On the Move a look on the transport sector’s management in Chile, Finland, Morocco, South Africa, and South Korea.

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Table of Contents

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Glossary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Summary: How the transport sector is organized in case study countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61. The Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112. Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

What is governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Significance of governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12State regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Structure of paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

3. Transport Governance at the Ministry Level . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Chile . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Finland . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Morocco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18South Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19South Korea . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Common themes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

4. Ports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22Organization and management of ports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23Financing of the port sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Port concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Economic regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Performance of the ports sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

5. Railways . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28> Horizontal and vertical separation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28> Lines of business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29> Railway concessions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Organization and management of railway systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Funding of the railway sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31Performance of railway sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

6. Roads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Organization and management of roads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Funding of roads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36> Toll roads . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37> Public-private partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37> Road user charges . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37Performance of the road sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38

7. Public Transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Management and organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Funding for public transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43Performance of public transport . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

8. Lessons Learned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

Acknowledgement

This paper originated in a World Bank study funded as a Reimbursable Advisory Services contract with the Ministry of Transport and Communications, Oman. The aim of the study was to identify more efficient institutional and governance structures to manage the transport sector in Oman. It encompassed road transport, maritime transport, railways, and road-based public transport. Aviation and airports were excluded from the scope of the study.

An early part of the study consisted of an institutional review of transport sector organization in select countries. This may be of interest to transport sector political leaders, public officials, and their advisers who may be contemplating the assessment or strengthening of transport sector governance in their own countries.

Any findings, interpretations, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the World Bank nor of the government of Oman. Neither the World Bank, nor the government of Oman or the authors guarantee the accuracy of any data or other information contained in this publication and accept no responsibility whatsoever for any consequence of their use.

4

A World Bank technical team that included Ziad Nakat (Transport Program Coordinator for GCC and Task Team Leader), Fahad B KH D Almarzouq (Junior Professional Officer), Paul Amos (transport strategy and policy), Richard Bullock (railways), Robin Carruthers (transport and logistics), Asif Faiz (roads and road transport), Paul Kent (ports and maritime), and Richard Podolske (public transport) prepared the work summarized in this paper.

Any findings, interpretations, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the World Bank. Neither the World Bank nor the authors guarantee the accuracy of any data or other information contained in this publication and accept no responsibility whatsoever for any consequence of their use.

Disclaimer

This report was produced by a World Bank team led by Ziad Nakat (Transport Program Coordinator for the Gulf Cooperation Council and Senior Transport Specialist) and including Paul Amos (Transport Strategy and Policy), Robin Carruthers (Transport and Logistics), Asif Faiz (Roads and Road transport), Paul Kent (Ports and Maritime), Richard Bullock (Railways), Richard Podolske (Public Transport), Richard Frederick (Governance) and Jinkyung Kim (Transport).

The team could not have produced this report without the excellent support and cooperation of Omani counterparts, through the various discussions, consultations, and information provided.

The team would therefore like to express its deep gratitude to His Excellency Dr. Ahmed bin Mohammed bin Salim Al Futaisi, the Minister of Transport for his leadership and vision. Many thanks are also extended to Eng. Salim bin Mohammed bin Abdullah al Nuaimi, Undersecretary for Transport, and Mr. Said bin Hamdoun bin Saif Al Harthi, Undersecretary for Ports and Maritime Affairs, for their guidance and insights.

The team would like to also thank Eng. Hanan Al Rahbi, General Director for Studies, and Mr. Affan Al Akhzami, Director of Planning and Development of Investment for the valuable discussions, time, and efforts they have provided to coordinate this study within the Ministry of Transport.

The team would also like to recognize the valuable meetings and contributions it received from the Supreme Council of Planning, the Ministry of Finance, the Ministry of Commerce and Industry, the Ministry of Civil Services, the Ministry of Regional Municipalities and Water Resources, the Ministry of Legal Affairs, the Municipality of Muscat, the Municipality of Dhofar, the Royal Oman Police Oman, the National Transport Company, the Omani Road Transport Association, the Directorate General of Customs, Sohar Port/Free Zone Company, the Chamber of Commerce, and the Research Council.

Acknowledgement

5

AADT Average Annual Daily Traffic

ADM Société Nationale des Autoroutes du Maroc (Morocco)

AMDL Moroccan Agency for the Development of Logistics competitiveness

DBFO Design-Build-Finance-Operate and Transfer concessions

DFI Direct Foreign Investment

DoT Department of Transport (South Africa)

FTA Finnish Transport Agency

GIS Geographical Information Systems

ITS Intelligent Traffic Systems

LPI Logistics Performance Indicator

METL Ministry of Equipment, Transport and Logistics (Morocco)

MINVU Ministry of Housing and Urban Development

MOLIT Ministry of Land, Infrastructure and Transport (South Korea)

MOP Ministry of Public Works (Chile)

MTT Ministry of Transport and Telecommunications (Chile)

PFI Private Finance Initiative

PPP Public-Private Partnership

PSO Public Service Obligations

RC Regional Council

RUC Road User Charges

SANRAL South African National Roads Agency Limited

TOCs Train Operating Companies

Glossary

6

• Nearly all the countries have published a National Transport Strategy covering all modes of transport with both multi-modal initiatives as well as mode-specific components;

• Most countries have a unit or department in the ministry responsible for freight logistics and in most cases this is responsible, along with other stakeholders, for producing a national logistics strategy (in Morocco the ministry has sponsored a specialist Agency for the Development of Logistics Competitiveness);

• In three countries—Morocco, South Africa, and South Korea—the ministry’s responsibilities are organized administratively by mode and in two—Chile and Finland—by function. This distinction is perhaps not as great as it seems as those organized by mode have functional departments within them, and those organized by function have some mode-specific units in their internal organizations.

CENTRAL MINISTRIES

• The specific ministry entities that form the peak government entities in transport differ because transport is often combined with other sectors (examples among the case study countries include telecommunications, land, infrastructure, equipment, etc.);

• The central transport ministries in each country have responsibility for national strategy, policy, and regulatory oversight of the sector on a comprehensive multi-modal basis;

• In some cases, particular executive functions of government with regard to transport infrastructure provision, regulation or operations are carried out by agencies associated with or reporting to the ministry. For example, in Finland there is a single comprehensive transport agency plus a corresponding transport safety agency, and South Africa has a series of specialist transport agencies and authorities, both under the authority of the Department of Transport;

Summary: How the transport sector is organized in case study countries

MINISTRY CHARACTERISTICS CHILE(MTT)

FINLAND(MOTC)

MOROCCO(METL)

S AFRICA(DOT)

S KOREA(MOLIT)

Nationaltransportstrategy Modessupervisedbyministry(directlyorviaspecialistagencies)

Roads Rail Maritime Aviation UrbanP.T. Logistics

Organizationfeatures Byfunction

ByfunctionAgencymodel

Bymode BymodeAgencymodel

Bymode

Nationallogisticsstrategy

7

• Ports (or groups of ports) are usually publicly owned and administered as “landlord” port authorities with private sector terminals and other operations within the ports;

• On balance there is a policy preference (not always possible or perfectly realized) for competition between terminals and ports.

or separate companies: rail freight is expected to operate commercially;

• Most railway passenger services require financial support, sometimes from a co-owned freight operation and sometimes by direct government financial support.

PORTS

• Ministries of Transport typically determine national port development strategic planning and policy;

• National maritime authorities or agencies are charged with establishing and ensuring compliance with international maritime transport conventions and protocols, and policy and safety guidelines;

RAILWAYS

• Ministries of Transport determine national railway policy and strategic planning of networks and are often the most important funder of railway infrastructure;

• Most railways are constituted as companies (whether owned publicly or privately);

• Most national railways manage infrastructure and train operations in a vertically integrated way, even if the infrastructure is owned by another state institution;

• There is a tendency to manage passenger and freight activities by different “lines of business”

FEATURES CHILE FINLAND MOROCCO SOUTH AFRICA

SOUTH KOREA

NationalPortAuthority(LandlordModel)

Regional/LocalPortAuthority(LandlordModel)

Inter-PortorInter-TerminalCompetition

MonopolyTerminalOperator IndependentPort(Economic)Regulator

CountryAntitrustAuthorityoverPortMatters

EconomicRegulationAssignedtoPortAuthority

PriceRegulationbyContract

8

and local offices, sometimes with a high degree of autonomy;

• There has been a significant downsizing of road departments with the number of staff declining from tens of thousands of personnel to a few thousand (Chile and South Korea) and in some instances just a few hundred (South Africa and Finland). This has been achieved mainly by outsourcing maintenance work (and some client functions such as surveys and designs) to competitively selected private contractors;

• Three of the five countries use earmarked taxes to fund road expenditures, but only one (Morocco) has a traditional Road Fund. Budget allocations remain the mainstay of capital development works. Chile and Finland impose heavy taxes on vehicles and fuel, but these are a part of general taxation;

• A revenue base of flat fuel taxes and dependent on traffic levels can be eroded by economic slowdown, inflation, a switch to cleaner fuels and vehicles, as well as by the increasing fuel efficiency of conventional vehicles. There is a growing recognition in the more developed countries to shift from fuel taxation to road-usage-based taxation.

• All of the countries have utilized public-private partnership (PPP) arrangements, with tolls, availability payments (shadow tolls), and/or bond financing to fund parts of their network.

• South Korea and Finland are global leaders in the

ROADS

• Ministries with oversight of the transport/public works sector determine national roads policy and strategic planning of networks. Ownership of the roads is vested in the public sector;

• The road network is typically classified by law into several administrative classes for the purpose of allocating responsibilities for management and funding, typically:

» Major trunk roads, including expressways and toll roads, are normally managed at the national level by a government department (as in Chile and Finland), and are often complemented by a semi-autonomous public authority, or an autonomous corporation/company (as in Morocco, South Africa, and South Korea);

» Regional and rural roads are normally managed at the sub-national level by state/provincial/local governments and urban roads by city governments or urban councils;

• While road organizations mainly operate as government departments and agencies, an increasing number are being structured along commercial lines with greater functional and financial autonomy;

• In bigger countries the road provision entities are decentralized with construction and maintenance implemented through regional

CASE STUDY COUNTRIES

VERTICALLY INTEGRATED OPERATOR

VERTICALLY SEPARATED OPERATORS

PASSENGER FREIGHT INFRASTRUCTURE

FINLAND No PublicPublic,some

privatePublic

SOUTH AFRICAFreightonly–

publicPublic - -

MOROCCO Yes–public - - -

SOUTH KOREAOperationally–

public- - Infraauthority

CHILE (SOUTH)Passengeronly–

public- Private -

CHILE (NORTH) Yes–private - - -

9

• With few exceptions, the assignment of roles and responsibilities for addressing public transport is complicated with overlaps and gaps in responsibility at different levels of government;

• Municipal governments or special metropolitan transport authorities are typically responsible for service planning, the contracting and management of transport operations, setting fares, and the provision of public transport infrastructure within their jurisdictions;

PUBLIC TRANSPORT

• National government entities have a dominant role in establishing national public transport policies, enacting legislation that affects public transport, and licensing vehicles;

• National governments also play a very significant role in funding public transport infrastructure and some provide operational subsidies (sometimes channeled via sub-national governments);

application of Intelligent Traffic Systems (ITS) to their high-performance expressways, while other countries have introduced centralized traffic management systems on such facilities.

CASE STUDY COUNTRIES

MINISTRY/ AGENCY

AUTHORITY/CORPORATION FOR

EXPRESSWAYS AND/OR NATIONAL

ROADS

REGIONAL SUB-ADMINISTRATIONS

OR OFFICES

ROAD FUND

PRIVATEROAD

OPERATORS

FINLAND MinistryofTransport(Finnish

TransportAgency)

None Yes No Yes

SOUTH KOREA

MinistryofLand,

TransportandInfrastructure(RoadsBureau)

KoreaExpresswayCorporation

Yes No Yes

CHILE MinistryofPublicWorks

(RoadsDirectorate)1

CoordinationDirectorateforPublicWorksConcessions

Yes No Yes

SOUTH AFRICA Ministryof

Transport

SouthAfricanNationalRoadsAgencyLimited

(SANRAL)

Yes No Yes

MOROCCO MinistryofEquipment,

TransportandLogistics(Roads

Directorate)2

SociétéNationaledesAutoroutesduMaroc

(ADM)Yes Yes Yes

1 Twootherministrieshavea role in transport:MinistryofTransportandTelecommunications (policyandregulation)andtheMinistryofHousingandUrbanDevelopment(urbanroadsandstreets).2 SeparatedirectorateforRoadTransportandSafety.

10

• Inter-city bus services are mainly provided by the private sector with either national or regional government entities authorizing the service, and providing subsidies where needed.

