concepción Interurban 300
3 Sociedad Concesionaria Autopista Del Aconcagua S.A. Ruta 5 Tramo Santiago-Los Vilos Interurban 602
4 Sociedad Concesionaria Autopista Los Libertadores Ruta 57 Santiago-Colina-Los Andes Interurban 194
S.A.
5 Sociedad Concesionaria Del Elqui S.A. Ruta 5 Tramo Los Vilos-La Serena Interurban 387
6 Ruta Del Bosque Sociedad Concesionaria S.A Ruta 5 Tramo Chillán-Collipulli Interurban 417
7 Ruta De Los Rios Sociedad Concesionaria S.A. Ruta 5 Tramo Temuco-Río Bueno Interurban 345
8 Sociedad Concesionaria De Los Lagos S.A. Ruta 5 Tramo Río Bueno-Puerto Montt Interurban 399
9 Ruta De La Araucania Sociedad Concesionaria S.A. Ruta 5 Tramo Collipulli-Temuco Interurban 508
10 Sociedad Concesionaria Rutas Del Pacifico S.A. Ruta 68 Santiago-Valparaíso-Viña del Mar Interurban 673
11 Ruta Del Maipo Sociedad Concesionaria S.A. Ruta 5 Tramo Santiago – Talca y Acceso Sur a Santiago Interurban 1357
12 Sociedad Concesionaria Litoral Central S.A. Red Vial Litoral Central Interurban 162
13 Sociedad Concesionaria Autopista Interportuaria S.A. Ruta Interportuaria Talcahuano-Penco Interurban 41
14 Sociedad Concesionaria Melipilla S.A. Variante Melipilla Interurban 40
15 Sociedad Concesionaria Autopista De Los Andes S.A. Camino Internacional Ruta 60 CH Interurban 350
16 Sociedad Concesionaria Acciona Concesiones Ruta Ruta 160 Tramo Coronel - Tres Pinos Interurban 315
160 S.A.
17 Sociedad Concesionaria Valles Del Desierto S.A. Ruta 5 Tramo Vallenar – Caldera Interurban 282
18 Sociedad Concesionaria Autopistas De Antofagasta Autopistas de la Región de Antofagasta Interurban 322
S.A.
19 Sociedad Concesionaria Rutas Del Desierto S.A. Alternativas de Acceso a Iquique Interurban 166
20 Sociedad Concesionaria Valles Del Bio Bio S.A. Autopista Concepción Cabrero Interurban 227
21 Ruta Del Maule Sociedad Concesionaria S.A. Ruta 5 Tramo Talca-Chillán Interurban 355
22 Ruta Concesionaria Ruta Del Canal S.A. Ruta 5 Tramo Puerto Montt – Pargua Interurban 211
23 Sociedad Concesionaria Camino Nogales Puchuncavi Camino Nogales-Puchuncaví Interurban 19
S.A.
24 Tunel El Melón Tunel El Melón Interurban 70
25 Sociedad Concesionaria Camino De La Madera S.A. Camino de la Madera Interurban 48
26 Sociedad Concesionaria Autopista Central S.A. Sistema Norte-Sur Urban 1240
27 Sociedad Concesionaria Autopista Vespucio Sur S.A. Sistema Américo Vespucio Sur, Ruta 78-Av. Grecia Urban 924
28 Sociedad Concesionaria Vespucio Norte Express S.A. Sistema Américo Vespucio Nor-Poniente, Av. El Salto- Urban 951
Ruta 78
29 Sociedad Concesionaria Autopista Nororiente S.A. Acceso Nor-Oriente a Santiago Urban 321
30 Sociedad Concesionaria Tunel San Cristobal S.A. Variante Vespucio El Salto-Kennedy Urban 179
31 Sociedad Concesionaria Costanera Norte S.A. Sistema Oriente-Poniente Urban 1016
32 Sociedad Concesionaria AMB S.A. Acceso Vial Aeropuerto Arturo Merino Benitez Urban 30
33 Sociedad Concesionaria Aerovias S.A. Acceso Vial Aeropuerto Arturo Merino Benitez (R) Urban 30
Total Investment 12,752

