Investment in infrastructure in Norway - financing by grants or/and by toll

Investment in infrastructure in Norway. Financing by grants or/and by toll
Presentation at the Chilean-Norwegian seminar at Grand Hyatt Santiago 25 January 2008

Ladies and gentlemen!

It is a great pleasure to be here to learn from your concessions system, and to share our Norwegian experiences on road tolling. In my presentation I will first in brief give some general information about the Norwegian road system. Then I will look more into the principles of tolling in Norway and the organizing of toll projects. Finally I will have some comments about our experience with PPP (Public Private Partnership) in the road sector.

Norwegian road system
The Norwegian road network is comprehensive – because of long distances and a widely distributed population. Norway has approximately 27 000 km state roads and 64 000 km regional and local roads. In additional to this, there are private roads of approx. the same total length. Public funding for investments in the state road network in this years budget is 6,5 bill. Norwegian kroner (about 1,2 billion USD). The total funding of the road sector is about 15,5 bill. Norwegian kroner (about 2,85 bill. USD).

Principles of road tolling in Norway
There are two basic principles that we follow regarding toll financing.

• a toll project has to bee approved by the parliament before we can start collecting tolls
• every toll projects put forward to the parliament for approval, should be based on local authorities initiatives and decisions

So far, the construction is administered by the NPRA; hence only the financing is partly privatised.

We have a long our history regarding toll financing in Norway through more than 70 years of experience in using road toll payment as a finan¬cial instrument for building bridges, tunnels and roads.

From 1930 to 1980, less than 5% of the total Norwegian road budget came from road toll revenues. During the last 20-25 years, however, road tolls have become an increasingly important way of financing road projects. In 2008 4,9 billion NOK (approximately 0,9 billion USD) or 40+ % of the total annual state road construction budget came from toll fees collected from road users in about 50 projects throughout our widespread country.

Earlier we had a rule that said that toll money collected was supposed to only cover investment costs. We have recently changed this rule, and we now allow tolls also to be used to finance operation of public transport.

It is possible to some extent to differentiate charges, but it to use the fee structure for traffic management purposes has not been introduced so far. This is, however, a topic we want to introduce because of undeniable effects in reducing driving and hence CO2 emissions. I will come back to that as an interesting point for discussion. The time limitation of a road toll project is normally 15 years, and shall not be more than 20 years. We have a rather strong time limitation. People should know that toll collection one day will be finished. This is important for the acceptance of toll financing. Normally, public funds are also allocated to projects, but no state guaranties are given.

Traditional Norwegian open road toll systems, making people pay for using an expensive part of the road infrastructure like a bridge or a tunnel, were fair enough.

When introducing the urban toll rings, we left the principle that only those benefiting from new road infrastructure should pay toll. When passing a toll ring to enter the central part of a city, there is no differentiation of the payment concerning distance travelled, and there is no guarantee that the driver will benefit from driving on any new road at all on his trip. For other projects than toll rings, however, the main principle is that only those benefiting from the new projects should pay.

We do also in some cases collect toll on the old road as well when introducing a new freeway with tolls running in parallel with the old one. The rationale is to avoid that too many drivers choose the old road to avoid paying toll only. For safety and environmental reasons and to save fuel and time, it is beneficial to society that most drivers use the new road. Local people claiming that they should not pay, is met by the argument that they benefit from the new road through better capacity, safety and environmental conditions on the old road due to the new road as well.

In Norway, as in other European countries, the toll collection normally starts when the new infrastructure opens, to pay back loans from financial institutions. In Norway, however, we also have introduced the opportunity to collect toll in advance of the opening of the new road infra¬structure paid for by the toll, and even – in rare cases – in advance of starting to build the new infrastructure. When this is done in connection with strait crossings, the road toll comes in addition to the payment for using the ferry, and the toll will not be so clearly noticed and opposed to by the drivers. When road toll collection starts on an old road several years before the new road infrastructure will be opened, however, we have experienced, naturally, strong opposition.

We want a toll system that is very efficient. In general, in our urban toll rings and other large road toll projects, the cost of operation may be about 10 per cent of the gross income, but this will of course vary according to the fee level, the traffic volume and the degree of automation of the toll collection systems. Many of our new projects have electronic toll collection, using electronic tags on the vehicles. We have also a national system called AutoPASS, that makes it possible to pass true different toll projects using the same electronic tag in the whole country, and being extended also in Scandinavia.

Organizing Norwegian road toll projects
The organisation of toll projects in Norway is different from the concessionary system used in various other countries. In Norway, the Norwegian Public Roads Administration is responsible for planning, building and operating the road projects financed by toll money and for planning and building the toll collection systems.

For each toll project a dedicated toll company with limited responsibility is established by the local authority to operate the road toll system and to handle the money collected. Operating regulations are presen¬ted by the Ministry of Transport and Communications. When making drivers pay toll fees for the use of new roads, it is important to build on local initia¬tives and to have local operation of the system.

When the collection of road toll starts prior to the building of the road, bridge or tunnel in question, as is often the case when a ferry connection is going to be replaced, the toll company will have the responsibility of handling the money col¬lec¬ted in the best way so as to have as large a sum as possible available to cover the road construction expenses when the Public Roads Administration needs it.

When the construction of a new road link takes place before the collection of toll fees starts, the toll company is the body which takes loans from banks etc to finance the part of the investments to be covered by the road tolls. This means that interest also has to be paid back in addition to the loans when money from the road tolls starts coming in.

Congestion charging
I mentioned earlier differentiated charges – congestion charging. In some of our cities we have problems with congestion in the peek hours, but none of the cities have toll systems that manger the traffic flow. We are looking into this matter and we have seen the promising results from Stockholm. Here the traffic volume and hence the emissions were reduced by 14 % when they introduced the congestion charges scheme. We have also seen the positive results from London, were the traffic flow in city central is much better now after the introducing of the congestion charging. In the future there is a possibility that some of our cities will introduce some kind of congestion charging schemes.   

PPP (Private Public Partnership)
Chile has a long experience with PPP in the road sector. In Norway we have three projects that have been selected to test the PPP-model. The basic principle in the model are as follow:

• A company is given responsibility for designing, financing, building and operation and maintenance (25 years).
• The company is paid a fixed yearly amount from the state (which may also include toll revenues) –  from construction is completed and for 25 years.
• in the PPP-model the private sector gets the entire responsibility to deliver a service through the whole period.
• authorities will place orders and make demands on what to be delivered, as opposed to demands on how to deliver it
• the PPP-model assures a value for money allocation of risk between the public and private sectors

Today building is completed for two of the projects, and the third one is under construction and will be open for traffic in 2009. Our main purpose for choosing to look at the PPP model is to examine if this is a more effective way to carry out construction, operation and maintenance of road projects.

We have now evaluated the model and it is now up to the government and parliament to decide whether PPP should be established as a permanent model. It is very interesting to have the opportunity to learn more about your experiences in the field.

Thank you for you attention!