Effects on competition from PPP investment in land passenger transportation infrastructure:

Some (very) exploratory comments

9th International Conference on Competition and Ownership in Land Transport (THREDBO # 9)

Lisbon, 5-8 September 2005

Joaquim José Guilherme de Aragão University of Brasília

Enilson Medeiros dos Santos Federal University of Rio Grande do Norte

Rômulo Dante Orrico FilhoFederal Univeristy of Rio de Janeiro

Anísio BrasileiroFederal University of Pernambuco

The Challenge

Traditional focus of the Thredbo-Series: competitive regulation of land passenger transport services

New issue: the impact of new infrastructure investment on the market competition

To deal with it within 20 minutes!!!

Infrastructure investment and competition When a totally new quality pattern is introduced by heavy

infrastructure investment as a consequence of a strategic plan for the mobility and land use development, it may:

1. attract existing demand from competing systems and services

2. generate new demand in the course of modification of land use patterns

3. impose modifications to the operating market as they introduce new regulations, actors and contracts

When private infrastructure investment is involved, the respective huge risks may even force the government to super-protect the investors from competition and market risks in general.

Our aim

to develop, in a still very preliminary stage, a general framework for understanding the competition processes in situations where new infrastructure investment for land passenger transportation is enabled by the participation of private capital.

The hypothesis

Competition is not limited to the moment when the new infrastructure distorts the existing market

The different decision stages that follow along the whole process (policy, regulatory strategy, strategic planning, project decision and project design, procurement and execution) bear autonomous but integrated competition processes between

different investment and regulation strategies and project selection

Competition before the marketdetailed design of project, tender rules and contracts

the concessionaires in spe Competition for the market

the transport operators Competition in the market

the beneficiaires of the infrastructure investment, mainly by the competition in the real estate market

Competition in the downriver market

The hypothesis

In all these spheres of competition, different constellations of actors try to impose the decision alternatives that best fit to their respective interests.

Structure of the paper

PPP proposed framework with illustrations Conclusion and additional comments

PPPs and land passenger transport

rail systems, both urban and interurban bus corridors

PPP investment in LPT: cases

Privatisation of existing rail services (Buenos Aires and Rio de Janeiro)

Bus Rapid Transit systems: Bogotá (Transmillenium) and Santiago de Chile (Transsantiago)

Greenfield Urban Rail Projects: Lisbon, Kuala Lumpur, Manila and Bangkok

Highspeed Rail (Gauteng, Holland)

Daisans (Japan)

Required in-depth information is difficult to obtain (secrecy)!

PPPs and land passenger transport

Hindrances: considerable political and demand risk involved:

passenger transportation as social service, whereby fare price adjustments, even when established by contract, are difficult to implement.

land use and environmental impacts rise acid conflicts between the project promoters and the adjacent neighborhood

High land value in demographically dense environment, turns expropriation and land acquisition too expensive

Nevertheless

scarcity of financial resource for the provision of modern transportation pushes government to PPP

Connected real estate investment opportunities are considered as complementary receipt sources albeit expectations are difficult to fulfill

Therefore, financial participation by the public administration uses to be substantial, especially in the construction of the facility and even in the acquisition of the rolling stock.

The remaining duties for the private partner: go hardly beyond the operation and the maintenance of the facility (if capital investment is contracted, then against long-term guarantees)

PPP and Competition

General theory on competition (Porter 1998) foresees different forces that drive the competition in a given industry, such as: the direct competition between the firms of a same industry; the menace of competition by eventual entrants; the bargaining power of the clients and furnishers; the menace of substitute goods.

Transference of this framework, which had been set up for goods and services delivered in a free market, is not straighforward for markets which are strongly regulated by a government, mainly due to prevailing characteristics of natural monopoly

Multi-stage competition framework1. definition of the general regulatory strategy and of the legal

framework for public investments

2. definition of the actual projects to be gone forward with by the sector policies

3. selection of the projects for their inclusion into the PPP Programme

4. detailment of the project

5. selection and contract procedures

6. competition in the transportation market

7. competition for the benefits of the infrastructure investment

Competition for the definition of the regulatory strategies

The era of liberal voluntarism The return of social-democrat parties to power did not

imply a switch to re-nationalisation of the facilities PFI goes to PPP Case by case analysis of the appropriatedness of the

insertion of private investment (PSC) However, PSC not peacemaker Struggle between parties with involvement of main

stakeholders (investors, unions) Analytical tools: political sciences and sociology

Competition between projects (competition for their inclusion into the policy agenda)

very complex decision process: big $$$ at stake Not an exclusive playground for “well-minded”

technocrats Competition levels:

macro-analytical: major social actors fight for general policy agenda and respective project and programmes

micro-analytical: distinctive personalities fight for specific projects

Projects as voteware Each project has an electoral value (voteware)

In a representative democracy, politicians need them for their elections, and officials for their promotion (struggle for their election by the elected decision-makers)

Voteware shall be politically efficient, capable to aggregate political, economic and social end finally also electoral forces (“hegemonability”)

Heavy requirements: technical consistency and amount of interests to be benefited from it.

