A Comparison of Non-profit Toll Companies and Build Operate Transfer Initiatives: the Case of Norway



A Comparison of Non-profit Toll Companies and Build Operate Transfer Initiatives: the Case of Norway

Authors

M Welde, J Odeck, R Fjeltun, Public Roads Administration; S Brathen, Molde University College, NO

Description

Abstract

In Norway there has been a long-standing tradition in financing road infrastructure investments by road user tolls. The running and collection of tolls are managed by non-profit organisations whose main aim is to see road projects realised at an earlier stage than would be possible by the scarce government funding. These organisations have historically had a success story in the sense that more than 100 road projects have been realised using this organisational form and only one has ever gone bankrupt. However, there are two possible types of drawbacks with this type of arrangement and which may call for other options for road financing. The first is that since these organisations are non-profit organisations and are partially owned by the government, they may lack incentives to perform as well as they should. The second is that in the wake of decreasing government funds, the government is looking for other ways of financing road maintenance and operation not covered by the current toll arrangements. As a consequence, the Norwegian government in the last five years has sanctioned a Build Operate Initiative (BOI) as a remedy. Currently there are five such projects where one is already in operation. BOI entails contractual venture between a private consortium and the government where the private consortium undertakes financing, construction, operation and maintenance of the project for a limited period of time, normally 20 - 30 years. The financing may occur either through government funding with/without shadow tolls or by actual tolls.

In this paper we compare the efficiency of the current toll system and the BOI approach. The question that we address is whether BOI may be efficient as compared to the current system. Using the Norwegian data and experience we compare and contrast both the economic and organizational benefits inherent in these approaches to road infrastructure financing. Further, we suggest policy implications

Our findings are that while under the current regime the private sector is only a subcontractor delivering pre-specified services in small scale, under BOI the private sector has full responsibility in delivering road services. Thus BOI entails competition among private contenders which in order to maximize profit offers an indirect incentive for cost-effective production of services, innovations and risk minimization as compared to a (public) monopoly. However, For BOI to function, there must be many agents in the market wishing to offer their services. This may be a problem in a small country like Norway. In fact, in the current BOI trial projects there has been very small amount of contenders and none from abroad.

Our conclusions and implications point out that BOI needs to be tried in more ?case projects? to explore its viability especially to gauge the extent to which there is actually a potential for competition in the market. BOI seems to be a success in some European countries, but Norway due to its size in terms of population and the size of its road sector is a special case that ought to be considered more carefully.

Publisher

Association for European Transport