1. Senior Road Executives Programme 2011 Road Financing Cesar Queiroz, Roads & Transport Infrastructure Consultant, World Bank Road Asset Management: Lessons from Seven Countries

2. Presentation Outline  Introduction  Institutional and financing arrangements  China, Croatia, Brazil, Slovenia, New Zealand, Slovakia and UK  Performance management  More private participation  Conclusions, discussions

3. Introduction  Countries choose approaches to manage their road networks that are specific to their needs and circumstances  Under the ministry responsible for transport, most governments have established a separate agency or administration to manage roads  A key objective is to improve the efficiency of management and financing of transport infrastructure, including roads  A diversity of institutional and financial arrangements in several dimensions

4. Differences in Several Dimensions  Decentralization – larger countries tend to be more decentralized, China being an example with a very high degree of decentralization (for example management of the entire tolled expressway network construction and operation is delegated under the responsibility of the provinces), while smaller countries such as Slovenia and Slovakia, as expected, are very centralized  Management structure – executive agency, public corporations, concessions

5. Differences in Several Dimensions  Modal responsibility – single mode entities, multiple mode entities. While China has single mode entities, in 2001 Brazil established an agency to manage both highway and railway concessions, as well as another agency to manage non-concessioned roads, railways, ports and waterways  Sources of financing – public, dedicated funds, private. Ultimately, taxes or direct payment by users

6. Modes of Financing

7. China  MOT is responsible for policy and regulation of all transport modes, except railways  Transport programs implemented by the 27 Provincial Transport Departments and Beijing, Chongqing, Shanghai, and Tianjin

8. Expressway Development in China  A provincial government first builds a toll expressway  When traffic has stabilized, it sets up an expressway corporation as a public limited company  The company is then listed on the stock exchange and the government sells shares in the toll expressway corporation  The shareholders earn dividends on their shares  The provincial government invests the money paid by shareholders into constructing new toll roads  Private investments have accounted for about 7 percent of expressway financing. The annual investment on expressways is about US$17 billion

9. China: National Trunk Highway System  A 44,000 km network (the backbone)  Includes 12 major expressway corridors: five north-south, seven east-west  Completed in 2005  Highway construction in 2004: Trunk $21.6 b, Others $21.1 b, County and townships $15.4 billion  Development now shifting to poorer western and central regions

10. China: Source of funds for roads (2004)  State budget 14.3%  Domestic loans 40.4%  Foreign investment (mainly IFIs) 1.3%  Self-financing and others (contribution of provinces, counties, local townships, villages, and the private sector, and debt taken on by the secondary and tertiary levels of government):44.0%

11. China: Current road network  Total road network: about 3.73 million km  Including 60,302 km of expressways and 54,126 km of other high-grade highways  One of the most extensive transportation systems in the world developed in the last 15 to 20 years

12. Brazil  Transport system reformed through Law 10.233 of 2001  National Department for Transport Infrastructure, under MoT, responsible for construction, maintenance, and operation of federal highways, railways, waterways, and ports  Brazilian National Agency for Land Transport, under MoT, responsible for the federal highway and railway concession programs

13. Road Financing in Brazil  1970s – mainly earmarked road user taxes  1980s - tax earmarking was gradually discontinued  2001 - earmarked revenues from a fuel tax (the so-called CIDE), now the main source of funds  2004 - public subsidies allowed to help ensure the viability of concessions (PPP Law)

14. Brazil Concessions: 12,360 km Private investments: 12% of total Toll booth, Rio de Janeiro to Juiz de Fora expressway

15. Slovenia  Transport Motorway Company of the Republic of Slovenia (DARS), a joint-stock company, is in charge of financing, engineering, preparing, organizing, and managing construction and maintenance of the country’s motorway network  Sources of funds for DARS include earmarked fuel tax, vignettes, tolls (for >3.5-ton vehicles), EU funds, and loans

16. Vignette in Slovenia  Introduced on July 1, 2008 to improve traffic flow and reduce emissions  For maximum permissible weight of 3.500 kg, two axles –Yearly 95 EUR –Monthly 30 EUR –Weekly 15 EUR  For motorcycles: half the price Source: http://www.dars.si/Dokumenti/Toll/Vignette_308.aspx

17. Tolls in Slovenia  Introduced in the 1970s  Open toll system: users pay toll as they pass through a toll station; rates not based on actually traveled distance (several motorways)  Closed tolling system: users first enter the motorway system at a toll station, and then pay the toll at an exit toll station (A1 & A3 motorways)  Only vehicles with the maximum permissible weight over 3.5 tons

18. Toll payment in Slovenia  Toll rates depend on vehicle category and emission class, and hour of day  Tolls can be paid with credit cards, cash, DARS Card, ABC tag  Toll amount calculations: http://www.dars.si/Vsebina/Cestnine.aspx?id_me nu=206  Tolls in other European countries: http://www.dars.si/Dokumenti/Toll/Toll_in_other_ european_countries_335.aspx

19. Tolls and Vignettes in Slovenia

20. A toll booth in Slovenia Toll booth Kompolje, A1 Motorway

21. New Zealand  For about a decade, New Zealand had two separate agencies, one to manage roads (Transit NZ), and the other to provide the funds (Land Transport NZ)  On August 1, 2008, the Government merged the two agencies “to provide an integrated approach to transport planning, funding and delivery,” thus establishing the NZ Transport Agency

22. Croatia  The Ministry of the Sea, Tourism, Transport and Development (MSTTD) is responsible for transport policy and the administration of the motorway concession contracts and  Hrvatske Autoceste, a joint-stock company, 100 percent- owned by the state, is responsible for the construction and management of the public motorway network  Hrvatske Ceste, also a joint-stock company, is responsible for the construction and management of all other state roads. County roads are managed by the County Roads Administration