3. Methodology debt.
All revenue and cost figures were updated using Chile's Consumer
The methodology that was used to carry out this research involved Price Index (CPI), in order to use 2014 currency figures for estimations.
identifying all the concession highway projects, whether urban or in- In addition, because we are dealing with flows of money over different
terurban, that were under construction, in the operations stage or had periods of time we need to compound all these flows to present value. In
finished their concession period. Using these criteria, we found 33 our case, we compounded the values to year 2014. In that year ac-
highway projects to analyze. Table 1 shows these projects with the cording to our knowledge, the Chilean government was using a cost of
concessionaire's name, the project name, the type of concession and the capital of 8% and the World Bank was using a cost of capital for in-
total current investment disbursed until 2014. frastructure projects between 10% and 12%. In Vergara et al (2018), we
After that, we examined the financial reports on the Assets and presented a method to estimate the cost of capital for highway con-
Insurances Authority's website and gathered the revenues and costs for cessionaries in Chile. We estimated a Beta of equity based on offshore
each company between 1995 and 2014. In each case, we took data representative companies that trade their stocks, then we estimated the
related to operational and financial behavior. cost of equity according to Hamada (1969) and CAPM. Finally we ob-
Similarly, data related to vehicle flows and road characteristics of tained the cost of capital with the cost of debt and the capital structure
each concession was also collected from the company financial reports. of Chile's highway concessionaries. Then, we obtained the weighted
Using all of the above, we constructed a database that contains 406 average cost of capital (WACC) which ranged from 5,49% to 6,62%
rows (data) by year of operation for each company and 75 columns with an average of 5.93%.
(fields) with information organized by revenues, costs and other criteria Ultimately, we have to note that it was not possible to find the
such as vehicle flows, investment, road length, type of concession and necessary information about the Sociedad Aerovias' vehicle flows be-
main shareholders. cause after the concession project was launched it was bought by the
Specifically, revenues were disaggregated by financial revenues, Concesionaria AMB company for which effectively exist financial re-
fare revenues and other revenues. In the same way, costs were dis- cords on the Insurances and Assets Authority's website.
aggregated by operational costs, depreciation, financial costs, taxes and
other costs. Inside the category of operational costs we included sale
costs, salaries, administration and others costs by nature. It is, however,
important to note that financial costs were mainly related to the pay of

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C. Vergara-Novoa, et al. Transport Policy xxx (xxxx) xxx–xxx

Fig. 1. Evolution of revenues, costs and profits of Chile's highway concessions. Source: Elaborated by the authors based on financial reports downloaded from the
Assets and Insurances Authority's website.

