The RAB model in financing transport infrastructure September 28th 2012 Prepared for ITF round table Andrew Meaney, Managing Consultant Peter Hope, Senior Consultant

September 28th What is the RAB model? -allows recovery of fixed costs -overcomes time inconsistency problem: commitment device -initial value and form of additions/depreciation critical -needs regulator or similar

September 28th Issues from yesterday: can RAB help? Transaction costs Problems with the bidding process Lack of flexibility Might be lower than with PPP if piggy-back on existing (competent, well-respected) regulators and the rule of law Still an issue, but for different reasons (initial value) Big advantage for RAB here—mechanism for changing tariffs as circumstances change. Enables upgrades/renewals Sustainability Record of investments and liabilities. Can be used with ‘special administration’. Enables monitoring and transparency Nervous capital markets RAB model well understood by investors; needs credible and trustworthy regulatory framework

September 28th PPP and RAB: horses for courses -both PPPs and the RAB model represent potential ways in which the time inconsistency problem may be solved -investor familiarity with both models -relative advantages of the approaches may depend on the specifics of the project -RAB preferable where contracting  inflexibility, high transaction costs -high cost of regulation  RAB not feasible -small saving in the cost of capital  large absolute saving -important to evaluate a number of options

Contact: Peter Hope +44 (0) Although every effort has been made to ensure the accuracy of the material and the integrity of the analysis presented herein, the Company accepts no liability for any actions taken on the basis of its contents. Oxera Consulting Ltd is not licensed in the conduct of investment business as defined in the Financial Services and Markets Act Anyone considering a specific investment should consult their own broker or other investment adviser. The Company accepts no liability for any specific investment decision, which must be at the investor’s own risk. © Oxera, All rights reserved. Except for the quotation of short passages for the purposes of criticism or review, no part may be used or reproduced without permission.