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. Published in 2006 by CRC Press Taylor & Francis Group
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2006 by Taylor & Francis Group, LLC CRC Press is an imprint of
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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. 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. 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. 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. 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. Contributors M.A. Aziz Department of Civil Engineering
National University of Singapore Republic of Singapore E-mail:
[email protected] John W. Bull School of Civil Engineering and
Geosciences University of Newcastle upon Tyne Newcastle upon Tyne,
U.K. E-mail: [email protected] R.L. Cheu Department of Civil
Engineering National University of Singapore Republic of Singapore
E-mail: [email protected] Anthony T.H. Chin Department of Economics
National University of Singapore Republic of Singapore E-mail:
[email protected] Kieran Feighan PMS Pavement Management
Services Ltd. Dublin, Ireland E-mail: [email protected] T.F. Fwa
Department of Civil Engineering National University of Singapore
Republic of Singapore E-mail: [email protected] K.N. Gunalan
Parsons Brinckerhoff Quade & Douglas, Inc. Murray, UT, U.S.A.
E-mail: [email protected] Pannapa Herabat School of Civil
Engineering Asian Institute of Technology Pathumthani, Thailand
E-mail: [email protected] Zahidul Hoque Pavement Specialist
Melbourne, Victoria, Australia E-mail: [email protected]
Yi Jiang Purdue University West Lafayette, IN, U.S.A. E-mail:
[email protected] Ian Johnston Monash University Accident Research
Centre Monash University, Clayton Campus Victoria, Australia
E-mail: [email protected] Laycee L. Kolkman Jacobs
Engineering Las Vegas, NV, U.S.A. E-mail: laycee.
[email protected] Khaled Ksaibati Wyoming Technical Transfer
Center University of Wyoming Laramie, WY, U.S.A. E-mail:
[email protected] Arun Kumar RMIT University Melbourne, Australia
E-mail: [email protected]; [email protected] xi 2006 by
Taylor & Francis Group, LLC
9. Michael S. Mamlouk Department of Civil and Environmental
Engineering Arizona State University Tempe, AZ, U.S.A. E-mail:
[email protected] Sue McNeil Urban Transportation Center University
of Illinois at Chicago Chicago, IL, U.S.A. E-mail: [email protected]
K. Raguraman Department of Geography National University of
Singapore Republic of Singapore E-mail: [email protected] 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: [email protected]. au Kumares C. Sinha School of Civil
Engineering, Purdue University West Lafayette, IN, U.S.A. E-mail:
[email protected] Weng On Tam Consultant Austin, TX, U.S.A.
E-mail: [email protected] Mang Tia Department of Civil &
Coastal Engineering University of Florida Gainesville, FL, U.S.A.
E-mail: [email protected] Waheed Uddin Department of Civil Engineering
Center for Advanced Infrastructure Technology University of
Mississippi University, MS, U.S.A. E-mail: [email protected] Ian
van Wijk Africon Engineering International Pretoria, South Africa
E-mail: [email protected] Derek Walker RMIT University, City
Campus Graduate School of Business Melbourne, Victoria, Australia
E-mail: [email protected] Liu Wei Department of Civil
Engineering National University of Singapore Republic of Singapore
E-mail: [email protected] Contributorsxii 2006 by Taylor &
Francis Group, LLC
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. 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. 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. 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. 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. 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. Part A Highway Planning and Development Issues
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. 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. 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. (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. 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. 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. 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. * 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. 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. 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. 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