ASFiNAG was formed in 1982 as a company of the Austrian federal government. Since 1997, ASFiNAG has been able to raise loans because of its usufructuary rights while the land and facilities are still owned by the Austrian federal government. It is also entitled to levy user fees. ASFiNAG is responsible for the planning, financing, construction, maintenance and operation of the entire Austrian motorway and highway network (with a total length of 2000 km). It is financed by the earmarked revenue from vignettes (toll stickers), mileage-based tolls for vehicles > 3.5 tonnes gross vehicle weight (GVW) and the collection of special tolls in its own right. Besides the infrastructure management services provided by ASFiNAG, it tenders concession projects. For example, as part of the ‘PPP Ostregion’ project, ASFiNAG and the consortium Bonaventura (HOCHTIEF PPP Solutions GmbH, Alpine Mayreder Bau GmbH, Egis Projects SA) have signed a concession agreement followed by the financial close in December 2006 (ASFiNAG, 2009). This was the first PPP highway project in Austria awarded by ASFiNAG. The consortium that forms the SPC is responsible for the planning, construction, financing and operation of the A5 motorway (Nordautobahn) and sections of the S1 (Wiener Auβenringschnellstraβe) and S2 (Wiener Nordrandschnellstraβe) highways forming part of the Vienna city ring road. The consortium is remunerated by shadow toll (30%) and availability payments (70%) starting with commission of the stretches of the road (ASFiNAG, 2014). In conclusion, ASFiNAG as an infrastructure management entity is considered a formal privatisation according to the classification of this book, whereas the projects they tender (i.e. ‘PPP Ostregion’ project) would be considered as functional privatisations.
Before turning our attention to the topics of infrastructure finance and sustainable infras- tructure investments, Chapter 4 provides a detailed description and analysis of selected infras- tructure sectors and subsectors. An in-depth understanding of the infrastructure sectors and how they work will serve to supplement the information already provided and place it in a wider context. It will also allow a better comprehension of the explanations and analytical steps discussed in the following chapters on financing and sustainability.
4
Characteristics of Selected Infrastructure Sectors and Subsectors
Investors may want to familiarise themselves with the characteristics of the various sectors and subsectors of infrastructure that determine the risks and rewards of their investment activity and the corresponding prospects for success (see also Section 1.3). This book aims to sensitise readers to the aspects private infrastructure investors must observe and assess by describing the typical characteristics of the most important infrastructure sectors and subsectors. The discussion of each of these sectors is broken down into five topics and always follows the same logic: (i) characteristics and organisation, (ii) sources of revenue and value chain elements, (iii) competition and regulation, (iv) private-sector involvement and – new to this second edition of the book – (v) sustainability considerations.
These five topics seem to be (consistently across all sectors) the most relevant for investors when it comes to analysing and conceiving the impact the institutional, legal and contractual environment of a particular sector may have on the long-term viability of an individual investment. This sector discussion aims to raise the reader’s awareness and understanding of the general approach to identifying and assessing sector-specific factors, their interdepen- dence and interaction with country and project/asset-specific aspects (see also Figure 1.6 in Section 1.3) as well as their overall influence on individual assets and, hence, investments.
The final selection of the sectors discussed in this book is the result of careful consideration.
The stated goal was for them to be different and diverse to provide as broad a picture as possible to the reader as well as being relevant to those interested in private investment. As a result, this second edition of the book covers more sectors than the first one. In addition to transport and traffic, including road, rail, water transport/ports and aviation, as well as water supply, sewage and waste disposal, which were already covered in the first edition, it also includes renewable energy generation (solar, wind, hydro, biomass), both electricity and natural gas transmission networks and storage, district energy systems, including heating and cooling, and social infrastructure (for a comprehensive overview of the key infrastructure sectors refer to Figure 1.6 in Section 1.3). Valuable aspects of, and examples from, all sectors can be found throughout this book.
By systematically analysing each sector along the five topics mentioned above, this chapter also seeks to provide a basic understanding of sector-specific risks, which will be essential
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for any investment – be it debt or equity – in any kind of infrastructure asset (for an in-depth discussion of risks in infrastructure investing, please see Chapter 5).
