Least Present Value of Net Revenue: a new auction-mechanism for highway concessions

This paper presents a new mechanism for awarding tolled-highways, based on the variable-term concept proposed by Engel et al (1997). These authors claim that a mechanism based on bids for least-present-value of revenue (LPVR) eliminates the risk of demand and simplifies renegotiations. However, if maintenance and operation costs are non-negligible, it is proven that, under LPVR, bidders need to estimate future traffic to make their offers, so the risk of demand is still present. Moreover, LPVR does not guarantee the selection of the best concessionaire. An alternative mechanism (least-present-value of net revenue, LPVNR) is proposed. The idea is to use bids that do not force firms to estimate future traffic. Under LPVNR, firms must make offers on: (i) total amount of revenue, net of maintenance costs; (ii) annual operation and routine-maintenance costs; and (iii) cost of road re-pavement. The concession is awarded to the firm with the lowest total expected cost, and the selection rule is adapted to the information available. The new mechanism is simple, does not impose additional efforts from firms, and eliminates the risk of demand more effectively. Although initially conceived for the road sector, the idea of LPVNR could easily be extended to other infrastructure sectors.Highways, roads, concessions, auctions

In what circumstances is investment in HSR worthwhile?

The case for building new High Speed Rail (HSR) infrastructure depends its the capacity to generate social benefits which compensate for the construction, maintenance and operation costs. Decisions to invest in this technology have not always been based on sound economic analysis. A mix of arguments, besides time savings –strategic considerations, environmental effects, regional development and so forth– have often been used with inadequate evidence to support them. We have explored under what conditions net welfare gains can be expected from new HSR projects. In this paper we use some simplifying assumptions with the aim of obtaining a benchmark: the minimum level of demand from which a positive social net present value could be expected when new capacity does not provide additional benefits beyond time savings from diverted and generated demand.public investmest, infrastructure, cost-benefit analysis, transport, high speed rail

Auctions for Infrastructure Concessions with Demand Uncertainty and Unknown Costs

Auction mechanisms commonly used in practice for awarding infrastructure concession contracts induce a bias towards the selection of concessionaires who are optimistic about demand, but are not necessarily cost-efficient. This helps to explain the frequent renegotiation of concessions observed in practice. This paper shows that the fixed-term nature of contracts is the key element for selection errors, and it proposes a better alternative mechanism based on flexible-term contracts. This new auction mechanism reduces the probability of selection errors and contract renegotiation, and it is simple enough to constitute a good option for concessions in sectors like transport and public utilities.concessions, auctions, renegotiation, infrastructure

Investing in high speed rail: when waiting is socially profitable

Public investment in high speed infrastructure is a priority of the Spanish government. High speed is a technological breakthrough in transport but, from an economic point of view, the question is whether is socially worthy to allocate public funds to this transport option. The answer requires a comparison of benefits and costs for each corridor. In this paper the analysis of the profitability of the high speed rail investment is made using the information obtained from a survey to the users of the corridor Madrid-Zaragoza-Barcelona.infrastructure, public investment, transport, railways, cost-benefit analysis

Infrastructure: more private participation and better public sector

Las infraestructuras tienen características que complican su provisión directa en el mercado, haciendo necesaria una implicación directa del sector público en su construcción y funcionamiento, e indirecta, mediante contratos de participación público-privada. Su mitificación social ha favorecido una visión distorsionada según la cual, invertir en grandes proyectos de obra pública siempre es bueno y las deficiencias se pueden resolver con más presencia privada.Infraestructuras, analisis coste-beneficio, regulacion, incentivos

Competition in public transport and concession contracts

Public transport (urban and intercity) is organized in Spain both through concession contracts and public ownership. The regulator fixes prices and level of services,as well as the level of subsidy. This paper examines the regulated system in the Spanish bus industry in the last decades.bus competition, bus industry, regulation, concession contracts

Argentina's transport privatization and re-regulation : ups and downs of a daring decade-long experience

When Argentina initiated reform of its transport sector in 1989, it had few models to follow. It was the first Latin American country to privatize its intercity railroad, to explicitly organize intraport competition, and to grant a private concession to operate its subway. It was second (after Japan) to privatize its urban commuter railways and one of the first in the developing world to grant road concessions to private operators. Argentina's experience shows that transport privatization and deregulation provide efficiency gains that can be delivered to users. Despite unexpectedly high residual subsidy requirements, fiscal costs are lower, services have improved, and new investment is taking place. Argentina's decade-long experience shows that the reform process involves learning by doing. Inexperienced new regulators quickly face the challenges in controlling monopoly power and providing long-run incentives for private investment. Designing sustainable reform requires a commitment by government to minimize its role in the sector and to respect its original promises to both users and concessionaires. Argentina has learned the importance of building up the regulatory capacity needed to monitor contracts, especially when initial uncertainty about demand and cost conditions is strong and renegotiation is the probable outcome of daring reform. The government's main challenge in monitoring contracts is to get enough information to reach a balance in its decisions about distributing efficiency gains fairly between consumers and private investors. This is one area in which Argentina may not yet have met the challenge. As the last wave of contract extensions in rail and roads comes to an end, one issues is likely to be the need for better targeting of subsidies for the poor.Public Sector Economics&Finance,Roads&Highways,Environmental Economics&Policies,Banks&Banking Reform,Transport and Trade Logistics,Environmental Economics&Policies,Public Sector Economics&Finance,Airports and Air Services,Roads&Highways,Railways Transport

The foundations of the European transport policy

This paper revises the underlining principles of the European transport policy and analizes how these principle have been translated into policy in the recent past. The analysis is based in three ideas: the vertical integration/unbundling of infrastructure and services as a mechanism which favors the introduction of competition; the use of optimal transport policy principles to deal with negative externalities; and finally, the need to incorporate the economic evaluation of projects in the investment decisions.Transport, infrastructure, European Commission

Variable-term concessions for road construction and operation

Private sector participation in infrastructure projects traditionally financed by governments (roads, airports, seaports) is increasing around the world. This paper describes how a toll road concession works. It discusses how the usual mechanism, based on a concession contract with a pre-determined fixed term, and a selection process of concessionaires through minimum-toll auctions, does not lead to optimal outcomes. In particular, it is shown how this type of mechanism in fact lies behind the frequent concession contract renegotiations observed in practice. A new mechanism is proposed, based on a flexible term concession, which is adjusted according to the actual traffic level using the road, and an auction with bids for total net revenue and maintenance costs. This new mechanism eliminates traffic risk from toll road concessions, and it guarantees an effective selection of the most efficient concessionaires.roads, highways, franchising, concessions, auctions

La financiacion del transporte urbano y metropolitano desde los presupuestos generales del Estado

Desde 1990 la Administración General del Estado ha venido financiando el transporte urbano y metropolitano a través de diversos Contratos-Programas y Convenios de Financiación de Infraestructuras Ferroviarias. El objetivo de este trabajo es analizar los efectos que las distintas formas de financiación pública han tenido sobre los incentivos de las empresas operadoras del transporte y las Administraciones Territoriales en un contexto de información asimétrica. Asimismo se propone un mecanismo alternativo de financiación, que admitiendo la dificultad de selección de los proyectos por la Administración General del Estado en un contexto de objetivos no coincidentes y de información asimétrica, promueva un comportamiento eficiente de las Administraciones Territoriales y los operadores que reciben financiación del Estado