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ISBN 978-92-1-117156-3

Palais des NationsCH - 1211 Geneva 10, SwitzerlandTelephone: +41(0)22 917 44 44E-mail: info.ece@unece.orgWebsite: http://www.unece.org

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NOTE 

The designations employed  and  the presentation of  the material  in  this publication do not imply the expression of any opinion whatsoever on the part of the Secretariat of the United Nations concerning the legal status of any country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries. 

 

 

 

 

 

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UNITED NATIONS PUBLICATION 

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eISBN: 978‐92‐1‐363246‐8

   

ECE/TRANS/264 

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ACKNOWLEDGMENTS  The  report  was  coordinated  and  prepared  by  Mr.  Konstantinos  Alexopoulos  and  Mr.  Lukasz Wyrowski who would  like  to express  their  thanks  to all members of  the UNECE Working Party on Transport  Trends  and  Economics  (WP.5)  for  their  invaluable  inputs  in  the  cause  of  drafting  this report  and  especially  to  Dr.  András  Timár  Professor  at  the  University  of  Pécs  Department  of Infrastructure  for  preparing  chapter one, Mr.  Jonathan BECKITT,  CMS  Cameron McKenna  LLP  for preparing chapter  two on public private partnerships as well as Mr. Thomas Sigel and Mr. Gilbert Konzett of Kapsch TrafficCom AG for preparing chapter three on electronic tolls.  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Disclaimer: 

Views expressed in this document are of the authors. They should not be considered as the views of UNECE or as binding on any United Nations entity. 

 

 

 

ii

ACKNOWLEDGMENTSThe report was coordinated and prepared by Mr. Konstantinos Alexopoulos and Mr. LukaszWyrowski who would like to express their thanks to all members of the UNECE Working Party onTransport Trends and Economics (WP.5) for their invaluable inputs in the cause of drafting thisreport and especially to Dr. András Timár Professor at the University of Pécs Department ofInfrastructure for preparing chapter one, Mr. Jonathan BECKITT, CMS Cameron McKenna LLP forpreparing chapter two on public private partnerships as well as Mr. Thomas Sigel and Mr. GilbertKonzett of Kapsch TrafficCom AG for preparing chapter three on electronic tolls.

Disclaimer:

Views expressed in this document are of the authors. They should not be considered as the views ofUNECE or as binding on any United Nations entity.

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UNITED NATIONS ECONOMIC COMMISSIONFOR EUROPE (UNECE)The United Nations Economic Commission for Europe (UNECE) is one of the five United Nationsregional commissions, administered by the Economic and Social Council (ECOSOC). It wasestablished in 1947 with the mandate to help rebuild post‐war Europe, develop economic activityand strengthen economic relations among European countries, and between Europe and the rest ofthe world. During the Cold War, UNECE served as a unique forum for economic dialogue andcooperation between East and West. Despite the complexity of this period, significant achievementswere made, with consensus reached on numerous harmonization and standardization agreements.

In the post‐Cold War era, UNECE acquired not only many new member States, but also newfunctions. Since the early 1990s the organization has focused on analyses of the transition process,using its harmonization experience to facilitate the integration of central and eastern Europeancountries into global markets. UNECE is the forum where the countries of western, central andeastern Europe, Central Asia and North America – 56 countries in all – come together to forge thetools of their cooperation. That cooperation concerns economic cooperation and integration,statistics, environment, transport, trade, sustainable energy, forestry and timber, housing and landmanagement and population. The Commission offers a regional framework for the elaboration andharmonization of conventions, norms and standards. The Commission’s experts provide technicalassistance to the countries of South‐East Europe and the Commonwealth of Independent States.This assistance takes the form of advisory services, training seminars and workshops wherecountries can share their experiences and best practices.

Inland Transport Committee (ITC) – Centre of United Nations Transport Conventions

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TRANSPORT IN UNECEThe UNECE Sustainable Transport Division is the secretariat of the Inland Transport Committee (ITC)and the ECOSOC Committee of Experts on the Transport of Dangerous Goods and on the GloballyHarmonized System of Classification and Labelling of Chemicals. The ITC and its 17 working parties,as well as the ECOSOC Committee and its sub‐committees are intergovernmental decision‐makingbodies that work to improve the daily lives of people and businesses around the world, inmeasurable ways and with concrete actions, to enhance traffic safety, environmental performance,energy efficiency and the competitiveness of the transport sector.

The ECOSOC Committee was set up in 1953 by the Secretary‐General of the United Nations at therequest of the Economic and Social Council to elaborate recommendations on the transport ofdangerous goods. Its mandate was extended to the global (multi‐sectoral) harmonization of systemsof classification and labelling of chemicals in 1999. It is composed of experts from countries whichpossess the relevant expertise and experience in the international trade and transport of dangerousgoods and chemicals. Its membership is restricted to reflect a proper geographical balance betweenall regions of the world and to ensure adequate participation of developing countries. Although theCommittee is a subsidiary body of EC OSOC, the Secretary‐General decided in 1963 that thesecretariat services would be provided by the UNECE Transport Division.

