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Transport

Transport is a key driver of economic and social development, bringing opportunities for the poor and enabling economies to be more competitive. Transport infrastructure connects people to jobs, education, and health services, and enables the supply of goods and services around the world. Modernizing ports, airports, roads, railroads and urban transportation systems is essential to development. Incomplete and inadequate transportation infrastructure can mean the difference between sustainable progress and persistent under-development.

The need for access to large amounts of land and space to build transportation facilities makes them expensive, long-term and politically sensitive undertakings. As a result, many transport projects require significant government support. However, experience has shown that private capital, expertise, and commercial discipline can make a measurable difference in the delivery of critical transport services. 

Unlike other sectors, there is in fact a long tradition of private investment in transportation projects, with many examples of railways, tunnels and bridges financed by a combination of private and public funding. The early days of railways in countries like the United States and United Kingdom involved private companies building railway networks on land provided by the public sector. Bridges and tunnels have seen a similar combination of public and private involvement, benefiting from a toll from those wishing to use them. Airports and roads, while historically financed with public funds, have seen more private sector involvement over the last 20 to 30 years.

As governments continue to confront the mounting expense and poor efficiency track records of publically funded, highly subsidized transport operations, they are increasingly looking to the private sector for input in the development of new transportation schemes and investment into existing systems. In developing countries, where governments are seeking to rapidly increase transportation capacity, the costs are prohibitive and a private sector partner is an increasingly attractive option to share the expense and risks.

Well-structured public-private partnerships (PPPs) are one approach that can, under the right circumstances, help governments in developing and non-OECD countries meet their critical transport challenges. According to the Private Participation in Infrastructure Database, since 1990, there have been over 1,600 transport PPPs around the globe, which account for over $470 billion in private investment commitments in developing countries.

Sub-sectors

  • Airports

    Airports provide access to and interlink regional, national and international markets. Investment in airport infrastructure is essential to economic development, job creation, attracting foreign investment and creating new commercial opportunities for the local economy. Traditionally, airports were owned, managed and operated by the public sector but there has been a worldwide trend towards private sector involvement with varying degrees of private ownership and management, including the...

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  • Ports

    As trade barriers worldwide are dropping, the physical barriers to the movement of goods remain the greatest bottleneck to trade. Over 70 percent of the world’s trade by value and 90 percent by volume travels by ship. With developing country trade growing at nearly 14 percent per year, the efficiency of port activity has become an essential piece in unlocking economic potential.  The speed with which cargo is securely moved from a vessel, the...

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  • Rail

    Efficient rail transport can stimulate trade, link production sites to regional and international markets, promote national and cross-border integration and facilitate access to the labor market, education and health services. With growing commitment to environmentally sustainable transportion solutions, rail is an important element of a low carbon transport strategy, releasing between three and ten times less carbon dioxide than driving or flying. ...

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  • Roads

    Roads have the potential to be a significant asset to any country—both in terms of the physical investment and the social and economic benefits. A well-maintained and managed road network unlocks the region’s productive capacity by linking agricultural areas to national or regional markets, and encourages economic growth and social integration by bringing cities and villages closer together. With this in mind, governments are eager to develop and manage their road networks to meet their...

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  • Urban Transport

    Encouraging economic growth is seen as the key driver to achieving a wide range of policy objectives, such as raising living standards and improving the well-being of citizens. However, in urban areas these gains are offset by increased car ownership and use, resulting in the often chronic levels of traffic congestion seen today. Combined with the need to ensure sustainable mobility policies for the future, policies are increasingly promoting the use of public transport and non-vehicular...

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Issues

  • Land development

    Unlike, say social infrastructure, transport infrastructure is spatially linear (i.e. it covers often hundreds of miles of land). The land required for transportation infrastructure projects therefore adds another layer of complexity to PPPs in...

    Unlike, say social infrastructure, transport infrastructure is spatially linear (i.e. it covers often hundreds of miles of land). The land required for transportation infrastructure projects therefore adds another layer of complexity to PPPs in the sector. While the amount and location of the land needed varies by project, all transport PPPs must account for potential political, economic, social and environmental effects the new system may have on the community. Public reaction to new transportation facilities can be contentious, with many residents understandably reluctant to have a new road or railway line running through their back yard or have airplanes flying just a few hundred meters overhead. Noise mitigation, reduction in property value, resettlement and environmental impact are all aspects that will need to be taken into consideration by the government and private partner.

  • Investment now, value later

    Transport infrastructure is inter-generational in nature; that is, because investing in transport is so capital and land intensive, there is a need to provide capacity to accommodate not only today’s travel demand but also future travel demand...

    Transport infrastructure is inter-generational in nature; that is, because investing in transport is so capital and land intensive, there is a need to provide capacity to accommodate not only today’s travel demand but also future travel demand (often several generations in the future). It would be extremely inefficient and disruptive to continually expand infrastructure as demand increases over time. As a result, in many transport projects, investment costs are very high, but project revenues are often back-ended (i.e. higher revenues do not occur until much later). This can make PPP projects in the sector difficult and can create a financial viability gap that often requires some kind of government subsidy. Assessing the need, affordability and creditworthiness of subsidy obligations is therefore often a crucial part of the project preparation process for project parties in a transport project.  

