1. 1. A CRC title, part of the Taylor & Francis imprint, a member of the Taylor & Francis Group, the academic division of T&F Informa plc. Boca Raton London New York Engineering Highwayof The Handbook Edited by T. F. Fwa 2006 by Taylor & Francis Group, LLC
2. 2. Published in 2006 by CRC Press Taylor & Francis Group 6000 Broken Sound Parkway NW, Suite 300 Boca Raton, FL 33487-2742 2006 by Taylor & Francis Group, LLC CRC Press is an imprint of Taylor & Francis Group No claim to original U.S. Government works Printed in the United States of America on acid-free paper 10 9 8 7 6 5 4 3 2 1 International Standard Book Number-10: 0-8493-1986-2 (Hardcover) International Standard Book Number-13: 978-0-8493-1986-0 (Hardcover) Library of Congress Card Number 2005051480 This book contains information obtained from authentic and highly regarded sources. Reprinted material is quoted with permission, and sources are indicated. A wide variety of references are listed. Reasonable efforts have been made to publish reliable data and information, but the author and the publisher cannot assume responsibility for the validity of all materials or for the consequences of their use. No part of this book may be reprinted, reproduced, transmitted, or utilized in any form by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying, microfilming, and recording, or in any information storage or retrieval system, without written permission from the publishers. For permission to photocopy or use material electronically from this work, please access www.copyright.com (http://www.copyright.com/) or contact the Copyright Clearance Center, Inc. (CCC) 222 Rosewood Drive, Danvers, MA 01923, 978-750-8400. CCC is a not-for-profit organization that provides licenses and registration for a variety of users. For organizations that have been granted a photocopy license by the CCC, a separate system of payment has been arranged. Trademark Notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. Library of Congress Cataloging-in-Publication Data The handbook of highway engineering / edited by T.F. Fwa. p. cm. Includes bibliographical references and index. ISBN 0-8493-1986-2 (alk. paper) 1. Highway engineering--Handbooks, manuals, etc. I. Fwa, T. F. TE151.H344 2006 625.7--dc22 2005051480 Visit the Taylor & Francis Web site at http://www.taylorandfrancis.com and the CRC Press Web site at http://www.crcpress.com Taylor & Francis Group is the Academic Division of T&F Informa plc. 1986_Discl.fm Page 1 Thursday, August 18, 2005 8:51 AM 2006 by Taylor & Francis Group, LLC
3. 3. This Handbook is dedicated to all highway engineers who have contributed signicantly to human mobility and interaction 2006 by Taylor & Francis Group, LLC
4. 4. Preface A safe and efcient land transportation system is an essential element of sustainable regional or national economy. Roads have been and continue to be the backbone of the land transportation network that provides the accessibility for the required mobility to support economic growth and promote social activities. As more and more advanced and speedy modes of transportation are developed over time, and as the economic activities of the human society grow in pace and sophistication, the roles of roads have multiplied and their importance increased. At the same time, the potential adverse impacts of road development have also grown in magnitude, especially when proper planning, design, construction or management is not carried out. To fully exploit the benets of highway development and minimize possible adverse inuences, the study of highway engineering must expand from merely meeting the basic needs of offering safe and speedy access from one point to another, to a eld of study that not only covers the structural and functional requirements of highways and city streets, but also addresses the socio-economic and environmental impacts of road network development. Traditional engineering curriculum does not adequately cover these somewhat softer aspects of highway engineering and the societal roles of highway engineers. It is the intention of this Handbook to provide the deserved attention to these topics by devoting Part A with ve chapters on issues related to highway planning and development. Few professionals will disagree that the highway engineer today must have sufcient knowledge in the areas of highway nancing, access management, environmental impacts, road safety and noise. The ve chapters should provide the necessary information on the social and environmental responsibilities of a highway engineer to the undergraduate student of civil engineering and the graduate research student in highway engineering. In addition, the highway engineer and the general reader would nd an in-depth up-to-date account of the trend toward privatization of highway development and nancing of highway projects. Parts B and C of the Handbook cover the more traditional core aspects of highway engineering. Part B on the functional and structural design of highways is organized into 8 chapters. The chapters offer an extensive coverage on the technical issues of highway and pavement engineering. The chapter contributors have made special efforts to explain the latest developments and comment on the future trends in their respective chapters. These chapters adequately address the undergraduate and graduate curricular needs in understanding the principles and theories of highway and pavement engineering. They also update the professional highway engineer on new concepts and ideas in the eld of study. The chapter on highway materials is especially timely in view of the experiences gathered since the mid 1990s from implementation of the Superpave technology in asphalt mix design and performance grading of asphalt cement. The chapters on structural design of pavements and pavement overlay design also present the concepts of the new mechanistic-empirical design approaches advanced by the 2002 Design Guide which has yet to be adopted by AASHTO. The chapter on design of concrete pavements introduces new vii 2006 by Taylor & Francis Group, LLC
5. 5. closed-form solutions for deection and stress computation of multi-slab systems, and easy-to-use software is provided with the Handbook. The software is available on the CRC website. Part C deals with construction, maintenance and management of highways. While maintenance and management of highways are of primary concern in developed countries with an established highway network, it would be unwise for developing countries to ignore them in their highway network development programs where road construction activities are taking central stage. Experience in both developing and developed countries has shown that a sustainable highway infrastructure development program must adopt a total highway management approach that takes into consideration the entire life- cycle needs of the road network. This concept is well explained in the three chapters that address highway asset management, pavement management, and bridge management, respectively. Equipment, tools and analytical techniques for condition surveys, and structural and safety performance evaluation in support of the total highway management are found in other chapters in Part C. The chapter on pavement evaluation presents useful software for non-destructive pavement structural evaluation. It contains closed-form backcalculation computer programs for both rigid and exible pavements. The software is found on the CRC website. It should be highlighted that highway agencies have in the past decades begun to apply the concept of asset management to the development, operation and improvement of highway assets in a systematic manner. The chapter on Highway Asset Management provides the reader with the background, concepts and principles involved. Overall, this Handbook adopts a comprehensive and integrated approach, and offers a good international coverage. It contains 22 chapters, covering the entire spectrum of highway engineering, from planning feasibility study and environmental impact assessment, to design, construction, maintenance and management. The completion of this Handbook would not have been possible without the commitment by the chapter contributors, all experts in their respective elds. The editor is most grateful to them for their efforts towards producing this meaningful Handbook, to the great benet of the professional transportation engineers, undergraduate civil engineering students, and graduate research students specializing in highway engineering. T. F. Fwa Editor Professor and Head Department of Civil Engineering National University of Singapore Republic of Singapore Prefaceviii 2006 by Taylor & Francis Group, LLC
6. 6. Editor T. F. Fwa is the head of the Department of Civil Engineering where he is also a professor and the director of the Centre for Transportation Research, National University of Singapore. He received his BEng (First Class Honors) from the then University of Singapore (now known as the National University of Singapore), MEng from the University of Waterloo, Canada, and PhD from Purdue University, USA. Dr. Fwas research in the last 20 years covers all aspects of highway engineering, with special emphasis in the areas of pavement design, maintenance and management, and pavement performance evalu- ation and testing. He has published more than 200 technical papers in journals and conference proceedings, with nearly 130 of them in leading international journals. His work has led to three patents in nondestructive pavement testing and evaluation. A widely respected researcher, Dr. Fwa has been invited to lecture and make technical presentations in more than 15 countries, including keynote lectures at a number of international conferences and symposia. He is currently the Asia Region Editor for the ASCE Journal of Transportation Engineering. He also serves on the editorial board of two other international journals: International Journal of Pavement Engineering, and International Journal of Road Materials and Pavement Design. He has received a number of awards for his academic and research contributions, including 1985 Eldon J. Yoder Memorial Award by Purdue University, USA, the 1992 Katahira Award by the Road Engineering Association of Asia and Australasia, the 1992 Arthur M. Wellington Prize by the American Society of Civil Engineers, the 1995 Katahira Award by the Road Engineering Association of Asia and Australasia, the 2000 Engineering Achievement Award by the Institution of Engineers, Singapore, Innovation Award 2003 by the Ministry of Transport, Singapore, and the 2005 Frank M. Masters Transportation Engineering Award by the American Society of Civil Engineers. Dr. Fwa is also active professionally in the area of international highway engineering. He is currently vice president of the International Society for Maintenance and Rehabilitation of Transport Infra- structure, board member of the Eastern Asia Society for Transportation Studies, and special advisor to the International Association of Trafc and Safety Sciences. He is the founding president of the Pavement Engineering Society (Singapore) and the Intelligent Transportation Society (Singapore). In the last 15 years, Dr. Fwa has devoted a great deal of time promoting highway engineering professional activities and developments in Asia Pacic. He has been responsible for bringing major international conferences and events in highway engineering to the region. This has been a benet to the large number of professionals in developing countries. He heads the Executive Committee that manages ix 2006 by Taylor & Francis Group, LLC
