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Outline
I. What politicians expect from Regulation?
II. What is Economic Regulation?III. What are the specificities of the
highway sectorIV. What are the Key Regulatory
Issues in HighwaysV. Concluding Remarks
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I- What politicians expect from Regulation? “As Governor, I found independent Regulatory
Commission very useful to blame when it did necessary but unpopular things, and to take credit from it when it did popular things. Such an agency serves to deflect criticism and give the government time to examine alternative solutions”
Richard Celeste, former Governor of Ohio in Rao, S (2004), p.38
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Why there is a Mismatch?
Political cycle is short term with a focus on “Re-election and not on Economic Efficiency”
Regulation is a long term and short term endeavor: Financial viability of the service provider in the short term Market efficiency (allocative/productive) in the long term
How to reconcile both?
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II- What is Economic Regulation?
Set of : Rules (Primary, Secondary Legislations and Contracts) Procedures and Processes Empowered Institutions (Ministry, Regulator, Competition Commission,
Judiciary)
Impacting regulated firms’ decisions on: Prices Quality of service Performance (service coverage, investment) Entry and Exit
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What are the Regulatory Institutions?
Minister Setting the Sector development Policy Maintaining the Regulatory Framework Granting or withdrawing of concessions Final decisions on rates or tolls
Concession contract (Regulation by Contract) A supervisory entity (Contract administrator, Committee, Ministry, Agency) Disputes Resolution mechanism Courts
Commission, Authority or Agency (Regulation by Agency) With specific decision making powers stated in legislations Concession contracts Appeals mechanism
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III - Specificities of the Highway sector
Railroad Natural monopoly Intermodal competition with road
sector ~ Intramodal competition between
rail service providers
Residual Regulatory Issues Regulation of Access (Interlining
or interconnection) and Access pricing
Regulation of rates for captive shippers
Security and Schedules coordination
Road Infrastructure Public authority/ Operator supply
and maintain the road infrastructure + Security + Safety
Whereas transportation services are handled by end users (third parties).
Residual Regulatory Issues Affordability of tolls or road pricing
scheme Compliance with contractual
obligations Safety and Security
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V – Key Regulatory Issues
Regulation of Entry and Exit: Concession Design and Award
Price Regulation Regulation of the performances
of concessionaires Concession and Regulation are
interdependent in highway
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Regulation of Entry and Exit
Concession Contract Design and Award Primary responsibility of the Government but Regulator should be
associated Competitive Bidding process with Pre-qualification Selection made on the basis on well chosen criteria
minimum toll/ minimum subsidy/aggressive investment/ combination
Oversight of the Concession Contract Oversight committee or Regulator with appropriate skills and means Strong information requirements on operators Understand the distribution of risks among the parties Appropriate regulatory accounting guidelines Triggers to adjust or to revise tolls
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Regulation of Tolls
Financial Equilibrium of the concessionaire: Profit = Volume of Vehicles* Toll – OPEX – Taxes – Depreciation = r * Ki
Are the derived Tolls affordable to Users? How much cost should be recovered through toll paid by users? How tolls should be adjusted over time? What level of demand discrimination is given to the concessionaire?
Impact of demand uncertainty? The inability to effectively audit cost and corruption deter
effectiveness of most pricing mechanism Regulatory regime often starts as a Price cap (max toll per type of
vehicle) and de facto moves to a Cost Plus because of subsidies or transfers.
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Regulation of the concessionaire’s performances Asset quality indicators to be considered at the concession design:
Pavement roughness and deterioration Condition of lighting, markings, signaling Toll collection facilities, fire and rescue services…
Quality aspects at operation: Performance standards are met: Lane availability, Average speeds off peak and
peak, toll queue performance, access conditions and bottlenecks, response time for emergency service.
