Funding Transport for the Future
February 15, 2013 Leave a comment
Today I’ve visited a joint seminar by KOTI and International Transport Forum (ITF, part of OECD) about the topic funding of transport. Since 2010 these two organisations hold annual seminars. Back then, the first topic was green growth in transportation, in 2011 it was promotion of policies and critical evaluation of electric vehicles and in 2012, the seminar was about seamless public transport. This year’s topic is also going to be the main topic of the ITF annual summit in Leipzig. So it was an outlook what is going to be discussed there and what the current issues are.
Update: The presentations of this joint seminar can be downloaded at the ITF homepage.
Participants of this seminar have been the president of KOTI Kim Gyeng-Chul, vice president Oh Jae-Hak, the secretary general of ITF Jose Viegas, who gave a great keynote speech, Andreas Kopp of World Bank, Stephen Perkins from ITF and Roger Vickerman from the University of Kent and many other experts from KOTI. I’ll try to summarize the most important information and statements in this post.
As the title of this entry says, the topic was funding transport for the future. Despite budget constraints the transport infrastructure has to be expanded and developed. The Korean participants didn’t have a very good opinion about the current status of the infrastructure in South Korea. They said that it doesn’t suit to a highly advanced state and that there is still a lot of improvements to be made. In the State of the Union speech by the US president Barack Obama on last Tuesday, the “Fix-it-First” program was introduced. This measure aims to repair existing infrastructure and remove deficits instead of building new roads. It’s an good example of a reaction to a tight budget.
The keynote speech with the title “Sustainable Funding for Public Transport” was hold by Jose Viegas. Before he begun with the main presentation, it was important to look at all modes of transports together (a whole “urban mobility system”) and not separately. He emphasized that public transport should be able to cover all its costs on its own. That’s easier said that realized. Currently, almost every transit system is heavily subsidized. If you look at the fares for Seoul, you’ll understand that this price can’t cover all costs of the operation. Instead subsidies should be given to people who really need them. That’s fairness, according to Viegas.
Besides, there should be one political organ representing the whole transport sector. Something like this doesn’t exist in mot of the countries. The next point was that out mobility changes and there is much more variety. Therefore, innovation in mobility services is important and it should be well adapted to the demand. Intelligent transport systems offer a lot of possibilities and they’re easy to realize. There are many ideas and possible solutions for improvements of our public transport, just the institutional framework can’t deal with them.
The most impressive thing was that he suggests that transit planners should work without a map at the strategic level of planning. Otherwise, it’s too complicated and the development get stuck on small details. Plans should be used later at a more concrete stage.
Session 1: Sustainable Funding for Transport Projects
The first session started with an introduction by Lee Sung-Won of the funding situation in South Korea. There are funds for transport projects through earmarked taxes. In the period of 2011 to 2020 Korea plans to invest 185 trillion KRW (around US $ 170 billion). Congestion costs 28 trillion KRW (US $ 25 billion) per year, which is very high and it has to be reduced. Over the last years, the investments for roads decrease (from 54.3 % in 2004 to 42.2 % in 2011) and the investments for rail infrastructure increased (from 28.4 % in 2004 to 34.1 % in 2011). This is out of the effect of sustainable growth and green transport as goals.
The second presentation was “Funding and Pricing Policy for Sustainable Transport” by Andreas Kopp. He sees a high level of congestion as a requirement for self-financing of transport infrastructure through pricing. Usually, the average costs get lower with a higher usage. Prices shouldn’t be too high and at the same time, it means that they shouldn’t cover the full cost of the investment (a little bit a contradiction to Mr. Viegas), because it would lead to monopoly and unreasonable high prices for the user. He was also the only one, who mentioned health risks and environmental pollution through transport. The costs of this negative effects are high but they aren’t easy to estimate.
Session 2: Public Private Partnership in Transport Investments and its Lessons
The second session had three presentations and all of them had public private partnership (PPP) as the topic. At the beginning, the situation in Korea with a lot of examples of PPP projects was presented. Some of the examples have been the Everline LRT of Yongin, the Incheon bridge, Korea Smart Card and, of course, the bus operation of Seoul Metropolitan Area.
Until 2004, the PPP framework included a minimum revenue guarantee (MRG). As the name says, MRG guruanteed that the private investor/operator is going to get enough revenue to cover its costs and to make profit. This means that if a road, which was build by PPP measure, doesn’t reach the estimated demand and so in result, it doesn’t earn the expected toll, the government gives money to the investor (to some certain level between 50 and 110% of expected revenue). That’s a form of long term subsidy for the private sector and it’s not really sustainable, because the money comes from the taxpayers. Generally, the outlook for PPP doesn’t look very good. There are too many examples of failure due to various reasons.
Roger Vickermann had the honor of the last presentation of the day and he mentioned two solutions to the complicated issue with PPP in transport funding: nodal infrastructure and public transport. Viegas also added that PPP isn’t the key of the current funding problems. PPP works the best for technical area (planning, designing of measures, operation of systems) and for the commercial area of transport infrastructure.
It was a very informative event and I learned a lot of new things about transport in Korea. On top of that, I’ve slowly get a feeling how transport development works. For funding of transport, the future isn’t very bright, but we shouldn’t give up the hope. This seminar showed that there are a lot of people, who search for suitable solutions and discuss the funding issue.