The main risks facing private toll road projects include pre-construction, construction, traffic and revenue, currency, force majeure, tort liability, political, and financial. (Table 7).

Pre-construction
None (roads already in existence)
Construction
None (toll roads already in existence)
Traffic/Revenue
These are defined as risks associated with insufficient traffic levels and toll rates too low to generate expected revenues. Toll road are not exclusive routes. There are mainly used by commercial entities and tourists (sensitive to economic factors)

Mitigation: Risk must be shared between private and public sector. A quality traffic forecast must be done by an expert hired by financiers (sponsor’s forecast could be biased to get the deal done). Relying on well documented operation history if roads already exist

Currency
Currency risk is a major issue for toll roads financed with foreign capital because a project may be unable to pay a return on foreign currency-denominated capital if local earnings are not convertible at the expected exchange rate.

At the time of the negotiations Mexico country risk score was 36 with an S&P rating of BBB-. Its annual inflation rate was 9.7% (Much greater than the US and dollar) and 2.8% Annual GDP growth.
The revenues were in Pesos and the debt was to be repaid in $US.
The Mexican peso was devaluated two years after the international bond was issued.

Mitigation:
The exchange rate risk is often mitigated by indexing the toll rates to local inflation or the exchange rate of the foreign currency-denominated capital.
Large foreign currency debt service reserves can also be used (as in Mexico) to protect against the risk of exchange rate fluctuations and inconvertibility although tying up capital in reserve funds is expensive.
Projects can avoid this risk by tapping local capital for funding.

Related risk: since operations and maintenance are capped at 14% of net revenues, and revenues are contingent on toll rates approved by the Mexican government, Grupo Tribes could trigger an event of default if it is unable to maintain the roads to the standards specified under the Operating Agreement. If inflated operating costs are not matched by equivalent increases in toll rates, the 14% cap may prove inadequate to maintain the roads.

Mitigation:
Tie toll rate increase to the inflation rate, and or allow operator to increase toll to match inflation-driven increases.
[Is there a TIPS-like bond in the Mexican market?]

Political

Such actions could include terminating the concession or imposing taxes or regulations on the project that- severely damage its value to investors; not allowing the private partner to charge and collect tolls as specified under the concession agreement; preventing investors from transferring earnings out of the country; or not allowing for contract disputes to be settled fairly under neutral jurisdiction.
The Mexican government seems to have too much power and leverage in the concession contracts.

Operational
Since the toll roads were already constructed prior to the time of Grupo Tribasa’s engagement, and Tribasa will be responsible for the road maintenance, there is a risk that if the roads are substandard they will require more maintenance than was anticipated on the projects operating budget.

Mitigations:
• Collect documentation and conduct independent appraisal of the state of the roads prior to the concession.
• Obtain guaranty or reserve letter of credit from road owner’s Mexico against road conditions subsequently discovered to result for contrscution defects or material defects.