4. Revenues and costs analysis of Chile's highway concessions 3 out of 7 urban highways had started operations, both systems begin to
system share revenues. Approximately 30% of the total revenue was generated
by urban system and 70% by interurban system after 2010.
In this section, we present an aggregated analysis of revenues and With regard to the costs, the interurban system incurred 15,859
costs of highway concessionaires between 1995 and 2014. This analysis million dollars in costs, and the urban system 5335 million dollars over
considers the whole system and is disaggregated by concession type. the time period of analysis.
Fig. 1 shows the evolution of revenues and total costs of the con- As previously explained, the urban system started post 2000 and so
cession system and demonstrates that both have increased over the at the beginning only the interurban system incurred costs. However,
years. We used a discount rate of 5.93%, the average of Chile's highway after 2006 both systems were in operation and they shared cost ratios,
concessionaries according to Vergara et al (2018). in the same way as revenues with 30% of total costs designated for
At the beginning profits were small. In fact, the system mainly ex- urban system and 70% for interurban.
perienced losses until 2002. Nevertheless, after 2002, capital gain al- In order to describe the revenues and costs of interurban and urban
most triplicated, increasing from 261 million dollars, in 2003, to 375 systems in more detail, we disaggregated both revenues and costs as
million dollars, in 2014. In that time period, both revenues and costs described earlier in section 2. That is, revenues were disaggregated in
showed a similar behavior pattern; that is, if one increases, the other fare revenues, financial revenues and other revenues, while costs were
also increases, with the exception of the years 2004 and 2006 when disaggregated in operational costs, financial costs, depreciation, taxes
they demonstrated opposing behaviors. and other costs.
Therefore, the above information shows that, the total accumulated In the case of the interurban system, we mentioned before that it
revenue of the concession system in the given time period was 25,137 generated 18,731 million dollars of revenue, of which 3923 million
million dollars. However, the total costs also rose to 21,193 million dollars were financial revenues; 12,281 million dollars were related to
dollars, thus making an accumulated profit of 3944 million dollars fares and 2526 million dollars were other types of revenue. With that in
during the period under analysis. This figure represents a return of mind we can see that, fare and financial revenues represent 87% of total
investment equal to 31% of a total investment of 12,752 million dollars revenues for this system during the period of analysis.
as presented in Table 1. However, if we consider only the equity dis- On the other hand, revenues of urban highways have risen up to
bursed by concessionaires, then the return of equity could increase to 6405 million dollars as mentioned before. From these, 722 million
up to 100%. This is because concession contracts, in general, only re- dollars are related to financial revenues, 5305 million dollars are fare
quire an equity less than or equal to 20% of the total investment from revenues and 378 million dollars are associated with other types of
concessionaires. revenues. In this case, fare and financial revenues make up 94% of the
It is important to note that the aforementioned capital gain might total revenue, between 2000 and 2014.
finance around of 30% of the new concession works portfolio an- As said before, throughout this period revenues mainly came from
nounced by President Bachelet in 2014. Inside this portfolio, the gov- fare revenues, which formed on average around 80% of total annual
ernment plans to launch projects to construct highways, cable cars, revenues.
civic buildings, dams, airports and logistics centers. Furthermore, if we Regarding costs, interurban highways incurred 15,859 million dol-
compare this capital gain with the Ministry of Public Works’ budget, it lars of costs, of which 8612 million dollars were operational costs; 238
is slightly less than the amount spent annually by the Ministry as social million dollars were related to depreciation; 625 million dollars were
investment, particularly since 2009 onward. related to taxes; 5382 million dollars were associated with financial
If the analysis considers the type of highway, then the interurban costs (mainly for the paying of debt) and 1003 million dollars were for
system has accumulated revenues of around 18,731 million dollars, other costs. Thus, operational and financial costs represent 88% of total
between 1995 and 2014, and the urban system has generated revenues costs between 1995 and 2014.
of around 6405 million dollars since 2000. In the case of urban highways, 5335 million dollars in costs were
Between 1994 and 1999, only interurban highways were in opera- incurred between the years 2000 and 2014. From this amount, 2339
tion, and for that reason only they contributed to the total system million dollars came from operational costs; 1785 million dollars were
revenues. After 1999, the urban system was launched and both types of financial costs; 246 and 274 million dollars were related to depreciation
highways began to collect fares from users. However, after 2006, when and taxes respectively; and 691 million dollars came from other costs.

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C. Vergara-Novoa, et al. Transport Policy xxx (xxxx) xxx–xxx