Voteware: different subjects

Assets Services Programs and strategic plans Laws and regulations

Competitive struggle around the voteware different attitudes and counter-strategies by competitors

boycott the prospective proposal and try to impose their counter-project Or: simply destroy politically the original proposal without any

counterproposal (strategy of burning down of the competing fair box)

Appropriation of the prospective proposal and push away the original proponent (strategy of struggling for the ball)

Alliance with the original proponent in order to share its success and dividends (strategy of success at the shadow)

“Critical adherence”: competitor may adhere to the project, but try to interfere in its conduction, to change its aims and character during the course and after a period of collaboration try to take over the command and to oust the original proponent (strategy of ousting from the boat)

Competitive struggle around the voteware this level of competition may occur between individual or

group actors from a same party or association! different types of interpersonal relationships, from the

friendly collaboration to the openly inimical competition, going through different grades of "critical" collaboration

different personal characters come foreground, from the most aggressive to the more pacific, going through different grades of dissimulation.

Political construction of the project: the ways to come to the major decision-maker step-by-step consolidation until contacting major

decision-maker, going through several but relevant inferior stances (staircase tactics) enables preventive steps by competitors

use the direct personal relationships with the major decision-maker or by building up a broad alliance outside the government, preferably with politically influential economic and social forces which have direct access to the major decision-maker, by-passing the different inferior and intermediary stances (heliport tactics) provokes revenges by by-passed stances.

Mixed (both-and)

Battlefields competition between the political parties, and within each of them,

between groups and fractions and individual leading persons tensions between different government resorts lobbyism: different economic groups and their representative

organizations try to get influence over the governmental budget social struggles by social groups and organizations outside the

economic, political and social hegemonic field (neighborhood associations, NIMBY´s, NGO’s, environmental groups and the like)

regions and cities in contest Tensions between statutory planning officials in Government

and the lobbies and politicians: strategic long-term planning versus opportunistic project-by-project decision

Battlefields (cont.)

Planning law: not the definitive victory of the pro-planning party

Struggle for regulatory stability

Transparency and their ennemies

Which participation? (the quango issue)

Competition at the level of the selection of projects for the PPP program very recent playfield applies to countries where the government has decided to include

regularly the partnerships into the toolbox for the investment programs Use of analytical evaluation and selection tools e.g. value and risk

analysis, guidelines and handbooks by “PPP Units” Actual selection process: political and economic stakeholders will not

leave alone to technocrats with their hocus-pocus tools the power of the decision!

However, the rejection of a project for the inclusion in to the PPP program does not implies that the project is dropped , as it may be executed by other, more conventional funding means

Nevertheless, the exclusion from the PPP program may be interpreted as a loss of prestige for its stakeholders

Competition during procurement

Classic locus of competition for the market

Procurement in different stages (consultancy, construction, operation)

Building up of the project and of the contract (and tender rules): market dialogue

Government competes also for investors (selling its projects to the market)

Building up of competing consortia: alliances and preference-building (pre-selection)

Open, restricted, and negotiated procurement modi

Competition within the transportation market (The traditional Thredbo issue)

Greenfield infrastructure projects: special need for protection from open competition (natural monopoly)

Here, the competition is basically limited to the procurement process

However, the transport market is always permeable to journey options which put in question the pretended market protection assured by contract

Competition within the transportation market

Competitive challenges to monopolistic protection by contract

feeder lines: in general, inserted into the contract subject in order to be operated by the private partner or be subcontracted by the same to other operators; they may also be conceded by the Authorities to a third party, but in a way to assure that they are at least operationally submitted to the main operator (operational contracts)

competition from other public transport services (unintegrated feeder lines, other independent operators, charter services, paratransit, illegal operators, other transportation modes, taxicab)

competition from individual transport (auto, bike, per pedes)

Competition for the positive impacts deriving from the investment Immediate impact: rise of land value in the proximities of the

new system Benefits reclaimed by:

Government: tries to regain at least part of the benefits deriving from his direct investments by adjusting the fiscal values, imposing taxes on the especially benefited neighborhoods or by other financial means authorized by Planning Law.

Investors of the Project: : additional rewarded with areas and real estate adjacent to the new infrastructure

Third parties (residents, real estate investors, manufacturing industry, commercial and service sector, etc.): may anticipate themselves, buying land for a still not adjusted price, as soon they get notice from a project that may raise land values.

Main ideas to be retained

Multi-phase competition process

In the different phases, different sets of stakeholder

Voteware hypothesis

Are planners and academicians ETs?

Need to start from the real existing capitalism Complex process of competition Politics is real, economics not always (at least not in the

way proposed by concepts and models) Politic Scientists are welcome The plaidoyer for strategic planning and sustainable

regulation must adjust itself to the dynamic realities The actual relevance of the project over planning (all we

need are projects)

Solutions

Efficient, but participative planning practices On-time delivery of good, sustainable projects

(subjection to electoral calendar!) Projects (voteware) may include laws, regulation,

programmes! But asset investments are always in the order of the day! Competition and collaboration The more ambitious are the projects, the higher is the

need for collaboration and for strategic planning

Finally.... A big issue for research

mapping of competition and collaboration moments at the execution of infrastructure projects

mapping of the respective actors and their competitive and alliance strategies

mapping of analytical tools existing and to be developed in order to study the mapped phenomena

observation of introduction of forms of public-private partnerships on the field of infrastructure investment for land passenger transport

Case studies Co-operative research network: how about it?