7. 7. the International Conference on Road and Aireld Pavement Technology and the Asia Pacic Conference on Transportation and the Environment. These are the two conference series that serve to raise professional awareness in the Asia Pacic region of the new knowledge and technologies in the area of highway engineering, and the importance of sustainable transportation development. Editorx 2006 by Taylor & Francis Group, LLC
8. 8. Contributors M.A. Aziz Department of Civil Engineering National University of Singapore Republic of Singapore E-mail: creaziz@nus.edu.sg John W. Bull School of Civil Engineering and Geosciences University of Newcastle upon Tyne Newcastle upon Tyne, U.K. E-mail: john.bull@ncl.ac.uk R.L. Cheu Department of Civil Engineering National University of Singapore Republic of Singapore E-mail: cvecrl@nus.edu.sg Anthony T.H. Chin Department of Economics National University of Singapore Republic of Singapore E-mail: anthonychin@nus.edu.sg Kieran Feighan PMS Pavement Management Services Ltd. Dublin, Ireland E-mail: kfeighan@iol.ie T.F. Fwa Department of Civil Engineering National University of Singapore Republic of Singapore E-mail: cvefwatf@nus.edu.sg K.N. Gunalan Parsons Brinckerhoff Quade & Douglas, Inc. Murray, UT, U.S.A. E-mail: Gunalan@plsworld.com Pannapa Herabat School of Civil Engineering Asian Institute of Technology Pathumthani, Thailand E-mail: pannapa@ait.ac.th Zahidul Hoque Pavement Specialist Melbourne, Victoria, Australia E-mail: zahidul_hoque@yahoo.com.au Yi Jiang Purdue University West Lafayette, IN, U.S.A. E-mail: jiang2@purdue.edu Ian Johnston Monash University Accident Research Centre Monash University, Clayton Campus Victoria, Australia E-mail: Ian-johnston@general.monash.edu.au Laycee L. Kolkman Jacobs Engineering Las Vegas, NV, U.S.A. E-mail: laycee. kolkman@jacobs.com Khaled Ksaibati Wyoming Technical Transfer Center University of Wyoming Laramie, WY, U.S.A. E-mail: khaled@uwyo.edu Arun Kumar RMIT University Melbourne, Australia E-mail: arun.kumar@rmit.edu.au; arunkumar@telstra.com.au xi 2006 by Taylor & Francis Group, LLC
9. 9. Michael S. Mamlouk Department of Civil and Environmental Engineering Arizona State University Tempe, AZ, U.S.A. E-mail: mamlouk@asu.edu Sue McNeil Urban Transportation Center University of Illinois at Chicago Chicago, IL, U.S.A. E-mail: mcneil@uic.edu K. Raguraman Department of Geography National University of Singapore Republic of Singapore E-mail: geokrk@nus.edu.sg Stephen Samuels TEF Consulting (Trafc, Environmental and Forensic Engineers) Sydney, Australia and School of Civil and Environmental Engineering University of New South Wales Cronulla, NSW, Australia E-mail: s.s@tefconsult.com. au Kumares C. Sinha School of Civil Engineering, Purdue University West Lafayette, IN, U.S.A. E-mail: sinha@ecn.purdue.edu Weng On Tam Consultant Austin, TX, U.S.A. E-mail: wengtam@gmail.com Mang Tia Department of Civil & Coastal Engineering University of Florida Gainesville, FL, U.S.A. E-mail: tia@ce.u.edu Waheed Uddin Department of Civil Engineering Center for Advanced Infrastructure Technology University of Mississippi University, MS, U.S.A. E-mail: cvuddin@olemiss.edu Ian van Wijk Africon Engineering International Pretoria, South Africa E-mail: ianvw@africon.co.za Derek Walker RMIT University, City Campus Graduate School of Business Melbourne, Victoria, Australia E-mail: derek.walker@rmit.edu.au Liu Wei Department of Civil Engineering National University of Singapore Republic of Singapore E-mail: cvelw@nus.edu.sg Contributorsxii 2006 by Taylor & Francis Group, LLC
10. 10. Contents Part A Highway Planning and Development Issues 1 Financing Highways Anthony T.H. Chin ........................................................................................1-1 1.1 Introduction ..................................................................................................................................1-1 1.2 Financing Structure and Sources ................................................................................................1-3 1.3 Role of Donor Agencies ...............................................................................................................1-9 1.4 An Analysis of Highway Project Financing ..............................................................................1-10 1.5 Template for Successful Highway Financing ........................................................................1-16 References .................................................................................................................................................1-20 Further Reading ........................................................................................................................................1-21 2 Access Management of Highways K. Raguraman and Kumares C. Sinha ...............................2-1 2.1 Introduction ..................................................................................................................................2-1 2.2 Principles of Access Management ...............................................................................................2-2 2.3 Economic Impacts of Access Management and Public Participation ...................................2-14 2.4 Conclusion ..................................................................................................................................2-16 Acknowledgment .....................................................................................................................................2-17 References .................................................................................................................................................2-17 3 Environmental Impact Assessment of Highway Development M.A. Aziz .......................3-1 3.1 Introduction ..................................................................................................................................3-1 3.2 EIA in Phases of Highway Development ...................................................................................3-6 3.3 EIA Activities in Highway Development ....................................................................................3-8 3.4 EIA Methodologies .....................................................................................................................3-14 3.5 Summary .....................................................................................................................................3-21 References .................................................................................................................................................3-22 4 Highway Safety Ian Johnston .............................................................................................................4-1 Part A Fundamental Concepts in Road Trafc Safety ......................................................................4-2 4.1 Safe System Design Is Paramount ...............................................................................................4-2 4.2 The Dimensions of the Road Trafc Injury Problem ...............................................................4-3 4.3 Measuring Road Trafc Safety Performance ..............................................................................4-5 xiii 2006 by Taylor & Francis Group, LLC
11. 11. 4.4 Is Safety Just a By-Product of the Road Transport System? .................................................4-9 4.5 Modern Thinking about Road Trafc Safety ...........................................................................4-12 Part B The Tool Box for Road and Trafc Engineers ..................................................................4-20 4.6 A Safety Engineering Mindset ...................................................................................................4-20 4.7 Matching Systems to Users ........................................................................................................4-22 4.8 Moving beyond Standards .........................................................................................................4-27 4.9 Travel Speed and Journey Time the Horns of the Mobility and Safety Dilemma ..........4-29 4.10 Will Information Technology Be the Springboard to a Safer System? ..............................4-32 4.11 The Decision Making Process ...................................................................................................4-34 Part C Summary and Conclusions ...................................................................................................4-35 4.12 Bringing It All Together .............................................................................................................4-35 References .................................................................................................................................................4-36 5 Road Trafc Noise Stephen Samuels ................................................................................................5-1 5.1 Introduction and Fundamentals .................................................................................................5-1 5.2 Road Trafc Noise ........................................................................................................................5-7 5.3 A Case Study ...............................................................................................................................5-26 5.4 Summary .....................................................................................................................................5-29 References .................................................................................................................................................5-30 Further Reading ........................................................................................................................................5-32 Part B Functional and Structural Design of Highways 6 Highway Geometric Design R.L. Cheu .........................................................................................6-1 6.1 Design Concept and Philosophy .................................................................................................6-1 6.2 Highway Alignment Design .........................................................................................................6-3 6.3 Design Control and Criteria ........................................................................................................6-6 6.4 Design Elements ...........................................................................................................................6-8 