NATMAP 2050 Synopsis Update Colloquium 30 October 2015 Breakaway Session 2: Transport Financing and Funding

Breakaway Session 2 Outline 2 1.Introduction 2.Decisions Preceding Financing and Funding 3.Financing, Funding and Charging 4.Issues and Challenges 5.Implications for NATMAP Interventions & Priorities 7.Discussion

1. Introduction Our discussion separates issues around:  funding of transport (how a project is ultimately paid for)  financing of transport (amortising cost over time)  charging for transport (getting users to pay) Discussion entails three main parts:  Considering activities that precede the funding/financing/charging question (i.e. project selection and development)  Providing a basic overview of funding, finance, and charging theory and issues in transport (incl basic status quo)  Drawing from that a number of implications for NATMAP 2050, including specific interventions 3

2. Decisions leading into Financing and Funding 4 Project Development & Selection Understand current local context Define Needs Define Objectives Identify solutions Least Cost Provision Design vs Operations (lowest sustainable lifetime costs) Projects must be efficient Choice of delivery method may influence project costs Cost of Capital & Funding Considerations Appropriate sharing of financing between public and private Government contributions to - Preparation Funding Do the right thing Do it right 1 2

3. Financing, Funding, Charging 5 Financing Responsibility for amortising investment cost Public financial resources are constrained Selecting Financing Approach: Project priority (public financing directed firstly at important and urgent projects) Public goods (public financing to projects with positive spill-over benefits not limited to users) Private goods (should in principle be paid by users and financed via private finance) Delivery model (more private financing expected from semi- public, to PPP to private projects/ventures) Funding Responsibility for actually paying for a project Sources of Funding: Government Funding (general tax) User Pay Principle: User charges for “commercial” infrastructure Based on efficient cost with accurate and fair apportionment of costs and benefits Other Sources e.g. Value Capture, Capital Recycling, Developer Contributions Charging Mechanisms to recover users’ part Design principles: Sufficient Accurate Administratively efficient

4. Issues and Challenges Does institutional framework promote least cost delivery?  Most national transport infrastructure provided by government agencies, irrespective of its public vs private good nature (except some toll roads and one rail concession)  SOCs are a “best of both worlds” solution  SOCs typically statutory monopolies, but arguably not natural monopolies Private financing opportunities limited  Private sector actively lends to transport Agencies/SOCs, including term debt and bonds  Bonds have been corporate, not project  Opportunities for private equity and private project financing in transport infrastructure are limited  PIC is an equity investor “of last resort” in transport User charging approach not bedded down  Approach to design of user charging not generally agreed (viz e-tolls)  Trend towards independent, transparent tariff regulation of monopoly infrastructures  No or limited cost discovery at key transport entities  Pure “marginal” charging the exception (possibly BOT toll roads) 6

5. Implications for NATMAP Promoting private project financing Making costs more transparent Introducing congestion charging, in tandem with promoting public transport Improving price making and regulation Formalising user charging approach Addressing road user charging

6. Interventions & Priorities 8 Intervention Short- term Med- term Long- term Policy on “commercial” vs. “social” infrastructure with approach to financing and funding X Guidelines on congestion charging and application to National Transportation Demand Management Strategy X Examine mass-distance charging and cross-border charging to commercial road haulage X Policy and methodology for cost determination and marginal allocation by transport SOCs XX Policy on Government’s requirements for financial performance and recapitalisation of transport SOCs X Establish Single Transport Economic Regulator (STER), including standardised cost determination and charging across modes XX Interim Rail Regulator to concentrate on non-tariff aspects of rail economic regulation X

7. Questions / Discussions 9 Question 1: What do you consider the main issues to be that NATMAP 2050 should aim to address? Question 2: Do you broadly agree with the short, medium long term priorities? Question 3: Are the interventions proposed relevant and what else should be considered going forward? Question 4: Of the proposed interventions, which do you consider a priority in the short to medium term? Question 5: Does the proposed Implementation Framework provide a workable logical methodology to implementing interventions?

Thank You