• Private bus operators are the principal providers of public transport services in most of the urban areas, though metropolitan authorities and municipal government sometimes do provide services with their own bus companies;

COUNTRY

RESPONSIBILITY FOR URBAN TRANSPORT POLICY AND FUNDING

RESPONSIBILITY FOR PUBLIC TRANSPORT OPERATIONS & INFRASTRUCTURE

SINGLE NATIONAL MINISTRY

MULTIPLE NATIONAL

MINISTRIES

METROPOLITAN TRANSPORT AUTHORITY

METROPOLITAN TRANSPORT

AUTHORITIES

INDIVIDUAL MUNICIPAL

GOVERNMENT

NATIONAL GOVERNMENT

MINISTRIES

FINLAND CHILE MOROCCO SOUTH KOREA

SOUTH AFRICA

* An denotes a major role and an denotes a significant but subsidiary role.

11

History, geography, legal and political structure, country size, and human and financial resources all help shape the structure and management of the transport sector in different countries. No one country experience has proven superior in the management of all transport modes: some countries have succeeded in the management of urban and public transport, others have better railways and port systems, and still others have excelled at building roads.

The case study countries were selected for a combination of attributes: well-managed systems known to be effective and with elements recognized internationally as good practice. The case studies map the institutional structures of their transport sector ministries and of individual transport sector modes (or sub-sectors). The countries represent a diverse group by geography and demographics (Table 1.1).

I. The Case Studies

TABLE 1.1 Casestudycountries:Population,income,andarea

COUNTRY POP. (MILLION)

PERCENT URBAN AS DEFINED

BY COUNTRY

LARGEST CITY

METROPOLITAN POPULATION OF

LARGEST CITY (MILLION)

NATIONAL INCOME

PER HEAD (USD1,000

PPP)3

COUNTRY AREA

(SQ. KM)

CHILE 17.6 89.2 Santiago 6.3 $20.6 756,000

FINLAND 5.5 83.7 Helsinki 1.1 $36.4 338,000

MOROCCO 33.3 57.0 Casablanca 3.1 $5.5 447,000

SOUTH AFRICA

53.0 62.0Johannes-

burg7.9 $11.9 1,221,000

SOUTH KOREA

50.2 83.2 Seoul 9.8(25.64) $34.8 100,000

3 Adjustedforpurchasingpowerparity.4 IncludesSeoul,Incheon,andGyeonggiProvince.

12

prices); corporate forms of entities administering the sector and delivering services; degree of community participation in the oversight function; and other dimensions.

The evolution of transport sector governance in each country has taken place in a context of larger changes in public sector management as a whole beginning in 1980s. Some of the key trends have been: privatization, e.g. sale of government business entities and the rise of contracting out; competition, e.g. between different suppliers of transport services or between transport suppliers bidding for exclusive public contracts; and devolution, with decisions on service delivery devolved from central department to localized or arms-length service delivery entities (sometimes referred to as “subsidiarity”). Over the past two decades, the transport sectors in many countries, including the case studies, have undergone extensive organizational reforms, partly inspired by the above trends. Recent experiences suggest some recentralization of higher-level governance functions, especially in complex sectors with network implications and high public visibility such as transport, but usually retaining clear separation from the delivery side of transport services, and often used by ministries of agency structures to administer executive functions such as day-to-day regulation and public infrastructure provision.

Most prior definitions of governance relate to governance of states as a whole (state governance) or they deal with the detailed governance arrangements of individual enterprises (corporate governance). This study focused on an area between these, that is, on the transport sector (and its modal sub-sectors). It was necessary to adopt a more specific definition.

The study interpreted public governance of the transport sector as the legal framework and public institutions by which public policy oversight of the transport sector is exercised and government roles performed. It considered “good” governance as a means to transform national transport strategies and policies into successful outcomes, meeting the citizens’ transport needs, and contributing to the country’s long-term development goals. It shared the view (expressed by the United Nations Development Programme) that good governance should also be “participatory, transparent, and accountable.”

The legal framework and public institutions of the transport sector can be constructed around a number of different policy alternatives: ownership of transport system assets (public or private); role of public and private sectors in transport infrastructure and services management; type and degree of economic regulation (i.e. of industry entry and exit, service specifications, and

The success of any country’s transport system does not (and should not) depend primarily on sector governance, but instead on the competence and hard work of managers and employees in the transport industry who deliver transport infrastructure and services. Nevertheless, sector governance can have a significant influence on how well any country’s transport industry responds to market demands and national policy goals. Sector governance creates the enabling environment for the transport industry: the effectiveness of the government bodies with which it deals; the market freedoms that it is permitted; the regulatory constraints under which it operates; the confidence with which it can plan long-term business initiatives and investments.

Governance is therefore increasingly recognized as critical to the success of transportation authorities. In 2005, a team of experts from the University of Toronto reviewed the factors that contribute to best practice in urban transport and concluded that the most critical requirement is effective governance—even more important than finance, infrastructure, and urban land-use planning.

In its report on Transportation for Development, the World Bank asserts “transport performance is not just a matter of physical investment. Transport that contributes positively to development and that is safe, clean, and affordable also depends

II. Governance

WHAT IS GOVERNANCE?

SIGNIFICANCE OF GOVERNANCE

13

on sector governance.”5 In the 2000 European Commission communication on transport, governance is considered a prerequisite to sustainable development of the sector.

Irrespective of specific policies, the World Bank has identified a number of indicators that have been generally found to be consistent with good practice in discharging the governance function.6 These are shown in Table 2.1. In theory, principles of good governance apply universally. In practice, countries think and act differently. While the principles of effectiveness and integrity are equally valid everywhere, accountability practices often tend to differ. Countries often differ with respect to the balance between using the public sector versus the private sector to achieve their goals. Another area in which differences arise is in the involvement of communities and end users in decision-making. Variations in practice can be explained by the different histories, culture, and circumstances of each country. These variations are also affected by different systems and traditions for decision-making over policy, planning, and budgeting. These are intimately tied to the nature of government, the character of leaders and the political elite, and the main source of government revenues (taxes, natural resources, etc.).7 That being said, there is an opportunity to learn from what occurs internationally. The phrase “one size doesn’t fit all” should not be interpreted as encouragement to claim national uniqueness as justification for ignoring practices that have proven effective.

5 World Bank (2008) Safe, Clean and Affordable: Transport for Development available at siteresources.worldbank.org/INTTRANSPORT/.../Transport6 SSATP(2013),TransportGovernanceIndicatorsforSub-SaharanAfrica7 TheIDLgroup,AssessingGovernanceintheTransportSector,WorkingPaperNo2.

14

TABLE 2.1 Goodpracticegovernanceindicators

GOVERNANCE DIMENSION INDICATOR RATIONALE

INSTITUTIONAL MANDATES AND RESPONSIBILITIES

Clarityofanddistinctionbetweenmandatesandresponsibilitiesofkeyministries,departments,andagenciesinthetransportsector

Institutionalreformandseparationlieattheheartoftransportsectorperformance.Acleardescriptionoftheresponsibilitiesofkeyministries,departmentsoragenciesprovidestransparency,clarityforleaders,afocusfordelivery,abasistoresistexternalinterference,andaclearlocusofaccountability.

STRATEGIC PRIORITIES

Coherenceoftransportsectorpolicyandextenttowhichitsprioritizationprocessisobjective

Transportsectorpolicymustbealignedwiththemacroeconomiccontextinordertocontributetohigh-levelnationalobjectives.Aconsultativeandneeds-basedapproachisafundamentalbasisforpoliticalandpublicsectoraccountability.

BUDGET DISCIPLINE

Budgetallocationsbasedonreliablefinancialforecastsandalignedtopriorities

Goodprogressonoutcomesatthesectorlevelisachievedwherelinksexistbetweenplanning,prioritization,andrealisticbudgeting.Muchdependsonthegovernment’sabilitytoagreewithministries’,departments’,andagencies’ceilingsandresourceenvelopesbasedonreliablefinancialforecasts.

PROGRAM DESIGN Qualityanduseofperformanceandvalueformoneyindicators

Aneffectiveandaccountablepublicsectorrequiresclarityonobjectivestoalignandjustifytheactivitiesofministries,departments,andagenciestoimproveserviceandprogramdelivery.KeyPerformanceIndicators(KPIs)needtobeexpressedsimply,clearly,andpreciselyfortransparency,resourceallocation,andaccountability.

PROCUREMENT Comprehensiveandtimelypublicdisclosureoftransportsectorprocurementplans

Greaterdisclosureofprocurementandprojectinformationcanyieldbenefitstogovernment,industry,andcitizens.Transparencyreducestheriskofcorruptionbyincreasingtheriskofbeingdetected.

DELIVERY Comprehensivetime/costreportsonprogressformajortransportprojects,disclosedtothepublicinatimelyandaccessiblemanner

Periodicprogressreportsarenecessarytodetectearlysignsofprojectdelays,overruns,andincompleteness.

SUSTAINABILITY Eachtransportsectoragencyhasbenchmarksforroutineandperiodicmaintenanceofassetsandallocatesbudgetaccordingly.

Aprofessionallycompetentmaintenanceagencyisneededtosafeguardqualitytransport.

INFORMATION DISSEMINATION

Transparencyandtimelinessofannualbudgetandexpendituredisclosures

Disclosureoffinancialinformationtothepublicisconsideredcentraltogoodgovernance,transparency,andaccountability.Secrecyandlackofaccountabilitycanopenthedoortocorruptionwhereastransparencycancreatechecksandbalances.

EXTERNAL SCRUTINY

Rulesappliedtothemembershipandappointmentprocessforkeytransportsectorgovernanceboards

Boardsplayavitalroleinensuringeffectiveandefficientprovisionofservices.Boardsneedproperproceduresandpoliciestooperateeffectively.

ACCOUNTABILITY Percentageofrecommendationsfromindependenttechnicalandfinancialauditorreportsimplementedwithinoneyear

Independentauditsplayafundamentalroleinensuringthatorganizationsfunctionaccordingtogoodgovernance,accounting,andauditingstandards,aswellasadoptappropriateriskmanagementarrangements.

15

administered and enforced by the ministries and administrative agencies (that is, the executive or administrative branch of government).

In relation to transport, the most important forms of regulation can be classified into four types: economic regulations (which may include conditions that must be fulfilled by companies or individuals to participate in the industry or activity, pricing rules or restrictions that apply or must be applied by participants, access to public subsidies etc.); safety and security regulations (typically aimed at ensuring the safety and/or security of the activity for users, employees, and the community at large); technical regulations (typically key aspects of technical design and standards that are judged to have wider public interest consequences, such as interoperability across a network); and social and environmental regulation (usually aimed at mitigating certain negative external8 impacts of transport activity such as community resettlement, noise, visual intrusion, emissions, greenhouse gases etc.). While the classification is useful, there are inevitably some overlaps in specific regulations that may be designed to influence more than one of these areas.

The main forms of regulation of interest to the study were the governments’ economic regulation of transport, safety regulation (including road safety), and technical regulation (of matters such as highway and port design standards). Social and environmental regulations usually emanate from government ministries and bodies outside the transport sector and are applicable across sectors. More detailed regulatory policy analysis in transport, with practical examples from different countries, can be found elsewhere (Estache and de Rus 20009; Estache and Serebrisky 200410; Kessides 200411)

State regulation as interpreted in the study is part of governance, but not the whole part. Unfortunately, the term regulation is sometimes used interchangeably with the concept of governance, as in the general statement that “the job of a Transport Ministry is to regulate the transport sector.” Such usage is too general for the current purposes. The concept of regulation has its origins in the notion of controlling according to rules (Latin regula). In this study the words transport regulation refer specifically to the administration of the rules with which would-be participants in transport activity (suppliers and users) must legally comply. Other important subjects for the exercise of public governance, such as transport network development strategy, allocation of public resources, infrastructure financing, international agreements, community consultation etc., may all affect and influence the participants in the industry but are not themselves included in the specific usage of regulation adopted in the study.

In most countries, legislative bodies enact laws submitted by governments in support of their policies. Such laws can include detailed regulations but often an entity empowered under that law, typically a ministry or other executive entity of government, then drafts the regulations that implement the authority of the laws. Regulations (as well as executive orders and proclamations) are ancillary or subordinate to laws, but both laws and regulations are enforceable. Most countries have a set of official current codified laws and a set of all official regulations. However, in many countries the list of regulations is very long and can sometimes be incomplete and outdated.

So regulations are the means of implementing laws and can be adapted and updated to the extent permitted by the enabling law, without legislative amendment. Enforcement of laws is usually rather different from that of regulations. Laws are administered and enforced by a state’s legal system (that is, the judicial branch of government), whereas regulations are often

STATE REGULATION

8 Negativeexternalitiesarethecostsimposedonthosewhodidnotchoosetoincurthecost.9 Estache,A.andG.deRus,eds.2000.Privatization and Regulation of Transport Infrastructure: Guidelines for Policymakers and Regulators.WBIDevelopmentStudies.WorldBank,WashingtonDC.10 Estache,A.andT.Serebrisky.2004.Where Do We Stand on Transport Infrastructure Deregulation and Public-Private Partnerships. InfrastructureVicePresidency,WorldBank,Washington,DC.11 KessidesI.N.2004.Reforming Infrastructure: Privatization, Regulation and Competition.PolicyResearchReport.WorldBank,Washington,DC.