4 . 1 TR A N S P O R T
4 . 1 . 1 C r o s s - s e c t o r c h a r a c t e r i s t i c s
The transport and traffic sector comprises various carriers of traffic and modes of transport that are interdependent and in competition with each other. In highly developed industrialised countries, users seeking a transportation solution between two locations – whether for passen- ger or goods transportation – almost always have the choice between cars, trains and aircraft as modes of transport or road, rail, air and potentially also water as carriers of traffic. Although these all have their own distinctive characteristics, it is clear they cannot be analysed inde- pendently of each other. As such, investors in one of these subsectors would be well advised not to lose sight of the competing subsectors and their various interdependencies. With this in mind, this section will initially present and discuss a number of cross-sector aspects followed by an analysis of the individual subsectors.
4 . 1 . 1 . 1 S t r u c t u r e o f t h e t r a n s p o r t s e c t o r The transport sector can be broken down into the following subsectors:
Land transportinvolving road and rail transportation (see Section 4.1.2 and Section 4.1.3, respectively);
Air transportwith the corresponding flight services in the air, ground services at airports and air traffic control (see Section 4.1.4);
Water transportinvolving national and international shipping on canals and natural water- ways and the corresponding port facilities (see Section 4.1.5).
Telematics is relevant to almost all subsectors, because it is expected to increasingly influ- ence the management of the transport sector. Telematic systems largely use telecommunication data and satellite services. In addition, they may present attractive private investment oppor- tunities in themselves. Transport in (outer) space has existed for some time now, particularly in the form of satellites. To date, however, these have primarily been used for observation and research purposes as well as telecommunications and other services, such as GPS, weather and other geo-data, rather than for transportation purposes in the narrower sense. Although satellites are subject to growing interest on the part of private investors, they are mentioned here only for the sake of completeness, particularly since the SpaceX corporation shows how private investment contributes to space transport services.
4 . 1 . 1 . 2 S t r u c t u r e o f d e m a n d In a world that is growing ever smaller, mobility not only is a commodity that is in increasing demand but also represents one of the most important topics of national and international political agendas. Accordingly, it is undeniable that the corresponding infrastructure, such as roads and highways, railway lines, waterways and other shipping routes and airports, remains one of the key location factors and growth drivers of any economy. At the same time, aspects such as the necessary degree of mobility, preference among
carriers of traffic and the necessary scope and location of concrete infrastructure construction measures are the source of considerable controversy, not least because of sustainability con- siderations such as their consumption of dwindling natural resources and other environmental considerations like CO2emissions.
Accordingly, new transport construction projects have become – not unreasonably – the most difficult public infrastructure measures to obtain approval for, apart from power plants and landfill sites, particularly in more densely populated industrialised nations, and are characterised by stringent requirements, long and unpredictable approval periods and a correspondingly high level of potential follow-up costs. Industrialised countries are less focused on achieving a significant expansion in their transport infrastructure, but instead are seeking to close gaps and, in particular, perform substantial maintenance and renovation work combined with potential (natural) resource efficiency improvements. In Germany, for example, the maintenance of the primary land transport network already accounts for more than 65%
of the master plan’s budget for the domestic transport sector (German Federal Ministry of Transport and Digital Infrastructure, 2012). Whether and to what extent the existing transport infrastructure can be maintained and managed more efficiently with the aid of private operators and capital contributions from private investors is another important debate. It takes place in light of the strained budget situation and the other considerable challenges faced by the public sector, such as how to adjust social and healthcare systems to reflect demographic changes.
Notwithstanding this, in all industrialised countries, the existing transport infrastructure – unlike some of their other infrastructure sectors – is capable of covering the costs of the necessary additional investments as well as current operating and maintenance costs. In some cases, it even generates significant excess revenue.
It goes without saying that the demand situation for transport infrastructure indeveloping and emerging countriesis rather different. These economies are still, to a large extent, working on the provision of a basic infrastructure, meaning that the potential investment volume is high. While individual transport users in dynamic emerging economies such as China and India probably have sufficient economic power and growing purchasing power to finance such investments, less developed countries are lacking both. Private investment in these sectors, which generate revenue exclusively in the national currency, is further exacerbated by the lack of functional local capital markets.
Given the prominent public status of transport infrastructure, political, legal and institutional changes represent a significant risk factor for private investors in any country.
Discontinuities in national and, in particular, regional transport policy, transport-specific legislation or administrative responsibilities and structures generally, may have a serious impact on costs (e.g. in the form of adjustments to technical standards, security requirements, environmental standards). They can also have an impact on revenues, which are generated via traffic volumes multiplied by price e.g. the selection of new projects affecting traffic flows in the existing transport infrastructure, fundamental changes in priority among the various carriers of traffic with a corresponding impact on the modal split or in the attitude towards mobility in general. Any discontinuities of this kind obviously may seriously affect the revenue situation of project developers and asset owners alike.