ITC is a unique intergovernmental forum that was set up in 1947 to support the reconstruction oftransport connections in post‐war Europe. Over the years, it has specialized in facilitating theharmonized and sustainable development of inland modes of transport. The main results of thispersevering and ongoing work are reflected, among other things, (I) in 58 United Nationsconventions and many more technical regulations, which are updated on a regular basis and providean international legal framework for the sustainable development of national and international road,rail, inland water and intermodal transport, including the transport of dangerous goods, as well asthe construction and inspection of road motor vehicles; (ii) in the Trans‐European North‐southMotorway, Trans‐European Railway and the Euro‐Asia Transport Links projects, that facilitate multi‐country coordination of transport infrastructure investment programmes; (iii) in the TIR system,which is a global customs transit facilitation solution; (iv) in the tool called For Future InlandTransport Systems (ForFITS), which can assist national and local governments to monitor carbondioxide (CO2) emissions coming from inland transport modes and to select and design climatechange mitigation policies, based on their impact and adapted to local conditions; (v) in transportstatistics – methods and data – that are internationally agreed on; (vi) in studies and reports thathelp transport policy development by addressing timely issues, based on cutting‐edge research andanalysis. ITC also devotes special attention to Intelligent Transport Services (ITS), sustainable urbanmobility and city logistics, as well as to increasing the resilience of transport networks and services inresponse to climate change adaptation and security challenges.

In addition, the UNECE Sustainable Transport and Environment Divisions, together with the WorldHealth Organization (WHO) – Europe, co‐service the Transport Health and Environment Pan‐European Programme (THE PEP). Finally, as of 2015, the UNECE Sustainable Transport Division isproviding the secretariat services for the Secretary General’s Special Envoy for Road Safety, Mr. JeanTodt.

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TableofContentsList of Figures ............................................................................................................................... .......... ix

List of Tables ............................................................................................................................... ........... ix

Chapter 1. Transport Infrastructure Financing Theory and Practice – an overview............................... 1

1.1. Tasks to be financed .................................................................................................................... 1

1.2. Sources and instruments of transport infrastructure financing .................................................. 2

1.2.1. Primary and secondary sources ............................................................................................ 2

1.2.2. Financing instruments........................................................................................................... 4

1.2.3. Taxation............................................................................................................................... ..6

1.2.4 User charges........................................................................................................................... 9

1.2.5. Non‐user funding ................................................................................................................ 12

1.2.6. Borrowing and private sector involvement ........................................................................ 12

1.2.7. Criteria for selecting and evaluating funding sources ........................................................ 15

1.3 Case studies on financing transport infrastructure .................................................................... 17

Chapter 2. Public‐Private Partnerships ................................................................................................. 23

2.1 Introduction ............................................................................................................................... .23

2.2 PPP Models ............................................................................................................................... ..23

2.2.1. Types and Examples of Transport Sector PPPs ............................................................. 23

2.2.2. Best Practice.................................................................................................................. 24

2.3 Policy and Legislative Framework............................................................................................... 24

2.3.1. Ensure PPP policy and legislation is robust and consistent with other policies ...........24

2.3.2. Prepare an evidence‐based delivery plan........................................................................... 25

2.3.3. Obtain formal support for the structure and policy from potential lenders......................25

2.3.4. Ensure that there is political and civil service support ....................................................... 25

2.3.5. Develop a focussed specialist office to manage the programme....................................... 25

2.3.6. Establish a suite of standard procurement protocols and documentation..................26

2.4. Economic context and affordability ........................................................................................... 26

2.4.1 Carry out transparent business case assessments for each project.................................... 26

2.4.2. Ensure the programme will enable competitive project financing .............................. 26

2.4.3. Develop a standardised ‘shadow’ cost model against which to compare value ................26

2.4.4. Offer robust payment security that guarantees investment return and debt repayment.27

2.4.5. Establish robust long‐term governance structures and processes..................................... 27

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TableofContentsList of Figures ............................................................................................................................... .......... ix 

List of Tables ............................................................................................................................... ........... ix 

Chapter 1. Transport Infrastructure Financing Theory and Practice – an overview ............................... 1 

1.1. Tasks to be financed ....................................................................................................................  1 

1.2. Sources and instruments of transport infrastructure financing .................................................. 2 

1.2.1. Primary and secondary sources ............................................................................................ 2 

1.2.2. Financing instruments ...........................................................................................................  4 

1.2.3. Taxation ............................................................................................................................... .. 6 

1.2.4 User charges ...........................................................................................................................  9 

1.2.5. Non‐user funding ................................................................................................................  12 

1.2.6. Borrowing and private sector involvement ........................................................................ 12 

1.2.7. Criteria for selecting and evaluating funding sources ........................................................ 15 

1.3 Case studies on financing transport infrastructure .................................................................... 17 

Chapter 2. Public‐Private Partnerships .................................................................................................  23 

2.1 Introduction ............................................................................................................................... . 23 

2.2 PPP Models ............................................................................................................................... .. 23 

2.2.1.   Types and Examples of Transport Sector PPPs ............................................................. 23 

2.2.2.   Best Practice ..................................................................................................................  24 

2.3 Policy and Legislative Framework ............................................................................................... 24 

2.3.1.   Ensure PPP policy and legislation is robust and consistent with other policies ........... 24 

2.3.2. Prepare an evidence‐based delivery plan ........................................................................... 25 

2.3.3. Obtain formal support for the structure and policy from potential lenders ...................... 25 

2.3.4. Ensure that there is political and civil service support ....................................................... 25 

2.3.5. Develop a focussed specialist office to manage the programme ....................................... 25 

2.3.6.  Establish a suite of standard procurement protocols and documentation .................. 26 

2.4. Economic context and affordability ........................................................................................... 26 

2.4.1 Carry out transparent business case assessments for each project .................................... 26 

2.4.2.  Ensure the programme will enable competitive project financing .............................. 26 

2.4.3. Develop a standardised ‘shadow’ cost model against which to compare value ................ 26 

2.4.4. Offer robust payment security that guarantees investment return and debt repayment . 27 

2.4.5. Establish robust long‐term governance structures and processes ..................................... 27 

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2.4.6 Develop an economic framework for fiscal commitments .................................................. 27 