  • Sector and network interfaces

    Transport projects never standalone—they are nearly always in some way part of a wider transport network and sector. This can create often huge interdependencies between what happens elsewhere on the transport network and what happens in the...

    Transport projects never standalone—they are nearly always in some way part of a wider transport network and sector. This can create often huge interdependencies between what happens elsewhere on the transport network and what happens in the project. This creates an interface risk whereby the actions of one party can lead to financial losses of another. Examples include:

    • a private toll road operator will be negatively affected if the government decides to build a free parallel alternative route
    • a private train operator will be financially at risk if the public track owner has not adequately maintained the railway and this leads to cancellations, delays or accidents
    • a port operator may not be able to handle as much cargo if customs is run inefficiently

    All of these examples are the kind of interfaces that occur in most transport PPP projects and the allocation and management of these risks through sound policy, regulatory and legislative reform are critical to project success, as are well defined and enforceable contractual obligations in this respect. 

  • Demand risk

    The level of demand for transport dictates the financial and economic value of transport investments. However, the process of forecasting future demand for transportation infrastructure is a notoriously difficult task which is influenced by many...

    The level of demand for transport dictates the financial and economic value of transport investments. However, the process of forecasting future demand for transportation infrastructure is a notoriously difficult task which is influenced by many interrelated factors, including competing modes of transportation, demographic shifts, economic conditions, the cost of the services to the user, convenience, individual preference and speed. With so many factors at play, the forecasting process is prone to error, uncertainty and bias and this can create the risk of actual demand levels being potentially much lower than those forecasted, which in turn can lead to financial losses for whichever party is managing that risk. As such, the task of identifying this risk through high quality demand studies is vital and then allocating whatever risk is identified to the right party is even more crucial to ensure that a project is financially sustainable in the future.

  • Brownfield risks

    Many PPP projects in the transport sector involve the adoption and/or extension of existing assets and transport operations. This gives rise to a number of important project risks, particularly latent defect risk and labor management.

    Latent...

    Many PPP projects in the transport sector involve the adoption and/or extension of existing assets and transport operations. This gives rise to a number of important project risks, particularly latent defect risk and labor management.

    Latent defects occur because it’s impossible for the private sector to fully understand the underlying condition of many assets before adopting or acquiring them. Therefore in many projects the private sector is being asked to assume risks it has little control or knowledge over, which if inadequately managed could lead to future losses, aggressive pricing of this risk or even a lack of appetite from the private sector. This risk has to be carefully managed during the project preparation process and then allocated contractually in the most efficient way.

    Transport infrastructure is often labor-intensive. The rights and responsibilities of existing workforces must be carefully safeguarded when assets and operations are transferred to the private sector. Failure to do so can lead to disruption, strikes and adverse social impacts. Governments must therefore carefully manage the transfer or labor or undertake any required retrenchment in line with best practices.

Resources

    • 2015
    • Dejan Makovsek, Stephen Perkins and Bjorn Hasselgren
    • Organisation for Economic Co-operation and Development (OECD)

    Public Private Partnerships for Transport Infrastructure

    Renegotiations, how to approach them and economic outcomes

    Discussion released by the International Transport Forum at the Organization for Economic Co-Operation and Development (OECD) in January 2015. Public-Private Partnerships (PPPs) are complex financing structures involving substantial transaction costs, with the legal documentation alone often consisting of several hundred pages. Despite the care taken in preparing PPPs, renegotiation is a common occurrence. Given the imperative of upholding contracts for efficiency and the daily reality of frequent renegotiation, the two main questions for this paper are: What are the primary reasons for renegotiations? And more importantly, do they generally uphold the spirit of the contract when they happen or are they more often motivated by...

    • 2015
    • Jamie Rall, James Reed, Nicholas Farber
    • National Conference of State Legislatures

    Public-Private Partnerships for Transportation

    A Toolkit for Legislators

    NCSL Partners Project on Public-Private Partnerships (PPPs) for TransportationThe National Conference of State Legislatures (NCSL) Partners Project on PPPs for Transportation produced the report Public-Private Partnerships for Transportation: A Toolkit for Legislators in December 2010. The toolkit provides expert guidance, dependable counsel and a compilation of best practices to assist state legislatures as they consider whether and how to pursue PPPs in their states. The centerpiece of the toolkit is nine principles that promote a sound public policy approach to the consideration of PPPs. Clear explanations of PPP approaches, benefits and controversies, and roles and responsibilities also are provided. As well, the appendices have...

    • 2013
    • Organisation for Economic Co-operation and Development (OECD)

    Better Regulation of Public-Private Partnerships for Transport Infrastructure

    Many governments seek to attract private finance for infrastructure through public-private partnerships (PPPs) in order to maintain investment at the same time as limiting public spending. Experience with PPPs has, however, been mixed. Some transport PPP projects have delivered major cost savings but many more have exceeded their budgets. PPPs are prone to overestimating revenues and when projects run into financial difficulty, risks have a tendency to revert to the taxpayer. The report examines the nature of risks and uncertainty associated with different types of PPP project and the practical consequences of transferring risks to private partners. It assesses the fiscal impact of PPPs and discusses budget procedures and accounting...

For legal and regulatory resources go toPPPIRC

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