1. Persian Highway Trust Fund
Economic and Finance Research Institute
The Ministry of Roads, and Urban Development
French-Iranian Seminar on  
Public-Private Partnership and Intermodal Transport
25 & 26 October 2016

2. Road Financing System in Iran
Outline
Introduction / goal
Road Financing System in Iran
Economic Principles of Financing Road Projects
Road Financing System Worldwide
Proposal 1: Fuel tax
Proposal 2: Highway Trust Fund
Complementary notes
Summary

3. The Goal
Question: HOW to finance road projects in Iran? And WHY? Proposal: Fuel tax through A Highway Trust Fund

4. Financing Road Projects
Introduction
Financing Road Projects
Maintenance costs
Construction costs

5. Financing the road projects in Iran (As is)
Construction costs:
Annual budget
Public-Private Partnership (PPP)
BOT (Toll)
Maintenance costs:
Own Incomes (of Road Maintenance and Transportation Organization, RMTO)

6. Caveats of Current Funding System
Characteristics:
Medium- and Long-term road plans vs. short-term budget
High volatility of the Government revenue
Misallocation of funds through the process of approving (and modifying) the budget
The negative effects of current funding system on road plans:
Prolonging the projects
Idle national/public capital
Weakening the bargaining power of Govt in PPP projects
Burdening more costs due to insufficient maintenance (Up to 3 times, according to The World Bank)

7. Approved Budget (1394/2015) vs. Funds Required
Current Funding System Potentials
Approved Budget (1394/2015) vs. Funds Required
Expected costs: IRR 295 trillion
Budget approved: IRR 34 trillion

8. Economic Requirements of Financing Road Projects
The ideal solution (charges) should be:
Financially effective and stable
Economically efficient
Equitable
Cost little to collect
Not easy to evade
Politically feasible

9. Funding the road projects: Worldwide Experiences
Annual budget
Public-Private Partnership (PPP)
Fuel tax
Road tax
Toll
Vehicle license
Vehicle distance travelled charges
Vignettes
Charges for non-standard/overweight vehicles
Other alternatives: e.g. VAT

10. Fuel tax To certain extend satisfies all criteria
Financially effective and stable
Economically efficient
The more you drive, the more you consume
Externalities of fuel consumption
Equitable
User pays
Cost little to collect
About 1% of total revenue/wholesale collection
Not easy to evade
Not paid at retail
Politically feasible
Within Iranian targeted subsidy plan
The main source of funding road projects worldwide
87% of income of the US Highway Trust Fund (2014)

11. Proposal
Fuel tax
On Gasoline, 10%
On Diesel, 15%
On CNG/LPG, 10%
Via Iranian targeted subsidy plan

12. Share of Revenue that goes to the Govt (OCED)
Fuel tax: Cross country
Share of Revenue that goes to the Govt (OCED)
Source: Calculations based on International Energy Agency (May 2015)
Country
Diesel
Gas US
%18
%17
Canada
%27
%34
France
%47
%61
Germany
%44
%60
Italy
%51
%63
Spain
%37
%52 UK
%58
%67
Japan 15

13. Establishing a Trust Fund
Implementation
Establishing a Trust Fund
A popular and common approach (IMF and The World Bank)
Independent
No authority over other organizations
Main goals:
Financing road development projects
Including: the share of Govt in PPP projects
Funding the maintenance costs

14. SWOT Corruption (in case of insufficient supervision and transparency)
Significant resources
Long-term planning
Efficient /sustainable allocation of resources
Simple to implement
Cost little to collect
Corruption (in case of insufficient supervision and transparency)
Relating consumption to payments
Simple structure of the Fund
Automatic inflation compensation
Establishment by the law
Supervision
Expectation of fuel price increase (Iranian targeted subsidy plan)
Public resistance
Inefficiency of current funding system
Technological progress (progresses in or obsoleteness of internal combustion engines)
Financial problems of the Govt (low oil price/low economic activity)
Low oil prices in the long-term

15. Financial calculations A sensitivity analysis Establishment by the law
What else?
Financial calculations
A sensitivity analysis
Establishment by the law
Role of Parliament
Supervision
Deciding on the total borrowing, guarantees, and financing limits
The organization
The formality (Fund vs. other frameworks)
Proposal of the bill
Proposal of the statute

16. Proposed financing system Current financing system
Summary
Proposed financing system
Current financing system
Main source: Fuel tax
Framework: A highway trust fund
Mainly through Budget
Global experience
More resources
Long-term planning
Relating usage to payment
Budget fluctuations
Shortage of funding
Budget approval mechanism
No real long-term planning 24

17. Thank you