Transport infrastructure provision and operations: Why should governments choose private–public partnership?

Recent transport sector liberalisation, as well as global economic crisis, is favouring the implementation of transport infrastructure projects through Public–Private Partnerships (PPP). However, there is a debate as to whether PPP schemes are a better option than conventional procurement. To this end, an evaluation framework is proposed, to assess which of these two alternative schemes for transport projects financing is preferable for the public. The proposed framework is complimentary to the Value for Money (VfM) approach and is based on a Multi Criteria Analysis (MCA). The first step is the estimation of the Public Sector Comparator (PSC) for the case of conventional procurement, dealing with construction, maintenance and operation costs revenues, as well as any costs associated with risks undertaken by the public. As for the PPP case, it includes any payments by the public sector and related risks costs. The MCA is then applied only if the PPP is found preferable for the public sector. The latter considers additional impacts, including among others the social attributes of a particular scheme, job creation, environmental impacts and safety and security aspects. The proposed framework was applied to a pilot Bus Rapid Transit (BRT) corridor infrastructure project in the city of Indore, India, in order to demonstrate its validity. The framework and its application could provide useful guidance when considering PPP for a transport project, since it demonstrates in a transparent way the society's attitude towards this project, something that is critical to its acceptance.     

The cost of second best pricing and the value of risk premium

Private provision of public infrastructure (PPP) is meant to give incentives to increased efficiency in construction as well in operation and maintenance of the infrastructure e.g. within the transport sector. Efficiency is not only (private) economic efficiency, but also social efficiency e.g. social marginal cost pricing of use of the infrastructure.Is it possible to design contracts concerning payment mechanisms and financial instruments for transport infrastructure that will stimulate social efficiency and optimal allocation of risks between parties? The paper discusses whether different targets can be met and whether compromises may lead to acceptable second best solutions.PPP implies an opportunity to let the user-payment give desired incentives in the form of Social Marginal Cost Pricing (SMCP). A PPP project is a set of contracts and agreements between several parties, including the Government, the private contractor, subcontractors, banks and infrastructure users. These contracts should be designed to give the right incentives to the parties to achieve optimal risk allocation and utilising of resources.Long contract-periods are a common feature of PPPs. The paper examines the way that financial solutions should be designed to achieve the goals for the PPP-projects concerning economic and social efficiency. The expected size and variation of the income stream from the project will influence the loan conditions offered by banks concerning interest rates, guarantees and repayment and also the ability to attract investors. The balance between equity and loans again influences the conditions of the loans. An additional problem is asymmetric information between parties. The private contractor usually knows more about the task than the Government (hidden knowledge), and the Government cannot have full knowledge of the efforts of the contractor (hidden actions).     

How much can public private partnership really do for urban transport in developing countries?

A few cities in some of the larger developing countries in Latin America and Asia have made increasing use of multi-year concessions or franchises, competitively awarded to private companies, for construction and operation of urban transport infrastructure and for provision of public transport services. In view of the strong prospective growth of developing-country cities with large transport needs, and the rise in the emerging economies of potential new sources of private capital, it is important to see how effective PPP has so far been in this area. The experience is analyzed principally by thorough comparative review of what has actually happened for some of the main users to date: Bogotá, Santiago, São Paulo, Seoul, and several cities in both China and India. Despite delays and mistakes that have been made in development of most of the projects, the overall results, already delivered and in prospect, are very positive and urban public transport is benefiting substantially, with significant side effects on poorer people's access to work and to services, air pollution levels and road accident rates. The widest and most important advantage of the PPP arrangements, as compared with more conventional short-term contracting, is found to be the innovations, technical and managerial, developed, and, in particular, the mutual capacity building of the countries' private and public sectors and their more effective interaction. The experience in the six countries covered suggests that other developing-country cities may be best assisted to develop sound urban transport PPPs more rapidly through provision of help on chosen items among 7 elements that have proved particularly crucial but sometimes weak in the projects reviewed: Civic consultation systems, Land-use/Transport strategic planning, Land/property market management, Monitoring systems, Progressive policies, Economic regulation, and Public institutional framework for PPPs.     