2.5. Planning, Timing, Objectives, and Business Cases ..................................................................... 27 

2.5.1 Develop a clear planning context for the PPP programme ................................................. 27 

2.5.2  Establish clear and objective approval processes ......................................................... 27 

2.5.3  Establish a robust format for business cases ................................................................ 27 

2.5.4.  Use clear and objective output‐based specifications ................................................... 27 

2.5.5.  Consider the use of a ‘Reference Solution’ ................................................................... 27 

2.5.6.  Incorporate robust business case risk allocation and value for money assessment .... 28 

2.6 Training and Resources ...............................................................................................................  28 

2.6.1 Plan programme management resources and training ....................................................... 28 

2.6.2.  Build strong, objective commercial understanding into project teams ....................... 28 

2.6.3  Develop a robust induction and support programme for stakeholders ....................... 28 

2.7  Market Assessment and Engagement .................................................................................. 28 

2.7.1  Realistically match capacity .......................................................................................... 28 

2.7.2 Draw on proven experience .................................................................................................  29 

2.7.3. Clearly set out risk transfer proposals ................................................................................ 29 

2.8  Transparent Procurement and Management Processes ...................................................... 29 

2.8.1  Implement robust and transparent programme governance ...................................... 29 

2.8.2  Standardise the procurement process and procedures ............................................... 29 

2.8.3  Evaluate tenders transparently and publish formal evidence of value for money ...... 29 

2.8.4  Promote Zero Tolerance to Corruption ........................................................................ 30 

2.8.5  Record and publish procurement and management information ................................ 30 

2.9  Sector Specific Issues ............................................................................................................  30 

2.9.1  Regulation .....................................................................................................................  30 

2.9.2. Patronage ............................................................................................................................  30 

2.9.3  Mixed Economy Infrastructure ..................................................................................... 31 

2.9.4  Cost Overruns ................................................................................................................  31 

2.9.5  Early Termination Arrangements .................................................................................. 31 

2.10  Case Studies ..........................................................................................................................  31 

2.10.1.  Nottingham Express Transit .......................................................................................... 31 

2.10.2. Railway Infrastructure Enhancements .............................................................................. 34 

2.10.3.  Rolling Stock Procurement ............................................................................................ 37 

2.10.4. Analysis of contractual structures for procurement of net phase two ............................ 38 

2.11  Conclusions ...........................................................................................................................  45 

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Chapter 3 Electronic Tolls .....................................................................................................................  46 

3.1. Introduction ...............................................................................................................................  46 

3.2. Main technologies for electronic toll collection systems .......................................................... 47 

3.2.1. Electronic vignette ..............................................................................................................  47 

3.2.2  Electronic distance‐based systems ............................................................................... 49 

3.3.  Necessary factors for successful deployment of electronic toll system ............................... 55 

3.3.1. Legislation, some specificity for electronic toll system ...................................................... 55 

3.3.2. Enforcement .......................................................................................................................  56 

3.3.3. Public acceptance ...............................................................................................................  58 

3.3.4. Users of roads .....................................................................................................................  59 

3.3.5. Road network ......................................................................................................................  60 

3.4  Life cycle overview ................................................................................................................  61 

3.4.1.  Definition of transport policies ..................................................................................... 61 

3.4.2.  Feasibility ......................................................................................................................  62 

3.4.3.  Planning .........................................................................................................................  62 

3.4.4.  Contracting ....................................................................................................................  63 

3.4.5.  Project setup .................................................................................................................  63 

3.4.6.  Project start ...................................................................................................................  63 

3.4.7.  Project operation ..........................................................................................................  63 

3.4.8.  Extension / Renewal / Migration / Elimination ............................................................. 64 

3.9. Case studies ...............................................................................................................................  64 

3.9.1. BelToll – Belarus’ electronic toll collection system ............................................................. 64 

3.9.2. Chile ............................................................................................................................... ..... 65 

3.9.3. viaTOLL – Poland’s electronic toll collection system .......................................................... 66 

Chapter 4 Alternative Ways to finance transport infrastructure ......................................................... 68 

4.1 Land Value Taxation ....................................................................................................................  68 

4.1.1 The advantages of Land Value Tax ....................................................................................... 69 

4.1.2 LVT Finances transport infrastructure ................................................................................. 70 

4.2. Infrastructure plus Property approach. ..................................................................................... 74 

4.3. The regulated asset base (RAB) model. ..................................................................................... 75 

4.4 The Least Present Value of Revenue’ (LPVR) mechanism. .......................................................... 77 

4.5 Non‐fare box revenue (NFR) .......................................................................................................  78 

4.6 Ride sharing services ...................................................................................................................  79 

Chapter 5 Conclusions and recommendations ..................................................................................... 82 

References ............................................................................................................................... ............. 87 

