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2015/FMP/WKSP2/007 Session 1.8

Reducing the Cost of New Road Infrastructure: Sustaining Capacity Benefits

Submitted by: Transport Technology Consultants

Workshop on Infrastructure Financing and Capital Market Development

Iloilo, Philippines23-24 July 2015

Reducing the cost of new road

infrastructure: sustaining

capacity benefits

Andrew Pickford

Transport Technology Consultants Ltd

Hong Kong

APEC Workshop on Infrastructure Financing and Capital Market Development

23-24 July 2015Iloilo City, Philippines

Current environment for PPPs

• No shortage of capital – necessary but not sufficient for a successful PPP regime

• New road infrastructure: broad benefits to business and consumers

• Economic activity coupled to traffic and ensuring continued benefits of new capacity is a social, economic and environmental challenge

• Successful PPP regimes develop market interest- but weak PPP regimes reduce market interest and increase risk premiums

• Transfer of risk sometimes seen as means for Government to ‘abdicate’ some risks entirely

Common sources of failure of PPP schemes

• New infrastructure often planned with a design life that is too short

• Traffic models too simple => traffic forecasts often far too high or too low

• Roads are planned with the assumption that they do not significantly change the road network system

• The success of a PPP initiative is often measured in terms of number of deals closed but with little regard to: o how the benefits of new infrastructure will be sustained o how the ‘ownership costs’ for government, private sector

and users could be sustained • Toll road PPPs conflict with regional efforts to constrain traffic

The way forward

• Big Shift for Government: Infrastructure Provider > Network Manager > Service Provider

• Evidence that ‘design for operations’ can reduce capital expenditure

• Opportunities for new road infrastructure is limited in urban areas => operations-only contracts

• Selectively employ new infrastructure where needed and employ demand management elsewhere

• Intelligent Transport Systems (ITS) can reduce the need for additional road capacity: BCR typically 6 to 10:1 whereas additional highway capacity BCR of 2 to 3:1

Examples (1 of 3)

Europe

“Relatively small investments in ITS would allow abetter use of existing infrastructure and would … bemuch more cost effective than building newinfrastructure or enlarging existing one[s]. At thesame time, the environmental impact would be muchlower.”

Source: ITS Action Plan: http://europa.eu/rapid/press-release_MEMO-08-789_en.htm

Examples (2 of 3)

World Bank

“The rapid development of ICT-enabled approachesprovides a great opportunity to optimize andenhance the efficiency of existing and new urbantransport systems, at a cost much lower thanbuilding new infrastructure from the ground up.”

Source: http://blogs.worldbank.org/category/tags/intelligent-transport-systems

Examples (3 of 3)

United Kingdom

“implement a new specification for managedmotorways which will reduce the costs ofimplementation by upto 25% [to] be applied by upto 8schemes in the … investment programme… [and] …encourage proposals which might involve an elementof innovative financing … include proposals for tollingnew infrastructure, or for releasing development gain”

Source: UK National Infrastructure Plan 2011

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Recommendations

• Focus on ‘mobility’ rather than ‘capacity’• Market testing: publish a statement that indicates:

o the level of risk that Government agrees to take on, on behalf of the taxpayer.

o state the mitigations that a private sector partner should take to address its risks

o employ Intelligent Transport Systems (ITS) to mitigate environmental risks

• Declare that no (or low) traffic growth for road infrastructure would be permitted in the urban environment

• Establish a special purpose company with direct responsibility for delivering new infrastructure

• Appoint staff with strong experience of delivering and operating major infrastructure projects and the design & implementation of Intelligent Transport Systems

PPP Scheme Design

• Require management and operations strategies to maintaincapacity benefits

• Establish a performance management regime to maintain service levels

• Provide and protect capacity for transit where appropriate• CBA: use traffic-modelling forecasts to ensure that proposed design

life of new infrastructure accurately reflect its usage• Employ more sophisticated traffic forecasting models over 5-10

years, informed by population and growth targets• Employ construction and project management techniques as used

by the private sector• Provide ‘enabling legislation’ to permit effective traffic

management and enforcement

The Future

• Use technologies to reduce congestion to reduce capital expenditure from the cost of road expansion.

• Infrastructure coupled with:o Managed motorwayso Demand management with

variable tolls or Electronic Road pricing to shift demand rather than build for peak

o Cooperative-ITSo Long-term: Infrastructure

designed around semi or fully autonomous vehicles

Thanks