Therefore, operational and financial costs represent 77% of the total Table 3
urban costs; that is, 11% less than the figure they represent in inter- Total network length of highway concession system. Source: Elaborated by the
urban highways. authors based on www.concesiones.cl
On the other hand, it is essential to note the concessions in Chile Year Whole Highway Interurban Highway Urban Highway
only can depreciate their assets (e.g., office buildings, vehicles) and not Concession System Concession System Concession System
the investments in highways. That could be the reason why deprecia- (km) (km) (km)
tion values seem to be low. Finally, the maintenance costs are regulated
1995 5 5
by the concession's contract which guarantees to have highways in right 1996 113 113
conditions along the years. 1997 139 139
As a summary, we can conclude from the highway concessionaire's 1998 228 228
1999 553 553
revenue and cost analysis that urban companies have accumulated
2000 1.059 1.059
around of 25% of total system revenues and interurban companies the 2001 1.375 1.375
other 75%. In the same way, urban companies have incurred in 25% of 2002 1.734 1.734
total costs and interurban ones the other 75%. Although, the main 2003 1.734 1734
business of concessionaires should be to operate the highway we found 2004 1.892 1.819 72
2005 1.936 1.834 101
in their financial reports they have obtained other revenues than that
2006 1.960 1.834 125
coming from fares. In fact, the financial and other revenues from urban 2007 2.003 1.834 168
highways have represented around of 17% of their total revenues after 2008 2.029 1.834 194
2010. 2009 2.029 1.834 194
2010 2.295 2.100 194
We must to recall that we used a discount rate of 5.93% to make this
2011 2.612 2.417 194
analysis, the average of Chile's highway concessionaries according to 2012 2.612 2.417 194
Vergara et al (2018). 2013 2.612 2.417 194
Finally we have made a sensitivity analysis with the compound rates 2014 2.923 2.728 194
to year 2014. See Table 2.
As we have said, we use Vergara’s et al (2018) Chilean highway
concessionaries cost of capital. We used the minimum (5.49%), the Currently, the total road length of all highway concessions is
average (5.93%) and the maximum values (6.2%). We used also the 2923 km, of which 2728 km form part of the interurban system and
cost of capital of the Chilean government (8%) and the cost of capital of 194 km are urban highways. Given that, urban highways represent
the World Bank (10%) for 2014. We can see a growth tendency (linear) barely 7% of total length.
with the compound rates. Therefore, with a higher cost of capital the Fig. 2, meanwhile, presents the number of vehicles that have used
profits are bigger. the concession system over the years.
One can see that the total flow experienced an explosion in growth
5. Highway concessionaires’ output and average cost analysis after 2004, increasing from less than 200 million vehicles in 2004 to
more than 1400 million vehicles in 2014, mainly due to the increment
In this section we present an analysis of the output produced by of light vehicles. Heavy vehicles, however, have experienced a steadily
Chile's highway concessionaires and the average cost they incurred growth over the years and remained under 200 million vehicles during
during the period of 1995–2014. the period of analysis.
As we discussed in section 2, in specialized literature the output of If the analysis is carried out based on vehicle flow in the two types
highways has been associated mainly with the infrastructure necessary of concessions, Fig. 3 shows a great difference between the different
for travel and is measured in terms of kilometers or kilometers-lane of concessions systems. Vehicle flow on urban highways increased quickly
roads built. since 2004, increasing from 13 million to 1210 million vehicles a year,
In the same way, other authors establish the highway's output could whilst the flow of traffic on interurban highways has increased slowly,
be measured in vehicles-kilometers, an index which links the length of reaching barely 277 million vehicles a year in 2014.
the infrastructure with the transport demand. We think that the growth of light vehicles flows on urban highways
In order to fully consider these two different approaches to mea- was due to two factors. One factor is that from 2004 to 2005 the entry
suring the highways’ outputs we collected information about the rate of vehicles into Santiago (Chile's Metropolis) increased from 1% to
characteristics of the road network, such as its length, and the flow of 7%, according to the National Statistics Institute, which was greater
vehicles that used the highway system during the period of analysis. than in all the country. This rate has remained constant over the years
With this data we estimated average costs measured annually as US$ in Santiago, thus increasing the traffic flow on the concession system.
per vehicle-kilometer and US$ per vehicle. The other factor was the launch of Transantiago in 2005. Transantiago,
Table 3 below shows how the network has grown year by year, as Santiago's new public transport system, had many operational problems
for both interurban and urban roads. to begin with low frequencies of buses that prompted many to travel by
car throughout the city.
Table 2 If we analyze traffic flow by vehicle type in each type of concession,
Sensitivity analysis for revenues and cost at different compound rates. we can see that light vehicles make up a greater percentage of flow than
heavy vehicles in the interurban system. Proportionally around 80% of
Compound rate Compound rates to year 2014
the total traffic flow has been made up of light vehicles and around 20%
Revenues (Million Costs (Million Profits (Million heavy vehicles over the years. This is very similar to the urban system
dollars) dollars) dollars) case (light vehicles represent about the 90% of the total flow).
Using the above information, we were able to estimate the average
0,00% 18.574 15.456 3.118
3,00% 21.560 18.056 3.504
cost for each company for both type of concessions, measured in US
5,49% 24.552 20.679 3.874 $/vehicles-kilometer (US$/veh-km) and US$/vehicles-year (US$/veh).
5,93% 25.137 21.193 3.944 We present here the average costs estimation taking into con-
6,20% 25.505 21.518 3.988 sideration the vehicles per year index as the highway concessionaires’
8,00% 28.147 23.850 4.297
output (the output index vehicles-kilometer has the same behavior). As
10,00% 31.511 26.835 4.676
we shown earlier, many authors in related literature use number of

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C. Vergara-Novoa, et al. Transport Policy xxx (xxxx) xxx–xxx

Fig. 2. Total, light and heavy vehicle flow on highway concession system (millions). Source: Elaborated by the authors based on information published on con-
cessionaires' financial reports.