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ListofFiguresFigure 1 Overlapping of cost bearers’ groups taking part in road funding ............................................. 3 Figure 2 Budget funding vs traffic volume and performance ................................................................. 8 Figure 3 Investment in road infrastructure in selected EU member States in 2007 (€ million). (ERF, 2009) ............................................................................................................................... ........................ 9 Figure 4 Investment in road infrastructure in selected EU member States in 2007 (€/km). (ERF, 2009) ............................................................................................................................... ................................. 9 Figure 5 General government debt (general government consolidated gross debt as per cent of GDP). ............................................................................................................................... ............................... 13 Figure 6 Investment commitments to transport projects with private participation in Europe and Central Asia, by subsector, 1992–2008 .................................................................................................  14 Figure 7 Investment commitments to road projects with private participation in developing countries, by type of investment, 1990–2008 ...................................................................................... 14 Figure 8 Financial proposals and financial decisions supported by pre‐feasibility and feasibility study in the cycle of operations..................................................................................................................... . 16 Figure 9 Estimated cost of pre‐feasibility and feasibility studies expressed as percentage of project cost ............................................................................................................................... ......................... 17 Figure 10 Overview of European practices in motorway concessions (with or without toll) (Bousquet‐ Fayard, 2005) ............................................................................................................................... ......... 20 Figure 11 Installation of a toll plaza for a manual toll collection system ............................................. 47 Figure 12 Installation of a gantry for an electronic toll collection system ........................................... 47 Figure 13 Exemplary figure of an ANPR camera ................................................................................... 48 Figure 14 Exemplary figure of a DSRC on‐board unit that is mounted on a vehicle’s windscreen ...... 50 Figure 15 System architecture of DSRC based electronic toll collection system .................................. 50 Figure 16 Exemplary figure of a GNSS on‐board unit that is mounted on a vehicle’s windscreen in comparison to a smaller DSRC on‐board unit ....................................................................................... 52 Figure 17 System architecture of satellite based electronic toll collection system ............................. 52 Figure 18 Exemplary figure of a sticker tag that is mounted on a vehicle’s windscreen...................... 55 Figure 19 Public acceptance for the introduction of toll collection systems ........................................ 58 Figure 20 Life cycle overview of a toll collection system ...................................................................... 61 

ListofTablesTable 1 Financing Instruments: and overview ........................................................................................ 5 Table 2 At the pump fuel prices in EU25, 2007. (ERF, 2009) .................................................................. 7 Table 3 Motor vehicle tax revenue in EU 15, 2007, € billion. (ERF, 2009) .............................................. 8 Table 4 Toll net revenues in EU member States (€ million) (ERF, 2009) .............................................. 11 Table 5 Shares of revenue from road related taxes and fees in selected European countries in 1998  ............................................................................................................................... ............................... 18 Table 6 Road related revenue and its components (percentages) ....................................................... 19 

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ListofFiguresFigure 1 Overlapping of cost bearers’ groups taking part in road funding............................................. 3Figure 2 Budget funding vs traffic volume and performance ................................................................. 8Figure 3 Investment in road infrastructure in selected EU member States in 2007 (€ million). (ERF,2009) ............................................................................................................................... ........................9Figure 4 Investment in road infrastructure in selected EU member States in 2007 (€/km). (ERF, 2009)............................................................................................................................... ................................. 9Figure 5 General government debt (general government consolidated gross debt as per cent of GDP)................................................................................................................................ ............................... 13Figure 6 Investment commitments to transport projects with private participation in Europe andCentral Asia, by subsector, 1992–2008................................................................................................. 14Figure 7 Investment commitments to road projects with private participation in developingcountries, by type of investment, 1990–2008...................................................................................... 14Figure 8 Financial proposals and financial decisions supported by pre‐feasibility and feasibility studyin the cycle of operations..................................................................................................................... .16Figure 9 Estimated cost of pre‐feasibility and feasibility studies expressed as percentage of projectcost............................................................................................................................... .........................17Figure 10 Overview of European practices in motorway concessions (with or without toll) (Bousquet‐ Fayard, 2005) ............................................................................................................................... .........20Figure 11 Installation of a toll plaza for a manual toll collection system ............................................. 47Figure 12 Installation of a gantry for an electronic toll collection system ........................................... 47Figure 13 Exemplary figure of an ANPR camera ................................................................................... 48Figure 14 Exemplary figure of a DSRC on‐board unit that is mounted on a vehicle’s windscreen ......50Figure 15 System architecture of DSRC based electronic toll collection system.................................. 50Figure 16 Exemplary figure of a GNSS on‐board unit that is mounted on a vehicle’s windscreen incomparison to a smaller DSRC on‐board unit....................................................................................... 52Figure 17 System architecture of satellite based electronic toll collection system ............................. 52Figure 18 Exemplary figure of a sticker tag that is mounted on a vehicle’s windscreen...................... 55Figure 19 Public acceptance for the introduction of toll collection systems........................................ 58Figure 20 Life cycle overview of a toll collection system...................................................................... 61

ListofTablesTable 1 Financing Instruments: and overview ........................................................................................ 5Table 2 At the pump fuel prices in EU25, 2007. (ERF, 2009) .................................................................. 7Table 3 Motor vehicle tax revenue in EU 15, 2007, € billion. (ERF, 2009).............................................. 8Table 4 Toll net revenues in EU member States (€ million) (ERF, 2009) .............................................. 11Table 5 Shares of revenue from road related taxes and fees in selected European countries in 1998............................................................................................................................... ............................... 18Table 6 Road related revenue and its components (percentages)....................................................... 19

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Table 7 Highway concessions in Europe, as of February 2004 ............................................................. 22 Table 8 Key areas of franchise agreement risk and their mitigants ..................................................... 36 

1  

Chapter1.TransportInfrastructureFinancingTheoryandPractice–anoverview__________________________________________________________________________________ 

1.1.TaskstobefinancedDuring  recent  decades  governments  all  around  the world were  faced with  a  complicated  set  of options  for  investing  in  transport,  including  transport  infrastructure.  This  report  examines main principles  for  determining  the  most  appropriate  models  for  financing  transport  infrastructure expenditures.  Financing,  in  this  context, means  the  provision  of money  at  the  time  and  in  the quantity,  that  is needed  to meet society’s  transport  infrastructure and  transport service provision needs.  Thus,  financing  is  a  basic  underpinning  of  the  entire  process  of  providing  and  operating transport infrastructure. 