16

The remainder of the paper describes how transport sub-sectors are organized in the five case study countries dealing respectively with: the peak governance entity, typically a Ministry of Transport or equivalent (Section 3) and the central functions of regulatory administration; ports (Section 4); railways (Section 5); roads (Section 6); and public transport (Section 7). It gives particular attention to structural, institutional, and financing dimensions. The main lessons learned from this collective experience are summarized in Section 8.

STRUCTURE OF PAPER

17

material, and World Bank country sources. In some cases the ministries are responsible for governance in other sectors but the descriptions concentrate on transport roles.

these targets are achieved and how budget appropriations are used. It prepares spending limits, an annual budget proposal, and an operating and financial plan. The ministry also monitors the use of funds allocated to the transport sector in the state budget and describes their use in its annual report. The MoTC prepares acts, decrees, and decisions that are made in Parliament, at presidential sessions of the government, and

infrastructure and public buildings such as jails, hospitals, and schools. MOP has a relatively small workforce. It contracts out civil works to the private sector. Private contractors undertake all new works and most maintenance.

MOP has two General Directorates—Public Works and Water Resources. The General Directorate of Public Works has the following executive directorates: coordination of concessions, airports, ports, roads, irrigation structures, and architectural services. MOP has a territorially decentralized organizational structure with regional directorates and provincial offices. MOP has an establishment of 8,700 personnel.

The authority for establishing overall transport safety policy, standards, and regulations is vested in the Ministry of Transport and Telecommunications (MTT). The national police are responsible for the enforcement of laws and regulations with respect to traffic regulations. The MOP is responsible for ensuring that road designs and axle load regulations on the national network conform to national road safety standards, and for installing various road safety features, e.g., signs, barriers, and overheads. Likewise, the MINVU is responsible for ensuring that the design of urban streets conforms to road safety standards.

Each of the case study countries has a different ministry structure at the apex of governance of the transport sector. This section provides an overview of those ministries assembled from material on their websites, other publicly available

The Ministry of Transport and Communications (MoTC) is responsible for policy and regulation of the transport systems and networks, transport of people and goods, traffic safety, and transport issues relating to climate and the environment. The main responsibilities include providing strategic performance guidance and supervision of operation of its agencies through setting annual performance targets and monitoring how

The Ministry of Transport and Telecommunications (MTT) is responsible for strategic planning, policy formulation, and regulation for all modes of transport in Chile. It describes its main mission as developing national policies for telecommunications and transport, supervising public and private sector companies operating in the country, and coordinating and promoting the development of such activities while monitoring the obligation to respect the relevant legislation, rules, and standards. The ministry is comprised of the country’s transport department, telecommunications department, and civil aeronautical board. In addition, it serves as a liaison between the government and various companies, including 10 port companies created from decentralization of Chile’s national port authority.

The Ministry of Public Works (MOP) undertakes road planning and is in charge of all transport infrastructures except urban streets. The Ministry of Housing and Urban Development (MINVU) has responsibility for the urban street network nationwide, except for the city of Santiago. MOP’s responsibilities cover a wide span of public infrastructure, including inter-urban highways, rural and urban roads, bridges, ferry landings, ports, and airports, besides water resources

CHILE

FINLAND

III. Transport Governance at the Ministry Level

18

maintenance all over the country;• Implement vital road projects and to plan,

design, maintain, and construct railways and waterways;

• Direct the road maintenance operations of the regional centers for economic development, transport, and the environment;

• Participate in reconciling traffic and land use;• Control and develop traffic management in

the government’s traffic lanes and in the waterways;

• Ensure winter navigation;• Develop and promote transport services and

the functioning of the markets for them;• Improve the performance of transport

infrastructure management;• Develop the operational preconditions for

public transport and grant maritime subsidies and subsidies for the other transport modes;

• Update and develop hydrography;• Ensure that the transport system functions

under abnormal and exceptional situations.

Finland comprises 19 regions governed by Regional Councils (RCs) under the jurisdiction of the Ministry of Employment and the Economy. The population of the regions does not directly elect these RCs’ representatives. Instead some elected officials of the municipalities are seconded to the respective RC. Of the 19 regions, 15 have Centers for Economic Development, Transport and the Environment (ELY centers) responsible for the government’s regional development and implementation-related tasks of all sectors. The regional development and implementation-related duties also include road maintenance, road development projects, transport permits, traffic safety, public transport, and ferry operations. The condition and development of railways and waterways on the other hand are the responsibility of the FTA centrally.12

various modes of transport, economic efficiency, and improving the quality of service.

METL is organized in directorates for modes/functions: Civil Aviation, Ports/Maritime Transport, Road Transport and Road Safety, and Public Roads. As its name implies METL is also the peak governance institution for development and improvement of freight logistics in Morocco and has developed and is implementing a national logistics strategy, including establishment of

in the government itself. The ministry also issues ministerial decisions and regulations as well as guidelines and instructions on their implementation.

The Finnish Transport Agency (FTA) is an executive agency under the jurisdiction of MoTC responsible for the use, maintenance, and development of the nationwide transport system, including roads, railways, and waterways. The agency is located in the capital Helsinki and has overall charge of the management of all modes of transport it operates under the oversight of the MoTC. This work is carried out in cooperation with the regions and municipalities. FTA is organized by core functional areas each covering all subsectors of transport. These are: Operations Management (including planning, finance, legal, and HR), Projects, Infrastructure Management, and Traffic and Information (with a special focus on region-wide traffic management centers). The FTA is also responsible for all aspects of implementation of large and technical complex projects such as road improvements using public-private partnership (PPP), project alliances, and design-build-finance-operate type of schemes.

The MoTC sets annual targets for the FTA, including ones related to the service standard and condition of transport infrastructure, safety, and environmental protection. The FTA submits biannual reports to MoTC detailing the use of funds and the achievement of targets. FTA lists its responsibilities as:

• Maintain and develop the traffic system jointly with the other actors in the field;

• Maintain the government’s road and rail networks as well as the waterways under its control, consolidate measures directed at them, and directing and supervising waterways

The Ministry of Equipment, Transport and Logistics (METL) is the peak governance body for the transport sector in Morocco. METL claims significant progress in the development of transport infrastructure for which it is responsible, including roads, highways, railways, airports, and ports.

As transport sector regulator, METL it is also concerned with transport market reforms, including introduction of competition in the

MOROCCO

12 MoreinformationontheFTAcanbefoundathttp://portal.liikennevirasto.fi/sivu/www/e/fta

19

South Africa has adopted an agency model for the main executive functions of the ministry in the transport sector and 12 separate entities report to the ministry (some authorities and some executive agencies of the ministry). They include:

• South African Civil Aviation Authority• Cross-Border Road Transport Agency• South African Maritime Safety Authority• Railway Safety Regulator • Air Traffic and Navigation Services• Road Accident Fund• Airports Company South Africa• Road Traffic Infringement Agency• Road Traffic Management Corporation• Ports Regulator of South Africa• South African National Roads Agency Limited

(SANRAL)• Passenger Rail Agency of South Africa (PRASA)

Responsibility for transport is constitutionally divided between DoT and the nine provincial transport departments. DoT has exclusive responsibility for national and international airports, national roads, railways, and marine transport. The national and provincial departments share responsibility for other airports, public transport, road traffic regulation, and vehicle licensing. The provincial departments have exclusive responsibility for provincial and local roads, traffic, and parking.

The Department of Transport (DoT) is the key ministry for transport strategy, policy and regulation, as well as standards, procedures, and financing of all transport modes in South Africa. The structure of the DoT (equivalent to a ministry) is based on two core functions (transport planning and transport information) plus five transport modes (rail transport, road transport, civil aviation, maritime transport, and public transport).

In 2013, there were 773 authorized staff positions in the department. The department’s stated mission is “to lead the development of efficient integrated transport systems by creating a framework of sustainable policies and regulators and implementable models to support government strategies for economic, social and international development.” The main roles of the DoT and its public entities in relation to the transport sector are listed as:

• Policy and strategy formulation in all functional areas;

• Substantive regulation in functional areas where DoT has legislative competence;

• Implementation in functional areas where DoT has legislative competence;

• Leadership, coordination, and liaison in all functional areas;

• Capacity building in all functional areas;• Monitoring and evaluation and oversight in all

functional areas; and• Stimulate investment and development across

all modes.

• Promotion of intermodal transport;• Increasing the supply and quality of transport

services.

Among its current areas of strategic interest METL lists institutional and regulatory reform, basic infrastructure, transport safety and security, economic activities within the sector, construction and public works, and financing and PPP.

The National Transport Board (ONT), an agency of METL, regulates road freight services.

for aviation in South Korea. Established in 1948, it has been reorganized several times in the past two decades as the economy has expanded and the

the Moroccan Agency for the Development of Logistics competitiveness (AMDL).

The department adopted a new strategy for 2012-2016, taking into account government guidelines for:

• Increased competitiveness of the national and regional economy;

• Integrated and harmonious development; • A balanced transport infrastructure;• An aggressive investment policy with

complementary modes of transport;

The Ministry of Land, Infrastructure and Transport (MOLIT) has the overall policy, regulatory, and funding mandate for all land transport modes and

SOUTH AFRICA

SOUTH KOREA

20

for the administration, planning, construction, and maintenance of public roads and also supervises the Korea Expressway Corporation. It serves as the central road agency of the government, where all policies related to public roads are formulated and all plans by various road agencies are reviewed and approved. The provincial and local governments are responsible for management of their respective road networks under MOLIT’s supervision.

MOLIT also has overall responsibility for transport safety (other than maritime safety) and in the roads sector shares road safety responsibility with the Ministry of Public Administration and Security and the National Police Agency. As an extension of its transport regulatory responsibilities, MOLIT also regulates most aspects of transport concessions under the Private Participation in Infrastructure Act.

Most countries have a unit or department in the ministry that is responsible for freight logistics. In most cases, this is responsible, with other stakeholders, for producing a national logistics strategy [in Morocco the ministry has sponsored a specialist Agency for the Development of Logistics Competitiveness (AMDL)].

Figure 3.2 summarizes (with some simplification) the responsibilities for administering economic and safety regulation in each country, recognizing that the central ministry itself is responsible for establishing the high-level regulatory policies that shape the regulatory function.

role of the public sector has evolved. The ministry was originally the Ministry of Transport, then the Ministry of Construction and Transportation, then the Ministry of Land, Transport and Maritime Affairs. The latest reorganization in 2013 resulted in the Ministry of Land, Infrastructure and Transport and excluded maritime affairs.

MOLIT describes its mandate as covering future-oriented territorial development, safe and convenient infrastructure, and transport development. It is staffed by 956 officials.13 MOLIT’s organizational structure (under a Cabinet minister) has two main functional streams: (a) land and infrastructure and (b) transport, each headed by a vice minister. The transport stream has four branches—a Transport and Logistics Office (which includes transport policy, regulation, and coordination functions, as well as urban and public transport), Civil Aviation Office, Road Bureau, and Railway Bureau. The Road Bureau is responsible

There are many differences in the specific ministry entities that form the peak government entities in transport in the five countries, but also some common patterns as indicated in Figure 3.1.

The central transport ministries in each country have, with few exceptions, national strategy, policy, and regulatory oversight of the sector on a multi-modal basis. All the countries use a mission statement and four have published a National Transport Strategy covering all modes of transport containing both multi-modal initiatives as well as mode-specific components.

In some cases particular executive functions with regard to infrastructure provision, regulation or operations are carried out by agencies reporting to the ministry, especially in Finland (where there is a single comprehensive transport agency) and South Africa (which has a series of specialist transport agencies).

In three countries the ministry’s responsibilities are organized administratively by mode and in two by function, though the distinction is perhaps not as great as it seems as those organized by mode have functional departments within them, and those by function have some mode-specific units in their internal organizations.

COMMON THEMES

13 Formoreinformationseehttp://english.mltm.go.kr/USR/WPGE0201/m_28276/LST.jsp

21

TABLE 3.1 Commonfeaturesofministrygovernanceincasestudycountries

CHARACTERISTICS CHILE FINLAND MOROCCO S AFRICA S KOREA

MINISTRY ACRONYM MTT MoTC METL DOT MOLIT

MISSION STATEMENT NATIONAL TRANSPORT STRATEGY

Modessupervisedbyministry(directlyorviaspecialistagencies)

Roads Rail Maritime Aviation Urban P.T. Logistics

ORGANIZATION FEATURES

byfunction14

byfunctionagencymodel

bymodebymode

agencymodelbymode

NATIONAL LOGISTICS STRATEGY

TABLE 3.2 Structureoftheadministrationofregulationsincasestudycountries

FUNCTION CHILE FINLAND MOROCCO S AFRICA S KOREA

ECONOMIC REGULATION

MTT MoTCandFinnishTransportAgency(amulti-modalagencyofMoTC)

METLandNationalTransportBoard(amulti-modalagencyofMETL)

Anumberofmode-specificagencieswithwideregulatorypowersreportingtoDOT

MOLIT

SAFETY REGULATION

MTTMinistryofPublicWorks(MOP)MinistryofHousingandUrbanDevelopmentChileanPolice

FinnishTransportSafetyAgency(multi-modal)

MOLIT(otherthanmaritime)MinistryofPublicAdministrationandSecurityNationalPoliceAgency

14 Chile’sMinistryofPublicWorks(MOP)undertakesroadplanningandisinchargeofalltransportinfrastructureexcepturbanstreets.

22

are then contracted or concessioned to the private sector. Today, 90 of the world’s top 100 container ports are administered in this way to achieve a balance between private sector operational efficiency and the public interest in port performance. While the landlord model is not a panacea, the combined strategy of privatization of terminal operations, institutional reform, and a rationalized regulatory framework can pave the way for improved efficiency and productivity.