6.5 Level of Service Consideration ..................................................................................................6-21 6.6 Summary .....................................................................................................................................6-22 References .................................................................................................................................................6-22 7 Highway Materials Weng On Tam ...................................................................................................7-1 7.1 Introduction ..................................................................................................................................7-1 7.2 Hot-Mix Asphalt Concrete ..........................................................................................................7-1 7.3 Emulsied and Cutback Asphalts .............................................................................................7-34 7.4 Portland Cement Concrete ........................................................................................................7-37 7.5 Base and Subbase Materials .......................................................................................................7-39 References .................................................................................................................................................7-39 Further Information .................................................................................................................................7-40 8 Design of Flexible Pavements Michael S. Mamlouk ....................................................................8-1 8.1 Introduction ..................................................................................................................................8-1 8.2 Design Objectives, Constraints, and Evolution .........................................................................8-9 8.3 Stresses and Strains in Flexible Pavements ..............................................................................8-11 8.4 Major Road Experiments ...........................................................................................................8-14 8.5 AASHTO, 1993 Design Method ................................................................................................8-15 8.6 Proposed AASHTO Mechanistic-Empirical Design Method .................................................8-26 Contentsxiv 2006 by Taylor & Francis Group, LLC
12. 12. 8.7 Summary .....................................................................................................................................8-33 References .................................................................................................................................................8-34 9 Design of Rigid Pavements T.F. Fwa and Liu Wei .......................................................................9-1 9.1 Characteristics of Rigid Pavements .............................................................................................9-2 9.2 Considerations for Structural Design of Rigid Pavement ........................................................9-4 9.3 Computation of Design Trafc Loading ....................................................................................9-5 9.4 Material Properties for Design of Rigid Pavement .................................................................9-11 9.5 Computation of Load-Induced Stresses: Conventional Methods ..........................................9-15 9.6 Computation of Load-Induced Stresses: Improved Methods ................................................9-18 9.7 Computation of Thermal Stresses: Conventional Methods ...................................................9-23 9.8 Computation of Thermal Stresses: Improved Methods ..........................................................9-26 9.9 Thickness Design of Concrete Pavement .................................................................................9-28 9.10 Reinforcement Design of Rigid Pavement ...............................................................................9-40 9.11 Joints and Load Transfer Design ...............................................................................................9-44 9.12 Future Developments .................................................................................................................9-49 References .................................................................................................................................................9-50 Appendix 9A Users Manual for MSLAB_LOAD ..................................................................................9-53 Appendix 9B Users Manual for WARP-NONLINEAR ........................................................................9-57 10 Design of Segmental Pavements John W. Bull ..........................................................................10-1 10.1 Introduction to Segmental Pavements .....................................................................................10-2 10.2 History of Segmental Pavements ..............................................................................................10-2 10.3 Types of Segmental Pavements ..................................................................................................10-3 10.4 Where Segmental Pavements are Used .....................................................................................10-4 10.5 Trafc Loading ............................................................................................................................10-6 10.6 Design Procedures for Segmental Pavements ..........................................................................10-7 10.7 Maintenance and Reinstatement of Segmental Pavements ..................................................10-13 10.8 Manufacture of Segmental Pavements ...................................................................................10-15 10.9 Laying of Segmental Pavements ..............................................................................................10-16 10.10 Materials and Denitions Used for Segmental Pavements ...................................................10-17 10.11 International Segmental Paving ..............................................................................................10-19 10.12 Model Specication Clauses for Segmental Paving ...............................................................10-20 10.13 The Future of Segmental Paving .............................................................................................10-22 Acknowledgments ..................................................................................................................................10-23 References ...............................................................................................................................................10-23 11 Overlay Design for Flexible Pavements Mang Tia ..................................................................11-1 11.1 Introduction ................................................................................................................................11-1 11.2 Evaluation of Pavement Performance for Overlay ..................................................................11-3 11.3 Procedures for Design of AC Overlay on Flexible Pavement .................................................11-6 11.4 Procedures for Design of PCC Overlay on Flexible Pavement ............................................11-17 11.5 Summary ...................................................................................................................................11-23 References ...............................................................................................................................................11-23 12 Overlay Design for Rigid Pavements T.F. Fwa ........................................................................12-1 12.1 Introduction ................................................................................................................................12-1 12.2 Concrete Overlays of Concrete Pavement ................................................................................12-2 Contents xv 2006 by Taylor & Francis Group, LLC
13. 13. 12.3 Asphalt Concrete Overlays of Concrete Pavement ................................................................12-10 12.4 Future Development ................................................................................................................12-16 References ...............................................................................................................................................12-16 13 Highway Drainage Systems and Design Khaled Ksaibati and Laycee L. Kolkman ...............13-1 13.1 Introduction ................................................................................................................................13-1 13.2 Surface Drainage .........................................................................................................................13-3 13.3 Erosion Prevention .....................................................................................................................13-4 13.4 Hydraulic Design ........................................................................................................................13-5 13.5 Subdrainage Design ..................................................................................................................13-44 13.6 Summary ...................................................................................................................................13-62 Acknowledgments ..................................................................................................................................13-62 References ...............................................................................................................................................13-63 Further Reading ......................................................................................................................................13-63 Appendix 13A ........................................................................................................................................13-63 Part C Construction, Maintenance and Management of Highways 14 Highway Construction K.N. Gunalan ..........................................................................................14-1 14.1 Introduction ................................................................................................................................14-1 14.2 Highway Elements and Layout .................................................................................................14-1 14.3 Construction Methods and Means ...........................................................................................14-2 14.4 Subgrade Preparation and Stabilization ...................................................................................14-5 14.5 Embankment Materials and Construction ...............................................................................14-6 14.6 Subbase Course Materials and Construction ...........................................................................14-8 14.7 Base Course Materials and Construction .................................................................................14-8 14.8 Surface Course Construction ....................................................................................................14-9 14.9 Summary ...................................................................................................................................14-13 15 Project Management in Highway Construction Derek Walker and Arun Kumar .............15-1 15.1 Project Management Overview .................................................................................................15-1 15.2 Project Planning .........................................................................................................................15-2 15.3 Organizational Framework ......................................................................................................15-14 15.4 Monitoring and Control ..........................................................................................................15-15 15.5 Risk Management .....................................................................................................................15-24 15.6 Human Resources Management .............................................................................................15-32 References ...............................................................................................................................................15-34 16 Highway Maintenance Ian van Wijk ............................................................................................16-1 16.1 General ........................................................................................................................................16-2 16.2 Description and Denition of Highway Maintenance ............................................................16-3 16.3 Description of Defects and Appropriate Maintenance Actions .............................................16-4 16.4 Planning and Management .....................................................................................................16-21 16.5 Maintenance Criteria ...............................................................................................................16-24 16.6 Remedial Maintenance Activities ............................................................................................16-28 16.7 Preventive Maintenance Activities ..........................................................................................16-33 Contentsxvi 2006 by Taylor & Francis Group, LLC
14. 14. 16.8 Dust Suppressants ....................................................................................................................16-37 16.9 Design and Construction of Surface Dressings .....................................................................16-38 16.10 Design and Construction of a Slurry Seal .............................................................................16-47 16.11 Winter Maintenance .................................................................................................................16-48 16.12 Execution of Highway Maintenance .......................................................................................16-49 16.13 Performance-Based Specications ..........................................................................................16-51 16.14 Labor-Based Techniques ..........................................................................................................16-53 16.15 Other Considerations ...............................................................................................................16-54 16.16 Summary ...................................................................................................................................16-56 Acknowledgments ..................................................................................................................................16-56 References ...............................................................................................................................................16-56 Further Reading ......................................................................................................................................16-59 Appendix 16A Repair of Defects in Flexible Pavements ....................................................................16-61 Appendix 16B Repair of Defects in Rigid Pavements ........................................................................16-65 Appendix 16C Repairs of Other Defects .............................................................................................16-68 17 Asset Management Sue McNeil and Pannapa Herabat ................................................................17-1 17.1 Introduction ................................................................................................................................17-1 17.2 Highway Asset Management Framework .................................................................................17-7 17.3 Tools for Highway Asset Management ...................................................................................17-17 17.4 An Application: GASB 34 and Asset Valuation .....................................................................17-23 17.5 Implementation and System Sustainability Issues ................................................................17-27 17.6 An Application: Asset Financial Management .......................................................................17-29 17.7 Efforts and Challenges .............................................................................................................17-33 17.8 Conclusion and Future Directions .........................................................................................17-39 References ...............................................................................................................................................17-39 18 Pavement Management Systems Waheed Uddin ......................................................................18-1 18.1 Historical Overview of PMS ......................................................................................................18-2 18.2 Network Level vs. Project-Level PMS Functions .....................................................................18-6 18.3 Data Needs, Decision-Support Systems, GIS, Database Design ..........................................18-10 18.4 Network Partitioning, Inventory and Monitoring Databases ..............................................18-14 18.5 Trafc Data History and Environmental Data Needs ...........................................................18-16 18.6 Pavement Condition Monitoring and Evaluation Technologies ..........................................18-18 18.7 Pavement Condition Deterioration and Performance Models ............................................18-26 18.8 Pavement LCC Analysis and User Cost Models ....................................................................18-35 18.9 Maintenance, Rehabilitation & Reconstruction (M,R&R) Policies and Analysis ...............18-39 18.10 Priority Ranking and Prioritization Methodologies .............................................................18-49 18.11 PMS Program Management Reports and Contract Packaging ............................................18-53 18.12 PMS Development, Implementation, and Institutional Issues ............................................18-54 18.13 PMS Case Studies .....................................................................................................................18-59 18.14 Innovative Technologies and Future Directions ....................................................................18-61 References ...............................................................................................................................................18-64 19 Highway Condition Surveys and Serviceability Evaluation Zahidul Hoque ...................19-1 19.1 Introduction ................................................................................................................................19-1 19.2 Types of Pavement Distresses and Their Identication ..........................................................19-3 19.3 Measurement and Reporting of Pavement Distress Data .....................................................19-20 19.4 Methods and Equipment for Pavement Condition Surveys .................................................19-21 Contents xvii 2006 by Taylor & Francis Group, LLC
15. 15. 19.5 Pavement Condition Indices ...................................................................................................19-25 19.6 Serviceability and Roughness Measurements ........................................................................19-29 19.7 Summary and Future Developments ......................................................................................19-43 References ...............................................................................................................................................19-44 20 Structural Evaluation of Highway Pavements T.F. Fwa .......................................................20-1 20.1 Approaches of Structural Evaluation of Pavements ................................................................20-1 20.2 Equipment for Nondestructive Deection Test .......................................................................20-8 20.3 Backcalculation of Rigid-Pavement Properties ......................................................................20-13 20.4 Backcalculation of Flexible-Pavement Properties ..................................................................20-22 20.5 Articial Intelligence Techniques for Backcalculation Analysis ...........................................20-28 20.6 Future Developments ...............................................................................................................20-29 References ...............................................................................................................................................20-30 Appendix 20A Users Manual for NUS-BACK ....................................................................................20-34 Appendix 20B Users Manual for NUS-BACK3 ..................................................................................20-37 Appendix 20C Users Manual for NUS-BACK2 .................................................................................20-40 Appendix 20D Users Manual for NUS-BACK4 .................................................................................20-43 Appendix 20E User Manual for 2L-BACK ..........................................................................................20-46 21 Pavement Skid Resistance Management Kieran Feighan .......................................................21-1 21.1 Introduction ................................................................................................................................21-1 21.2 Measurement of Frictional Resistance ......................................................................................21-5 21.3 Measurement of Texture ..........................................................................................................21-13 21.4 International Friction Index ....................................................................................................21-18 21.5 Skid Resistance Policy ..............................................................................................................21-20 21.6 Skid Resistance Management for Networks ...........................................................................21-25 21.7 Maintenance Treatments to Restore Frictional Resistance ...................................................21-29 References ...............................................................................................................................................21-30 22 Bridge Management Systems Yi Jiang ........................................................................................22-1 22.1 Introduction ................................................................................................................................22-1 22.2 Components and Functions of Bridge Management System .................................................22-2 22.3 Bridge Condition Data Collection and Management .............................................................22-5 22.4 Bridge Performance Analysis and Prediction ..........................................................................22-8 22.5 Cost Analysis and Needs Assessment .....................................................................................22-20 22.6 Bridge Project Selection and System Optimization ..............................................................22-27 22.7 Summary ...................................................................................................................................22-50 References ...............................................................................................................................................22-51 Conversion Table for Metric and Imperial Units .....................................................................C-1 Contentsxviii 2006 by Taylor & Francis Group, LLC
16. 16. Part A Highway Planning and Development Issues
17. 17. 1 Financing Highways Anthony T.H. Chin National University of Singapore Republic of Singapore 1.1 Introduction..............................................................................1-1 Towards the User Pay Principle 1.2 Financing Structure and Sources ............................................1-3 Advantages and Disadvantages of Toll Financing Equity Financing Subordinated Loans Senior Commercial Bank Loans and Debt Securities Institutional Investors/Highway Investment Funds Initial Public Offerings Asset Securitization Portfolio Approach Pinpoint Equity with an Indexed Highway Bond Issue Option Concept Value Capture 1.3 Role of Donor Agencies...........................................................1-9 Long-Term Loans Interim Financing Credit Enhancement with Respect to Political Risks Arranger of Finance Provision of Guarantees Technical Assistance and Human Resource Development 1.4 An Analysis of Highway Project Financing..........................1-10 Developed Countries Developing Economies General Issues in Highway Financing 1.5 Template for Successful Highway Financing ....................1-16 The Government The Private Sector Scope of the Project and its Environment Economic Growth and External Shocks Sustainability Management of Highway Money, Capital Markets, and Development Banks Training and Education Public Opinion Pricing Roads References........................................................................................... 1-20 1.1 Introduction Countries in the developed world are faced with high maintenance cost of aging transportation highway s and replacing them in the face of budget decits and cuts are no longer automatic options. Further, funds for transport highways have to compete with compelling priorities. In developing and growing economies, the demand made on highways with the growth in motor vehicles and accompanying economic growth have ensured the insatiable demand for better, safer, less congested highways and increase in personal travel. Growth in commerce also imposes growing demands on the highway network. This and many other public sector programs such as, educational institutions, housing and defense have largely drawn from budgetary surpluses in the past.1 1-1 1 Most highway programs are based on pay-as-you go, i.e., paying for construction, maintenance and administration as money becameavailablefrom userfees,bondsandgovernmentgrants.Inmanycountries,eveningoodtimes revenuesmay notbe enough. Increased public demand for transportation services continue to strain existing highway and drained nancial resources. 2006 by Taylor & Francis Group, LLC
18. 18. However, several circumstances have come-up to inuence change in the way public highways are nanced and maintained. Firstly, the structural changes in the economy may not lead to large budget surpluses as happened in the past as the dynamics of globalization leads to shifts in foreign direct investments. Secondly, the shrinking tax base as experienced in matured economy. Thirdly, priorities in public sector expenditure might focus on the provision of services and other areas such as the aged. It is also important to note that highways have dual-nature. They have some characteristics of public goods and some of private goods. From the public good perspective, beyond the direct users (passengers and freight), highways provide benets in many instances for by reducing the cost of transportation and distribution of goods. In the past the cost of collecting fees for highway use was high, politically unacceptable and not always practical. The government over the years has played a large role in the provision of highways. Highways have some characteristics of private goods as well. Limited-access highways can exclude motorists who are not willing and able to pay tolls. When highways are congested, one motorists use of the highway imposes costs in the form of delay on other users. Those mixed-goods characteristics of highways, changing economic environment and the advances in highway pricing technology should motivate and explain the need for a new approach to how highways are managed, nanced and maintained (Estache, 1999; Estache et al., 2000). This chapter takes the perspective of looking at user charges as a means of achieving allocative efciency in highway usage and examines the conditions for efcient private participation in the nancing and provision of highway services.2 1.1.1 Towards the User Pay Principle The ve-user fee principles are: equity, simplicity, public good, value and exibility. If one is concerned about efciency and fairness, the user pay principle charged at levels corresponding to the economic benets received from public goods or services (or the costs those are imposed on society) and this should be the guiding principle in charging for highway use.3 Highway pricing in theory serves three distinct purposes: (a) Financial: means to collect funds to pay for provision of highway services (b) Efciency: to discourage over utilization of highway space (c) Equity: to reduce trafc congestion and increase mobility of efcient modes. The basic guide lines involved in designing a highway pricing policy include marginal cost pricing, ability to pay principle, net-benet principle and full cost pricing. These guidelines are put into practice through a variety of pricing/charging methods (such as distance traveled pricing, two-part fee, time-of-day pricing, level of congestion pricing etc.). The efciency and equity arguments of highway pricing are well established and are potentially powerful means for generating revenues. The challenge lies in establishing and accommodating various users and beneciaries to improve the effectiveness of pricing. Should all users be charged? Which pricing methods are most realistic and effective in achieving efcient use of highway space? If other nancial objectives are important such as covering operating costs, what are the implications for equity and efciency of use of resources? What are the appropriate mechanisms to implement the effective pricing schemes? What practical methods are available for allocation of costs among user groups in a complex highway network? The overall objective must be to ensure the use of highway space in an effective, efcient and equitable manner, consistent with the social, economic and environmental needs of present and future generations. Highway pricing is an important element of the demand management strategy. 2 Economic efciency means allocating scarce resources to uses that are of the highest value to society as a whole. 3 One other area where the principle can be applied is that of fuel excise tax. Petrol and other fossil fuels affect the environment. Restructuring the fuel excise tax based on user/polluter pay principle can raise the same revenue. The restructured tax would include other sources of pollutants and ensure that polluting activities bear a more appropriate charge for the use of air, water and land. The Handbook of Highway Engineering1-2 2006 by Taylor & Francis Group, LLC