Accepting  the view,  that  transport  infrastructure  is needed  to provide a well‐defined set of public services,  at  the  highest‐level  financing  the  transport  sector,  including  transport  infrastructure expenditures,  is  fundamentally  a  sovereign  task,  which  involves  determining  how  much  of  the government’s available (public) resources will be channeled into the transport infrastructure, during a given period, as opposed to other policy priorities. Sovereign tasks are fundamentally the role of government, and cannot be carried out by external parties.  

A great array of tasks  is  involved  in the provision of transport infrastructure and transport services. Some of these correspond directly to specific points in the life cycle of the transport infrastructure, while others are ongoing. The tasks associated with providing and operating transport infrastructure can be determined as follows: 

(i) Administrative tasks: 

(a). Establishing  high‐level  policy  directions,  development  and  operation  strategies  related  to provision of transport infrastructure and transport related public services. 

(b). Definition  and  organization  of  the  political  and  administrative  framework  for  decision making. 

(c). Allotment of responsibilities. (d). Needs assessment and demand management. (e). Definition,  selection  (evaluation),  preparation  and  approval  of multiannual  programs  and 

individual transport projects, based on appropriate feasibility studies (including cost‐benefit analysis  and  environmental  impact  assessment),  preferably  carried  out  following standardized (e. g. European Union (EU)) methodologies.  

(f). Selection of procurement and delivery methods. (g). Supervision of works and assurance of performance and quality. (h). Education and training of transport infrastructure specialists, research & development (i). Regulation of the activities in the transport sector (permits, licenses, etc.) 

(ii) Works and maintenance related tasks: 

x

Chapter1.TransportInfrastructureFinancingTheoryandPractice–anoverview__________________________________________________________________________________

1.1. Tasks to be financedDuring recent decades governments all around the world were faced with a complicated set ofoptions for investing in transport, including transport infrastructure. This report examines mainprinciples for determining the most appropriate models for financing transport infrastructureexpenditures. Financing, in this context, means the provision of money at the time and in thequantity, that is needed to meet society’s transport infrastructure and transport service provisionneeds. Thus, financing is a basic underpinning of the entire process of providing and operatingtransport infrastructure.

Accepting the view, that transport infrastructure is needed to provide a well‐defined set of publicservices, at the highest‐level financing the transport sector, including transport infrastructureexpenditures, is fundamentally a sovereign task, which involves determining how much of thegovernment’s available (public) resources will be channeled into the transport infrastructure, duringa given period, as opposed to other policy priorities. Sovereign tasks are fundamentally the role ofgovernment, and cannot be carried out by external parties.

A great array of tasks is involved in the provision of transport infrastructure and transport services.Some of these correspond directly to specific points in the life cycle of the transport infrastructure,while others are ongoing. The tasks associated with providing and operating transport infrastructurecan be determined as follows:

(i) Administrative tasks:

(a). Establishing high‐level policy directions, development and operation strategies related toprovision of transport infrastructure and transport related public services.

(b). Definition and organization of the political and administrative framework for decisionmaking.

(c). Allotment of responsibilities.(d). Needs assessment and demand management.(e). Definition, selection (evaluation), preparation and approval of multiannual programs and

individual transport projects, based on appropriate feasibility studies (including cost‐benefitanalysis and environmental impact assessment), preferably carried out followingstandardized (e. g. European Union (EU)) methodologies.

(f). Selection of procurement and delivery methods.(g). Supervision of works and assurance of performance and quality.(h). Education and training of transport infrastructure specialists, research & development(i). Regulation of the activities in the transport sector (permits, licenses, etc.)

(ii) Works and maintenance related tasks:

1

(a). New construction (increasing capacity of the existing transport network by extension,building new elements).

(b). Upgrading the existing transport infrastructure (increasing capacity by widening,strengthening pavements and bridges, improving alignment, etc.).

(c). Major repairs/rehabilitations.(d). Maintenance.

(iii) Operation related tasks:

(a). Traffic survey, regulation and management, ensuring availability and safety.(b). Survey and assessment of the condition of the transport infrastructure, i. e. quality of

services provided.(c). Establishment and operation of a transport infrastructure data bank.(d). Asset management and accounting.(e). Toll collection (if applicable).

All tasks outlined above must, of course, be financed, including the necessary administrativestructures within the public sector required to oversee transport infrastructure and transportservices provision, no matter what model is employed. Governments must also decide how theamount of available public (and potentially private) resources will be distributed among the differenttasks, and between transport infrastructure and transport service provision.

This chapter is intended to study first, how the amount of public resources allocated to finance newconstruction and its share among total transport expenditures are determined for medium and longterm, and what measures are needed to secure, that the allocated money will spent for that purposeand nothing else.

1.2. Sources and instruments of transport infrastructure financing

1.2.1. Primary and secondary sourcesConcerning the resources available for transport infrastructure financing, at the most basic level,there are only two primary sources of revenue: taxpayers and transport infrastructure users.Although demand for provision of (more) transport infrastructure and (improved) transport servicesappear to be growing, the public revenues available for transport spending are becoming moreuncertain. Motor fuel and vehicle taxes—which account for approximately two third of publicfunding for road projects—have not kept pace with inflation in many countries – especially incountries of UNECE Trans European Motorways (TEM) project ‐ and nationally have declined in valueand purchasing power. With the cost of fuel remaining high at the pump, motor vehicle fuel taxincreases to pay for transportation projects are politically unpopular.