A simulation approach for estimating value at risk in transportation infrastructure investment decisions

Traditional economic analysis techniques used in the assessment of Public Private Partnership (PPP) projects are based upon the assumption that future cash flows are fully deterministic in nature and are not designed to account for risks involved in the assessment of future returns. In reality, many of these infrastructure projects are associated with significant risks stemming from the lack of knowledge about future cost and benefit streams. The fundamental premise of the PPP concept is to efficiently allocate risks between the public and the private partner. The return based on deterministic analysis may not depict a true picture of future economic outcomes of a PPP project for the multiple agencies involved. This deficiency underscores the importance of risk-based economic analysis for such projects. In this paper, the authors present the concept of Value-at-Risk (VaR) as a measure of effectiveness (MOE) to assess the risk share for the public and private entity in a PPP project. Bootstrap simulation is used to generate the risk profile savings in vehicle operating cost, and in travel time resulting from demand-responsive traffic. The VaR for Internal Rate of Return (IRR) is determined for public and private entity. The methodology is applied to a case study involving such a joint venture in India, the Mumbai Pune Expressway/National Highway 4 (MPEW/NH4), and fiscal implications from the perspective of the public and the private entities are examined. A comparison between deterministic and risk based economic analysis for MPEW/NH4 is presented. Risk analysis provides insightful results on the economic and financial implications from each participant's viewpoint.     

Does the political and economic context influence the success of a transport project? An analysis of transport public-private partnerships

The construction and provision of infrastructure services such as transport nowadays is often based on a partnership between three main actors: public sector, private sector and multilateral lenders, under a framework of Public-Private Partnerships (PPPs). This type of partnership has been employed in a wide range of projects in the transport sector and in various contexts in developing and developed countries. Given this observation, the objective of this paper is to examine how countries’ economic and political characteristics contribute to the success of PPPs in transport investments. Special focus in the analysis is given to how the perception of corruption and democratic accountability may influence the success of a PPP project in different transport sectors. We examine a database with 856 transport PPP projects using a generalized linear model in the form of a logit model in order to evaluate the transport database covering data from 72 countries, classified in six regions. The study highlights the importance of national experience. Not only does national macroeconomic experience appear to have a relevant role, but so also does its past experience (either positive or negative) of transport PPP projects. An interesting finding from the analysis is the importance of the rest of the world’s perception of a country’s level of corruption and democratic accountability for the final outcome of a PPP project.     

The regulatory function in public-private partnerships for the provision of transport infrastructure

A wide range of contractual arrangements are increasingly being used by the public sector to materialise the delegation of transport infrastructure provision tasks to the private sector, over long periods of time. This paper addresses the issue of transport infrastructure regulation in the specific context of public-private settings. Starting by the discussion on the concept of Public-Private Partnership (PPP) it is stressed that, despite the different meanings that can be found in the literature, it is possible to define a PPP by using a core group of characteristics, such as the bundling of services and the transference of a relevant part of the risks to the private sector on a long term basis. Regarding the action of the regulator, we look at three dimensions of efficiency that are expected to be pursued at the strategic level of regulatory action. However, it is acknowledged that the regulatory function is in practice rather complex since it requires balancing a multiplicity of other objectives or goals, which may vary according to specific economic conditions. In the domain of pricing, the review carried out suggests that since “first best” assumptions are not met in the “real world” it hardly seems possible that the short run marginal cost pricing “canon” could be directly used to shape pricing policies. Consequently, when considering the application of the standard neoclassical marginal cost pricing approach it is pertinent to ask whether the second best solutions can lead to efficient outcomes that might be accepted by the stakeholders. Bundling construction and maintenance tasks into a single long term contract, which is a typical characteristic of “standard” PPPs, could theoretically bring cost benefits since it allows for the possible internalization of any positive externalities that may be generated during the whole project life cycle. The economic rationale for the bundling of construction/maintenance with financing services is that it enhances the likelihood of submission of realistic bids at the procurement stage. In addition, the chances of the contractor sticking to the agreed contractual terms, after contract award, are potentially increased given the higher exposure to financial risk.     

Urban transport lending by the World Bank: The last decade

Over the preceding decade, the World Bank committed about US$7.5bn in loans for urban transport projects in its client countries, involving total project costs of nearly US$13bn. Projects are designed by the client city/national governments and the World Bank in an interactive, give-and-take process. As is common in development finance, urban transport projects entail an investment program and a set of policy and institutional initiatives. A majority of Bank-funded operations in this period focused on public transport modes. A clear and overarching strategic thrust is evident, favoring private delivery of services with a strong public role through city-specific regulatory agencies. Depending on the context, projects involved efforts to introduce private operators and competition into an all-public set-up, or tighten up weakly regulated, “informal” public transport markets. A notable feature of many projects in the latter context is the use of investments in bus rapid transit infrastructure to reach multiple goals: improve transport services, maintain affordability for low-income passengers, attract new passengers, reduce negative environmental impacts, and leverage complementary reforms of policies and institutions. The Bank’s program in China, unique in its local context of a dynamic urban society moving away from a near-universal reliance on bicycles, initially did not focus on public transport but on urban roads and traffic management. Towards the end of the last decade, the motorization process and the outlook of decision makers entering a more mature stage, projects in China started to converge towards what the rest of the Bank’s program was doing – searching for a more sustainable path to urban transport development.     

