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Is a mixed funding model for the highway network sustainable over time? The Spanish case

Research Unit on Public Policies and Economic Regulation. Is a mixed funding model for the highway network sustainable over time? The Spanish case. Germà Bel (Cornell University and Universitat de Barcelona) & Xavier Fageda (Universitat de Barcelona)

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Is a mixed funding model for the highway network sustainable over time? The Spanish case

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  1. Research Unit on Public Policies and Economic Regulation Is a mixed funding model for the highway network sustainable over time? The Spanish case Germà Bel (Cornell University and Universitat de Barcelona)& Xavier Fageda (Universitat de Barcelona) Highways: Cost and Regulation in Europe Bergamo, November 26th- 27th 2004

  2. THIS ACTUALLY HAPPENED ON WEDNESDAY 17 NOVEMBER, 2004: • The regional parliament of Catalonia approved a formal petition asking the central government to: • 1) Create a fund basically with fiscal revenues derived from Value Added taxes on tolls and Profits taxes paid by highway concessionaries • 2) Apply resources from the fund in 1 to: a) Subsidize tolls b) Suppress tolls in the sections with largest traffic intensity (??) Motivation: To balance toll burden across regions Catalonia includes 25% of all national toll highways kms in Spain, whereas free highways are only 5% of the total

  3. INTRODUCTION • Late 60s - mid 70s. First wave of highways expansion: Financing through tolls. • Mid 80s – mid 90s. Second wave of highways expansion: Financing through public budget. • Late 90 and early 2000´s: public financing as a main (but not exclusive) source. • Because of such irregular pattern of funding sources, the Spanish case is quite singular among the big European countries; tolls just in some territories, not in others.

  4. QUESTIONS • Highways history in Spain: • Why was chosen a [singular] model of private toll highways in the mid 60’s? Did it deliver? • Why was chosen a [conventional] model of public budget funding in the mid 80’s? Did it deliver? • Toll highway business structure • Toll highway regulation • How progress can be made towards the functional and financial homogenization of the highway network?

  5. TOLL HIGHWAYS HISTORY IN SPAIN: MANY PROMISES AND FEW RESULTS • 1960’s: the Spanish economy was growing fast and transport infrastructures were a bottleneck for productive activities. • 1967: Program of Spanish National Highways (PANE) planned 3,160 kms of toll highways. • Why tolls? No modern fiscal system, no budget for highways • Why private? No theoretical rationale; No general policy.... Politics and business? • 1972: PANE up-date planned 6,340 kilometers of toll highways. • 1975: The concessions franchised to private firms add up 2,042 kms(located in the corridors with highest traffic rate). • 2002: 2,386 kms of toll highways (9,020 free). • ¿Why the realizations were finally so modest if the proposals were so ambitious?

  6. CHANGING MODELS SINCE THE EIGHTIES: FROM USER TOLLS TO PUBLIC BUDGET • 1970’s: Break down of private concessions (economic crisis) • 1984-1991: Roads General Plan. Change towards a model of public financing of highways. Four types of reasons: a) Fiscal feasibility. b) Fast delivery of highways, c) Effects on the private sector productivity, d) Co-financing from the EU Regional Structural Funds. • However, some new policies in favor of tolls since the mid nineties: (1) Re-negotiation agreements for extending the concessions. (2) The 1997 Program of Toll Highways.

  7. EVOLUTION OF THE HIGHWAY NETWORK (kilometres)

  8. HIGHWAY SECTOR STRUCTURE • 2004: 2,900 kilometers of toll highways concessions (not all in operation). • Major private operators: Abertis (56%), Itinere (26%). • Global players (Europe, Latin America, North-America....) • Strong record of profitability and high yields in the stock exchange

  9. HIGHWAY REGULATION • Regulation by law. No specific regulatory body. • Initial price of tolls and changes through particular agreements. • General regulation for price changes: Since 2001, Price caps with bounds depending on actual versus expected traffic. • Tt = CR * Tt-1 • Where T stands for toll and C is such that, • CR= 1 + IPCmean – X   • Where X such that: X= (1/100) ((IMDactual– IMDpredicted)/IMDpredicted] Two paradoxes: 1) Limiting profits that come in part from re-negotiation 2) Prices decrease with congestion? Against efficiency!!!!

  10. IS IT POSSIBLE TO HOMOGENIZE THE HIGHWAY FINANCING MODEL IN SPAIN? • Lack of homogeneity of the highway network: some deficiencies, territorial inequalities. • Two alternatives for homogenizing the network: 1) Generalizing tolls:high costs and political difficulties 2) Eliminating tolls: Efficient (when no congestion) but requires financial resources. A scheme of the type financing of new investment through the public budget and financing of maintenance through user charges could be convenient. Different tools for having the users paying.

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