Building our infrastructure right is no longer good enough

March 24, 2021

Eduardo Begazo

In February 2020, before this whole covid crisis started, I participated in a congress in London, MOVE2020. There I listened to a talk by Susanna Zammataro, General Director of the International Road Federation, who shared with the audience potential opportunities on the importance and need to connect users, vehicles and infrastructure. The conclusion of this talk was: Building the infrastructure right is no longer good enough; In this impeding connected era, the real question is: Are we building the right infrastructure? This reflection left me thinking a lot about why roads are not yet connected to us as other services and products are today.

As customers, we often see how technology is advancing and how daily services become digitized, making our daily life faster, simpler, and easier. Once we get used to these new services it often becomes impossible for us to think about how our life would be without them. For example, traveling to a new place without using Waze or Google Maps seems almost impossible today, where before paper maps were used and we had to rely on the driver’s instinct to be attentive to traffic signs and take the right exit. Today the thought of traveling with a paper map is comical, and many times you don’t know what to do when you lose your cell phone signal in the middle of a trip.

Although everything is going digital, there is still one big segment that needs to make that leap and connect. We are talking about one of the oldest infrastructure segments used by practically all of us: roads and highways. But why are roads not yet connected, what’s missing? Even privately owned toll roads are seldomly able to share data seamlessly.Why is it taking so much time? To answer that, let me explain a little bit about how roads work first.

What is a private toll road and how does it work?

Toll roads often work as a concession. A concession is basically handing over public goods or services to a private company for a determined period of time to operate. During the time that the concession has rights over that good (in the case of highways generally between 25 to 40 years), and is able to generate revenue from this asset (e.g. via charging a toll). In return for this right, the private organisation must maintain the asset and drive improvements. For example, many highway concessions are obliged by law to invest in signaling, road expansions and other factors. Then, after the stipulated period, the property must return to the state with various improvements at zero cost to the government.

Within this relationship there are two main players

  • The granting authority - responsible for ensuring compliance with the concession contract, auditing and overseeing the concessionaire. The granting authority makes sure that all agreements are fulfilled in the correct timeframe and that users (drivers) receive a good quality service.
  • The concessionaire (road operator) - responsible for managing, maintaining, fulfilling the contractual agreements and implementing improvements to the road under its responsibility. In return the concessionaire has the right to extract a toll.

This relationship was built to enjoy the best of what both the private sector and the public sector have to offer: operational excellence with the public’s interests at heart.

So, in order to provide a good service and to be clear about the duties, obligations and rights of each party, the ‘rules of the game’ are stipulated in a concession contract. This is a document where the concessionaire is granted the provision, operation, exploitation, organization or management, in whole or in part, of a public service, or the construction, operation or conservation, in whole or in part, of a work or asset. This stipulates, for example, the works to be carried out, the operational KPIs, whether traffic monitoring and management services are provided, the type of operational vehicles required, what type of technology should be implemented on the road, the calculation of the toll rate and how it is adjusted over time, among other things. These agreements are very important and severe; a concessionaire that does not meet the expectations, may suffer several fines and even the cancellation of its contract.

One major aspect of road operations that is often included in the concession agreement is the use of technology for road monitoring and management. Indeed, while you may not have realized it, there is a lot of technology installed along the road that concessionaires use to ensure the safety and fluidity of traffic; Cameras installed to detect accidents, sensors that count the number of vehicles passing, weather stations that monitor weather conditions, VMS (Variable Message Signs) that communicate to drivers, etc. All these types of equipment are implemented on roads because they are part of the concession agreement.

How roads are actually managed?

Before continuing and to have a little bit more context we must know that the highway concession business started several years ago and, in Latin America for example, the first concessions started in the decade of the ’90s. From that time to date, there have been granting authorities that were or are very good managers of concession agreements. They know the operational needs of a given road, the necessary technology needed to operate a highway, and how the concessionaire must perform its work.

The concession agreement is necessary to achieve a good service, expected by the drivers. Done well, It can make sure our roads meet specific standards. It incentivises the operator to: Promote road safety and act proactively to achieve it, Ensure adequate vehicular flow, Provide a range of customer services, Establish timelines for investment in road improvements and capacity enhancements, promote investment into new technologies and operational techniques.

On the other hand, the concession agreement could reduce the innovation of the concessionaires, by creating inverse incentives. During our work over the past years we have worked with a South American partner that has a concession agreement with very little information about what they need to do or targets they need to hit. This resulted in little motivation or incentive to innovate or add value to the road or the users that drive on it. Similarly, we have seen a middle-eastern operator with a concession agreement that does not allow the operator to enjoy benefits of investments in the infrastructure in the latter half of the concession life cycle. So, the operator stopped investing in new technologies altogether. Some concession agreements stipulate that the granting power owns all new IP developed on the asset by default. Operators that face such an agreement think three times before trying to develop new technology. Most commonly, many agreements dictate the specific organisational efforts and technical equipment that the road needs to deploy, rather than setting operational targets/KPIs. Needless to say, this means the operator invests in the tech on the ground, rather than trying to push the envelope.

It is these inverse incentives that result in what we see today: roads, despite having a lot of technology in them, are still not connected. They cannot share data with drivers or with vehicles, even when it comes to safety critical events. Indeed, an operational control center of today has the same way of working, same processes, and similar operational actions as an operational control center from 15 years ago. Even if the equipment is faster, more modern it is still doing the same thing and with similar tools. It is the reason that in the year 2021 the vast majority of accidents on our road are still reported via phone calls!

To make the leap in the road concession segment and achieve a real digital transformation and total connectivity of the largest infrastructure on the planet, it is essential the role of the granting authority and the concession contracts they use promote innovation and reward those concessionaires who invest in new technologies and innovation in road management.

In order for a concession agreement to promote innovation, it needs to incentivise the operator and concession holder. Some obvious techniques that can be deployed include

  • Set clear KPIs, SLAs and targets but not how concession should meet them in detail
  • Promote the exploration of new technologies that offer better services to users by allowing developers to exploit IP developed on the asset (it will benefit the general public on other roads that way too);
  • Promote the usage of best practices among concessions
  • Adapt and push KPIs to force the operator to keep innovating and keep improving
  • Include innovation and promotion of new technologies in road through the bidding and contracting processes (e.g. awarding points / setting investment KPIs in new technologies such as AI, IoT, deep learning and traffic analytics, V2I etc.
  • Ensure that an operator that makes improvements to the road, gets to reap some of the benefits of those improvements
  • Give a contractual opportunity for smaller companies to serve the main concessionaire within the concession contract