Other primary sources of public funding—such as tolls, vehicle registration fees, driver’s license fees,special truck license fees, and a host of miscellaneous taxes and fees—can be politically unpopular,making it difficult to derive additional funding from these mechanisms to compensate for theincreased need for transport network development.

Secondary, or additional resources may come from:

2

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3

1.2.2. Financing instrumentsThere are many different types of instruments a government, public institution, or any corporateentity may use to finance its expenditure. In general, financing instruments fall into one of twocategories  ‐  debt or equity. Although there are certain exceptions, debt instruments generallyrepresent fixed obligations to repay a specific amount at a specified date in the future, together withinterest. In contrast, equity instruments generally represent ownership interests entitled to dividendpayments, when declared, but with no specific right to a return on capital. Public budgets’contributions, subsidies and grants of international organizations can be considered as specificequity instruments stripped from (direct) reimbursement in form of dividend payments or return oncapital.

Within each of these two general categories, there are a wide variety of rights, privileges, andlimitations that may be established by the investing or borrowing entity (see Table 1). Commonstock is the most basic form of equity instrument. It represents an ownership interest in acorporation, including an interest in earnings, that translate into declared dividends as well as aninterest in assets distributed upon dissolution. Preferred stock is another form of equity instrument.It represents a hybrid in the sense that it is an equity interest with certain features resembling debt.Holders of common stock (stockholders, or shareholders) have the greatest opportunity to share in acompany's profitability because of the unlimited potential for dividends, appreciation in the value oftheir common stock, and realization of liquidation proceeds. However, common stock holders alsobear the greatest risk of loss because they are generally subordinate to all other creditors andpreferred stock holders.

Debt instruments, such as notes, bonds, and debentures, are generally entitled to receive paymentswhich are senior in priority to preferred or common stockholders. Debt instruments may be securedby certain assets of the corporation or may be unsecured (i.e., backed by a simple pledge of theborrower's credit). Debt instruments may be long‐term or short‐term in duration, and carry variableor fixed interest rates. Debt instruments may impose certain affirmative or negative obligationsupon the borrower, including restrictions on the ability of the borrower to complete certaintransactions (such as incurring other indebtedness or issuing capital stock). Several advantages toissuing debt instruments include: predictability of payments to investors, no dissolution inmanagement's interest in corporate growth and voting power, and investors assume less risk of lossin their investment. Disadvantages include: potential restrictions on operations, limitations on theuse of working capital due to debt service obligations, and tying up assets through pledges ascollateral.

There are numerous considerations involved in the transport infrastructure funding planning processto make use of debt or equity instruments. The planner should consider the various types ofinstruments which may be used and the respective advantages and disadvantages of each type fromboth the viewpoint of incumbent government or public entity as well as prospective taxpayers asinvestors or borrowers. Both near‐term and long‐term objectives for each should be duly consideredwhen developing transport infrastructure financing strategies.

4

4  

1.2.2.FinancinginstrumentsThere are many different  types of  instruments a government, public  institution, or any  corporate entity may  use  to  finance  its  expenditure.  In  general,  financing  instruments  fall  into  one  of  two categories  ‐  debt  or  equity.  Although  there  are  certain  exceptions,  debt  instruments  generally represent fixed obligations to repay a specific amount at a specified date in the future, together with interest. In contrast, equity instruments generally represent ownership interests entitled to dividend payments,  when  declared,  but  with  no  specific  right  to  a  return  on  capital.  Public  budgets’ contributions,  subsidies  and  grants  of  international  organizations  can  be  considered  as  specific equity instruments stripped from (direct) reimbursement in form of dividend payments or return on capital. 

Within  each  of  these  two  general  categories,  there  are  a wide  variety  of  rights,  privileges,  and limitations  that may  be  established  by  the  investing  or  borrowing  entity  (see  Table  1).  Common stock  is  the  most  basic  form  of  equity  instrument.  It  represents  an  ownership  interest  in  a corporation,  including an  interest  in earnings,  that  translate  into declared dividends as well as an interest in assets distributed upon dissolution. Preferred stock is another form of equity instrument. It represents a hybrid in the sense that it is an equity interest with certain features resembling debt. Holders of common stock (stockholders, or shareholders) have the greatest opportunity to share in a company's profitability because of the unlimited potential for dividends, appreciation in the value of their common stock, and realization of  liquidation proceeds. However, common stock holders also bear  the  greatest  risk  of  loss  because  they  are  generally  subordinate  to  all  other  creditors  and preferred stock holders.  

Debt instruments, such as notes, bonds, and debentures, are generally entitled to receive payments which are senior in priority to preferred or common stockholders. Debt instruments may be secured by  certain assets of  the  corporation or may be unsecured  (i.e., backed by a  simple pledge of  the borrower's credit). Debt instruments may be long‐term or short‐term in duration, and carry variable or  fixed  interest  rates.  Debt  instruments may  impose  certain  affirmative  or  negative  obligations upon  the  borrower,  including  restrictions  on  the  ability  of  the  borrower  to  complete  certain transactions  (such as  incurring other  indebtedness or  issuing capital  stock). Several advantages  to issuing  debt  instruments  include:  predictability  of  payments  to  investors,  no  dissolution  in management's interest in corporate growth and voting power, and investors assume less risk of loss in  their  investment. Disadvantages  include: potential  restrictions on operations,  limitations on  the use  of  working  capital  due  to  debt  service  obligations,  and  tying  up  assets  through  pledges  as collateral. 