The landlord model is implemented in different ways. Some countries have relegated the entire responsibility for port master planning, administration, tariff setting, financing, and operational regulation to local or regional port authorities, while economic regulation resides with antitrust enforcement entities (e.g. the United States and Chile). Other countries have allocated these responsibilities to a range of entities, such as national port planning and operational regulation assigned to ministerial units (e.g. Colombia), port administration and operational regulation to local or regional bodies (e.g. Indonesia), and economic regulation to transport regulators (e.g. Colombia and Peru). Still others have assigned these primary responsibilities to national port authorities (e.g. Liberia, Morocco, Nicaragua, Saudi Arabia and South Africa), while economic regulation may reside with an independent port regulator (e.g. South Africa and Nigeria17).

The world’s port industry has experienced a number of institutional transitions in the past few decades. Port sector institutional frameworks were changed to isolate port administrations from undue political and bureaucratic influences. But eventually these quasi-independent port authorities (often monopolies) became the bureaucratic creatures they had hoped to avoid15, generally resulting in higher labor costs, lack of investment, and less-than-acceptable performance. These conditions ushered in a wave of port privatization in the 1980s, with the United Kingdom establishing a precedent for other countries to follow. Latin America, encouraged by the United Kingdom and the later experience in Malaysia, ushered in the ports privatization wave of the 1990s, with Argentina, Chile, Colombia, and Panama all restructuring their port sectors, adopting the landlord model of port administration and engaging the private sector to invest in port modernization and provide port services.

Though there are variations of the landlord model itself, the World Bank and the Asian Development Bank have promoted the landlord model as a global best practice due to its favorable impact on port performance. It is now the most prevalent form of port administration.16 In landlord ports the public sector is the owner and developer of the basic port infrastructure and manager of the common areas and facilities. The cargo handling operations (and sometimes other activities such as pilotage, towage etc.)

BACKGROUND

IV. Ports

15 In 1988, for example, Argentina’s port sector alone involved six ministries and 18 state agencies; seeEconomicCommissionforLatinAmericaandtheCaribbean,The Restructuring of Public Sector Enterprises: The Case of Latin American and Caribbean Ports,LC/G,1691-P,Santiago,Chile,1992,p.25,citingBolsadeComerciodeBuenosAires, Jornades sobre puertos Argentines: problemática y soluciones,BuenosAires,August1989.16 See World Bank, Port Reform Toolkit, “Module 3: Alternative Port Management Structures andOwnership Models”, Washington, D.C., 2003, p. 18. The Asian Development Bank states the following:“Thebest institutional structure forpromotingprivate sector involvement inpublicportoperationsandinvestment is the landlord port,” and that “the landlord model is the best structure for promoting PSP(privatesectorparticipation)becauseitaccommodatesdifferentformsofpublic-privatepartnership,”and“Best Practice supports a policy of promoting the development of private cargo-handling terminals andallowingthemtocompeteforthird-partycargo.”SeeAsianDevelopmentBank,Developing Best Practices for Promoting Private Sector Investment in Infrastructure—Ports,Manila,Philippines,2000,pp.ix,15,and62,respectively.17 NotethatthegovernmentofNigeriarecentlyappointedtheNigerianShippers’CouncilasthePortsEconomicRegulator.Thisapparentlyis intendedasatemporarymeasureuntiltheNationalTransportationCommissionlawispassedbytheNationalAssembly.

23

Two goals of global port reform were to introduce private sector provision of port services and encourage port competition. Only one of the case study countries failed to achieve these goals. South Africa corporatized its port operations organization and granted it a monopoly position in all of the country’s ports. All of the other countries have succeeded in creating competitive environments (inter-port or inter-terminal competition), with Morocco eliminating the monopoly position of its national port operating company: the company competes with private sector operators in several ports and there are plans to eventually privatize the company.

Prior to transfer of port administration responsibility to local authorities, South Korea envisioned the need to focus on container terminal development as part of its effort to promote port sector competitiveness. It established a national container terminal development authority within the Ministry of Transport charged with the promotion and development of container terminals. While this entity continues to exist,

Table 4.1 describes the port institutional arrangements in the five case study countries. They have all evolved to the landlord model, either through a national port authority (South Africa and Morocco) or a regional or local port authority (Chile, Finland, and South Korea). Generally, the role of the Ministry of Transport (or local equivalent) is to engage in national port development policy and strategic planning and coordination with national road and railway (and sometimes inland waterway) planning. National or regional local port authorities conduct local port master planning, issue and enforce operational regulations, maintain navigation channels, breakwaters, and common use facilities, and grant licenses, concessions, and leases for port operations and port services. National and regional or local port authorities generally do not have a role in commitments established by international maritime protocols; this latter responsibility tends to be assigned to a national maritime authority charged with establishing and ensuring compliance with maritime transport and policy and safety guidelines.

ORGANIZATION AND MANAGEMENT OF PORTS

TABLE 4.1 Institutionalprofilesofportsincasestudycountries

FEATURES CHILE FINLAND MOROCCO SOUTH AFRICA

SOUTH KOREA

NATIONAL PORT AUTHORITY (LANDLORD MODEL)

REGIONAL/LOCAL PORT AUTHORITY (LANDLORD MODEL)

INTER-PORT OR INTER-TERMINAL COMPETITION

MONOPOLY TERMINAL OPERATOR

INDEPENDENT PORT (ECONOMIC) REGULATOR

COUNTRY ANTITRUST AUTHORITY OVER PORT MATTERS

ECONOMIC REGULATION ASSIGNED TO PORT AUTHORITY

PRICE REGULATION BY CONTRACT

24

port regulatory policies should ideally apply equally to all ports and so create a level playing field for competition.

Finland is also unique in that national port administration has devolved to municipal government control, with city councilmen serving on the boards of the port administrations. Finland has had some difficulties with this arrangement partly because effectiveness of municipal political leadership has fallen short of expectations. Accordingly, efforts are underway to corporatize port administrations, as favored by the European Union.

the port, such as road or rail traffic routes and port main gates. Terminal operators or concessionaires cover the cost of port development, operations, and maintenance, though local port authorities in Finland provide port infrastructure and then lease it to terminal operators, who provide their own equipment (and may also invest in port improvements). In South Korea, as earlier noted, the container terminal development authority may invest in port development in areas outside the control of local port authorities. Table 4.2 identifies the main funding sources for port administration, development, operations, and maintenance.

it no longer has jurisdiction over the country’s three largest ports. Today its role is limited to the development of container terminals in the country’s smaller ports and assessing the merits of developing new container terminals outside the jurisdictions of the three main port authorities.

Morocco has established a dichotomous port administrative framework. Its national port authority has no jurisdiction in Tangier’s Trans-Med port complex, where another port authority also exists. This has created a situation where ports operate and can potentially compete in offering different regulatory requirements, which has the potential to distort competition. National

Very few countries now rely on central government funding for port development other than in some cases for entirely new ports, where a review of legislation suggests that funding support can come from central government capital budgets. This would probably be limited to development of accesses and protection works while the private sector would cover the cost of port construction.

Generally, national or local port authorities, as landlord administrators, assure the provision and maintenance of navigation accesses, including breakwaters, navigation channel, and turning basins, as well as common-use or access areas in

FINANCING OF THE PORT SECTOR

TABLE 4.2 Portrevenuesourcesforcasestudycountries

REVENUE SOURCES CHILE SOUTH AFRICA

MOROCCO FINLAND SOUTH KOREA

LINE AGENCY OPERATING OR CAPITAL BUDGET

National or local port authority dues

ACCESS CHANNEL/TURNING BASIN TERMINAL DEVELOPMENT *

BREAKWATER MAINTENANCE LANDLORD ADMINISTRATION

Terminal operator/concessionaire charges

TERMINAL DEVELOPMENT TERMINAL OPERATIONS TERMINAL MAINTENANCE

* For non-local port authority ports only

25

In awarding concessions, most of the countries have avoided creating an environment that would allow operators to dominate the container trades. Chile, for example, did not permit operators to hold more than one concession in the ports of Valparaiso and San Antonio. Nor are they permitted to eventually purchase more than 25 percent equity interest in any other concession in Chile. In contrast, Finland has allowed mergers to occur to the extent that the same operator is now operating in two different ports that potentially compete for the same Helsinki trades. This perhaps may be mitigated by the existence of other operators in these ports, but there remains the potential in Finland for additional mergers or acquisitions that would have the effect of creating dominance over certain markets.

Morocco does have a national antitrust authority in place that appears to have the authority to intervene in port sector antitrust matters, though it appears it has no jurisdiction over antitrust practices in the Tanger-Med region. All of the case study countries appear to have jurisdiction over port sector antitrust matters (with the possible exception of the South African antitrust authority) and to intervene in state-owned enterprise practices. Two of the countries, including Chile and Morocco, have inserted price caps within the provisions of concession contracts (known as the regulation by contract approach), but these do not necessarily restrain operators from engaging in market or pricing collusion, though the existence of four rival operators would discourage such practices.

higher the moves per crane serving the vessel, the sooner the vessel may depart to its next port of call and hence reduce the cost of down-time. Asset utilization effectiveness encompasses the container volume (reported in TEUs) moved per linear berth meter (reported in TEUs per berth meter) and the number of containers handled per square meter of the terminal area (TEUs per hectare). The higher the number of moves, the

All of the countries have awarded private concessions with the exception of South Africa, though that port authority has the authority to concession terminals to private sector operators. Chile has now awarded four concessions to operators serving the same primary hinterland market of the country’s capital of Santiago. The result is a fiercely competitive market where operators today offer handling rates at 65 percent of the maximum rate allowed in their concession contracts. Concessions or leases have been awarded in the main ports to the extent that inter-terminal and in some cases inter-port competition prevails. As earlier noted, South Africa has a state-owned monopoly operator in its main ports.

Just as South Africa is the only case study country to preserve the national port operator monopoly position, it is also the only one to have established an independent port regulator.18 The role of this regulator is to review, monitor, and approve port dues and tariffs imposed by the national port authority. Oddly, the independent port regulator has no authority to review, monitor, and approve tariffs of the monopoly port operator, which itself is a state-owned corporation under a shareholder ministry that sets financial targets for state-owned enterprises.

Morocco has the only port authority that has economic regulation authority. However, it does not appear currently to be well equipped to effectively execute this responsibility. That said,

None of the case studies should necessarily be considered as “best practice” cases though there are elements in most countries that reflect good practice. Table 4.3 provides a comparison of port performance. Indicators relate to the productivity and the effectiveness of port asset utilization in the main gateway port for each country. Productivity is the number of container moves per crane reported as TEUs per gantry crane. The

PORT CONCESSIONS

ECONOMIC REGULATION

PERFORMANCE OF THE PORTS SECTOR

18 EffortsareunderwayinSouthAfricatoestablishanationaltransportregulatorwheretheindependentportregulatorresponsibilitiesmayeventuallyreside.

26

There are some explanatory factors that affect the reported performances in Table 4.3. For example, higher crane productivity tends to be associated with handling larger vessel sizes, the relative composition of 20-foot and 40-foot containers, the type of trade (transshipment versus domestic), and land constraints. The larger the vessel, the more cranes are likely to be deployed to serve that vessel. The higher the transshipment volume the lower the crane cycle time required for each container loaded or discharged. And the higher the volumes, the greater the likelihood that higher density storage is used to serve the trades.

more productive the asset under the terminal operator’s control.

