Is It a Good Deal: Cost Benefit Analysis for Tolled Crossings



Is It a Good Deal: Cost Benefit Analysis for Tolled Crossings

Authors

BRAATHEN S, MOre Research/Molde College and HERVIK A, MOre Research/Norwegian School of Management BI and NESSET E, Molde College/University of Bergen, Norway

Description

In Norway, tolls have been used for financing of the road system since the early 1930's. The share of toll financing became substantial during the 80's, mainly for the financing of large investments projects, such as strait crossings. Most of these were s

Abstract

In Norway, tolls have been used for financing of the road system since the early 1930's. The share of toll financing became substantial during the 80's, mainly for the financing of large investments projects, such as strait crossings. Most of these were situated In the rural parts of the country, mainly on the western and northern coastline. Most of the projects had a mixture of public and private financing. Figure 1 shows the proportions of private and public financing in the Norwegian road sector from 1970.

During the latest years, there has been a tendency towards increased toll financing of projects in the trunk road system and in urban areas. There are several underlying factors which can explain this:

- During the 1980's, the governmental grants declined. At the same time, projects in central and urban areas were given rather low priority. Regional balance and rural infrastructure were on the agenda.

- High traffic growth rate and congestion problems entailed increased interest for toll financing in urban areas, where the traffic volumes were high and where the investments needed exceeded the possible amount of public grants for investments.

-The liberalization of the Norwegian credit market in the mid 80's made it a lot easier for the toll financing companies to raise money.

The resistance against toll financing was initially strong in urban areas, although the attitude has changed to something close to acceptance (or apathy?) in recent years. In rural areas, the toll financed projects have in general superseded one or more ferry connections. There are some 130 ferry connections in Norway, with relatively high ferry fares. Thus, people have been used to pay for "road use" in coastal rural areas. We will not go into the questions of attitudes, just notice that these have been important questions for the policy-makers. One important reason is some difficult distributional aspects of toll financing.

The provision of public financing of transport infrastructure is also on the EU agenda. In the Commission's White Paper on Growth, Competitiveness and Employment (1994), it says that by 1999 investments in Trans-European Networks (TENs) of ECU 220 billion will be necessary for the transport networks alone. The Community could mobilize ECU 90 billion of this, including the contributions from Member States (p.. 91). This implies a need for ECU 130 billions of private financing. The Commission points out that it has proved difficult to mobilize private-sector investments in this field. The main reason is risk concerning technology and market conditions, with uncertainty about the return on, and hence the profitability of, the investment. The criteria for selecting projects for private financing towards the end of the decade are that (op.cit, page 92):

(1) The projects are of strategic importance in the TEN (transfrontier links, peripheral regions, access to networks et cetera).

(2) The projects can allow private financing, the magnitude depending on an evaluation of risk.

(3) The projects are sufficiently prepared and feasible within the actual time span.

(4) The environmental impact scrutiny is passed.

(5) The project generates employment creation and industrial impacts, over and above the economic viability as such.

In Norway, it has been possible to meet the demand for private capital. However, in recent years, there has been some reluctance because of financial difficulties in some of the projects. Private financing is not straightforward without proper analytical work. These difficulties have initiated concern about the quality of both the ex ante Cost Benefit Analysis (CBA) and the analyses of the traffic flow with respect to price and income sensitivity.

The rest of the paper is organized as follows: First, we will present some general and theoretical aspects of ex ante/ex post CBA. Second, without going into technical details, we will present some results from our expost analyses, with the estimation of demand functions and the CBA for 5 strait crossings. Third, we will present some theoretical aspects of the choice between private and public financing of infrastructure, and some principles for designing an efficient fare system. Fourth, we will shortly describe the model used for the choice between private and public financing, and present some results from 5 strait crossings. Finally we will give our concluding remarks.

Publisher

Association for European Transport