1. Is a mixed funding model for the highway network sustainable over time? The Spanish case Germà Bel (Cornell University and Universitat de Barcelona) & Xavier Fageda (Universitat de Barcelona) Highways: Cost and Regulation in Europe Bergamo, November 26 th - 27 th 2004 Research Unit on Public Policies and Economic Regulation

2. THIS ACTUALLY HAPPENED ON WEDNESDAY 17 NOVEMBER, 2004: The regional parliament of Catalonia approved a formal petition asking the central government to: 1) Create a fund basically with fiscal revenues derived from Value Added taxes on tolls and Profits taxes paid by highway concessionaries 2) Apply resources from the fund in 1 to: a) Subsidize tolls b) Suppress tolls in the sections with largest traffic intensity (??) Motivation: To balance toll burden across regions Catalonia includes 25% of all national toll highways kms in Spain, whereas free highways are only 5% of the total

5. INTRODUCTION Late 60s - mid 70s. First wave of highways expansion: Financing through tolls. Mid 80s – mid 90s. Second wave of highways expansion: Financing through public budget. Late 90 and early 2000´s: public financing as a main (but not exclusive) source. Because of such irregular pattern of funding sources, the Spanish case is quite singular among the big European countries; tolls just in some territories, not in others.

6. QUESTIONS Highways history in Spain: – Why was chosen a [singular] model of private toll highways in the mid 60’s? Did it deliver? – Why was chosen a [conventional] model of public budget funding in the mid 80’s? Did it deliver? Toll highway business structure Toll highway regulation How progress can be made towards the functional and financial homogenization of the highway network?

7. TOLL HIGHWAYS HISTORY IN SPAIN: MANY PROMISES AND FEW RESULTS 1960’s: the Spanish economy was growing fast and transport infrastructures were a bottleneck for productive activities. 1967: Program of Spanish National Highways (PANE) planned 3,160 kms of toll highways. Why tolls? No modern fiscal system, no budget for highways Why private? No theoretical rationale; No general policy.... Politics and business? 1972: PANE up-date planned 6,340 kilometers of toll highways. 1975: The concessions franchised to private firms add up 2,042 kms (located in the corridors with highest traffic rate). 2002: 2,386 kms of toll highways (9,020 free). ¿Why the realizations were finally so modest if the proposals were so ambitious?

8. CHANGING MODELS SINCE THE EIGHTIES: FROM USER TOLLS TO PUBLIC BUDGET 1970’s: Break down of private concessions (economic crisis) 1984-1991: Roads General Plan. Change towards a model of public financing of highways. Four types of reasons: a) Fiscal feasibility. b) Fast delivery of highways, c) Effects on the private sector productivity, d) Co-financing from the EU Regional Structural Funds. However, some new policies in favor of tolls since the mid nineties: (1) Re-negotiation agreements for extending the concessions. (2) The 1997 Program of Toll Highways.

9. EVOLUTION OF THE HIGHWAY NETWORK (kilometres)

10. HIGHWAY SECTOR STRUCTURE 2004: 2,900 kilometers of toll highways concessions (not all in operation). Major private operators: Abertis (56%), Itinere (26%). Global players (Europe, Latin America, North-America....) Strong record of profitability and high yields in the stock exchange

11. HIGHWAY REGULATION Regulation by law. No specific regulatory body. Initial price of tolls and changes through particular agreements. General regulation for price changes: Since 2001, Price caps with bounds depending on actual versus expected traffic. T t = C R * T t-1 Where T stands for toll and C is such that, C R = 1 +  IPC mean – X Where X such that: X= (1/100) ((IMD actual – IMD predicted )/IMD predicted ] Two paradoxes: 1) Limiting profits that come in part from re-negotiation 2) Prices decrease with congestion ? Against efficiency!!!!

12. IS IT POSSIBLE TO HOMOGENIZE THE HIGHWAY FINANCING MODEL IN SPAIN? Lack of homogeneity of the highway network: some deficiencies, territorial inequalities. Two alternatives for homogenizing the network: 1) Generalizing tolls: high costs and political difficulties 2) Eliminating tolls: Efficient (when no congestion) but requires financial resources. A scheme of the type financing of new investment through the public budget and financing of maintenance through user charges could be convenient. Different tools for having the users paying.