TABLE 4.3 Comparativeportperformanceofgatewayportterminals

INDICATORS CHILE (VALPARAISO)

SOUTH AFRICA

(DURBAN)

MOROCCO(TANGER-

MED)

FINLAND(HELSINKI)

SOUTH KOREA

(BUSAN)

DATA FOR PORT INDICATORS

2011 container volume (TEUs)2 928,432 2,698,656 2,185,000 322,445 16,184,706Number of gantry cranes3 6 25 8 13 63Length of berths (in meters)2 1,207 1,299 2,731 107 2,033Hectares2 31 180 40 77 357

PORT INDICATORS

TEUs per gantry crane 154,739 107,946 273,125 24,803 256,900

World average4 124,674 124,674 124,674 124,674 124,674

Comparison to world average 124% 87% 219% 20% 206%TEUs per berth meter 1,207 1,299 2,731 107 2,033

World average4 1,075 1,075 1,075 1,075 1,075

Comparison to world average 112% 121% 254% 10% 189%TEUs per hectare 29,949 14,993 54,625 4,204 45,328

World average4 27,624 27,624 27,624 27,624 27,624

Comparison to world average 108% 54% 198% 15% 165%Average of all three indicators relative to world average

115% 87% 224% 15% 186%

LOGISTICS PERFORMANCE INDICATOR (LPI) RANK5

42 34 50 24 21

1 Except for the LPI, indicators are presented for container terminals in each of the country’s gatewayports,asfollows:SanAntonio (SanAntonioTerminal International),Durban (TransnetPortTerminalsPiers1and2),Tanger-Med(APMT),Helsinki(3terminals—FinnsteveOy,Multi-Link,andStevecoOy),andBusan(BusanInternationalContainerTerminal,HanjinGamcheonContainerTerminal,HutchisonGammanContainerTerminal,Jasungdae Container Terminal, Korea Express Busan Container Terminal, Korea Express Gamman ContainerTerminal,andPusanNewPortTerminal).2 Source:ContainerizationInternational(2012).3 Source:ContainerizationInternational(2012),individualwebsitesforportauthoritiesandterminaloperatorsandcallswithterminaloperators.4 Source:Drewry(2012).5 WorldBank(2014);LPIrankforMoroccocomesfromWorldBank(2012)asMorocco’srankingisnotreportedinWorldBank(2014).

The Logistics Performance Indicator (LPI)19 shown in Table 4.3 ranks 160 countries on the basis of scores addressing performance related to customs clearance, infrastructure, international shipments, logistics competence, tracking and tracing of freight, and timeliness of shipments. While the LPI does not address ports per se, ports are in the infrastructure category and to some degree affect the other activities associated with the transport logistics chain, of which ports serve as the anchor asset.

19 ReportedintheWorldBank’sConnectingtoCompete2014—Trade Logistics in the Global Economy, The Logistics Performance Index and Its Indicators

27

Tanger-Med and Busan serve larger vessels than the other three ports. The lower performance of Helsinki reflects lower overall cargo volumes and relatively more land, crane, and berth availability than is actually required for the current volumes. Durban also performs lower than world averages for TEUs per gantry crane and TEUs per hectare, suggesting slower moves per crane hour or an excessive number of cranes as well as either excessive land or lower density storage. Lower density storage means the cycle time for movement to storage is also likely to be higher as the yard equipment has to move farther from the cranes at the berth.

A more detailed analysis with a larger sample of ports would be required to draw firm conclusions about the relationship of port performance to each country’s port institutional framework. However, given the countries under study here, generally those ports that have private sector participation, competition (e.g. Valparaiso, Tanger-Med, and Busan), and greater commercial autonomy at arms length from political influences seem to perform better than those ports that do not reflect these characteristics. As earlier noted, a corporatized state-owned monopoly operator serves South Africa’s ports, while Finland’s gateway port of Helsinki is subject to municipal governance. As shown in Table 4.3, these two ports perform well below world averages as indicated by the average scores of the three indicators compared to the world indicators.

28

or more operators who are either publicly- or privately owned.

Historically, public railway services in many countries20 were effectively delivered by a government ministry or department, which combined policy-making, regulation, and service delivery in a single body. Others were constituted as state enterprises, generally created by statute. Some statutory authorities have governance structures that resemble a company in the form of a board and management that are (often) independent from day-to-day intervention by the government. Nevertheless, governments generally set down a robust framework to publicly steer the strategic direction of such authorities. Some still remain, but in many countries, railway departments or authorities have been converted into public corporations.21 Public corporations are usually adopted to allow clearer specification of government requirements in terms of service delivery and financial performance, while reducing direct political interference in day-to-day operational and staffing matters.22

The means by which railway services are delivered varies widely from country to country. Some countries have a single operator while others have several; some have separate passenger and freight operators, while others also have infrastructure companies; some have private companies and some remain all publicly-owned. However, the overall trend has been towards less concentration and more diversity in entities supplying rail services. The main structural variants having this tendency are discussed below.

Horizontal and vertical separationUntil recently, most countries, other than in North America and parts of South America,23 had a single

In the 19th and early 20th centuries, the advent of railways represented a quantum improvement over most forms of land transport. With that market power, railways rapidly developed around the world regardless of the type of governance or method of management. Most government intervention was designed to control the monopoly power of railways, either through direct ownership or through regulation of prices and services.

In due course, motorized road freight and road and airline passenger transport eroded the market power and dominance of railways. In many cases the railway industry and government policies for railways were slow to adapt to the new competitive environment. Competition from other modes, especially from road transport, led to significant diversion of passengers and freight. In some countries this was exacerbated by transformation in industrial structure, which reduced or eliminated the bulk freight from which many railways used to support other traffic. Many national networks now receive various forms of financial support from governments to provide their services.

The varying impact of market changes, as well as government and industry responses to them, has led to a wide range of institutional arrangements around the world. Three varying characteristics of these arrangements are:

• the level of transport policy integration, i.e. the extent to which there is integrated transport governance in a unitary ministry;

• whether or not railway sector policy-making is separated from transport services delivery;

• the means by which services are delivered; this can be through markets that are either regulated or deregulated and through one

BACKGROUND

V. Railways

20 Here we are excluding countries whose national railway systems have been historically dominated byprivaterailwaycompaniessuchasintheUnitedStates.Insomeothercountries,e.g.theUnitedKingdom,China,andIndia,privaterailwaysweresubsequentlycombinedintoanationalpublicly-ownedrailwaysystemandthisdiscussiondoesincludesuchrailways.21 Inafewcases(e.g.Japan,theUnitedKingdom,andpartsofAustralia)theseauthoritiesareprivatized.22 Thedirectorsofoneofthe railwaysdiscussed inthecasestudies,EFE inChile,notedthechallengesofmanagingapublicly-ownedfirm,includingpoliticalinterference,financialmismanagement,lackofmaintenanceofinfrastructureandrollingstock,thepoorhumancapitalofitslaborforce,andgeneraldisregardforcustomersatisfaction.23 Themostnotableexceptions,otherthantheAmericas,isJapan,whereprivaterailwayscarrymorethanhalfthesuburbanpassengers.

29

supporting the infrastructure operator, the train operator, or both.

Lines of business Railways were traditionally organized internally along functional lines, such as infrastructure maintenance, rolling stock maintenance, train operations and so on. This structure was production-led rather than market-led and often presented customers with a choice of “take-it-or-leave-it” service quality. As competition from other modes developed customers voted with their feet and “left-it.” Progressive railways responded by reorganizing internally from a functional management structure to a “line-of-business” structure, with internal passenger and freight businesses either directly controlling operating resources such as wagons and carriages (as in the Morocco case study below) or buying them from the functional departments.

In many cases this led to the creation of separate passenger and freight companies, with the original railway remaining as an infrastructure company, as in the case of Finland. In other cases, only part of the operations were separated, such as the suburban passenger (Metronet) and long-distance passenger (Shosholoza Meyl) services in the South Africa case study.

The creation of specific companies for specific businesses again provides much greater financial transparency. Where there has historically been cross-subsidization from freight services to passenger services, the creation of stand-alone passenger companies usually implies a need for direct financial support from the government.

Railway concessionsSome governments have decided the best institutional arrangement to deliver good railway performance is to contract it competitively from a private operator as a concession or franchise. There are several variants, mainly depending on the nature and form of investment required. In some cases, the concessionaire may be required to construct a new facility (possibly helped by a government contribution), provide the rolling stock and then operate for a number of years, (generally at least 20 if there has been a substantial investment, as in the case of Gauteng in the South Africa case study). Alternatively, most UK franchises are for less than 10 years because network investment is the responsibility of a separate company (Network Rail), most operating assets form part of the franchise, and the rolling stock is leased from a third-party for the period of the franchise.

operator, generally state-owned, providing the overwhelming majority of services for the general public. In recent years, many of these operators have been “unbundled.” Where this has created separate railways in distinct geographical regions it is termed horizontal separation, as described in the Chile case study below. Where separate infrastructure and train operating companies (TOCs) have been created it is called vertical separation, as described in the Finland case study.

Vertical separation is a key component of EU railway policies. The intention is to encourage competition between TOCs using the same rail infrastructure network (often called above-rail competition) on a competitively neutral basis. Separation of infrastructure management is thought necessary to ensure a level playing field for access among competing TOCs. EU policy has had mixed success in achieving direct above-rail competition in passenger services, though contestability of freight services, by offering a threat of competition, appears to have had beneficial impacts even where actual market shares won by new operators are relatively limited. The other stronghold of vertical separation is Australia, where the impetus came from a more general competition policy of promoting third-party access to essential infrastructure of a “natural monopoly” nature, be it railways, pipelines or the electricity grid. A significant part of the Australian rail network is now vertically separated.

Vertical separation is not the only way of providing access to rail infrastructure for third-party operators. Operating over an adjacent company’s track by mutual arrangement has been widely practiced since the 19th century (and is currently practiced by some of the private mining railways in northern Chile). What has changed in recent years is that in some countries the concept of “access as of right” has been introduced to allow customers a choice of train operator. This can be done without vertical separation (e.g. as in Canada), but other governments and regulators have taken the view that its impact on competition will be relatively small unless there is a clear organizational separation between infrastructure provider and competing TOCs.

An additional feature of vertical separation is that it provides a much clearer split between the costs of infrastructure provision and train operations than is generally available from an integrated operator. Where governments are required to contribute to the cost of operating the railway, there is a better-informed choice between

30

(such as some in Africa), the promised upgrading and modernization has often been done poorly or not at all, and the railway may be in worse shape than when it was concessioned. (This was the case with New Zealand.)

In the case of passenger operations, concessioning has generally generated significant operating efficiencies (such as in Germany’s regional networks) and in some cases (such as some of the UK franchises) operators are paying a premium in order to operate. Concessioned long-distance passenger services also operate successfully without subsidy on some routes in Australia.

Experience with railway concessions worldwide has been mixed. In the case of freight railways, a distinction should be drawn between those that involve constructing a new facility and those that are essentially taking over an existing operation with requirements to maintain and, where needed, upgrade and modernize. If the former concessions fail, and some have failed spectacularly, the facility still exists and the losers are generally those from whom the concessionaire has borrowed money to finance the project (an example of this is the Adelaide-Darwin line in Australia). Several existing freight railways, which have been concessioned, have since flourished (e.g. Brazil and most in Australia). However, in other cases

The five case studies provide a wide range of management models. Only one and a half (Morocco and northern Chile) are still vertically integrated in the sense that both infrastructure and train operations are undertaken by a single organization. However, even in Chile, there is provision in the current draft law for third parties to operate on payment of access charges. Of the others, two (southern Chile and South Africa) still combine infrastructure with some train operations—freight in the case of South Africa and passenger in the case of southern Chile—while third parties undertake other train operations. South Korea is integrated in the sense that infrastructure maintenance and operations are undertaken by the same organization responsible for train operations, but in this case the infrastructure is owned and ultimately managed by a third party, which contracts its maintenance and operations back to the railway.

Finally, Finland conforms to the EU model with separation of above-rail (passenger and freight) activities and infrastructure management. Sweden takes this one further and has separated the freight and passenger operators in independent companies. Germany has many third-party passenger and freight operators on its network but the dominant operators in both sectors are German railways’ (DB) subsidiary companies, and these are in a common group structure with DB Netz, the infrastructure manager.

Table 5.1 summarizes some features of railway industry structure in the five case study countries and three comparators.

ORGANIZATION AND MANAGEMENT OF RAILWAY SYSTEMS

31

defined in terms of service frequency, capacity, reliability and so on), the government is liable to pay the contracted price just as in any other commercial transaction, so the railway has the opportunity to operate commercially.

In practice, the PSO approach is only as effective as the cost calculations that form the basis of the payments. These tend to be closely scrutinized by rigorous Finance Ministry officials and gaming strategies in which railways inflate cost estimates with the expectation that their financial counterparts will reduce them anyway can influence the process. Many governments find it convenient, where they have the opportunity, to just instruct the railway to cross-subsidize internally, as is almost certainly being done for KTX in South Korea, and from phosphates in Morocco and export coal and iron ore in South Africa.

Most passenger services in the world fail to cover their operating costs24 and mechanisms therefore need to be established for funding to fill the gap between revenue and expenditure. In some cases this is still through “deficit financing” basis, that is, the government just pays the difference at the end of the year. This does little to incentivize the railway to operate more efficiently or help the government understand why the deficit is occurring and what it is really paying for (e.g. service or inefficiency).

A Public Service Obligations (PSO) framework is designed to address these issues by defining specific services that will be provided by the railway and setting a price for them that then forms a contract between the government (or local government) and the railway. As long as the railway delivers the contracted services (normally

FUNDING OF THE RAILWAY SECTOR

TABLE 5.1 Railwaymanagementfeaturesincasestudycountries

CASE STUDY COUNTRIES

VERTICALLY INTEGRATED OPERATOR

VERTICALLY SEPARATED OPERATORS

PASSENGER FREIGHT INFRASTRUCTURE

FINLAND No PublicPublic,some

privatePublic

SOUTH AFRICA Freightonly-public Public - -

MOROCCO Yes–public - - -

SOUTH KOREA Operationally–public - - Infraauthority

CHILE (SOUTH) Passengeronly–public - Private -

CHILE (NORTH) Yes–private - - -

FOR COMPARISON

JAPAN Yes–publicandprivate Public

GERMANY Inpractice–public

Severalpublicandprivateoperatingregionalservices

Private(inadditiontointegrated

public)

SWEDEN No PublicPublicandprivate

Public

24 Themainexceptionsarethe Japanesesuburbanservices,someofthehigh-speedservices,andsomeofthefranchisedservicesinUnitedKingdom.Butthereisawidevariationinwhatisincludedasacost.Suburbanpassengerfaresonmanyrailwaysarecontrolledwellbelowwhatthepassengersmightbepreparedtopay.