19. 19. However, the philosophical distinction among allocative efciency, cost recovery and revenue generation is not always easy to make. Nevertheless, a few principles are fundamental, and when applied to assess the purpose of the various proposals for user fees, can help to justify the practical solutions. The rst is equity. Unless there is equitable access to highways, some users will not have freedom of mobility. User charges must not present the risk that freedom will be curtailed for those who are unable to pay. There are two time-honored principles that should guide us. First, the benet principle suggests that people should pay according to the benets received from highway usage. Anyone who receives more benets should pay more. For example, drivers who buy a lot of petrol pay more fuel-taxes. But they also drive a lot and reap much benets from the system of highways. If some of the money is diverted to support mass transit, they may benet through reduced congestion on the highways. Electronic Road Pricing (ERP) is an application of user charge. This is not a tax, but rather prices charged to motorists for the use of highway services. Drivers are charged directly for the services they consume, which again link payments to the benets received. The second time-honored principle is the ability-to-pay principle. People should pay charges in accordance with their ability to pay. People with a greater ability should pay more than those with lesser. Two concepts related to this principle are horizontal equity and vertical equity. Horizontal equity is said to exist when people with the same ability to pay charges pay the same amount of taxes. Problems arise when we try to apply this idea, because it is not always easy to compare people in terms of their abilities to pay. Income is often considered to be the best proxy as an indicator for assessing the ability to pay.4 The idea of vertical equity is even more difcult to apply. Vertical equity is said to exist when people with different abilities to pay in fact do pay appropriately different charges. The additional difculty here (besides the already discussed problem of measuring the ability to pay) is to determine the degree to which taxes should differ when ability to pay differs.5 1.2 Financing Structure and Sources Traditionally given the public goods nature of highways the nancing structure and sources of nance are closely related to the role of government. Many of these attempt to minimize risk to the government (Heggie and Vikers, 1998; Irwin et al., 1998; Chin, 2003). These are discussed briey below: (i) Toll nancing (ii) Equity nancing (iii) Subordinated loans (iv) Senior commercial bank loans and debt securities (v) Institutional investors/highway investment funds (vi) Initial Public Offerings (IPO) (vii) Asset securitization (viii) The portfolio approach 4 But consider two individuals, each with a SGD50,000 annual incomes. One of them has a portfolio of stocks and bonds worth SGD1 million, while the other has little or no wealth. Do equal incomes mean equal ability to pay? If not, how do we enter wealth into the calculation? Next consider two married couples, each with a SGD50,000 annual incomes. One couple has three dependent children, while the other has none. Do equal incomes mean equal ability to pay? If not, how do we factor the number of dependants into the calculation? We are far from exhausting the possible complexities, but nally consider two individuals, say both medical doctors, who have the capacity to earn SGD100,000 per year. One of them works hard and earns SGD100,000, while the other one is something of a slacker, doing half as much work, playing lots of golf, and earning only SGD50,000. Should we treat these two as having the same ability to pay, or should we regard the one as having twice as much ability to pay as the other? (Should we reward sloth?) 5 If person A has twice the ability to pay of person B, should A pay twice the amount of charges that B pays? If you say yes, you are in favor of a proportional ERP rate structure. If you say A should pay more than twice the amount of charges, you are in favor of a progressive structure. If you say A should pay less than twice the amount of charges, you are in favor of a regressive structure. Implementation is impossible. Financing Highways 1-3 2006 by Taylor & Francis Group, LLC
20. 20. (ix) Pinpoint equity with indexed highway bond issues (x) The option concept (xi) Value capture. 1.2.1 Advantages and Disadvantages of Toll Financing The advantages and disadvantages of toll nancing of highways as compared to nancing from other sources such as fuel taxes or scal instruments depend on the nature of the economy. Toll highways are predominant in Northern Europe, North America, and Australia. The decision of whether to toll a particular highway or not is important where trafc levels are relatively low or generated trafc has yet to be realized in the immediate future. The decision should be justied by economic and nancial analyses since the perceived objectives (e.g., raising additional revenue, fairness in terms of the user-pays principle, optimal pricing and resource allocation) are seldom achieved. Also, the costs of establishing a toll system, the collection costs, and the diversion of tolls by collectors can be high. For example, the case studies and other evidence indicate that additional construction costs can range between 2 to 8% of initial costs and that operating expenses can rangebetween5to20%oftollrevenue,dependingonwhetheranopenorclosedtollingsystemisemployed. Toll highways in France has resulted in increased construction costs of about 10% and increased operating cost equal to 10 to 12% of revenues, which are considered comparable or lower than the collection costs and economic distortions of alternative revenue sources. Tolls have not resulted in misallocation of trafc between toll highways and parallel untolled highways. An estimated 6 to 7% of potential toll highway users diverted to parallel routes as a result of tolls. The economic costs of raising revenue by tolling in Vietnam suggest (including capital costs, collection costs, leakage and trafc diversion/suppression cost) should be lower than the cost of raising revenue by alternative means, and these economic costs should not be higher than 15 to 20% in the case of captive trafc. Leakage in one African country led to the introduction of a fuel tax because the collection rate through tolls was only 60%. 1.2.2 Equity Financing It is relatively easy to attract domestic capital of both debt and equity for smaller projects, if the capital cost is less than $100 million. Moreover, it is very benecial for a toll highway project to obtain domestic nancing to avoid the exchange rate risk between local currency toll revenues and foreign currency debt. However, in many countries, local capital markets are not sufciently developed to provide the long-term capital required for toll highway projects. The nancial crisis in late 1990s in Asia followed by the recession has worsened the situation. Malaysia has been successful in domestic nancing of the NorthSouth Expressway, a mega-project which cost a total capital cost of $ 3.192 billion. Out of this $755 million (25% of the total capital cost) comprised of shareholders equity and convertible preference shares issued to the contractors, industrial groups, and institutional investors in Malaysia. The project was nanced entirely on domestic markets; a generous government-support package and the capacity of domestic institutional investors, to take large preference share issues, played an important role in the successful equity nancing of the project. Thailands Second Stage Expressway (SSE) and Chinas GuangzhouShenzhen Super Highway involved foreign equity and debt nancing. Good project structure attracts foreign equity and foreign commercial bank loans. Although both of these projects faced serious problems, the SSE structure was backed up by the equity participation of the Asian Development Bank (ADB), major commercial banks in Thailand, and the Royal Property Bureau of Thailand, together with revenue sharing with the First Stage Expressway. The GuangzhouShenzhen Super Highway Project secured a rm repayment guarantee of bank loans by GITIC and obtained a government support provision including the acquisition of all necessary land at no cost and commercial development rights at interchanges. Another important issue is the treatment of equity in a contractor-driven project in which the contractor tends to limit the amount of equity, and to sell down its equity as much and as early as possible The Handbook of Highway Engineering1-4 2006 by Taylor & Francis Group, LLC
21. 21. after the completion of construction. Lenders generally limit such actions in the loan agreement with the concessionaire, but it is always an issue as to how much equity should be injected in the beginning and how long and to what extent the concessionaire should hold it. 1.2.3 Subordinated Loans There are two important roles for subordinated loans: (1) to ll the gap between the equity and the senior loans in the original nance structure, and (2) to provide stand-by nancial support in case of revenue shortfalls and cost overruns. They may address to the difculty of procuring equity (due to equitys slowness in recouping investment through dividend payments) by providing a stable cash payment stream with a higher interest rate than senior debts from the beginning years of the project. Because of the subordinate nature of repayment to senior debts, second to the equity injection, governments support and sponsors support in the form of subordinated loans should be more acceptable to the senior debt providers than ordinary loans. This approach, while common, should be applied carefully since an excessive use of subordinated loans may considerably increase the capital costs and impair the sponsors commitment to the project. 1.2.4 Senior Commercial Bank Loans and Debt Securities Procurement of long-term bank loans for a privately nanced toll highway projects is a critical issue in developing and transitioning economies. The longest tenure that a toll highway project company can obtain in a commercial bank loan in the East Asian countries is about 5 years, which is far too short to recoup the investment, whereas in many developed countries such as in the United States and United Kingdom, the tenure of commercial bank loans may extend to 15 to 30 years, i.e., matching the concession period. To address this issue, various measures have been implemented in toll highway projects in developing countries. A straightforward, but difcult solution is to have a sufciently sound contract structure with a hedge mechanism for foreign exchange risk to attract long-term off-shore debts. Alternative solutions that have been tried include: (i) long-term loans of government controlled banks, (ii) shareholders loans from an off-shore parent company that raises funds on off-shore capital markets, (iii) domestic bond issues underwritten by government controlled institutional investors, (iv) credit enhancement with respect to domestic fund raising and direct loans from donor agencies, (v) securitization of existing toll highways, and (vi) credit enhancement through revenue sharing with existing facilities. There are many examples where the approaches set out above have been successfully applied. Indonesia used long-term loans of government controlled banks in many of their toll highway projects. China has used shareholder loans from an off-shore parent company that raises funds on off-shore capital market, as well as asset securitization of existing toll highways. The NorthSouth Expressway in Malaysia and the M1/M15 in Hungary adopted domestic bond issues underwritten by government controlled institutional investors. The M1/M15 and M5, the Linha Amarela in Brazil, and the CaliCandelariaFlorida toll highway in Colombia have adopted credit enhancement of domestic fund raising and direct loans from donor agencies, and credit enhancement through revenue sharing with existing facilities. 1.2.5 Institutional Investors/Highway Investment Funds Institutional investors can be a good source of nancing for toll highway projects since the long-term maturity of their funds matches the duration of a toll highway concession. The Employees Provident Fund has invested in Malaysias NorthSouth Expressway and insurance companies in Hungary have Financing Highways 1-5 2006 by Taylor & Francis Group, LLC
