Funding WP 1.2 Survey of Experience in the EU A. Gühnemann, P. Mackie, N. Smith, A. Whiteing December 2005.

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?