32

China, India, and Russia—freight revenue certainly supports a disproportionate share of the network costs that are shared with passenger services.

The case studies present a spectrum of arrangements (Table 5.2). Morocco represents the more traditional arrangements, making a profit from its operations in total, but almost certainly with a cross-subsidy from the phosphate traffic to other services. The private mineral railways in northern Chile also operate independently, as do many similar mineral railways worldwide. Finland exemplifies a railway sector unbundled into independent above-rail and infrastructure companies. Local government tenders contracts for suburban services, but long-distance passenger services and freight are self-supporting, including capital expenditure on rolling stock. However, the Finnish infrastructure agency only recovers about 16 percent of its recurrent expenditure from access charges (a similar proportion to the infrastructure authority in Sweden) and this represents a substantial indirect subsidy to both passenger and freight services.

The PSO model works most effectively when financial accounts that have been externally audited can be produced in support of the PSO claim implying that the activities proposed for PSO payments be isolated in their own “ring-fenced” set of audited accounts. A good example is the contract for the Helsinki suburban services in the Finland case study.

There are several railways worldwide that operate without government funding, but these are mostly freight railways—and in most cases are privately operated or have a monopoly on the transport of (normally) coal or minerals. Historically, many passenger services were supported by internal cross-subsidization from freight services but as this became progressively more difficult many railways were unbundled with freight being operated commercially and passenger railways funded either directly through PSOs and contract arrangements or indirectly through the government contributing to infrastructure costs. In three of the world’s biggest railways—in

TABLE 5.2 Sourcesofrailwayfunding

CASE STUDIESVERTICALLY INTEGRATED OPERATOR

VERTICALLY SEPARATED OPERATORS

PASSENGER FREIGHT INFRASTRUCTURE

FINLAND -Local

governmentCommercial Centralgovernment

SOUTH AFRICA Commercial Public - -

MOROCCO Commercial - - -

SOUTH KOREA Commercial - - Centralgovernment

CHILE (SOUTH)Commercial(but

centralgovernmentforinvestment)

- Commercial

CHILE (NORTH) Commercial - - -

FOR COMPARISON

JAPAN Commercial - CommercialShinkansenlinesleasedfromasset

agency

GERMANYCentralgovernmentforinfrastructureand

passenger

Localgovernment

Commercial -

SWEDEN-

Centralandlocal

governmentCommercial Centralgovernment

33

only recovers a proportion of the capital cost).

Southern Chile and South Africa are both partially vertically integrated operations, one being infrastructure with passengers and the other infrastructure with freight. In both cases these are expected to operate commercially. In the case of Chile, however, this is through what is effectively internal cross-subsidization through the access charges charged to freight and passenger services respectively although the freight operators are still able to operate commercially. However, the South African passenger operators require heavy government support, both for operations and for investment in rolling stock.

of Japan’s passenger business. South Africa carries over 500 million suburban passengers but has almost completely lost its long-distance passenger business, as has Chile. South Africa has by far the largest freight business, carrying over 200 million tonnes p.a., half of which is export coal and minerals. The other railways carry 10-40 million tonnes p.a., with average hauls of 200-500 km.

In South Korea the sector is still integrated from an operational perspective. The infrastructure authority contracts all maintenance and operation directly to the above-rail operator, Korail, which therefore remains managerially integrated. However, the access charges paid by Korail only represent a proportion of the total cost of the contract payment it receives from the infrastructure authority. (A variant on this approach is used in Japan, where the Shinkansen infrastructure was transferred to a separate agency when JNR was split and privatized. Shinkansen infrastructure is now leased back to the inter-city train operating companies at a price that the service can sustain, and that typically

Table 5.3 summarizes rail performance for the case study countries. Most of the case studies are small- to medium-sized railways. Only South Africa has a sizeable network, comparable with Japan or Germany, with the others having 2,000-6,000 km of track. South Korea has a large passenger business, carrying nearly 1 billion suburban passengers and over 100 million long-distance passengers but overall is only 10 percent

TABLE 5.3 Railwayperformanceindicators

CASE STUDY COUNTRIES

NETWORK SIZE (ROUTE-KM)

TRAFFIC (BILLION PASSENGER-KM, NET TONNE-KM)

COMMUTER OTHER PASSENGER FREIGHT

FINLAND 5,900 1 3 9

SOUTH AFRICA 21,000 10 0.4 131

MOROCCO 2,100 - 4 6

SOUTH KOREA 3,600 15 21 10

CHILE (SOUTH) 1,800 1 0.2 2

CHILE (NORTH) 3,500 - - 2

FOR COMPARISON

JAPAN 26,000 400 24

GERMANY 33,500 80 106

SWEDEN 11,000 6 23

PERFORMANCE OF RAILWAY SECTOR

34

the spending on roads ranges from 1-3 percent of GDP, with the lower limit associated with industrialized countries (where much of the basic road infrastructure is in place) and the higher limit with developing countries in the expansionary phase of infrastructure development.

or municipal level by city governments or urban councils;

• Local access and community roads, which sometimes remain unclassified, are managed by local governments/community roads associations.

The functions of a road administration can be split conveniently into:

Client function: Activities related to the planning and management of road operations—the client role is concerned with specifying the activities to be carried out, determining appropriate standards, commissioning works, supervising implementation, controlling works, and monitoring; and

Supplier function: Activities related to execution of works—the supplier role is concerned with delivering the defined road works to an agreed quality standard, on time, and within budget.

Separating these clarifies roles and increases the focus and specificity of action, both of the management and the works execution functions. Arrangements between the client and the supplier are normally defined in some form of contract. Both parties have incentives to increase operational performance. Greater benefits in effectiveness and efficiency have been achieved as a result of such separation irrespective of the organizational structure and hierarchal dependencies. Finland and South Africa (SANRAL) have a complete separation between the client and supplier functions in the construction and maintenance of road infrastructure; they have no in-house (force account) capacity for this purpose. Table 6.1 summarizes the arrangements in each of the case study countries. This table does not include the attributes of sub-national road organizations at state, provincial or municipal/local levels (e.g. in South Africa and South

In most countries, road transport is the dominant mode of transport accounting for more than 80 percent of passenger-km and over 50 percent of freight tonne-km. Roads ensure spatial and temporal connectivity, commonly expressed in indicators of accessibility and mobility. Typically

In nearly all countries, the ownership of the main common-user public road network is vested by law in the state or in a state-owned agency. There are also some privately owned or concessioned roads, including high-performance expressways (e.g. in Chile, Finland, Morocco, South Korea, and South Africa); roads linked to forestry (e.g. in Finland); mining roads (e.g. in Chile); plantation and agricultural roads; and rural and urban access roads. In most countries, roads are administered directly by governments (including sub-national levels of government) with capital investments and operations and maintenance (O&M) expenditures on main roads funded primarily from the consolidated national budget. Revenues related to road use, such as taxes on fuel and vehicle ownership, are typically deemed to be part of general revenues (only Morocco among the five case study countries has a dedicated Road Fund with earmarked taxes).

Based on some form of functional classification, the road network is typically divided into administrative classes:

• Major trunk roads (commonly designated as national roads), including expressways and toll roads, are normally managed at the national level by a government department (as in Chile and Finland), and are often complemented by a semi-autonomous public authority, or an autonomous corporation/company (as in Morocco, South Africa, and South Korea).

• Regional and rural roads are typically managed at the sub-national level by state/provincial/local governments; however, in Chile and Finland, all roads are managed by the national roads/transport entity through decentralized regional departments;

• Urban roads, which may also include some toll roads, are normally managed at the metropolitan

BACKGROUND

ORGANIZATION AND MANAGEMENT OF ROADS

VI. Roads

35

have a board of directors that often appoints the chief executive officer. In addition, some countries (e.g. Morocco, South Africa, and South Korea) are providing dedicated revenue sources for these commercially oriented enterprises in order for them to be (at least to some degree) independent managerially and free of the year-to-year vicissitudes of national budget funding.

Many examples of such new management arrangements are working well: Austria has ASFINAG; Morocco has the Société Nationale des Autoroutes du Maroc (ADM); South Africa has South African National Roads Agency Limited (SANRAL); South Korea has Korea Expressway Corporation; New Zealand has NZ Transport Agency; and Australia has VicRoads in Victoria State, NSW Road and Traffic Authority in New South Wales, and RoadTek in Queensland. Few of these road agencies are fully autonomous and most report to a parent ministry that has a wider infrastructure, public works, transport or communications portfolio.

Given their spatial spread, roads commonly are administered through a geographically dispersed organization with varying levels of functional

While many road organizations operate as government departments or agencies, an increasing number are being structured along commercial lines with greater functional and financial autonomy. These organizational changes have been prompted by public concern with politically driven road investment priorities, rising maintenance costs, congestion, and a gradual reduction in quality of service demonstrated by higher accident rates, increase in travel time, and a reduction in riding comfort. A few venerable highway agencies have been turned into not-for-profit joint stock companies or have been incorporated as state-owned enterprises under a companies act. The fundamental characteristic is to separate management and service delivery in the roads sector from policy making. They

Korea). In Chile, Morocco, and South Korea, roads are administered through a government department within a ministry (except for expressways and concessioned roads); while in Finland and South Africa, roads are administered through agencies with an autonomous corporate structure. A common feature of the road sector in all the five countries is the use of private-public partnerships for provision and operation of expressways.

TABLE 6.1 Organizationoftheroadsprovisionsector

CASE STUDY COUNTRIES

MINISTRY/ AGENCY

AUTHORITY/ CORPORATION FOR EXPRESSWAYS AND/OR NATIONAL ROADS

QQQA ROAD FUND

PRIVATEROAD OPERATORS

FINLANDMinistryofTransport(FinnishTransportAgency)

None Yes No Yes

SOUTH KOREA

MinistryofLand,TransportandInfrastructure(RoadsBureau)

KoreaExpresswayCorporation

Yes No Yes

CHILEMinistryofPublicWorks(RoadsDirectorate)25

CoordinationDirectorateforPublicWorksConcessions

Yes No Yes

SOUTH AFRICA

MinistryofTransportSouthAfricanNationalRoadsAgencyLimited(SANRAL)

Yes No Yes

MOROCCOMinistryofEquipment,TransportandLogistics(RoadsDirectorate)26

SociétéNationaledesAutoroutesduMaroc(ADM)

Yes Yes Yes

25 InChile,twootherministrieshavearoleintransport:TheMinistryofTransportandTelecommunications(policyandregulation)andtheMinistryofHousingandUrbanDevelopment(urbanroadsandstreets).26 SeparatedirectorateforRoadTransportandSafetyinMorocco.

36

declining from tens of thousands of personnel to a few thousand (for e.g. in Chile and South Korea) and in some instances just a few hundred (for e.g. in South Africa and Finland). This has been achieved mainly by gradually replacing in-house public force-account construction and maintenance units with competitively selected private contractors using performance-based contracts to improve efficiency and foster innovation in construction and maintenance works, and by outsourcing some client functions such as surveys and design, works supervision, quality assurance, and asset management to private consulting companies.

decentralization. The norm is for policy, planning, asset management, budget and finance, and HR functions to be retained at the center, with construction and maintenance implemented through regional and local offices. In a few instances, the regional administrations operate as fully autonomous units (as in Finland and South Korea) responsible for all road management functions (except strategic planning, financial management, and monitoring and evaluation responsibilities) under performance agreements with the central administration.

Over the past two decades, road organizations have become slimmer with the number of staff

Table 6.2 summarizes road-funding sources in each of the case study countries.

FUNDING OF ROADS

TABLE 6.2 Fundingsourcesforroadnetwork

CASE STUDY COUNTRIES

NATIONAL BUDGET DEDICATED TAXES ROAD TOLLS OTHER

FINLAND Yes No No PPPs

SOUTH KOREA YesYes(sharedamongalltransportmodes)

YesBonds,PPPs,otherinstrumentssuchasLandValueCapture

CHILE Yes No Yes PPPs

SOUTH AFRICA Yes Yes Yes PPPs

MOROCCO27 Yes Yes Yes PPPs

27 OnlyMoroccohasatraditionalRoadFundwithearmarkedtaxes.

37

vehicles (United Kingdom and Australia). There are advantages with such a system over tolls in that:

• More traffic, and in particular heavy trucks and buses, transfer to the new facility rather than continue to use the old one because of the lower variable cost of use, which improves the environmental return;

• The ramp-up of generated traffic comes sooner, improving the economics of the project; and

• Toll collection is simpler or replaced by monitoring and documentation of traffic flows.

