Current PPP-Models for German Motorways. Thorsten Beckers, Christian von Hirschhausen, and Jan Peter Klatt

Transcription

1 Public Sector Management and Regulation Workg Papers WP-PSM-10 Current PPP-Models for German Motorways Thorsten Beckers, Christian von Hirschhausen, and Jan Peter Klatt Reprt from Presentation at the 4 th Conference on Applied Infrastructure Research (8 October 2005, Berl University of Technology) (presented by Thorsten Beckers, with Jan Peter Klatt) Reprt from EIB Papers, Vol. 10, No. 2 (2005), Workgroup for Infrastructure Policy (WIP) Berl University of Technology Chair of Energy Economics and Public Sector Dresden University of Technology

2 Current PPP-Models for German Motorways An Economic Analysis of the F-Model, the A-Model and the Functional Construction (& Matenance) Contract Thorsten Beckers (TU Berl, WIP), Christian von Hirschhausen (TU Dresden, EE²), Jan Peter Klatt (TU Berl, WIP) phone October 2005, TU Berl Conference on Applied Infrastructure Research -1-

3 Agenda 1. Traditional Way of Fancg and Procurg Motorways Germany 2. Economic Analysis of the PPP-Approach the Motorway Sector 3. PPP-Models Germany 4. Conclusions -2-

4 Agenda 1. Traditional Way of Fancg and Procurg Motorways Germany 2. Economic Analysis of the PPP-Approach the Motorway Sector 3. PPP-Models Germany 4. Conclusions -3-

5 Options to Provide Funds for the Motorway Sector Budget System (-) Theoretical considerations and ternational experiences show that the fancg of the motorway sector with the scope of the budget system is threatened with the danger of under-vestment. [GWILLIAM / SHALIZI (1999)] Road Funds (+) Earmarkg of revenues (+) Separation of fancg and production allows to decide on the procurement strategy purely based on cost-efficiency considerations Conclusion Road funds seem to be the more appropriate solution to fance projects a motorway network where vestment decision should be based on a public sector evaluation -4-

6 Ma Shortcomgs of the Traditional Way of Fancg and Procurg Motorways Germany Shortage of Investment Inefficient Allocation of Available Funds Inefficiencies due to the Federal Order Admstration Inefficiencies Procurement -5-

7 Traditional Way of Fancg and Procurg Motorways Germany: Shortcomgs and Potentials for Improvement Shortcomg Shortage of vestment Inefficient allocation of available funds Federal Order Admistration Inefficiencies procurement Analysis / Description Too few funds available to undertake the urgently needed vestments (newbuilds, extensions, renewals) Although 50% of the come from the HGV-toll is earmarked for the motorway sector, the overall level of funds for the federal trunk roads is still determed through the yearly budget Allocation of available funds accordg to quotas on projects the different states The Federal Government as the legally and fancially responsible body delegates the activities of construction, operation and matenance of the motorways to the 16 federal states. one more prcipal-agent-relationship with the public sector lower cost efficiency wrong centive structure for states realizg project appraisals lower vestment efficiency Construction and matenance: determation of project size and bundlg of works accordg to the capabilities of small and medium-sized enterprises (SMEs) and not purely orientated to cost efficiency considerations Inefficiencies operation and route matenance realized by the public road matenance divisions Possible Improvement Foundation of a real road fund (similar to the ASFINAG Austria) providg further competences to the VIFG Prioritization of projects accordg to their cost-benefit-ratio Abolishment of the federal order admistration Foundation of few stitutions (e.g. northeast, north, west, south-west, south) under supervision of a central body (e.g. BMVBW or VIFG) which are responsible for the management and procurement the motorway sector (examples: Highways Agency, ASFINAG) Cost efficiency should become the ma driver for procurement strategy More novations procurement Realization of projects (new construction, extension) as PPPs? -6-

