Funding WP 1.2Survey of Experience

in the EU

A. Gühnemann, P. Mackie, N. Smith, A. Whiteing

December 2005

WP 1. Survey of Experience in the EU

• Aim & Methodology– Review institutional setup and fund raising

methods of infrastructure funding in Europe• For European funds and • for selected case studies (national systems +

projects)

– Use resources from • European research projects, • European + national transport (funding) bodies• Interviews with key representatives

– Assess performance • along WP 1.1 questions and criteria

Status Quo of WP 1.2

• Work in Progress– Review of EU / International funding– Case study descriptions

• Selection of case studies– Infrastructure funding in a cooperative federal

system (Germany)– Infrastructure funding in a centrally organised

system (UK / England)– Privately financed motorway in New Member

State (M1/M15 Hungary)– Infrastructure fund public / private (Asfinag, A)

Case Study Questions• Planning and financing framework, institutional aspects

– political bodies / authorities / agencies– modal responsibilities (air, ports, road, rail, public, local transport)– companies (state owned and private)– external influences (lobby groups, planning culture / hidden rules)

• Fund raising methods– type of funding: mark-ups on transport activities, mark-ups on

user costs, earmarked taxes, general budgets (taxes / debts)– costing methods (average, marginal, mix)

• How money is spent– type of projects / modes– subsidies loans

• Performance issues– accountability / transparency– multi-agent / shared responsibilities (cross-border etc.)– efficiency (under-investment, targeted)– cost recovery + rules for cost overruns

Germany

• Institutions: tiered responsibilities

– subsidiarity + cooperative federalism

State Department for Transport

e.g. UVMBW Baden-Württemberg

Regional Councilse.g. Freiburg, Karlsruhe, Stuttgart,

Tübingen

Lower Administrative Bodies, Regional HighwayAuthorities / Agencies, Road Transport Administration

*Federal Ministry of Transport, Building and Housing

BMVBW

German Road Infrastructure Financing

• Federal roads – Fund raising

• Public budgets (e.g. fuel tax, vehicle tax)• User charges (Heavy Vehicle Toll)• PPP models

– Transport Infrastructure Financing Society

• State roads • public budgets (tax transfers, e.g. vehicle tax)

• Local roads• public budgets (tax transfers, fixed budget 1.67 bill. €)

(Gemeindeverkehrsfinanzierungsgesetz)

• National:– Federal Government ↔ DB Netz AG

Rail Infrastructure

• Public budgets– construction

costs– financial grants

(subject to negotiation)

– part of reinvestment

• Track charges– annual depreciation

• Regional – Federal Government ↔ Federal States– Regionalisierungsgesetz (regionalisation law)

• tax transfers, budget line with growth rates

Lessons Learnt

Issues for Consideration • high coordination efforts• problems in cross-border coordination (states + national)

– different state of roads• tendency to manifest current status • inflexibility in investment decisions in accounting system,

– no horizontal transfer of funds possible (exception: new fund)• funding levels vary strongly between budget years; subject

to change if political situation changes• responsibility of federal level goes too far

– funding of predominantly regional and local roads • cost overruns in major railway projects led to delay of

necessary reinvestment to the future ( risk allocation)• debate on mode specific earmarking of user charges for

infrastructure maintenance and extension; • discussion about creditability of funding agency

Asfinag (Austria)

• Responsibility: – plans, finances, constructs, maintains and

operates the Austrian motorway and highway network

– Strategic planning in federal master plan

• Refunding by – National investments– Tolls

• Distance dependent heavy vehicles’ toll• Time dependent cars and light vehicles

– Funds raising on financial markets

Road financing in the UK

• Central planning (England: DfT)

• Phases of financing – Earmarked taxes (until 1920s)– General budgets (road user taxation) (until 1990s)– PPP according to Ryrie Rules

• no additional but replacement of public funds

• genuine risk transfer to private sector

– PPP according to PFI (first road scheme 1994)• additional, if better than public “comparator”

• DBFO contracts

• refunding by shadow tolls

– Binary model (since 2000)

PFI for Roads in the UK• Department for Transport (1.10.2005):

– 37 projects (out of ~ 300)– capital spent ~ £ 20 billion (54% of total )

• Lessons learnt from PPP models– Benefits

• Reduction of Construction and Operating Costs• Efficiency Gains

– Risks• Higher costs of financing (>= 5%)• Transaction costs• Fiscal effects• Postponement of costs to future taxpayers• Risk (+ benefit) allocation

Case Study M1/M15 Vienna-Budapest

• Privately financed toll motorway– Motivation: Insufficient funds from public budgets (road

user taxation)– Finance, build, own, operate contract

• Awarding Process– Prequalification (1991)– Tendering Phase (1992) Final Decision

• Concession Company SPV Elmka created (1993)

• Operation– less traffic growth– high toll rates court ruling

• Re-Nationalisation

Case Study M1/M15 Vienna-Budapest

• Lessons learnt– Financing and building of motorway in short

time with virtually no cost overruns(despite economically difficult situation)

– Traffic substantially below expectations– Relatively robust financial structure– Conflict of interests

• revenue oriented vs. public interest

– Success factor: Commitment and full and sustained support of the Client/Principal

European & International Funding Bodies

• Review of various multinational agency publications

• Questions to key representatives– political and legal differences between Fund

and budget line in the EU– key rules of the Fund

• autonomy• rules and principles• flexibility

– Lessons learnt for Transport Fund• e.g. appraisal criteria

Summary & Outlook

• Lessons learnt from four representative types of financing– responsibilities / problems in federal and

central funding system– PPP and private funding experiences– setups of infrastructure funds

• Question for discussion– Are they representative?– Are there other lessons learnt from

other countries?