vehicles combined with kilometers as highway output, which shows a range. However, it should be noted that the maximum urban vehicle
correlation between travel demand and necessary inputs to travel, but flow is almost 7 times greater than the interurban flow, with up to 400
could be ambiguous because the same vehicle-kilometer could be pro- million vehicles a year using the urban system, as opposed to just 60
duced with several different combinations of vehicles and kilometers. million vehicles a year on the interurban system. This could explain the
For this reason, we are inclined to think that highway operators are difference between the average costs of the two systems.
transport providers who with inputs like capital, employees and in this All the average cost curves presented above show that average cost
case, with a highway can provide people make trips to reach their decreases as output increases regardless of the output index used, which
destinations and carry out activities. Given that, and following Jara- proves the presence of scale economies.
Díaz (2007) who establishes that transport operators produce oppor- Now, if we view the results obtained according to Joskow (2007),
tunities to travel (trips) and we think veh/year is a more appropriate who establishes the existence of scale economies in a single output
way to analyze the output produced by highway concessionaires. context as a sufficient condition for determining a natural monopoly,
Fig. 4a and b shows the average costs of interurban and urban case we can say this industry has this characteristics of a natural monopoly.
measured as US$/veh a year, where we have labeled each observation In fact, we noted in all the above charts that the average costs curve
with the number assigned to each concessionaire in Table 1. decreases over a long-range output. With this in mind, it is necessary
From Fig. 4a - although a cloud of points has been plotted between 0 that fares or profits regulations are made stricter, since otherwise
and 30 million of vehicles/year - an L shaped curve (the red line) can be companies with lower average costs could dominate the market in the
seen. It shows the cost falls from as high as 40 US$/veh to less than 5 US long term. In Chile's highway concession system, this could mean that
$/veh when vehicle flow increases to over 30 million a year. many different highways (projects in Table 1) could all have the same
Fig. 4b, presents the average costs for the urban system, measured in group of shareholders.
US$/veh. As in the previous case, the average cost curve has a similar For example, in the interurban case from Fig. 4a we can see that
shape (shown by the red line); that is, an L shape which decreases as concessionaires 1, 3, 10, 11 and 21 are the 5 big players of this market.
vehicle flow increases. In this case, the average cost ranges from 6US In fact, in 2014 their vehicle flow formed 169 million veh/year of the
$/veh to less than 1 US$/veh, which is smaller than the interurban 277 million veh/year that used the interurban system, which makes up

Fig. 3. Vehicle flow by type of concession (millions). Source: Elaborated by the authors based on information published on concessionaires' financial reports.

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C. Vergara-Novoa, et al. Transport Policy xxx (xxxx) xxx–xxx

Fig. 4. (a) Interurban Average Costs Measured in US$/Veh; (b) Urban Average Costs Measured in US$/Veh. Source: Elaborated by the authors based on information
published on concessionaires' financial reports.