22. 22. invested in M1/M15. However, since institutional investors in developing countries are not active in the highway sector in general, foreign institutional investors from developed countries can play an important role in lling the gap. Institutional investors, especially insurance companies and pension funds in the United States, have been actively pursuing investment opportunities in privately nanced highway projects in Latin America and Asia. They have invested in toll highway projects directly, through various investment funds (the Asian Highway Fund [AIF], and the Asian Highway Development Company, Ltd [AIDEC]), and have purchased debt securities such as 144a bonds in private placement (this is a kind of global bond that is regulated under [the United States] Securities and Exchange Commission Rule 144a). The procedure for issuance and underwriting was simplied in 1990 and limited only to investors termed Qualied Institutional Buyers (QIB), who are professional institutional investors such as insurance companies and pension funds. 1.2.6 Initial Public Offerings An IPO of a single asset company with a Build Operate Transfer (BOT) arrangement can be difcult as the duration offuture cash ow is limited by the xed concession period and the enterprise is affected to a great extent by general stock market sentiment at the time of IPO. On the other hand, an IPO based on multiple assets with a portfolio of stable cash-generating toll highway projects may become an appropriate solution to fund raising issues in developing countries. China has gone into IPO, often for multi-asset companies; in many instances both expressway and holding companies listed their shares on the Hong Kong and Shenzhen Stock Exchanges. Examples include: Anhui Expressway (Hong Kong, 11/96), Guandong A Share (Shenzhen, 1/96), Guangdong B Share (Shenzhen, 8/96), Jiangsu Expressway (Hong Kong, 6/97), Sichuan Expressway (Hong Kong, 10/97), Zhejiang Expressway (Hong Kong, 5/97), Shenzhen Expressway (Hong Kong, 3/97); Holding Companies: Cheung Kong Highway (Hong Kong, 7/96), New World Highway (Hong Kong, 10/95), and Highway King Highway (Hong Kong, 6/96). In Indonesia Jasa Marga, the public toll highway company, planned an IPO but it was postponed due to the Asian nancial crisis. 1.2.7 Asset Securitization One innovative approach is the leveraging of existing highway assets to raise new funds in capital markets. This approach can be attractive to private investors, since they need to take only limited construction/completion risks and the transactions offer the prospect of high returns. The approach is also attractive to governments, since it permits them to obtain additional nancing with relative ease, including for nancially less attractive but economically viable projects. China, the pioneer of this approach, by securitization of existing highway assets, including highways nanced with World Bank assistance, has been able to raise large sums of additional capital from foreign investors. Major developments with respect to asset-based capital markets toll highway nancing in China have included the following: (i) the raising of $100 million in 1994 by Sichuan Province through the private placement of equity shares in off-shore markets to nance the development of the 90-km ChengduMianyiang Expressway; (ii) an equity offering of B shares on the Shenzhen Stock Exchange by the Guangdong Provincial Expressway Company in 1996; (iii) completion of a $200 million Eurobond issue by Zhuhai Highway Company Ltd of Guangdong Province in 1996 and (iv) the listing of at least nine China-related highway stocks on the Hong Kong Stock Exchange by 1997, including Chueng Kong Highway and Highway King. However, there are some concerns with the asset securitization approach such as the possibility of over- leveraging the asset at the expense of the obligation to repay the original loan. Another problem using the capital markets is that the timing and the volume of fund raising is inherently affected to a great extent The Handbook of Highway Engineering1-6 2006 by Taylor & Francis Group, LLC
23. 23. by prevailing market sentiment. Investors are very sensitive to the political risk (seen recently in East Asia and the Russian Federation) as well as the features of alternative investment opportunities such as the coupon rate for various bonds, the protability of stock markets, and ups and downs of real estate markets. Therefore, nancing capitalmarketnancing should not be relied upon as a perpetual, stable source of funds. 1.2.8 Portfolio Approach The portfolio approach adopted by Road King Infrastructure Limited (RKI) of Hong Kong may provide a solution for developing countries where the procurement of foreign debt is difcult and both domestic debt and equity for the nancing of the countrys toll highway development are scarce. RKI leverages the creditworthiness and the track record of their projects in China, thereby diversifying its investment portfolio into various regions (high growth centers) and risk proles, and attaining favorable income distribution and a minimum income undertaking from local partners for most projects. RKIs portfolio approach contains very specic elements such as: (i) its location in the Hong Kong SAR, a quality international nancial center; (ii) its parent companys credibility, engineering know-how, and long involvement in the Chinese market; and (iii) its ability to diversify geographically into its existing assets throughout China. RKIs toll highway projects in China are nanced through a combination of IPO, the cash ow from the existing portfolio, a note issue-2 and a transferable loan certicate (TLC) issue-3. At its IPO, the company had interests in ten highways in China, of which eight were in operation and six at different stages of negotiation. The companys interests in these toll highway projects were held through wholly owned subsidiaries, which, together with the relevant Chinese joint venture partners, established various cooperative joint venture (CJV) companies for investment in different projects. There are no green-eld toll highway projects in the companys portfolio. As of June 1998, its toll highway assets were diversied in eight provinces in China, totaling 974.6 km of highways. Highway Management Group Limited (HMG) in the United Kingdom has adopted another form of the portfolio approach to toll highway development. Two concession companies, Highway Manage- ment Services (Peterborough) Limited for the A1(M) and Highway Management Services (Gloucester) Limited for the A419/A417 entered into Design, Build, Finance & Operate (DBFO) contracts with the Secretary of State for Transport to widen and improve the highways and to operate and maintain them for 30 years. The nancing for the two highway projects was raised through Highway Management ConsolidatesPlc, a newly created special purpose nancing entity, 100% controlled by HMG, which provides funds to the individual RMS companies through back-to-back onloans. In March 1996, Lehman Brothers and SBC Warburg underwrote a 165 million, 25-year, xed rate bond issue to partially fund the two projects, and arrange a 111million, 25-year European Investment Bank (EIB) loan facility to provide the remainder of the required senior debt nancing. This structure allowed cross-application of dividends so each project could support the other. It enabled projected interest coverage levels to be tighter than they would have been otherwise, thus lowering the cost of nancing. Combining two different highways diversied the lenders risks. It eliminated the need for two separate nancing, minimized the duplication of documentation and negotiation with nancing parties, and created a public bond offering large enough to be liquid and to meet demand at the long-end of the sterling bond-market. Although the issue here was not the difculty of fund raising as in the previous example, the approach gave HMG a better risk-prole for their business as a whole by having two different DBFO highway projects and formed a base for evolving into a large toll-highway operating company. Distinctive features of the HMG case are as follows: * rst bond offering under the United Kingdoms Private Finance Initiative; * large magnitude compared to other sterling Eurobond offerings; * rst monoline-guaranteed projectnancebond in the United Kingdom; * bond nancing prior to construction; Financing Highways 1-7 2006 by Taylor & Francis Group, LLC
24. 24. * acceptance of deferred annuity structure by United Kingdom investors; * dual-project structure with limited cross-collateralization; * shadow-tolls as a basis for project revenue; and * joint and several guarantees by sponsors with varying credit capacity. Financing the two HMG projects together made sense because it created portfolio diversication and economies of scale. This kind of approach may provide a foundation for a company to grow into a large operating company to perform more pooled nancing, and eventually raise funds on its own based on the nancial strength of its underlying projects. 1.2.9 Pinpoint Equity with an Indexed Highway Bond Issue Pinpoint equity (high debt-to-equity ratio) coupled with ination-indexed bond issues may be used to relieve investors of the problem of slow returns on their investment through dividends. The issues here are: (i) the need for the investor to exibly recoup its investment without hindering the opportunity of private nancing; (ii) lowering the capital cost to achieve a more affordable toll rate; (iii) the need to provide the investor with incentives that lead to higher returns; and (iv) the need of the investor for liquid investments. This concept was created in United Kingdom. The project company of the Second Severn Crossing, Severn Plc, was formed with the minimum allowable equity capital for a private limited company, 100,000, of which the ordinary stock amounted to 50,000 and the preferred shares amounted to 50,000. The debt component comprised 131 million in indexed-linked debt, 150 million in EIB loans, with 150 million in a standby letter of credit, and a 190 million of oating rate bank loan. Although the project company has succeeded in the operation of the existing Severn Crossing, mitigating the start-up risk of the new project, the debtequity ratio of the newly constructed portion of the project is only about 0.02%. This pinpoint equity approach frees investors from the problem of slow recoupment through dividends and also may lower the cost of capital. This in turn lowers the debtequity ratio to 0.02% 0.1million/(131 m 150 m 190 m) required toll rate to facilitate an earlier transfer of the bridge back to the government. In the case of Second Severn Crossing project, this approach was coupled with an RPI-indexed bond-issue. The bond was listed so that investors were able to access immediate liquidity in order to address to the drawback of the project nancing approach of tying up investors capital over the long-term. Although this is a good practice for addressing these issues, it requires a very mature nancial market to succeed. 1.2.10 Option Concept The option concept is applied in many aspects of toll highway nancing, e.g., convertible preference shares and bond issues. It has also been used to provide liquidity for shares held by the contractors and the sponsor companies. It gives exibility to the nancing structure and may broaden the horizon of fund providers for privately nanced toll highway projects. The NorthSouth Expressway (Malaysia) and the M2 motorway (Australia) projects involved application of the concept to provide liquidity for shares held by the contractors and the sponsor companies. 1.2.11 Value Capture The value-capture concept is an approach by which the increase in real estate values created by a transport project, such as a toll highway, are captured to help pay for the transport highway. The approach is risky because it relies on favorable trends in the real estate market. The concept has been planned or actually applied in a number of contexts, for example, the GuangzhouShenzhen Superhighway in China, the Hopewell Bangkok Elevated Highway and Track System in Thailand, and the MalaysiaSingapore Second Crossing in Malaysia, with the experience indicating that over-dependence on real estate investment earnings to structure a transport concession is risky given the volatility of real estate markets. The Handbook of Highway Engineering1-8 2006 by Taylor & Francis Group, LLC