Road user chargesBudget pressures and fluctuations in national budget allocations have caused countries to seek alternative road-funding mechanisms. Toll roads are useful to help fund parts of the national road network but cannot meet the needs of the entire road network. A number of countries have opted for a more general “fee-for-service” approach: road users pay a special levy added to the base price of fuel or a special tax on vehicles and the proceeds are earmarked for roads purposes such as road maintenance, road safety improvements and so on. Morocco, South Africa, and South Korea have special fuel levies dedicated for road-related expenditures. In contrast, Chile and Finland impose heavy taxes on vehicles and fuels, but they are part of general taxation.

A revenue base of flat fuel taxes and dependent on traffic levels can be eroded by economic slowdown, inflation, a switch to cleaner fuels and vehicles (particularly electric vehicles, plug-in hybrids and CNG-fueled vehicles), as well as by the increasing fuel efficiency of conventional vehicles, as has occurred in the United States. There is a growing recognition in OECD countries of a need to shift from fuel taxation to road-usage-based taxation.

Distance-based charging for road use is not new. New Zealand introduced a system of distance-based Road User Charges (RUC) in 1978 for all vehicles over 3.5 tonnes on all public roads, and on all diesel vehicles (including cars, vans, and other light vehicles). Switzerland introduced distance-based charging, called the LSVA, in 2001 on all vehicles over 3.5 tonnes on all public roads. Austria introduced distance-based charging, called GO Maut, for all vehicles over 3.5 tonnes on motorways in 2004. Germany followed suit with distance-based charging called LKW-Maut in 2005 on all trucks over 12 tonnes on all motorways (and some primary “A” roads). The Czech Republic, Poland, and Slovakia also have similar systems. The United Kingdom and Russia are preparing

Toll roadsSome roads carrying high average annual daily traffic (AADT) volumes (typically defined as exceeding 10,000 to 15,000 vehicles/day) are being tolled in many countries, including in all the case study countries except Finland. Tolling generates revenues that can either help fund public investment or be used to secure long-term private sector finance. Some toll roads are freestanding (mostly in developing countries), while others are operated as an integrated toll road network with high-volume roads cross-subsidizing the lower volume ones (primarily OECD countries like France, Italy, Japan, South Korea, and Spain that fund road-building through distance-based tolls collected at physical or electronic barriers). These tolled roads may be managed by a specialist unit of the national ministry responsible for roads, a public toll road authority, or may be owned and operated by a private concessionaire.

A major attraction of toll roads is their potential to attract Direct Foreign Investment (DFI) under a variety of public-private partnership (PPP) arrangements. With advances in traffic management and tolling technology (automatic/electronic toll collection/electronic road pricing), it is now possible to price road use by the type of vehicle, the time of day, and distance travelled, and also to charge for externalities such as road congestion and environmental pollution. Although tolled roads rarely account for a large part of the trunk (arterial) road system and are usually a very small fraction of the overall road network, they often carry a large share of road traffic.

Public-private partnershipsChile, Finland, Morocco, South Africa, and South Korea have all utilized PPP arrangements to finance parts of their expressway systems. There is a strong international trend to finance and implement large and complex highway projects through PPP or private finance initiative (PFI) in the United Kingdom. Canada (the Confederation Bridge) and Chile were early developers of delivery via long-term (20-40 years) design-build-finance-operate and transfer (DBFO) concessions in which financing mostly came from equity, private bank loans, and project bonds, while funding (servicing the debt, return on equity, and operating costs) was mostly provided through toll income supplemented by annual general budget allocations where needed.

Debt servicing of private finance with general budget revenues may alternatively be based on a system of availability payments to the concessionaire related to traffic flow and safety in combination with shadow tolling of heavy

38

revenue from that traffic to fund the maintenance and continued development of its network. Since then, Czech Republic, Hungary, Slovakia, and Slovenia have also required both domestic and visiting drivers to purchase vignettes before they can use any motorway: these countries applied the charge in parallel with the growth of a core motorway network such that users perceived they were paying mainly for new benefits, not for something that was previously free at point of use. Romania and Bulgaria have vignette schemes tied to the whole national network and these spread the burden of total road funding across all users. Belgium and France are also now planning motorway-based vignette schemes for cars as well as for heavy goods vehicles.

Technology-driven distance-based and time-based road charging schemes are the precursors to road pricing based on direct charges for the use of roads, which is done in some cities (notably Central London) but has not yet been adopted on a national basis except for Singapore. Such charges could be used not only to raise revenue for road funding, but also for managing transport demand to reduce traffic congestion, air pollution, greenhouse gas emissions, and road accidents.

and convenience. Advanced traffic management systems provide reliable data on travel time and traffic congestion to assess mobility (Finland and South Korea are leaders in the deployment of such systems). Geographical Information Systems (GIS) offer road agencies the means to assess connectivity in terms of reliable, climate-resilient road access to households, settlements, markets, and basic health and education services. Table 6.3 applies some standard indicators to the case study countries.

There is a seemingly close correspondence between income (GDP/capita) and road conditions and safety. As countries grow economically and become wealthier, there is a commensurate improvement in road quality and safety. There is also less dependence on earmarked taxes to fund road expenditures in higher-income countries. The existence of a dedicated Road Fund does not guarantee good road performance, at least not in upper-middle- to high-income countries. A combination of sound planning and budgeting practices, including the ability to attract private finance, appears to be a better option to secure good roads.

schemes for distance-based charging for heavy vehicles. Four US states—Kentucky, New Mexico, New York and Oregon—have a weight/distance tax for trucks not dissimilar to the systems in place in New Zealand and Switzerland. Oregon is now contemplating a distance-based charging scheme to replace fuel tax revenues that currently accrue to a federally administered Highway Trust Fund from which proceeds are then redistributed to state and local governments.

Other countries have introduced time-based charging of their entire motorway network, notably Austria and Switzerland. The vignette system requires prepaying for access to a motorway/national road network covering a set period that can range from a day to a year. Vignettes are stickers that are put on the vehicle windscreen as proof of payment. International road vehicles in transit also need the vignette (usually purchasing the one-day or one-week versions). Switzerland introduced the first scheme and Austria followed suit in 1997; both levying the charge for an established network hitherto perceived as free. Switzerland established the principle that a country whose motorway network was heavily used by foreign transit traffic could raise new

Common road system performance indicators include the physical condition of the road network, the incidence of road accidents and traffic fatalities, and the cost of vehicle operation as reflected in the cost of road transport. Road density (with respect to population, land area, or GDP) and road proximity measures (proportion of population living within a given distance from an all-weather road) are commonly used performance indicators. However, these are neither good indicators of connectivity nor useful in making inter-country comparisons, partly on account of deficient road inventories and classification systems. Moreover, the physical condition of infrastructure does not necessarily equate with the quality of service in terms of reliability, convenience, and comfort.

In general, higher order expressways and paved trunk roads have higher serviceability than lower order secondary and tertiary roads. This directly reflects the distribution of traffic on the road network and partly the organizational and funding arrangements for the different classes of the road system. With the help of appropriate asset management systems, road agencies (e.g. in South Africa) are beginning to use performance indicators that are directly related to user safety, comfort,

PERFORMANCE OF THE ROAD SECTOR

39

Road traffic accidents are a major cause of death, especially among young adults. In industrialized countries, only about 15-20 percent of fatalities involve pedestrians, non-motorized vehicles, and motorcycles. In developing and transition countries, the figure is closer to 50 percent and is as high as 70 percent in Asia. In developing and transition countries, road accident rates per 10,000 vehicles tend to be 10 to 20 times higher than in industrialized countries and cost between 1.0-1.5 percent of GNP. A major challenge for all road agencies in industrialized and developing countries alike is to build safer and forgiving roads that contain the scourge of road accident fatalities and injuries. Fortunately more attention is being paid to road accidents. Efforts are underway to mobilize private finance for road safety interventions and to set up accident reporting systems to enable road safety interventions to be planned and implemented more effectively.

TABLE 6.3 Roadperformanceindicatorsforcasestudycountries

COUNTRY(GDP/CAPITA)

GLOBAL COMPETITIVENESS INDEX (2013-14)

(QUALITY OF ROADS)

ROAD NETWORK(% PAVED)

CONDITION OF PAVED

ROADS(PERCENT

POOR CONDITION)

ROAD FATALITIES

COUNTRYRANK RATING TOTAL NAT’L

NO. PER 100,000

POPULATION

NO. PER 10,000

VEHICLES

FINLAND(USD35,900)

9/148 6.1/7.0 74 100 7 5.0 0.6

SOUTH KOREA(USD22,660)

15/148 5.8/7.0 80 98 5 14.1 2.3

CHILE(USD15,450)

27/148 5.4/7.0 30 80 6 12.3 4.7

SOUTH AFRICA(USD7,508)

41/148 4.9/7.0 25 100 1828 31.9 16.6

MOROCCO(USD2,850)

70/148 4.0/7.0 72 89 45 11.8 13.5

28 About95percentofexpresswaysandnationalroadsinSouthAfrica(underSANRAL)areingoodcondition.

40

most of the case study countries, while metro or light-rail transit have been or will be implemented in some (Table 7.1). This section mainly concentrates on road-based public transport (principally buses) in urban areas but with some attention also to inter-city buses.

• Regional/provincial governments; • Municipal governments; and • Special-purpose metropolitan transport

agencies.

Table 7.2 summarizes the allocation of responsibilities for urban public transport in the

The type of public transport infrastructure and services provided varies considerably among the case study countries. While regular bus services, taxi services, and inter-city bus services are provided in each country, the same is not true for other public transport services. Bus rapid transit has been implemented or will be implemented in

Institutional responsibilities for the provision of public transport services in urban areas in all case study countries involve at least two levels, and usually three or four levels of government:

• National government agencies (most frequently the Ministry of Transport or equivalent);

BACKGROUND

MANAGEMENT AND ORGANIZATION Government entities involved

VII. Public Transport

TABLE 7.1 Modesofpublictransportincasestudycountries

MODE FINLAND CHILE MOROCCO SOUTH KOREA

SOUTH AFRICA

SAUDI ARABIA

DUBAI (UAE)

TAXI SERVICE Yes Yes Yes Yes Yes Yes Yes

INFORMAL CITY BUS SERVICE (PRIVATE SECTOR SERVICE WITH LIMITED ROUTE PLANNING)

No No Yes No Yes Yes No

REGULAR CITY BUS SERVICE

Yes Yes Yes Yes Yes Ongoing Yes

BUS RAPID TRANSIT (BRT)

Yes Yes No Yes Yes Ongoing Yes

INTER-CITY BUS SERVICE

Yes Yes Yes Yes Yes Yes Yes

COMMUTER RAIL Yes Yes Yes Yes Yes No Planned

TRAM OR LIGHT-RAIL TRANSIT

Yes No Proposed Proposed No Planned Yes

METRO Yes Yes Proposed Yes No Ongoing Yes

41

service planning, contracting and management of transport operations, setting fares, and the provision of public transport infrastructure within their jurisdictions. Within larger metropolitan areas the metropolitan authorities typically have more authority than municipal governments as they have been created in response to the need to address travel that crosses municipal boundaries.

Private sector operators, especially of bus services, are the principal providers of public transport services in urban areas. However, metropolitan authorities and municipal governments sometimes do provide services with their own carriers. There is an increasing trend to seek investments from the private sector in public transport infrastructure through public-private partnership (PPP) arrangements.

case study countries, though the boundaries of responsibility are sometimes less clear than implied by the tables. An X denotes a major role and an O denotes a significant but subsidiary role.

TABLE 7.2 Organizationofurbanpublictransport

COUNTRY RESPONSIBILITY FOR URBAN TRANSPORT POLICY AND FUNDING

RESPONSIBILITY FOR PUBLIC TRANSPORT OPERATIONS & INFRASTRUCTURE

SINGLE NATIONAL MINISTRY

MULTIPLE NATIONAL

MINISTRIES

METROPOLITAN TRANSPORT AUTHORITY

METROPOLITAN TRANSPORT

AUTHORITIES

INDIVIDUAL MUNICIPAL

GOVERNMENT

NATIONAL GOVERNMENT

MINISTRIES

FINLAND

CHILE

MOROCCO

SOUTH KOREA

SOUTH AFRICA

DUBAI EMIRATE

SAUDI ARABIA

29 ThisisanationaltransportauthorityinthecaseofSaudiArabia.

National government entities have a dominant role in (a) establishing national public transport policies, (b) enacting legislation affecting public transport, and (c) vehicle licensing. They also play a significant role in funding public transport infrastructure and in providing operational subsidies, typically in combination with required local government contributions. The central government also at times establishes the allowable fares to be charged for some urban public transport services.

Municipal governments or special metropolitan transport authorities are typically responsible for

29

42

services, which is largely the responsibility of either national or regional government entities. The role of municipal and metropolitan authorities is largely limited to reviewing, in some cases, public transport service proposals to their jurisdictions and provision of terminals for these services. In larger metropolitan areas, such as the greater Seoul Metropolitan Region, the transportation authority might have a more significant role in service planning and actual provision of service.