61% of total vehicle flow. Table 4 shows the owners of these big players In order to examine this, we calculated aggregated fares for each of
as well as some information about each concession. the big players and compared these with their 2014 average costs. The
This demonstrate that only a few companies dominate this market. fares were aggregated because each highway has different fares de-
In this case, in fact, just three companies control more than 60% of total pending on vehicle type and time of day, which is measured as Ch
interurban flow, and in 2014, they also generated 45% of total inter- $/veh, according to the Chilean Concessions Agency website (www.
urban system revenue. concesiones.cl).
In the urban case, Fig. 4b, shows that concessionaires 26, 27, 28 and We calculated simple average fares and also fares weighted by type
31 are the 4 big players. In fact, they concentrated 97% of total urban of vehicle flow. However, we finally used weighted fares to carry out
flow in 2014, given that out of the 1210 million veh/year that used the the analysis because they better reflected the revenue generated by the
system, around 1177 million veh/year used these concessions. The concessionaires (according to the participation in traffic flow of each
owners of these concessionaires and a description of the projects are type of vehicle).
shown in Table 5, below. It is important to note that we only had access to the 2015 fares
Table 5 shows that there are in fact three different urban highway because the Chilean Concessions Agency does not maintain a register of
owners who generated 72% of total revenue in 2014. It is worth noting fares from previous years. We therefore calculated the variation per-
that Abertis again appears as a concessionaire controlling one of the centage of the 2014 Consumer Price Index, and discounted it from the
most important highways (Ruta 5). Thus, Abertis controls the urban fares for both urban and interurban big players. The urban fares for
flow from north to south in Santiago, and the interurban flow to the 2015 were further discounted by a 3.5% factor established by re-ad-
west, towards Chile's main Ports and the main beach towns. justability formula in their tender documents.
On the other hand, Grupo Costanera controls the east and west flow Table 6, below, shows a comparison between weighted average
in Santiago. In this way, with the Sistema Oriente-Poniente, Santiago's fares and average costs for urban big players.
high earners who live in the north-eastern zone of the city can travel From the table above, the huge percentage difference between
more quickly to the main business district, located downtown. With average cost and fare in Sistema Oriente Poniente and Sistema Américo
Américo Vespucio Sur, Grupo Costanera can take people from middle- Vespucio Sur is immediately striking. Both projects are controlled by
low income groups from several south parts of the city and connect the Grupo Costanera. On the other hand, Sistema Norte – Sur, run by
them with zones of Santiago where the factories and industries are lo- Abertis has a 17% difference, and Sistema Américo Vespucio Nor
cated, or with Ruta 5 highway to enable them to reach downtown Poniente, only a 4% difference. Clearly, there is a wide range of fare
Santiago. returns, which would explain why Abertis and Grupo Costanera want to
All of this show a growing monopolization of the urban and inter- expand their market share, as we previously mentioned.
urban trip market. In fact, it is important to note that Grupo Costanera We carried out the same analysis for the interurban big players, and
is also the owner of Acceso Nororiente a Santiago (29 in Table 1) which the results are presented in Table 7, below.
connects the northern zone of Santiago with its Sistema Oriente-Po- As in the urban case, interurban big players have a high fares return
niente (31 in Table 1). Besides this, in 2016 Abertis bought Sistema in comparison with their average costs, ranging from 19 to 330%. It is
Norte Sur, and it also bought a private proposal related to a new clearly necessary to adjust fares according to average costs. This would
highway in Santiago. These pieces of evidence prove the natural mean that users or the State could get some of the provider surplus, and
monopoly characteristics exist in the industry due to the existence of it would build a more social friendly market in which customers believe
scale economies. It shows that big players want to expand in order to they are paying a fair amount and receiving good service. Nowadays,
increase their traffic flow and so reduce their average costs and increase road users question the legitimacy of the system every time con-
their profits. cessionaires raise their fares supported by contracts but without im-
proving the level of service.

6. Comparison between average fares and average costs of big

players 7. Synthesis and conclusions

As we mentioned before, this industry has natural monopoly char- In this paper we have verified that highway concessionaires have
acteristics and therefore fares paid by users should be similar to average generated 25,137 million dollars of revenue, and have incurred 21,193
costs in order for the concessionaire costs to be covered by their rev- million dollars of costs between 1995 and 2014. Thus, this business
enues. generated around 3944 million dollars in profit during this time period.

7
 Table 4
Owners of interurban big players. Source: Elaborated by the authors based on concessionaires’ financial reports.
Concessionaire Number Project Name Owners (Company Name) Description and Characteristics Revenue 2014 (million Vehicle Flow 2014
dollars) (million)

1 Ruta 78 Santiago-San Antonio Abertis Ruta 78 highway is a 132 km long road which links Santiagoa with San 65.6 33.8
C. Vergara-Novoa, et al.

Antonio Port, Chile's main port.

3 Ruta 5 Tramo Santiago-Los Vilos Globalvía Infraestructura Chile and This is a section of Ruta 5b highway, which links Santiago, and the 108.8 18.5
Globalvía Inversiones S.A. northern town of Los Vilos. It is 218 km long.
10 Ruta 68 Santiago-Valparaíso-Viña del Abertis Ruta 68 highway is a 141 km long road which links Santiago and 116.4 34.3
Mar Valparaíso, Chile's second main port.
11 Ruta 5 Tramo Santiago – Talca y Intervial and ISA This is a 266 km long section of the Ruta 5 highway, which links Santiago 235.8 58.9
Acceso Sur a Santiago and Talca, a city in the South of Chile.
21 Ruta 5 Tramo Talca-Chillán Intervial and ISA This is another section of the Ruta 5 highway, which continues south from 44.2 23.4
the previously mentioned section of the highway.

a
Santiago is the Chile's capital, named also “Región Metropolitana”.
b
Ruta 5 highway is Chile's main road that links the country from north to south.