Alternative financing for Bus Rapid Transit (BRT): The case of Porto Alegre, Brazil

In the 1970s, Brazil was leading the implementation of high-flow bus priority schemes, but now cities are less capable of financing public infrastructures. This paper explores the private sector participation in the provision of transit infrastructure based on Public-Private Partnerships (PPP) for Bus Rapid Transit (BRT). The Porto Alegre BRT contemplates interchange terminals planned to accommodate retail and service activities. It is expected that these areas shall generate enough revenues to remunerate private investors, under a PPP scheme, for the construction of terminals and part of the infrastructure required to upgrade some sections of the existing busways to BRT standards.     

Solving procurement problems in public transport: Examining multi-principal roles in relation to effective control mechanisms

Despite the EU’s increasing role in regulating public transport procurement, few studies have considered this aspect when analysing procurement problems of public transport. This paper examines how the institutional relationships between different actors, including international governmental bodies, in public transport effects the possibility of exerting control over a county public transport authority (PTA) in a multi-principal setting. The analysis is carried out using empirical material from an infringement process including a Swedish PTA and the EU. The conclusions have clear policy implications for the procedural order when exerting control over the PTA in cases of procurement problems. It is for example shown, that the implementation process would be much more efficient if the regulations allowed the EU to impose sanctions directly towards the local authorities without having to involve the national government when the procurement laws are violated.     

Sustainable procurement and environmental life-cycle costing in maritime transport

Transportation sector, including maritime transport, exerts significant environmental impact. Public procurement as a policy strategy instrument which applies to the purchase of transport means, construction of infrastructure and the provision logistic services in supplying the goods, services and executing of works must integrate environmental considerations in the contract award procedures. While conventional life-cycle costing (LCC) is based on four categories to be assessed e.g. investment, operation, maintenance and end-of-life disposal expenses, the environmental LCC method also takes into account the external environmental costs. The paper is focused on sustainable public procurement and environmental life-cycle costing aspects of EU 2014 Directive. Analysis is made of the real cost of procurement, the externalities and the impact of maritime transport sector on the environment. The purpose of this research is to propose the framework for assessment of integral impact on the environment which combines environmental LCC approach with TBL concept using non-monetary units for measuring externalities. The authors advocate clean and energy-efficient maritime transport ensuring effective implementation of environmental policy objectives and targets and emphasize the role of public authorities and entities in fostering the inclusion of environmental externalities in calculation of LCC.     

Public transport policy for central-city travel in the light of recent experiences of congestion charging

Excellent public transport which makes the private car a minority mode of central-city travel is a necessary condition for a political process towards the introduction of congestion charges. However, the charging system costs in London and Stockholm have proved to be unexpectedly high. Therefore, before these costs come down to an affordable level, zero-fares for central-city travel and stricter parking policy would be a first-best combination in many cities, always provided that the public transport is really competitive. A bold venture in public transport development is consequently the top priority irrespective of the transport pricing policy direction.     

Hybrid steering cultures in the governance of public transport: A successful way to meet demands?

This paper concerns steering aspects in the governance context of public transport. Various theoretical views of steering have been presented over the years, and it has been argued that a multiple-principal context often leads to fragmented steering. The paper aims to identify steering culture models found among principals operating in the same public transport context, and to explain how a successful procurement outcome is possible, despite the hybrid of steering cultures. The paper is based on an empirical analysis of a Swedish county's planning process that resulted in a very successful procurement outcome that met high environmental and safety standards at a relatively low cost. This procurement was seen as a triumph by principals. The findings presents the existence of various steering cultures among the principals, leading to the conclusion that a “metagovernor,” in this case the PTA, is central to achieving successful outcomes. The metagovernor designed the planning process and formulated a procurement document that satisfied the principals. In this process, the metagovernor negotiated separately with each principal, focusing on the particular characteristics of each principal.     

Cities on the move – Ten years after

The World Bank urban transport strategy review, “Cities on the Move” analyzed urban transport problems in developing and transitional economies and articulated a proposed strategy framework for national and city governments. This paper describes how the urban transport problems of the developing world have changed in the last decade and assesses the extent to which the strategies recommended in 2002 have been successfully implemented. It shows that progress has been widespread in some areas – particularly in mass transit analysis and investment and some environmental policies – and that there have developed some good planning and public transport practices in a smaller number of model cities. But more strategic institutional and policy issues, including the mobilization and regulation of private sector initiative in meeting infrastructure and public transport supply deficiencies, have tended to be poorly developed. Above all, the growth of medium sized cities with weak institutions and finance highlights the need for the international development institutions to put greater emphasis on helping those cities by dissemination of best practice in strategic transport planning and traffic management.     