Additional investment are made when performance triggers are reached Safety aspect
Facility can handle anticipated traffic volume and police enforcement of driving regulations
Need for regular quality audit and survey the perceptions of the users
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Concession design and Regulation are interdependent An excellent concession design followed with a poor regulatory
oversight leads to deficient sector performance An excellent regulatory oversight but with poor concession design
leads to deficient sector performance In other words, Regulation cannot solve the problems stemming
from a poorly designed concession PPP units and Entities in charge of regulation should work in close coordination
to design the concession Regulatory entities need: accurate information (assets valuation, demand
predictions, performance targets, investment plans, …) to determine the rate (toll) base
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Examples of toll road concessionsCountry Prior
experience with toll road
Concession law
Bid process and evaluation criteria
Concession term
Contractual regulatory
mechanism
Brazil- Parana Yes No Longest Network length
- -
Chile – South Access
2nd concession Yes Competitive, Minimum subsidy
25 years Max Toll rate indexed to inflation
Colombia – Buga/Tulua
One of the first toll road
No Federal but provincial legislation
Competitive – Multi-criteria
15 years Max. Toll rate indexed to inflation. Revenue cap
Mexico – Mexico city/ Toluca
Ambitious toll roads program
Yes Competitive- Shortest term at fixed rate
4,5 year and ext. 11
Max Toll rate indexed to inflation
China- Guangzhou-Shenzhen
Toll road program in development
No Direct negotiations 30 years None – partner receives 50% of profits
Malaysia- North/South
First private toll No Competitive,
Multi-criteria
30 years Toll specified and indexed to inflation
Hungary- MI/M15 First private toll Yes Competitive, Multi-criteria
35 years Maximum toll indexed to inflation
Adapted from Fischer, G, and Babar, S. (1996)
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In conclusion
Most countries rely on concession contracts While this provides certainty in terms of the stability of the regulatory
framework, but it may lack flexibility to deal with external shock… Weaknesses in the oversight of concession contract Lack of appropriate compensation mechanism for govt. unilateral contract
change Over-optimistic traffic predictions and disputes over initial conditions Failure to incorporate strong information requirements or accounting
guidelines Questionable choice of award criteria leading to opportunistic negotiations Termination periods not appropriately regulated to avoid opportunistic
strategies When RA exist there are autonomous but report to line Ministers. They face
financing issue and the Matrix of salaries is not competitive. Although their Decisions can be appealed, due process is not always mandatory
World Bank 2004
Appendices on institutional Arrangements
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Organization of transport RA
Report to GEOGRAPHIC JURISDICTION
INSTITUTION’S MAIN CHARACTERISTICS
OSITRAN, Peru Independent Agency.
National Created in January 1998 to regulate the transport market (roads, railways, maritime and air transport),
CNRT, Argentina Reports to the Transport Secretary.
National Created in June 1996 to regulate road and rail transport within the Argentinean territory
FAB, Mexico FAB reports to the Sec of Communi and Transport.
National Regulates all issues related to transport sector, including air, terrestrial (roads and railways) and maritime transport.
ANTT, Brazil ANTT reports to the Transport Ministry.
National Created in February 2002, ANTT to regulate the terrestrial (roads and railways) public transport service provision.
National Bureau of Transport, Uruguay
Reports to the Ministry of Transport and Public Works.
National The bureau formulates transport policies; regulates, controls, and supervises operations among public services providers
ARM, Niger ARM is an
Autonomous Agency.
National ARM was created on October 1999 to regulate the water, energy, telecommunications and transport sectors.
CRTR, Colombia Report to the Transport
Ministry.
National CRTR created in February 2000 to regulate the public transport service provision (roads, railways, maritime and air transport).
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Appointment and Dismissal of T/Regulators
COUNTRY MANAGEMENT TERM- APPOINTED BY DISMISSAL CRITERIA
Peru 5 Directors 5 years, renewable once.
Appointed by the President of the Ministerial Council.
Conviction, Conflict of Interests
Argentina 5 Directors, but currently under the management of a single acting representative
5 years by Government Conviction, Conflict of Interests.
Colombia 9 Directors 4 years, renewable once and appointed by Government
Conviction, Conflict of Interests.
Mexico 5 Directors 6 years, appointed by Government Conviction, Conflict of Interests.
Brazil 5 Directors 5 years, appointed by Government Conviction, Conflict of Interests.
Uruguay 7 Directors 5 years, renewable once and appointed by Government
Conviction, Conflict of Interests.
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Resources of T/RAs …
COUNTRY STAFF MATRIX OF SALARIES
SOURCE OF FUNDING BUDGET
(in dollars)
APPROVAL PROCESS
Peru 40 Civil Servant 1% of every operator’s revenue.
2.3 million National Budget Bureau under the Ministry of Economy & Finance.
Argentina 60 Civil Servant “National Fund of Transport” (National Fee of transport supervision, % of operator’s revenue. National
Budget).
NA Congress and Executive Branch.
Colombia 453 (Ministry Staff)
Civil Servant Budget-approved by the Congress.
NA Congress and Executive Branch.
Brazil 625 Civil Servant 1) 53% from Budget (pre-approved by the Congress).
2) Regulation Tax (% operators).
3) Fines and tickets collected for
transit infringements .
44 million Congress and Executive Branch
Mexico 600 (FAB staff)
Civil Servant Budget (pre-approved by the Congress.
NA Congress and Executive Branch.
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Appeals of Regulatory Decisions
COUNTRY ADMINISTRATIVE COURT JUDICIARY COURT
Peru Independent Arbitration, Government
Direct Appeal
Argentina Government Direct Appeal
Colombia Government Direct Appeal
Mexico Government Direct Appeal
Brazil ANTT Disputes Resolution Committee, Government
Direct Appeal
Uruguay Government Direct Appeal
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Transparency and Consumers Participation..
COUNTRY COMPLAINTS OFFICE
PUBLIC HEARING CONSULTATIVE COMMITTEE
Peru Yes Yes (Required by Law)
Committee
Argentina Yes Possible Committee
Colombia Yes Unspecified Committee
Mexico Yes Unspecified Committee
Brazil Yes Possible Committee
Uruguay Yes Unspecified Committee
World Bank 2004
Thank You