8
Table 5
Owners of urban big players. Source: Elaborated by the authors based on concessionaires’ financial reports.
Concessionaire Number Project's Name Owners (Company Name) Description and Characteristics Revenue 2014 Vehicle Flow 2014
(million dollars) (million)

26 Sistema Norte-Sur Central Korbana and Abertis Sistema Norte – Sur is 60 km long and is the urban section of Ruta 5 highway as it 202.1 414.4
passes through Santiago (Region Metropolitana). It links Santiago with the north and
the south of the country.
27 Sistema Américo Vespucio Sur, Grupo Costanera Américo Vespucio Avenue is one of the most important roads in Santiago. It is a ring 51.8 265.5
Ruta 78-Av. Grecia road and this concession refers to the southern section which is 24 km long.
28 Sistema Américo Vespucio Nor- Taurus Holding Chile and Bookfield This is the 29 km long north-western section of Américo Vespucio avenue. 126.8 249.2
Poniente, Av. El Salto-Ruta 78 America –infrastructure Holding.
31 Sistema Oriente-Poniente Grupo Costanera This is a 43 km long road which links the eastern and western zones of Santiago 60.3 248.0
Transport Policy xxx (xxxx) xxx–xxx
C. Vergara-Novoa, et al. Transport Policy xxx (xxxx) xxx–xxx

Table 6
Comparison between 2014 average cost and weighted average fare for urban big players. Source: Elaborated by the authors.
Concessionaire Number Project's Name Average Cost (US$/veh) Weighted Average Fare (US Percentage Difference (%)
$/veh)

26 Sistema Norte-Sur 0,49 0,57 17

27 Sistema Américo Vespucio Sur, Ruta 78-Av. Grecia 0,19 0,54 175
28 Sistema Américo Vespucio Nor-Poniente, Av. El Salto-Ruta 0,51 0,53 4
78
31 Sistema Oriente-Poniente 0,24 0,67 174

Table 7
Comparison between 2014 average cost and weighted average fare for interurban big players. Source: Elaborated by the authors.
Concessionaire Number Project Name Average Cost (US$/veh) Weighted Average Fare (US$/veh) Percentage Difference (%)

1 Ruta 78 Santiago-San Antonio 1,06 4,54 330

3 Ruta 5 Tramo Santiago-Los Vilos 5,23 6,23 19
10 Ruta 68 Santiago-Valparaíso-Viña del Mar 2,43 3,15 30
11 Ruta 5 Tramo Santiago – Talca y Acceso Sur a Santiago 3,22 4,17 30
21 Ruta 5 Tramo Talca-Chillán 1,92 4,70 145

This amount of money is similar to annual average budget for Chile's could see fare reductions, or for the State who could take a proportion
Ministry of Public Works and could fund 30% of the new concessions' of provider surplus and redistribute the funds to create better infra-
portfolio 2014–2020. Furthermore, this profit represents a return of structure for the welfare of the people.
investment of nearly 25% if we consider the total investment disbursed With all of the above information taken into consideration, we think
until 2014. However, if we take into account that contracts require only that this industry should be regulated more strictly than it is today,
a 20% of the investment as equity, then the return of equity could be because the behavior of the big players displays the characteristics of a
greater than 100% for some concessionaires. natural monopoly. For example, an institution that supervises the an-
Regarding revenues, the interurban system collects around 75% of nual operations and finance performances of the concessionaires, could
total annual revenues, whilst the urban system collects the other 25%. be necessary. Furthermore, considering our results, a review of the
We were able to verify that fares were the main source of revenue for methodology of fares determination could also be necessary. The State
both systems. However, it is worth noting that annually, post 2009, should consider concessionaires’ average costs in order to set fares, or
financial revenues represent more than 40% of the interurban system's set a return of equity for this business. A multi output scheme should
total revenue, but just over 10% for the urban system. However, ac- also be considered because we think that the marginal cost of light and
cording to contracts the concessionaire business should only be dedi- heavy vehicles would be different.
cated to operating their highways and not to generating other revenues.
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