How optimal was the Sydney Metro contract?: Comparison with international best practice

The New South Wales (NSW) government created the Sydney Metro Authority to design, build and operate a completely separate underground Metro rail system to supplement the existing public transport network in Sydney. By the time the NSW government abruptly cancelled the entire Metro project in early 2010, the Authority had conceived and designed a contract that was proceeding to procurement. This paper compares the elements of the proposed Sydney Metro contract to findings of the literature on optimal contracting and optimal incentives and on PPP best practice. The paper concludes that the Metro seems to have at least implicitly drawn fairly heavily on best practices and principles, but that its ultimate failure to be implemented is an instructive lesson about how operating environment can impede integration of useful knowledge and experience.     

Workshop 6: The public agenda: What is working and what is missing

Workshop 6 topics covered social inclusion, the informal transport sector, transport in developing countries and sustainability. The strong connections and complimentary goals were noted, where solutions to social exclusion and greenhouse gas reduction can both be realised with good transport and urban planning. There is an opportunity for developing countries to avoid the transport mistakes in many developed countries, such as car dependence. This will involve the development of infrastructure that offers accessible public transport to the majority of people, providing resources to the informal transport system and integrating this with public transport. The workshop considered specific issues such as rural transport, new technology, car tolls to subsidise public transport, safety issues with informal transport and the failure to evaluate the longer-term impacts of many major transport infrastructure developments. Recommendations were made in relation to research and policy and future Thredbo topics.     

Critical issues in the design of contractual relations for transport infrastructure development

The increasing use of Public-Private Partnerships (PPP) arrangements in the provision of transport infrastructure seems to be a trend all over the world with a very particular incidence in Europe. The arguments supporting these public decisions are several and their validity varies with the different realities where these instruments are applied. The paper highlights the critical issues around the design and implementation of PPPs in the transportation sector and makes a brief presentation of the rational behind the structure of papers presented in this special issue.     

Evaluation of progress in contractual terms: Two case studies of recent DBFO PPP projects in North America

With continuous demand for transportation infrastructure and chronic funding shortfalls, public-private partnerships (PPPs) for infrastructure provision have garnered attention in recent years in the U.S. and abroad. High profile concession deals in Chicago and Indiana have raised concerns about the protection of public interests in PPPs. Such concerns have ignited heated debates, partly driven by ideology and vested interests, but also by questionable decisions made previously. While public agencies at all levels are interested in identifying successful PPP arrangements, the variety and complexity of PPP deals, combined with local factors unique to each project, make the development of a universal evaluation framework practically infeasible.     

Public vs private management of public utilities - The case of urban public transport in Europe

This paper analyses the determinants of the performance differential between the private and public management of urban public transport in Europe. Our analysis supports the view that private management is associated with a lower operating cost. We show, however, that the size of the costs' differential can depend on the interaction of the local authorities' capacity for expertise and the private operators' autonomy margin. In particular, we show that, in certain situations, there might be little difference in operating costs. Thus, in terms of total costs (production and transaction costs), no systematic advantages should be expected from private management.     

装备招标采购合同管理存在问题及对策分析

合同管理是军队采购部门对装备采购项目实施管理的重要载体,做好装备招标采购合同管理工作对于提高采购效益、促进装备建设快速发展起着至关重要的作用.文章在分析了装备招标采购重要性的同时,从外部环境、管理体制、管理思想及方式三个方面提出了对我军装备招标采购合同管理的工作的几点设想.     

Future challenges for transport infrastructure pricing in PPP arrangements

In this paper we report the conclusion of a research project dedicated to pricing regimes in public-private partnership contracts for the provision of transport infrastructure (Macário et al., 2009). Several elements have been brought to the bulk of knowledge that supports the design and implementation of public-private partnership in the transport sector. These developments have been achieved in the following domain:

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Understand difficulties of price setting within the PPP environment, given the potential conflict of interest among the different parties engaged, go beyond the discussion of first best versus second-best price setting mechanisms.

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Understand the role of government and regulators in the performance of a PPP.

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Translate the issue of asymmetries of information between parties into a risk taking language.

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Devise alternative contractual designs that will enable competitive price setting.

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Understand that a structural element is missing to conciliate the views of the different stakeholders over a PPP: a bridge between infrastructure costs and charges.

The objective of this paper is to overview the main challenges ahead of transport infrastructure pricing, considering the current and likely future policies as well as the field constraints. Moreover, a proposal is formulated to overcome some of the current pitfalls associated to transport infrastructure pricing.