4 . 1 . 1 . 3 I n i t i a t i o n a n d r e a l i s a t i o n o f t r a n s p o r t p r o j e c t s Almost everywhere in the world, demand for transport infrastructure and the list of concrete measures to be realised in future are identified, reconciled and prescribed on the basis of political resolutions and long-term master plans for the transport sector as a whole. The decision as to which of the
existing project ideas should be implemented and in which order is generally based on a cost–benefit analysis. This analysis compares not only the direct costs of the measure (e.g.
the investment), operating and maintenance costs in particular and the direct benefit for the transport user (i.e. cost and time savings and improvements in comfort) but also positive and negative ‘external effects’ such as employment, the environment, health and security. Such master plans are not limited to new construction or expansion projects but increasingly also include measures for the maintenance of the existing network in accordance with the demand situation, at least in developed industrialised countries.
In addition, the criteria by which transport measures are prioritised by the governments within transport master plans do not necessarily reflect the yield-oriented criteria of investors, meaning that government priority lists can serve only as an indicator to investors at best.
4 . 1 . 1 . 4 O r g a n i s a t i o n o f t h e t r a n s p o r t s e c t o r Overall responsibility for the transport sector, including needs assessment, transregional spatial planning, approval and monitoring of the preparation and implementation of measures, preparation of the relevant legislation, budgeting and other sector-specific sovereign functions across all transport subsectors, lies – in almost all cases – with a corresponding (transport) ministry at central government level.
Additional governmental, semi-governmental or private operational structures may exist below this level. Their structural organisation can vary significantly between countries and subsectors, which is why road, rail, air and water transportation are addressed separately in the following sections. For investors, the resulting responsibilities, rules and regulations for the respective project/asset in question are crucial to their assessment and ultimately, their financial success.
For concession agreements, for example, this means it is important to stipulate the interfaces with other authorities as well as with the principal itself.
4 . 1 . 1 . 5 S o u r c e s o f r e v e n u e i n t h e t r a n s p o r t s e c t o r Transport infrastructure may be financed from the public budget and/or user charges, irrespective of whether the relevant project is a public or private undertaking (see also Section 1.3.6 and Section 3.3). Table 4.1 illustrates the relevant potential sources of revenue for the transport sector. A distinction is made between general government revenue and transport- (sector) and road transport-specific (subsector) revenue. Whereas road and air transport are generally self-sufficient, that is they collect enough revenue to cover their specific costs and often generate excess revenue, the rail sector typically makes a loss and hence must be subsidised. This is due to its particularly costly infrastructure as well as the ticket prices that are frequently imposed on account of political and social policy considerations.
4 . 1 . 1 . 6 Te l e m a t i c s i n t h e t r a n s p o r t s e c t o r Transport telematics are intelligent tech- nical solutions using new information, communication and routing technologies, in some cases on an intermodal basis, to help manage the high traffic volume. Solutions of this nature have become increasingly important to ensure that the various forms of mobility are coordinated efficiently and as environmentally friendly as possible, for the individual and the economy as a whole.
Accordingly, there have been a large number of impressive developments and private investments in this field over recent years. Intermodal applications include urban and state-wide traffic management with the aim of optimally allocating traffic volumes to the respective carriers and enabling forward-looking transport information and control. Telematics
TA B L E 4 . 1 Sources of revenue and financing in the transport sector
Public budget – Tax
– direct (income, capital yields, net worth, etc.) – indirect (value added, etc.)
– Customs duty
– Charges, fees (social welfare, etc.) – Fees (user, residents, etc.) – Other revenues
(Transport)
Sector-specific revenues
– Sector specific taxes, charges, fees – for consumer goods (e.g. fuel)
– for transport services (e.g. airport services) – VAT on consumer goods and services
– User charges (e.g. charges for public transport, rail, ship) – other revenues (e.g. sales of airports or rail companies) – Retail/franchising/commercials in airports and rail stations etc.) Subsector-(roads and
highways) specific revenues
– Subsector specific taxes, charges, fees
– for consumer goods (e.g. fuel, vehicle ownership tax) – for road-specific services (e.g. telematics services, traffic
management)
– VAT on consumer goods and services
– User charges (e.g. toll, vignette, congestion charges)
– Other revenues (e.g. incomes of privatisations, concession fees of petrol stations and test areas, commercials)
applications exist for road transportation, public rail and bus transportation, shipping and aviation.