There are numerous considerations involved in the transport infrastructure funding planning process to  make  use  of  debt  or  equity  instruments.  The  planner  should  consider  the  various  types  of instruments which may be used and the respective advantages and disadvantages of each type from both  the viewpoint of  incumbent government or public entity as well as prospective  taxpayers as investors or borrowers. Both near‐term and long‐term objectives for each should be duly considered when developing transport infrastructure financing strategies. 

5  

Table 1 Financing Instruments: and overview 

Financing tools  Private funding  Public funding Generally: budget  none General taxes Special case: extra budgetary funds or    Earmarked/dedicated 

Capital financing (1)  Senior sharesMezzanin 

financing (2) 

Equity  Preference shares, convertible shares Debt  Subordinated loan (3), subordinated bonds, 

 

Debt financing 

 

Loans 

Commercial loans 

(syndicated loans) 

Loans  borrowed  from governments, banks, 

international  financiali tit ti i l 

Bonds 

Private issue 

Project bonds  Bonds with sovereign 

guarantee,  municipal bonds,  bonds  of  publicly owned companies, 

bonds  guaranteed  by international  financialinstitutions 

Public 

issue 

Stand‐by and conditional loans, buffer stocks (5) 

Guarantees 

Commercial banks’ 

guarantee, credit  line guarantee  (4), standby  source  (5), direct insurance (6) 

Sovereign guarantee, 

guarantee  of  State financial  institution, guarantee  of international  or  regional financial institutions 

Revenues generated by the project  Toll  revenues,  revenues  generated  by secondary developments 

Retained earnings  Retained profit, warrantiesPledging assets  Bonds noneCapital increase by share issue  Share issue at the none

Value capture; using part of the added 

value,  generated  by  the  project,  enjoyed by its beneficiaries 

none  Increase of property 

taxes,  tax  surplus funding,  land  lease  fee, special charges 

(1) Investment; (2)  Funding  facilities  transient  between  investment  and  lending,  showing  some  common features with each of them ; 

5

(3) Disbursement is conditional upon certain tests; its principal and interest are to be paidonly after scheduled debt service of senior debt was already duly met;(4) Limited guarantee amount within a given credit line opened by a bank to a client;(5) Facilities available only in case well defined conditions are met;(6) Insurance provided by the insurance company, enjoying exclusivity.

1.2.3. TaxationThe most common financing instrument for transport infrastructure is the government budget,sourced from tax revenues and eventual public borrowing. Policy decisions establish the extent ofpublic funding to provision of transport infrastructure and transport services as opposed to otherpriorities. This is based on consideration of taxpayers’ priorities, often formulated in platformsestablished by politicians during the electoral process and finalized during discussions at thegovernment level. Direct public financing may also be subject to negotiation between different levelsof government. For example, in a federal system (like Germany), some taxes may be collected by thecentral government, although responsibility for transport infrastructure development, maintenanceand operation may be at the state, or regional level. In these instances, central governmentsdistribute appropriate tax revenues to the states (Länder), or regions. In some cases, allocations areearmarked for specific purposes, and the states may lobby and negotiate for more funds. A similardynamic may exist between local (municipal) governments and regional, state or centralgovernments, or even between national governments of EU member States and the EuropeanCommission.

Table 2 shows the share of taxes within the price of fuel in EU25 member States in 2007, while Table3 provides information about motor vehicle tax revenues in EU15 member States in 2007 (no dataare available for other EU member States).

Resources from the public sector’s pool of general revenue are today, and are likely to continuebeing, a primary means of financing much of most European countries’ transport systems. Thismeans that, as governments contemplate the use of alternative financing instruments andmechanisms (including PPP‐s), they must also determine the role of public contribution andsubsidies in these.

Many models commit governments to using general revenues to pay for transport infrastructureover long time periods, and this must be accounted for when the original choice of funding model ismade.

A primary complaint regarding traditional budget funding is that it does not meet transportinfrastructure needs justified by ever growing demand reflected by the observed traffic volume andperformance (Figure 2).

However, where this is so it may be a manifestation of other priorities being put before provision oftransport infrastructure and transport services in the budgeting process, which in turn is theprerogative of political decision‐making. For example, many European countries collect much morein transport infrastructure‐related fiscal charges than they spend on provision of transportinfrastructure (see Figure 3 and Figure 4).

Direct public financing is often seen as being inflexible and subject to political considerations. It may,therefore, be difficult to address the life‐cycle costs of transport infrastructure and to prioritize

6

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7

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8

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9

10  

principle  that  roads are  considered a utility. An  important  characteristic distinguishing  them  from previous (first generation) road funds is the separation of the utility‐charge related to road use and a tax paid into public revenue.  

However, road funds are seldom in use in European countries. User charges may be employed with different, and potentially  conflicting, objectives  in mind. One purpose may be  to  compensate  the infrastructure  provider  for  costs  of  operation  and maintenance  (including  some  part  of  external costs), plus up‐front  financing of  a project and generate profits, which will  inevitably provide  the operator  with  incentives  to  increase  traffic.  Alternatively,  user  charges may  be  set  for  demand management purposes, implying a desire to limit the use of infrastructure. 

