Analysis of European road organization and infrastructure funding

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Analysis of European road organization and
infrastructure funding
CEDR Conference of European Directors of Roads
Paris, 22 February 2007
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Topics

1. Road governance
2. PPP developments
3. Asset value calculation
4. Funding and financing
5. Future developments

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Road ownership

• In most countries, the road network is owned by
  public authorities.
• However, in Italy, the ownership of 5.593 km of
  the main road network belongs to a private
  entity.
• ? The questionnaires are not complete. More
  in-depth knowledge regarding the CEDR members
  current and future policy about the ownership of
  their road network is desirable.

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Mandates 1

• The questionnaire does not define the concept of
  mandate. Usually it includes the power to amend
  legislation. However, here it seems to indicate
  who is in charge of a certain activity.

Bases of mandates
The mandates given to public authorities are
mostly based on legislation and the mandate of a
ministry mostly cover issues related to funding
and financing and investments.
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Mandates 2

• The mandates given to the administration,
  public-private or private entities mostly cover
  issues related to maintenance, investments and
  traffic operations.

Issues covered by mandates
? Regarding mandates, it is advisable to
investigate deeper whether CEDR members have
legislation dedicated to PPP and/or concessions.
If so, which subjects are covered by these laws
and regulations?
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Operation of road network (1)

• Traffic operations/traffic (94) management,
  network planning (74) and capital investment
  planning (63) are performed most by the road
  authority.
• Rehabilitation/construction (97), project design
  (80), periodic maintenance (73) and daily
  maintenance (68) are performed mostly by
  (public-)private entities.

Division of road work
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Operation of road network (2)

• The activities performed by public-private or
  private entities are procured mostly by
  competitive tendering.
• Procurement methods/contracts are to a large
  extent different per country. But most contracts
  are performance/output based. This means that the
  contractor is free to use its own
  materials/methods to reach the quality levels set
  by the contract.

Division of road work
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Supervisory Authorities

• In most countries directorates/departments of the
  central governmental administration supervise the
  road network.
• In Austria, Italy, Iceland and Hungary, however,
  independent public organizations are dedicated to
  supervising the road network.
• ? Further inquiries regarding the scope of the
  supervision activities could provide new learning
  experiences.

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PPP in infrastructure projects

• Countries in which PPP is used most frequently
• France (concessions for real toll motorways)
  Italy (concessions/general contractor schemes)
  Spain (concessions for (shadow) toll roads)
  Portugal (shadow toll concessions) and the UK
  (concession, DBFM(O) (Portugal and the UK did not
  complete a questionnaire)).
• Countries where interesting projects are on the
  way Austria (concession/DBFMO) Greece
  (concessions).

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Scope of PPP

• The questionnaires did not provide detailed
  information as to the scope of PPP.
• ? Although we may conclude that for PPP a
  concession based scheme is leading, we need more
  information regarding the scope of the different
  PPPs (i.e. which activities fall under PPP).
• ? Profounder knowledge is possible if information
  is gathered regarding the reasons why CEDR
  members do or do not include the O (operation)
  in an infrastructure PPP.

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Scope PPP / Outsourcing

• As mentioned, the extent to which the countries
  operate their road networks themselves or
  outsource activities, differs significantly.
• ? Further research requires information regarding
  the road management policy in the CEDR countries.
  In other words, which activities the state
  performs itself and which not?

Self
Outsource
This chart demonstrates an approach to scale the
degree in which countries take care of various
road related activities themselves (The Road
Authority) or outsource that (to Private
Enterprises).
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Basic Principles for using PPP (1)

• Making systematic use of business economic tools
  assessing the value for money of PPPs is still a
  limited practice in Europe.
• The UK and the Netherlands use a PPC (Public
  Private Comparator) and a PSC (Public Sector
  Comparator) to demonstrate the potential merits
  of a PPP project.
• In other European countries, the choice between
  traditional public options and PPPs for the
  development of transport infrastructures is often
  based on more practical considerations with a
  variable degree of public consultation.

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Basic Principles for using PPP (2)

• The questionnaires do not provide information
  regarding the principles for using PPP. Although
  we know that some countries started to use
  benchmark methods, for example
• France a specialized body, whose main role
  is to carry out a prior evaluation for the public
  sector
• Portugal a special team of the Ministry of
  Finance, dedicated to analyze and compare the
  advantages of the proposed PPP methods over
  alternative methods of funding. A clear benefit
  has to be shown for using PPP.
• ? Deepening the knowledge regarding the basic
  principles underlying the choice for PPP in the
  different countries is advisable.

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Asset value calculation

• Replacement value, depreciated investment costs
  and original investment costs are the asset value
  calculation methods used most.
• Market value is not used. It appears that the
  calculation method severely affects the
  calculated asset value.
• ? What is the relationship between the duration
  of PPP contracts and the choice for an asset
  value calculation method in the CEDR countries?

Asset value calculation methods
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Methods of funding

• All countries use their state budget for at least
  part of their road funding, except for Austria.
• General and earmarked taxes are the funding
  methods used most.
• 6 countries charge toll fees and 3 countries use
  vignettes.
• ? which of PPP funding is public and which is
  private?
• ? In case of public funding, how is this brought
  into the project?

Methods of funding
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Road funds

• Road funds are designed to address inadequate
  levels of funding for road construction and
  maintenance in the form of a dedicated income
  stream. They ensure that the funding of
  infrastructure projects is not subjected to
  political decision making for each individual
  project.
• ? The questionnaire did not provide information
  as to whether CEDR members have such ring-fenced
  income streams and if so, in which way these
  funds are financed?
• ? What is the relationship between the method of
  funding and the use of PPP?

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Future developments

• Developments concern the extension of the road
  network and a shift in the ownership of the road
  network mostly.
• ? What extension foresees each CEDR member for
  the coming 20 years?

Future developments
? Regarding pricing policy, do countries consider
tolls or a (nation-wide) kilometer charge? In
case of the latter, is this seen as general
income stream or is this a traffic management
tool?
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Conclusions

• PPP is an umbrella term for different
  contractual arrangements
• PPP is developing with substantial road programs
  coming on stream - such as the German A-model
  roads, the Austrian Ostregion road projects and
  Spanish regional roads, by value 60 of the whole
  market
• Concession based schemes are used most
  frequently
• States are developing structures which suit
  their own environment - being everything from the
  legal framework, public expectations to
  commercial practice
• This variation may result in entry barriers
  for foreign competitors.

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Further Actions

• In this presentation, we formulated several
  additional questions that could provide the CEDR
  members with learning opportunities regarding the
  different PPP policies in their countries
• Some additional questions for countries
  individually. (Presented on a separate form)
• Other themes to be investigated? For example
  step-in arrangements, rules for sub-contracting.

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Brussels

• Besides the mutual learning experience the
  questionnaires also provide guidance as to the
  themes CEDR could promote in Brussels, for
  example
• Common European rules on concessions
• Relationship European road pricing and local
  PPPs
• Other themes?