8 Traditional Procurement Approach Contractg Out of Construction and Capital Matenance Different ways of structurg the contracts are possible: Different remuneration schemes can be applied (fixed price, unit price, target costg) Different modes of risk sharg between the public sector and the contractor can be applied Etc. (+) High competition tenderg the contracts (+) Works to be realized by the contractor can general easily be defed (-) If the public authority is responsible for the motorway sector, it cannot implement a longterm cash-flow- and vestment-strategy (which typically happens when fancg the highway sector with the budget system), mimization of life-cycle-costs is impossible (-) Strategy for allocatg resources on construction and matenance is not subject to competition In-house-Production of Operation and Route Matenance by public Road Matenance Divisions (?) Are strategies procurement and use of human resources directed by political wishes or by efficiency considerations? -7-

9 Agenda 1. Traditional Way of Fancg and Procurg Motorways Germany 2. Economic Analysis of the PPP-Approach the Motorway Sector 3. PPP-Models Germany 4. Conclusions -8-

10 Criteria for Evaluatg Organizational Models and Regulation the Motorway Sector from a Social Welfare Perspective To evaluate the social welfare effects of different organizational models and ways of regulation the motorway sector, it is convenient to apply the followg criteria Criteria Cost Efficiency Allocative Efficiency a narrow sense Investment Efficiency Time Efficiency These Criteria Refer to Costs Price settg Undertakg of vestment decisions Availability of fancial funds to undertake Investments Description Mimization of the costs to produce a certa output cost efficiency is high Price = margal costs allocative efficiency is high Decision to vest capacity extension (new construction, extension of existg stretches) ONLY if benefits costs vestment efficiency is high Funds are available to realize all projects where benefits costs time efficiency is high -9-

11 PPP and Concessions: Defitions (Planng) Construction Constitutional characteristic of a PPP PPP is a contractual structure where the public sector buys a service from the private sector through a long-term contract, and where at least the tasks of construction and matenance are passed to the private sector. Matenance Operation Remuneration based on direct / earmarked tolls Concession ( an economic sense) -10-

12 Economic Analysis of the PPP-Approach the Motorway Sector (considerg theoretical results and empirical evidence) (a) Higher cost-efficiency? b) Advantages resultg from the combation of PPP s and user fees? (c) Earlier project realization usg private fance? (d) Positive external effects? -11-

13 Economic Analysis of the PPP-Approach the Motorway Sector: Higher Cost-Efficiency? (1/3) (a) Higher cost-efficiency? Theoretical analysis (+) Private management and supervision realized by vestors refers to a higher share of the overall value (+) Strategy for allocatg resources on construction and matenance is subject to competition (+) Implementation of a long-term cash-flow- and vestment-strategy allows mimization of life-cycle-costs (-) Higher transaction costs and possible shifts of rents to the operator renegotiations (which are relatively likely to emerge due to the long term nature of the contract) (-) Private sector bears more risk, but it has higher costs of risk bearg Empirical evidence Conclusions (b) Advantages resultg from the combation of PPP s and user fees? (c) Earlier project realization usg private fance? (d) Positive external effects? -12-

14 Economic Analysis of the PPP-Approach the Motorway Sector: Higher Cost-Efficiency? (2/3) (a) Higher cost-efficiency? Theoretical analysis Empirical evidence - DE BETTEGNIES / ROSS (2004): there is a surprisg shortage of what we might call objective research on the topic, or dependent evaluations of the success and failures - UK experiences dicate that cost savgs might be achievable Evaluations of National Audit Office of DBFO-projects the 1990s ( which remuneration was based on shadow tolls) dicated that cost savgs were realized applyg the PPP-approach. BUT: In the 1990s the UK PSC calculations were realized applyg a discount rate of 6%. If the public has already taken the vestment decision it seems reasonable to apply a lower discount rate. Shift from shadow tolls to availability payments has resulted cost savgs - The Netherlands: Cost comparisons (PPP vs. traditional model) dicate that cost savgs might be achievable - Analysis done by EIB of 10 PPP s 2005 does not give a conclusive answer to the question Conclusions (b) Advantages resultg from the combation of PPP s and user fees? (c) Earlier project realization usg private fance? (d) Positive external effects? -13-

15 Economic Analysis of the PPP-Approach the Motorway Sector: Higher Cost-Efficiency? (3/3) (a) Higher cost-efficiency? Theoretical analysis Empirical evidence Conclusions Cost savgs applyg the PPP-approach seem possible appropriate projects (not too small, little uncertaty, fixed-price-remuneration schemes are appropriate) if the followg conditions are fulfilled: efficient risk allocation stable and competent stitutions the public sector competition the tenderg phase (b) Advantages resultg from the combation of PPP s and user fees? (c) Earlier project realization usg private fance? (d) Positive external effects? -14-