25. 25. 1.3 Role of Donor Agencies Aid agencies can address to a variety of the nancing, institutional, and regulatory issues of toll highway development through: (i) long-term loans, (ii) interim nancing, (iii) credit enhancement with respect to political risks, (iv) the arrangement of nance, (v) the provision of guarantees, and (vi) technical assistance and human resource development. 1.3.1 Long-Term Loans One way in which donor agencies can provide assistance for toll highway development is long-term nancing. In many developing and transitioning economies, even ones that have large capital markets, it is difcult for domestic capital to cover the costs of needed highway projects mainly because of the lack of long-term nancing tools. The Inter-American Development Bank (IDB) provided long-term loans to Brazil and Colombia. The National Economic and Social Development Bank (BNDES) is the sole provider of long-term nancing in Brazil, with nancing typically for 10 years at the Brazilian long-term Interest rate plus a spread of 3 to 4%. Access to long-term international project nance debt may be enhanced through the involvement of a multilateral institution in a project. This is because loans under the umbrella of institutions such as the International Finance Corporation (IFC), regional development banks, or the ExportImport (EXIM) Bank of Japan are exempt from Bank of International Settlements provisioning requirements and carry less sovereign risk. IDBs participation encouraged the international commercial banks to participate in the rst green-eld toll highway project in Brazil, Linha Amarela (the Yellow Line Highway), which reached nancial closure in 1996; IDB contributed a USD14 million, 10-year loan at LIBOR plus 375 basis points to this project. IDB also played a critical nancial role in the CaliCandelariaFlorida toll highway project in Colombia, where long-term nancing is very limited and expensive; IDB provided a 10-year loan of $10 million, at LIBOR plus 325 basis points and helped mobilize local long-term nancing at reasonable cost. 1.3.2 Interim Financing Donor agencies can also provide interim nancing. The European Bank for Reconstruction and Development (EBRD) supported the Budapest Orbital Motorway Project (MO) with 2 billion Hungarian forint ($27 million at the time) in interim nancing for the countrys Highway Fund. This freed up monies for the M1/M15 motorway when preparatory work on the M1/M15 project, an important pilot project in EBRDs view, was stalled due to a lack of reserves in the fund. 1.3.3 Credit Enhancement with Respect to Political Risks Donor agencies provide various measures of credit enhancement with respect to political risks, including political risk insurance, Export Credit Agency (ECA) conancing and guarantees, and Partial Credit and Risk Guarantees. In Colombia, Partial Risk Guarantees (PRG) provided by the World Bank was an option given to bidders. This would protect project lenders or bond holders against debt-service default due to the governments inability to meet its payment obligations as a result of the Ministry of Transport not authorizing toll adjustments agreed in the concession contract. Political forcemajeure, or changes in the law adversely affecting the projects ability to service its debt and leading to default. Although the successful bidder declined the Banks PRG in its bid, the offering of PRG assured increased competition with its attendant benets for the government. 1.3.4 Arranger of Finance A donor agency can play the role of nancial arranger. The nancing package for the M1/M15 motor-way project in Hungary was co-arranged by EBRD and Banque Nationale de Paris in December 1993. The syndication loan for the M5 toll motor-way project was also arranged by EBRD, Commerzbank, Financing Highways 1-9 2006 by Taylor & Francis Group, LLC
26. 26. and ING Bank. In the case of the M1/M15, the EBRD issued 5- and 12-year bonds and provided a full guarantee of the bonds launched by the project sponsor. 1.3.5 Provision of Guarantees Another role played by donor agencies is to guarantee loans. For example, for the M5 motor-way in Hungary, the EBRD offered guarantees to participating banks for the nal repayment of their loans. 1.3.6 Technical Assistance and Human Resource Development Donor agencies, particularly the World Bank, can add value by providing expertise and contributing to training in various areas related to toll highway development. For example, the Bank is now actively assisting China in the development of a policy framework conducive to attracting private capital for new toll highways. The new BOT framework is to be put forward as a provisional decree on highway projects with private investment with approval from the State Council pending. The State Development Planning Commission has designated ve pilot highway projects to implement the new BOT policy framework, including the Wuhan Junshan Yangtze River Bridge in Hubei Province and a toll expressway in Guangdong Province. The World Bank provided grant funds to conduct a commercial feasibility study of the Yangtze River Bridge, with the aim of enhancing the bankability of the project by the private sector. The World Bank is also funding studies to assess the development of public toll highway authorities in Hunan and Hubei Provinces, which would give the provinces the capacity to manage large expressway systems, supplementing the planning, nancing, and construction of highways by provincial communications departments. Support for master planning, feasibility studies, and concession contract have been provided as part of technical assistance. Japan International Cooperation Agency (JICA) supported the preparation of highway network master plans in Malaysia, Thailand, and Philippines, Chile, utilized World Bank support for feasibility studies and the preparation of basic engineering for projects identied by the Ministry of Public Works as candidates for concessions as well as consultant services for the review of the regulatory framework. EBRD was instrumental in improving the drafting of certain parts of the concession contract in Hungary (e.g., relating to force majeure and consequences of government action affecting operation). The United States Agency for International Development (USAID) assisted in the establishment of a BOT Center in the Philippines, with the responsibilities of information dissemination, training, and provision of assistance for the drafting of bid documents and conducting the bidding.. The center provides technical assistance to various government agencies involved with private sector participation, but has no regulatory role or real power outside offering suggestions. 1.4 An Analysis of Highway Project Financing 1.4.1 Developed Countries 1.4.1.1 Financing Structure Highway nancing in developed countries nanced their projects primarily through equity nancing, issuing of various kinds of bonds, securities and debentures. In addition, loans from both international banks and local banks were made for debt nancing. All necessary calculations and analysis on cost and benets, economic and nancial internal rate of return were obtained to evaluate the nancial viability and benets such as time and operating savings from the project. Sensitivity Analysis was also conducted to test the robustness of the project against changes in prices and interest rates. There was no government or federal funding involved in these projects except for projects in Canada where most projects were subsidized or funded by the government. However, no complacency was allowed as the private developers were obliged to payback the government from toll revenue collected. Contingency funds were allocated for any possible unanticipated costs escalation. Insurance coverage for loans undertaken was secured The Handbook of Highway Engineering1-10 2006 by Taylor & Francis Group, LLC
27. 27. from commercial banks and other trading and nancial institutes. All the above sources of nance were obtained by the relevant private developers consortium team. 1.4.1.2 Institutional Structure All projects were announced by the respective government or ministerial department to private developers for competitive bidding. Legislation set up relevant departments and institutes to monitor and cooperate with the private developer independently of the government. Guidelines for prequalication of these proposals were also implemented by government bodies for efcient and better short listing of proposals obtained. Strict prerequisites such as the nancial performance and relevant domain knowledge and expertise for the construction of the project were also required to be submitted as reports to the respective government departments. The successful bidder for the project will be the one that has the required resources and accumulated past experience with related projects and a proposal that best fulls the governments priorities and objectives at a reasonable cost and appropriate risks. The consortium thus will consist of several different companies or corporations that specialize in all required aspects such as construction, engineering, government regulations etc in the project. Both the government department and private entity would have to be engaged in obtaining public support in favor of the project. Appropriate measures were undertaken to preserve or sometimes rebuild natural habitats such as the Dulles Greenway project. Due care was undertaken to ensure minimum disruption to the existing residents in the community. 1.4.1.3 Why Did Some Projects Fail? Despite all the necessary planning and implementation measures taken by both the government departments and the private entities, to ensure successful construction and eventual sustainability of