User  charges  exist  also  in  railways.  Infrastructure  managers  should  set  the  charges  using  the infrastructure  at  the  costs  directly  incurred  by  the  train  service.  Commission  Implementing Regulation  (EU)  2015/909  on  the  modalities  to  calculate  direct  costs  provides  details  on  how infrastructure managers should calculate their direct costs. The regulation provides cost categories that are not eligible. When  infrastructure managers  receive  funds,  they do not have  to pay back. However,  they  are  not  allowed  to  include  any  costs  derived  from  such  payments  into  their infrastructure charges. Average direct unit costs can be modulated based on vehicle, operational and infrastructure parameters. Traffic diversions at the instigation of the infrastructure manager should not  increase  charges.  Alternatively,  to  calculating  average  unit  costs  and  modulating  them, infrastructure managers may  use  cost modelling  in  accordance with  best  available  international practice. Regulatory body may determine and apply a simplified control of direct costs if their values remain below certain thresholds1. 

 

                                                            1 https://ec.europa.eu/transport/modes/rail/infrastructures/charges_en  

Table 4 To

 

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11 

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9)

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10

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11

effectively price the use of entire road networks for all users at the point of use, although there ismuch potential in the deployment of satellite‐based systems and advances in on‐board vehicleequipment.

1.2.5. Non‐user fundingThe leasing of space for services related to transport infrastructure use can also provide sources ofrevenues. These could include, among other elements, restaurants, food outlets, stores, parking lots,motels and service stations, in old or main rail stations or alongside roads. This financing source hasconsiderable potential to provide revenues without necessarily adding “new” costs where thetransport infrastructure user or taxpayer is concerned.

A further possible source of non‐user funding of transport infrastructure development involvestaxing increases in property values that a given project may bring about – in other words chargingthe indirect beneficiary as opposed to the direct user. This creates a motive for the private sector,such as the construction industry or certain business sectors (e.g. supermarkets, warehouses,multimodal terminals, etc.), to pay for having the connecting transport infrastructure built. There arealso examples where property developers have paid for parts of the cost of building connecting roadinfrastructure. More information on that is provided in chapter four.

1.2.6. Borrowing and private sector involvementBorrowing means that payment is deferred, and thus that future rather than present taxpayers ortransport infrastructure users will pay. Transport infrastructure assets typically have hugeconstruction costs and very long‐life spans. This may provide an obvious rationale for borrowing toeven out payments among beneficiaries over time. In most European countries, public borrowing is,however, not specifically linked to spending on transport.

Sovereign governments should borrow to smooth national consumption or to undertake publicinvestment projects (among them socio‐economically efficient transport infrastructure projects) thatthey could not finance otherwise. The ability of a sovereign government to borrow on internationalcredit markets depends on its perceived ability to repay and on the incentives, it will have to do it. Inrecent years, the theoretical literature on sovereign borrowing has dealt mainly with the second ofthese issues: the country’s willingness to repay. The question at the heart of the sovereignborrowing literature was why governments have an incentive to repay their debts with foreigncreditors within the existing international legal framework. There is no bankruptcy code forsovereign borrowers and lenders cannot take control of a country nor seize a significant amount ofits assets in the event of a sovereign default.

Economists have offered two main explanations for why governments may want to repay:reputation (exclusion from future credit) and direct sanctions. While sovereign governments’willingness to repay is an important factor, lenders will naturally also be concerned about theirability to repay. Here, both issues of long‐term solvency and short‐term liquidity must be consideredand assessed carefully.

Turning to empirical implications, the repudiation models that allow for the existence of lendingmostly predict credit rationing in the form of a debt ceiling. This upper bound of the debt a countrycan incur depends on the costs it must pay in the event of a default. These costs are usually relatedto the links that a country has with the world (including reputation spillovers): trade and financial

12

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13

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14

performance and quality of services provided, paid by the client (public) authority, or a mixture ofthese sources.

Public‐private partnership (PPP) projects are highly leveraged capital‐intensive projects. Lenders,which provide the major portion of financing in the form of debt instruments, undertake loanapproval processes to examine the various aspects of the projects that could influence the debtservicing capability while making credit decisions. In view of this, project sponsors could also assessbeforehand how desirable is the project from the debt financing perspective to facilitate timelyarrangement of debt financing and avoid funding problems. More information on PPPs is provided inchapter three.

1.2.7. Criteria for selecting and evaluating funding sourcesEach of the sources mentioned above has potential applicability in a variety of settings. Whether asource is of potential use in a social and economic environment depends on a variety of factors,many of which are contextual and unique to individual conditions. Contextual factors requiringreview in the search for new funding sources are the following:

(a). State, regional and local governance traditions and philosophies of taxation and publicspending,

(b). The types of transport projects and transport services to be funded,(c). The elements for which funding is being sought (e.g., ongoing transport infrastructure

agency development programs or individual transport projects),(d). The type of source that is desired and that is appropriate (e.g., pay‐as‐you‐go funding or

debt financing, and(e). National, regional and local perspectives on the role of transport in the community now and

in the future.

A good understanding of these contextual factors is an important prerequisite in the search forenhanced transport infrastructure network development funding. Once contextual factors areunderstood, all stakeholders must come to a similar understanding of the general advantages anddisadvantages of available alternative funding sources as well as an understanding of how thesealternatives satisfy a set of widely used criteria. Among the most important of these criteria are thefollowing:

(a). Revenue yield adequacy and stability,(b). Cost efficiency in the application of sources,(c). Equity in the application of the alternatives across demographic and income groups as well

as jurisdictions involved,(d). Economic efficiency in balancing „who pays” with „who benefits” from transport

infrastructure investments under consideration,(e). Political and popular acceptability, and(f). Technical feasibility.

Among these criteria, revenue yield is a principal consideration. An enormous amount of effort isrequired to enact and sustain funding for any public service, including provision of transportinfrastructure and transport services. When these efforts are undertaken, sponsors should be

15

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16

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17

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