16 PPP and Concessions: Cost Efficiency BACK UP Concessions ( an economic sense = PPP + earmarked tolls) (-) Concessions brg about specific problems; that is why cost savgs seem to be less probable than availability-models (-) Concessionaire bears demand risk (even by applyg PVR-auctions the risk can only partially be reduced) (-) Renegotiations occur more frequently (-) Political economy considerations and empirical evidence dicate a higher probability of political fluence which aggravates an efficient regulation and an efficient management of renegotiations -15-

17 Economic Analysis of the PPP-Approach the Motorway Sector (a) Higher cost-efficiency? b) Advantages resultg from the combation of PPP s and user fees? Implementation and earmarkg of tolls can also be realized by a road fund ( ) Traffic evasion if parallel roads exist and are untolled ( ) Disadvantages if the concessionaire bears demand risk (-) Wner s curse (-) Renegotiations occur more frequently (-) Higher costs of risk bearg - Can PVR-auctions solve the problem? Not really many projects: even with PVR-auctions, the concessionaire has to bear the (demand) risk of the long-term profitability risk (?) Better vestment decisions as bidders check if future revenues costs - Just relevant for construction of new stretches - Problem: Are projects really stopped if firms do not submit bids? - Problem: Network effects have to be calculated regardless by the public sector No advantages resultg from the combation of PPP s and user fees for projects with the network; network wide strategies for raisg and earmarkg revenues are preferable Just for the realization of new projects where traffic evasion is low (bridges, tunnels etc.) concessions might be preferable some cases -16-

18 Theoretical Analysis of the PPP Approach for Motorways and Trunk Roads (c) Earlier project realization usg private fance? ( ) False centives choosg between the procurement options (PPP vs. traditional model) ( ) Private fancg can be used as a way to bypass the budgetary rules Capital should be raised by a road fund However, vestments a PPP should at least partially be fanced by private capital to protect the public sector agast bankruptcy of the private firm (d) Positive external effects? (+) Incentives for the public admistration resultg from direct competition with PPP as alternative procurement form (+) Innovations Conclusions General conclusions concerng the potential of PPP cannot be drawn PPP is an appropriate approach to solve the problems of fancg motorway networks therefore a road fund should be implemented But PPP should be regarded as a relevant procurement alternative -17-

19 Agenda 1. Traditional Way of Fancg and Procurg Motorways Germany 2. Economic Analysis of the PPP-Approach the Motorway Sector 3. PPP-Models Germany - A-Model - F-Model - Functional Construction (& Matenance) Contract 4. Conclusions -18-

20 The Current PPP-Models Germany: A-Model, F-Model, and Functional Construction (& Matenance) Contract F-model -- FStrPrivFG FStrPrivFG (from (from 1994, 1994, modified modified and and 2005) 2005) -- Construction, Construction, matenance matenance and and operation operation plus plus fancg fancg through through a private private operator operator -- Source Source of of renumeration: renumeration: Direct Direct tolls tolls Subsidy Subsidy of of max. max. 20% 20% of of the the buildg buildg costs costs from from the the budget budget --Only Only tunnels, tunnels, bridges bridges and and passes passes on on motorways motorways and and some some kd kd of of trunk trunk roads roads A-model -- Construction, Construction, matenance matenance and and operation operation plus plus fancg fancg through through a private private operator operator -- Source Sourceof of renumeration: renumeration: HGV-(shadow)-toll HGV-(shadow)-toll Subsidy Subsidyof of max. max. 50% 50% of of the thebuildg buildgcosts from fromthe thebudget -- Extension Extension of of motorways motorwaysfrom from4 to to 6 lanes lanes -- 5 pilot pilot projects projects ( ( tenderg tenderg phase) phase) -19- Functional Construction (& Matenance) Contract -- Construction Construction and and matenance matenance -- Source Sourceof of renumeration: renumeration: Payments Payments by by the the state state -- Buildg Buildgand and matenance matenanceby bya private private firm firm