The most prominent example is probably the European civil satellite navigation system, Galileo. This independent, highly-accurate positioning and timing system is intended for use in various navigation applications in the aviation sector, safe navigation using electronic charts in the shipping sector, train routing and tracking systems in the rail sector, route guidance in the road sector and intermodal applications for monitoring the transportation of dangerous goods and tracking cargo, among other things. Implementation, including funding on a purely private basis, ultimately failed after a number of attempts. It is expected to be completed by 2020, solely using public funds. The cost of development will be around €5.3 billion and will be divided between the European Union (EU) budget and the ESA.
Generally, satellite navigation is an attractive growth market. According to the European Commission, the global market for satellite navigation products and services reached a volume of €141 billion in 2012 and is growing by around 10% each year (Oxford Economics, 2012).
By 2020, this market is expected to rise to as much as €240 billion.
Although Galileo has not as yet received any capital from private telematics investors, the objective is still to attract substantial private investments in the subsequent operation of the system. Almost more important for investors, however, is the fact that telematics and corresponding future developments may be one of the key innovation and efficiency drivers in all subsectors of the transport industry in future, and hence they are likely to offer vast potential. Albeit, telematics is not considered infrastructure but a service provided within the infrastructure sector.
4 . 1 . 2 R o a d t r a n s p o r t
4 . 1 . 2 . 1 C h a r a c t e r i s t i c s a n d o r g a n i s a t i o n National road networks are generally bro- ken down into road categories. A distinction is typically made between primary, secondary and sometimes also tertiary road networks. Primary road networks are mainly used for transre- gional and transit traffic. The primary road network frequently differs from the secondary and tertiary network in terms of its construction: for example, primary roads often have several lanes in each direction of travel and a separation between the two directions, have flyover crossings (instead of crossroads or junctions) and are separated from the secondary and ter- tiary network through dedicated slip roads, at least in developed industrialised countries. Such roads may be referred to as ‘national highways’ or ‘motorways’.
The secondary and tertiary road network generally consists of various other road cate- gories. Here, too, road classification depends on the type of traffic – transregional, regional or inner-city – predominantly using the roads. Accordingly, a distinction may be made between state roads or regional highways, regional or rural roads and municipal or urban roads.
The respective road category often makes it clear who is responsible for planning, con- struction, financing, maintenance and operation. For example, primary road networks generally fall within the responsibility of corresponding government ministries but are administered by separate executive organisations acting on behalf of the ministries. One typical example is the Highways Agency in the UK – a model that is used in a number of other countries, particularly in the English-speaking world.
In contrast, the relevant public-sector bodies (region, state, county, municipality, etc.) are responsible for the secondary and/or tertiary road network, although investments and their funding often remain assigned at the government level. In this way, responsibility for performing the relevant functions, that is the operational implementation of the construction, maintenance and operation of roads, may lie with the federal states or regions in the case of state/regional roads and highways, counties or municipalities in the case of regional/rural roads and city authorities in the case of municipal/urban roads, but the corresponding funding is still provided centrally by the national budget. Responsibility for planning may also remain with the higher-ranked public-sector body.
For the most part, the allocation of responsibilities and the performance of the relevant functions for road networks are governed by corresponding legislation. For example, the French government resolved to reassign the responsibilities for its national roads as part of its legislation on decentralisation. Since then the regions are responsible for around 20 000 kilometres of the 38 000 kilometres of national road network in future. The central government only retained responsibility for roads with a significant national status and toll roads, most of which are operated privately under long-term concession arrangements (Eurofound, 2005;
Fayard, Gaeta and Quinet, 2004).
In some cases, the various responsibilities for funding and performing the relevant func- tions result in conflicts of interest between the individual participants in terms of long-term conceptual planning, the provision of their own resources and the recognition of residents’
demands and economic interests. These may affect the interests of private investors to a sig- nificant extent. This is particularly critical when concession agreements contain arrangements with the concessionaire that are not binding for other public-sector authorities. The more prevalent federal government and administrative structures are in the respective country, the more frequently this problem is encountered. For example, under the first tunnel concessions to be issued in Germany in the 1990s for the Warnow Tunnel in Rostock and the Herrentunnel in L¨ubeck, the respective city authorities were the principal (concession grantor), whereas