Table 7.3 summarizes the wider roles of different groups in the provision of urban public transport.

TABLE 7.3 Allocationofrolesinurbanroad-basedpublictransport

FUNCTION NATIONAL GOVERNMENT

REGIONAL/ PROVINCIAL

GOVERNMENT

METROPOLITAN TRANSPORT AUTHORITY

MUNICIPAL GOVERNMENT

PRIVATE SECTOR

LEGISLATION

NATIONAL TRANSPORTATION POLICY

INFRASTRUCTURE FUNDING

OPERATIONAL SUBSIDIES

VEHICLE LICENSING

ROUTE LICENSING

FARE SETTING

SERVICE PLANNING

CONTRACTING & MANAGEMENT OF PUBLIC TRANSPORT OPERATIONS

PROVISION OF PUBLIC TRANSPORT INFRASTRUCTURE

PROVISION OF PUBLIC TRANSPORT SERVICE

= Very common

= Frequent

= Sometimes

Inter-city bus services in the case study countries are, for the most part, provided by the private sector with either national or regional government entities authorizing the service, and providing subsidies where needed (Table 7.4). Unlike urban public transport, metropolitan transport authorities and municipal authorities typically have a minimal role in inter-city bus

43

from the implementing authority (for e.g. Finland and Morocco).

Beyond fare-paying customers and allocations of subsidies from the various levels of government, there is the question of what other specific sources of funding might be dedicated for funding public transport operations or infrastructure. Table 7.5 illustrates the wide range of potential dedicated sources of funding, some of which have been utilized by the case study countries.

Funding of public transport comes from various sources. A significant share is from fare-paying passengers, but it usually does not cover service-operating costs, much less capital of vehicles and infrastructure. Most of the operating deficit is funded by the local governments (municipal or metropolitan transport authorities) responsible for the service, and from transfers from either the national government (or a combination of national and regional governments) to the implementing authority. The more sophisticated funding frameworks involve clear guidelines for sharing of funds and the required contributions

FUNDING FOR PUBLIC TRANSPORT

TABLE 7.4 Allocationofrolesininter-citybuspublictransport

FUNCTION NATIONAL GOVERNMENT

REGIONAL/ PROVINCIAL

GOVERNMENT

METROPOLITAN TRANSPORT AUTHORITY

MUNICIPAL GOVERNMENT

PRIVATE SECTOR

LEGISLATION

INFRASTRUCTURE FUNDING

OPERATIONAL SUBSIDIES

VEHICLE LICENSING

ROUTE LICENSING

FARE SETTING

SERVICE PLANNING

CONTRACTING & MANAGEMENT OF PUBLIC TRANSPORT OPERATIONS

PROVISION OF INFRASTRUCTURE

PROVISION OF PUBLIC TRANSPORT SERVICE

= Very common

= Frequent

= Sometimes

44

percent of work-related trips as compared to only 14 percent in Johannesburg.

The metropolitan populations of the principal cities in case study countries vary substantially, ranging from slightly over 1 million (Helsinki) to over 20 million (Seoul). The scale and composition of the public transport systems serving these cities vary correspondingly. For example, the mass transit system30 of metropolitan Seoul is 393 km in length as compared to only 21 km in Helsinki.

Tables 7.6 and 7.7 show features of public transport systems in ascending order of city size. Care should be taken in comparing cities as statistical methods may differ. The performance of these systems varies both in qualitative and quantitative terms. For example, the Seoul public transport system (bus and rail) captures 63

TABLE 7.5 Potentialfundingsourcesforpublictransportservices(general)

SOURCE OF FUNDS EXAMPLES

FARE REVENUE Universalsourceoffunds,seldomadequate

INTER-GOVERNMENT TRANSFERS (FEDERAL SUBSIDY) Allcasestudycountriesusethis

LOCAL GOVERNMENT BUDGET (REGIONS AND CITIES) Virtuallyallcountriesusethis

SPECIFIC DEDICATED SOURCES OF FUNDING:

• Advertising on the system Seoul

• Metropolitan transport tax (on businesses) Paris

• Sales tax UnitedStates

• Property/ building tax SouthKorea,UnitedStates

• Gasoline tax UnitedStates

• VAT Morocco

• Road/tunnel tolls SouthKorea

• Congestion fee London

• Bonds Seoul,Morocco,UnitedStates

• Public-private partnerships (PPP) SouthKorea,Morocco

PERFORMANCE OF PUBLIC TRANSPORT

30 Masstransitsystemisdefinedhereasrailsystems(metro,commuterrail,andLRT)andBRT.

45

TABLE 7.6 Comparisonofmasstransitsystemsincasestudycapitalcities31

COUNTRYMETROPOLITAN

POPULATION (MILLION)

MASS TRANSIT SYSTEM LENGTH

(KM)

MASS TRANSIT LENGTH /

CAPITA(KM/MILLION)

DAILY PUBLIC TRANSPORT PASSENGERS

/CAPITA

DAILY RIDERSHIP /KM OF MASS

TRANSIT LINES

FINLAND (HELSINKI) 1.02 21 20.6 0.30 2,700

CHILE (SANTIAGO) 5.98 163 27.3 0.35 12,800

SOUTH KOREA (SEOUL) 24.1 393 16.3 0.25 15,400

SOUTH AFRICA (JOHANNESBURG)

7.15 25 3.5 0.01 1,500

TABLE 7.7 Journeytoworkbydifferentmodes(percent)

COUNTRY BUS/BRT RAIL

TAXI/SHRD TAXI

CAR FOOT BICYCLE OTHER

CHILE (SANTIAGO)

24 13 1 23 35 2 2

SOUTH KOREA32 (SEOUL)

28 35 6 26 5

SOUTH AFRICA (JOHANNESBURG)

4 10 34 37 12 3

31 Definedasmetro,commuterrail,tram,andBRT.32 Motorizedtransportonly.

46

and in most cases this is responsible, with other stakeholders, for producing a national logistics strategy [in Morocco the ministry has sponsored a specialist Agency for the Development of Logistics Competitiveness (AMDL)];

• In three countries the ministry’s responsibilities are organized administratively by mode and in two by function, though the distinction is perhaps not as great as it seems as those organized by mode have functional departments within them, and those by function have some mode-specific units in their internal organizations.

In the ports sub-sector some common elements or tendencies within the case study countries are:

• Ministries of Transport determine national port development policy and strategic planning;

• National maritime authorities are charged with establishing and ensuring compliance with international maritime transport conventions and protocols, and policy and safety guidelines;

• Ports (or groups of ports) are usually publicly owned and administered as “landlord” port authorities with private sector terminal and other operations within the ports;

• On balance there is a policy preference (not always possible or perfectly realized) for competition between terminals and ports.

In the railways sub-sector some common elements or tendencies from the case studies are:

• Ministries of Transport determine national railway policy and strategic planning of networks and are often the most important funder of railway infrastructure;

• Most railways are constituted as companies (whether owned publicly or privately);

• Most national railways manage infrastructure and train operations in a vertically integrated way, even if the infrastructure is owned by another state institution;

• There is a tendency to manage passenger and freight activities by different “lines of business” or separate companies: rail freight is expected to operate commercially;

Transport is a large and diverse economic sector encompassing passenger and freight operations, urban and rural areas, public and private transport sectors, economic and social needs, and domestic and international markets. While this diversity exists in all countries, the scale and balance of each component and their influence on transport systems and sector governance naturally differ. It is therefore important to be cautious in applying the prescriptions of one country to the transport market circumstances of another. Moreover, the enabling environments will differ depending on historical, political, legal, and cultural factors. However, it is possible to have confidence in the general applicability of particular approaches when they have been adopted in a number of countries in which the market and enabling conditions clearly differ. This section tries to capture those general lessons provided by the case studies described above.

In terms of the central ministries involved in transport governance in the case study countries:

• The specific ministry entities forming the peak government entities in transport differ because transport is often combined with other sectors (examples include telecommunications, land, infrastructure, equipment, etc.);

• The transport divisions of each ministry nevertheless have many common elements and tendencies;

• The central transport ministries in each country have, with very few exceptions, national strategy, policy, and regulatory oversight of the sector on a comprehensive multi-modal basis;

• In some cases particular executive functions in regard to transport infrastructure provision, regulation or operations are carried out by agencies reporting to the ministry, especially in Finland (where there is a single comprehensive transport agency) and South Africa (which has a series of specialist transport agencies and authorities);

• Nearly all the countries have published a National Transport Strategy covering all these modes of transport with both multi-modal initiatives as well as mode-specific components;

• Most countries have a unit or department in the ministry that is responsible for freight logistics

VIII. Lessons Learned

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allocations remain the mainstay of capital development works. Chile and Finland impose heavy taxes on vehicles and fuels, but they are part of general taxation;

• A revenue base of flat fuel taxes and dependent on traffic levels can be eroded by economic slowdown, inflation, a switch to cleaner fuels and vehicles, as well as by the increasing fuel efficiency of conventional vehicles. There is a growing recognition in the more advanced countries to shift from fuel taxation to road-usage-based taxation;

• All of the countries have utilized PPP arrangements, with tolls, availability payments (shadow tolls), and/or bond financing to fund parts of their network;

• South Korea and Finland are global leaders in the application of Intelligent Traffic Systems (ITS) to their high-performance expressways, while other countries have introduced centralized traffic management systems on such facilities.

In the public transport sub-sector some common elements or tendencies are:

• National government entities have a dominant role in (a) establishing national public transport policies; (b) enacting legislation affecting public transport; and (c) vehicle licensing;

• National governments also play a significant role in funding public transport infrastructure and in providing operational subsidies;

• With few exceptions, the assignment of roles and responsibilities for addressing public transport is complicated with overlaps and gaps in responsibility at different government levels;

• Municipal governments or special metropolitan transport authorities are typically responsible for service planning, the contracting and management of transport operations, setting fares, and the provision of public transport infrastructure within their jurisdictions;

• Private bus operators are the principal providers of public transport services in most of the urban areas, though metropolitan authorities and municipal government sometimes do provide services with their own bus companies;

• Inter-city bus services are mainly provided by the private sector with either national or regional government entities authorizing the service, and providing subsidies where needed.

• Most railway passenger services require financial support, sometimes from a co-owned freight operation, but (preferably) by a direct government financial support.

In the roads sub-sector some common elements or tendencies are:

• Ministries with oversight of the transport/public works sector determine national roads policy and strategic planning of networks, and ownership of the roads is vested in the public sector;

• The road network is typically classified by law into several administrative classes for purposes of allocating responsibilities for management and funding, typically:

» Major trunk roads, including expressways and toll roads, are normally managed at the national level by a government department (as in Chile and Finland), and are often complemented by a semi-autonomous public authority, or an autonomous corporation/company (as in Morocco, South Africa, and South Korea);

» Regional and rural roads that are normally managed at the sub-national level by state/provincial/local governments and urban roads by city governments or urban councils;

• While road organizations mainly operate as government departments and agencies, an increasing number are being structured along commercial lines with greater functional and financial autonomy;

• In bigger countries the road provision entities are decentralized with construction and maintenance implemented through regional and local offices, sometimes with a high degree of autonomy;

• There has been a significant downsizing of road departments with the number of staff declining from tens of thousands of personnel to a few thousand (Chile and South Korea) and in some instances just a few hundred (South Africa and Finland). This has been achieved mainly by outsourcing maintenance works (and some client functions such as surveys and designs) to competitively selected private contractors;

• Three of the five countries use earmarked taxes to fund road expenditures, but only one (Morocco) has a traditional Road Fund. Budget

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In the transport sector as a whole the lessons of international experience in reorganizing sector governance are confirmed as they have been long understood, to paraphrase Amos (2006)33:

• Restructuring a complex industry or organization is a long-term process. It often requires legislative, as well as institutional and management changes, and a period of cultural adjustment within organizations before benefits emerge. Unrealistic timetables that do not allow for the time needed for political process, for the consensus building needed for radical change, and the need to overcome organizational inertia are likely to be frustrated.

• Structural change is only a means to an end. That end is to improve performance. Governments can create the policy platform and framework for this improved entity performance but only managements and their employees can deliver the goods. Close attention therefore needs to be given to investing in the actual process of business change management, attraction of the best skills and experience, worker consultation and participation, creation of the appropriate culture, incentive structures, and so on.

• Even within a particular sector of transport, such as a highways agency, or rail or port company, one structural model does not fit all. The international experience needs to be mined, but then shaped to local markets and circumstances.

• Public enterprise reform is not a “fire and forget” process. Good public custodianship requires explicit supervisory and monitoring mechanisms. When government enterprises are not working well it is often the processes of public governance that need scrutiny as much as the enterprises themselves.

• Transport markets and technologies are continually changing. New transport demands and opportunities will emerge with economic development and technological progress. The objective of transport policy should not be to achieve a given end state, but to create an industry adaptable and responsive to change.

33 Amos2006,citedinWorldBank(2008)Safe,CleanandAffordable:TransportforDevelopmentavailableatsiteresources.worldbank.org/INTTRANSPORT/.../Transport