21 Realized, Planned, and Failed PPP-Projects Germany An Overview F-model F-model Warnowtunnel Warnowtunnel Herrentunnel Herrentunnel Elbquerung Elbquerung at at Glückstadt Glückstadt ( * ( * planned) planned) Weserquerung Weserquerung ( * ( * planned) planned) Hochmoselübergang Hochmoselübergang ( * ( * planned) planned) Albaufstieg Albaufstieg ( * ( * planned) planned) A Rheland-Pfalz Rheland-Pfalz (Koblenz (Koblenz Kruft) Kruft) A Baden-Württembg. Baden-Württembg. (Oberndorf (Oberndorf Rottweil) Rottweil) * * * * * * * * * * * A Bavaria Bavaria (Brannenburg- (Brannenburg- Kiefersfeld.) Kiefersfeld.) Functional Functional Construction Construction (& (& Matenance) Matenance) Contract Contract -20- A-model A-model ( * ( planned) planned) A 1 1 Niedersachsen Niedersachsen (Buchholz (Buchholz - - Bremer Bremer Kreuz) Kreuz) A 1 1 / / A 4 4 NRW NRW (Düren (Düren - - Köln Köln Nord) Nord) A 4 4 Thürgen Thürgen ("Hörselberge") ("Hörselberge") A 5 5 Baden-Württemberg Baden-Württemberg (Baden-Baden (Baden-Baden - - Offenburg) Offenburg) A8 A8 Bayern Bayern (Augsburg (Augsburg / / West West München München / / Allach) Allach) A 9 9 Thurgia Thurgia ( * ( * geplant) geplant) A North North Rhe- Rhe- Westphalia Westphalia

22 F-Model The F-Model approach can be evaluated a positive way for bridges, tunnels etc. The lack of fancial resources should be overcome through the implementation of a network wide road fund The application of an efficient regulatory legal framework causes welfare losses - To many cost-plus-elements the regulation - Decreasg tolls durg the duration of the concession The regulation should be modified - Present-value-of-revenue (PVR) (but without flexible concession duration) - Clear defition of the toll calculation the concession contract -21-

23 A-Model Risk allocation and remuneration scheme - Inefficient risk allocation (private operator bears 50% demand risk ) - Availability payments stead of shadow tolls would result cost savgs The lack of fancial resources cannot be overcome - Pre-fancg accordg to the A-Model is the wrong way - The implementation of a network wide road fund stead of pre-fancg with private capital is preferable - False centives can cause that the responsible stitutions will not choose the procurement form maly under cost efficiency considerations The A-Model should be substantially modified due to these deficits -22-

24 Functional Construction (& Matenance) Contract From an economic perspective, the Functional Construction (& Matenance) Contract is a better approach than the A-model. But there is still room for improvement: - A higher ratio of private capital would strengthen the commitment of the operator - Strategic biddg resultg from a unit-price remuneration scheme fixed-price contracts should be enabled - Contract is too complete to guide a long term relationship Inclusion of the operation - To realize economies of scope the clusion of the operation should be considered for large projects (> 50 km) Cost savgs appear to be achievable - Wng bids of the first projects dicate cost savgs The functional construction (&matenance) contract should be improved -23-

25 Agenda 1. Traditional Way of Fancg and Procurg Motorways Germany 2. Economic Analysis of the PPP-Approach the Motorway Sector 3. PPP-Models Germany - A-Model - F-Model - Functional Construction (& Matenance) Contract 4. Conclusions -24-

26 Conclusions PPP-Model F-Model Assessment (+) Application is limited to bridges, tunnels and passes which are the cases suitable for concessions Germany (-) Inefficient time structure of the tolls due to current regulation (too high tolls the early years) (-) Remuneration cludes too many cost-plus-elements A-Model (-) Operator has to bear too much demand risk (-) Wrong approach to combat the fancg gap the German motorway sector foundation of a road fund is urgently needed Functional Construction (& Matenance) Contract (+) Model does not tend to combat the fancg gap the motorway sector (-) No private capital cluded too little protection of public sector for the case of bankruptcy of the private firm (-) Remuneration until now is always based on a unit price system. Remuneration based on a fixed price should be made possible. (-) Contract is too complete to guide a long term relationship -25-