New Solutions for Administration, Production and Funding of the Transport System in Finland

New Solutions for Administration, Production and Funding of the Transport System in Finland


T Korte, Ministry of Transport and Communications, FI




Some dozen years ago, the Finnish Ministry of Transport and Communications began a major undertaking to overhaul the country?s transport administration system. Offices and agencies engaged in production or business and services operations have been transformed into publicly owned corporations or state enterprises, state enterprises have been transformed into joint stock companies, new agencies have been created to take up the functions of authorities and address the needs of competitive bidding, regulation has been decentralised, and the sector as a whole has been opened up to competition as far as possible.

In April 2002 Mr Samuli Haapasalo and Ms Tiina Korte were assigned by the Minister of Transport and Communications, Mr Kimmo Sasi to explore the next phase of the reforms.


We have studied the Finnish transport system and infrastructure maintenance from the points of view of traffic corridors, customers, administration, production, industry and funding. On the basis of our analyses we have arrived at three proposals that address the following questions:

* efficient and customer-driven organisation of transport and infrastructure administration;

* the increased value and competitiveness of the transport sector including the state enterprises and companies

* meeting the financial deficit in the transport infrastructure.

h4. 1. Integrating transport and infrastructure administration

Composed of roads, railways, waterways and air traffic, the national transport system needs to be designed, constructed, organised and maintained in such a way that it provides an efficient service to the whole of society, i.e. to individual citizens as well as business and industry. Today, we have in Finland a system where each mode of transport has its own administration. Under the general administration of the Ministry of Transport and Communications, transport and infrastructures are governed by the Road Administration, Rail Administration and Maritime Administration; in addition the Vehicle Administration is run more or less independently of these three agencies. The Civil Aviation Administration was set up as a publicly owned corporation in 1991.

This disjointed, fragmented organisation means that knowhow and expertise in the country are very much scattered. In principle the core expertise is the same in all agencies: this is a business of managing transport and mobility, infrastructures and networks, market mechanisms and societal impacts.

In the arrangement that is now in place, different infrastructure agencies are working separately and as a result, it is impossible to form a coherent picture of current trends in development. The most prominent trend and the biggest challenge for infrastructure agencies is to tender and purchase the services required by infrastructure maintenance and in this way to define the impacts and outcomes of transport in society.

From these and various vantage-points we propose that the core competencies and functions of the separate infrastructure agencies be integrated into two organisations as from the beginning of 2004: these are the Transport and Infrastructure Administration and an independent small Traffic Safety Regulatory Authority.

Within this new structure, the Transport and Infrastructure Administration would be responsible and have the competence for strategic planning, service standards and management of the transport system, the development of the transport sector and markets, management of the related impacts and information, management of customer relations and PR, infrastructure tendering and purchasing, data and information management, as well as administrative and support services.

One and the same authority cannot single-handedly take on the responsibility for regulating traffic safety, implementing regulations and supervising implementation. For reason of neutrality, it is imperative that safety operations are handled separately from passenger operations, infrastructure maintenance and tendering and purchasing in the Traffic Safety Regulatory Authority.

The new organisation of the infrastructure agencies will see important improvements in the following areas:

* Customer orientation via modern and consistent customer interface

* Services will be better targeted and prioritized and their costs driven down

* Performance and efficiency, cost awareness and cost effectiveness

* Better use of resources and competencies, prospects for professional growth and pride

* Administration into a competent, efficient, demanding and forward-looking customer

* Practices of tendering and purchasing will be improved and refined

* Creation of market conditions: companies will become innovative business developers and producers

* Clarity of roles and responsibilities

h4. 2. Developing production and the transport sector

Our second main proposal concerns the next phase in developing the structures of production and increasing the efficiency of production. Infrastructure production should be purchased from companies competing in the marketplace and all government infrastructure production units need to be transformed into public limited companies operating in these open markets.

The government continues to have a dominant role both in tendering and purchasing and in infrastructure production. The state tendering accounts for around 40 per cent of the total annual volume of infrastructure development. State enterprises and companies, for their part, account for some 25 per cent of annual infrastructure construction and maintenance.

It is clear that the state has to shoulder the responsibility for the transport system and make sure it works properly; but that cannot include itself earth-moving, dredging or building and repairing railways.

We propose that the two state-owned production units, the Track Ltd in the Group of Finnish State Railways and the Road Enterprise, be reorganised as market-driven companies. The Track Ltd provides rail track planning, construction and maintenance services. The Road Enterprise is engaged in the planning, construction, maintenance and care of traffic lanes and traffic environments as well as related products and services.

This reorganisation will have the following benefits:

* The companies? business operation and knowhow will be strengthened and their competitiveness and value will increase.

* Prospects will be improved for staff development as well as for better and more flexible job contracts

* Competition and the market-driven philosophy will help to strengthen and develop the whole transport sector and markets.

* The structural reform will have impacts throughout the civil engineering and planning industry and support the inevitable change that will guarantee long-term profitability.

* The government will see an increase in the value of its companies, and it may gradually sell of its shareholding in both companies and use the capital assets released for purposes of improving the infrastructure.

Earlier structural reforms in the administrative sector under the Ministry of Transport and Communications and their beneficial impacts on competition have brought an annual increase of 10 to 20 per cent in cost-effectiveness.

h4. 3. Infrastructure funding

Our third proposal concerns the funding of major upcoming investments in the transport infrastructure, on which decisions still remain open, as well as the idle capital assets in the sector of Ministry of Transport and Communications that need to be put to productive use.

The Ministry of Transport and Communications has recently produced a set of estimates on investment needs in transport infrastructure and networks during the following government period. Current needs already stand at around 3.2 billion euros.

The Finnish State Railways Group, called VR Group, on the other hand, has considerable excess capital assets on its balance sheet. When the VR Group was reorganised as an unincorporated state enterprise and then as a company, it received very strong balance sheet resources.

The development of the company requires that its idle capital resources be released for productive use. A balanced ratio of equity to borrowed funds provides much better guidance and direction to long-term business and investment decisions than does the situation of excess balance sheet resources.

The resources that can be released, in stages, from the VR Group amount to around 500 million euros. Even after these steps the VR Group would have a strong equity ratio at about 50 per cent. As the ownership base of the Road Enterprise and VR Track is broadened and the government gradually sells up, this too will generate significant funding resources of around 600 million euros. The total amount of capital thus released would total 1.1 billion euros.

Provided that no changes are made to the current spending limits in the state budget, our proposal of internal rearrangements with the transport sector would generate an estimated 1.1 billion euros and meet the infrastructure funding shortfall.

The key investments and measures will be completed within a time frame of about eight years. The benefits yielded by the investments for citizens, business and industry, and thus to society at large and the national economy, will be seen earlier than if the changes we propose are not implemented.

Our solution puts to work the capital assets released in two different ways at the same time: they will be developing and strengthening both the infrastructure and the business sector. The investments will create more jobs locally. No taxes or extra fees will need to be introduced to find the extra resources.


Association for European Transport