23. Sources of road financing in Croatia  Long-term borrowing  Dedicated fuel levy: consolidated in the State budget in 2006  Tolls on motorways: closed and open (bridges, tunnels, short motorway sections) toll systems are used –The users of electronic toll collection (ETC) use the dedicated lanes and do not need a toll ticket Source: http://www.hac.hr/en/toll-rates/toll-payment-conditions/

24. Slovak Republic  Motorways and expressways are managed by the National Motorway Company  Class I roads are managed by the Slovak Road Agency  Class II and III roads are managed by the country’s eight regions  A current vignette system for charging heavy goods vehicles is expected to be replaced by an electronic toll collection (ETC) system

25. Some commercialized road agencies a.Croatian Motorways Ltd., established in 2001, responsible for operation, construction and maintenance of motorways in Croatia b.Latvian State Roads, established in 2004 as a State Joint Stock Company, operates according to an agreement signed with its main client – the Ministry of Transport c.Motorway Company of the Republic of Slovenia (DARS), established in 1993 as a joint-stock company, in charge of financing, engineering, preparing, organizing, and managing construction and maintenance of the country’s motorway network

26. Performance Management in Road Agencies  Some mature road organizations, such as the U.K. Highways Agency and the Swedish Road Administration, use performance management systems to demonstrate accountability to elected officials and to the public  There are several reasons to use performance management

27. Uses of Performance Management  To establish goals and performance targets to manage, explain, deliver, and adjust road budgets and internal activities  To establish effective and achievable performance levels based on input from the public, elected officials, and the business community  To demonstrate good governance and accountability in meeting or exceeding performance expectations

28. UK Highways Agency Performance Measures a.Road Safety: By 2010 reduce by a third (i.e., to 2,244) the number of people killed or seriously injured on the core network compared with the 1994-98 average of 3,366 b.Road Maintenance: Maintain the strategic road network in a safe and reliable condition, with the following targets: (i) Maintain a road surface condition index of 100 ±1 within the renewal of roads budget; and (ii) Maintain benchmark unit costs for maintenance renewals at a level at or below inflation

29. UK Highways Agency Performance Measures c.Customer Satisfaction: Improve road user satisfaction by at least 0.25 percentage points compared with the level achieved in 2008-09

30. CountryDegree of Decentralization Source of FinanceCurrent Management Structure USAHigh Budget, Tolls, Earmarking Public, Private (PPP) FranceMediumBudget, TollsPublic, Private (PPP) ChinaHighBudget, TollsPublic BrazilMediumBudget, TollsPublic, Private (PPP) UkraineLowBudgetPublic SloveniaLow Budget, Tolls, Vignettes Public SlovakiaLowBudget, VignettesPublic LatviaLowBudgetPublic RussiaMediumBudgetPublic New Zealand HighBudget, TollsPublic, Private (PPP) FinlandHighBudget, VignettesPublic, Private (PPP) Features of Motorway and Expressway Development and Operation in Selected Countries

31. Western Europe Experience  The Netherlands Directorate-General for Public Works and Water Management – RWS reviewed road administrations in the Netherlands, Austria, Denmark, England, Finland, France and Sweden  More information on the study is available at: http://www.ecorys.com/rota/rota_12/artikel7_e n.html

32. Western Europe Experience  The study identified two common areas that require improvements by the Road Administrations: –Coordinating network management between the national and local levels –Further developing road user charging systems to be able to manage road traffic in the future

33. Common trends, despite the differences  Increased involvement of private parties in building, maintaining, managing and operating road infrastructure  More emphasis placed on road users with the development of methods to communicate with roads users to take into account their needs and concerns in the provision of roads

34. Driving forces as reasons for changes  Change of government and administrative reform  Need for more traffic management powers in one agency  Decentralization  Economic efficiency  Change of management  The state’s finances  Separation of policymaking and implementation  Private sector financing

35. Private Financing of Roads  Public-private partnership (PPP) schemes have been underutilized in many developing countries  Nevertheless, progress is being made toward launching a PPP program in roads and highways in several countries  Toolkit for PPP in Roads and Highways http://go.worldbank.org/P2XMGNYLD0

36. Toolkit for PPP in Roads and Highways Link to Toolkit TKTK

38. Public Private Partnerships  PPP is a means to elicit the private sector to contribute to reducing the overall cost of delivering infrastructure services through increased efficiency and better management of some risks  In successful PPP projects, the private sector’s higher cost of financing and the need for a return on its investments are offset by the benefits provided by the private participation  Good governance in managing PPP programs is essential for the public to reap the full benefits of the private sector’s involvement

39. Allocation of Risks Traditional Outsourcing High RISK TO PUBLIC SECTOR Low RISK TO PRIVATE SECTOR High Performance-based Contracts Decreasing Public Risks, Increasing Private Risks BOO Availability Payments Toll Road BOT Shadow Tolls

41. Some references  World Bank Transport Paper No. 32, “A Review of Institutional Arrangements for Road Asset Management: Lessons for the Developing World.” Cesar Queiroz and Henry Kerali, 2010. http://go.worldbank.org/6HDCYBMRT0  UK Highways Agency Business Plan 2009-10. http://www.highways.gov.uk/aboutus/documents/Business _Plan_09-10_Web_Version.pdf  U.S. Federal Highway Administration. 2010. “Linking Transportation Performance and Accountability.” Washington, D.C. USA. http://www.international.fhwa.dot.gov/pubs/pl10009/pl1000 9.pdf

42. Senior Road Executives Programme 2011 Road Financing Thank you for your attention Cesar Queiroz queiroz.cesar@gmail.com