FINANCIRANJE SLOVENSKOG NACIONALNOG PROGRAMA IZGRADNJE AVTOCESTA OD 1994.

GODINE DO DANAS FINANCING THE SLOVENE NATIONAL MOTORWAY CONSTRUCTION PROGRAMME FROM 1994 TILL NOW

Lado Prah, univ. dipl.in. Druba za avtoceste v Republiki Sloveniji, d.d., Ulica XIV. Divizije 4 , 3000 Celje, Slovenija lado.prah@dars.si

Helena Garzarolli, univ.dipl.in. DDC svetovanje ineniring, Druba za svetovanje in ineniring, d.o.o., Kotnikova 40, 1000 Ljubljana, Slovenija helena.garzarolli@ddc.si

Saetak: V letu 1995 je dravni zbor Republike Slovenije sprejel Nacionalni program izgradnje avtocest v Republiki Sloveniji. S sprejemom tega dokumenta, ki je opredelil cilje in obseg izgradnje slovenskega avtocestnega omreja, organizacijske in institucionalne pogoje ter predvsem finanno strukturo, je postavil temelje za izvedbo tega velikega nacionalnega projekta. V dvanajstih letih je realizacija nacionalnega programa sledila politinim in gospodarskim spremembam, se prilagajala napredku stroke ter evropskim usmeritvam in izkunjam s podroja organiziranosti in financiranja velikih infrastrukturnih projektov. V prispevku so predstavljeni kljuni izzivi iz obdobja od 1994. leta do danes, ki so vplivali na obseg, strukturo in vire financiranja avtocestne izgradnje v Sloveniji. Kljune rijei: nacionalni program, avtoceste, financiranje Abstract: In 1995 the Parliament of the Republic of Slovenia adopted National Motorway Construction Programme in the Republic of Slovenia. This document was the basis for one of the biggest national projects. It has set goals and scale of Slovene motorway construction as well as organisational, institutional and financial structure of the project. In the past twelve years the realisation of the programme followed political and economic changes, took in consideration the development of the knowledge and industry as well as European directives and experiences in the field of organising and financing large infrastructure projects. In this article main challenges that affected scale, structure and financial sources for Slovene motorway construction from 1994 to this day are presented. Key words: national programme, motorways, financing

INTRODUCTION Important, national infrastructure projects such as motorways are always a challenge from financial point of view. Each country is confronted with limited budget and multiple needs as well as with limited options and opportunities for additional financial sources for project realisation. In case of Slovenia, a small country that got its independence only recently, such projects require huge efforts in terms of political wisdom, organisational solutions, professional expertise and prioritising. In 1993 all these efforts were focused to a so called national project of the century, a national motorway construction programme. By today altogether 374 km of new motorways were built. The programme was financed from the following sources: petrol tollar, tolls, loans and bonds and other sources, including EU funds. The programme and financial sources for its realisation experienced several changes from 1993 to this day. The programme was enlarged and the focus moved from petrol tolar, being prevailing source for programme realisation at the beginning, to loans, bond and other sources that are becoming more and more important. The challenge how to assure Slovenia with modern motorway network is changing into a challenge how to assure financial sources for programme completion and debt servicing. The preparation and the debate on numerous documents took place and contacts with international financial institutions were established to prepare consistent motorway construction programme. The draft programme for construction of a so called east-west motorway direction was prepared in 1993 and construction began. In 1995 the National Motorway Construction Programme (NPIA) was adopted by Slovene National Assembly. To the draft from 1993 a new motorway direction from south to north was added. Total length of planned new motorways was of 500 km and the investment value was estimated to 2.170 millions USD (without financing costs). Programme was to be realised from 1994 to 2004. After 1996 the strengthening of traffic flows from Northern Europe through Slovenia to south-east began. The new Slovene development needs in economy and traffic as well as financial feasibility demanded to revise the economic, traffic and financial presumptions National programme was based on. As a consequence changes and additions to NPIA were adopted by Slovene Parliament in 1998. New connecting roads and some other measures were added to the original motorway cross that resulted in prolongation of planned new roads to 554 km. A new estimated investment value grew to 4.100 millions USD (without financing costs) and the programme was supposed to be finished by 2004. A preparation and adoption of a new resolution on NPIA (ReNPIA; see Figure 1) followed a thorough analysis of the programme realisation in period 1994 2002. The resolution is in force from 2004 and forecasts the construction of 640 km of roads for 3.476 millions by 2013. Some investments, such as optimisation and development of tolling system, were also included.

1. NATIONAL MOTORWAY CONSTRUCTION PROGRAMME IN THE REPUBLIC OF SLOVENIA After 1990 geopolitical changes in middle and eastern Europe had an important influence on changes in traffic flows and traffic loads within Slovene road network. Strategic role of some traffic directions resulted in change of Slovene traffic policy. In 1993 Slovenia signed Transport Agreement with EU that encouraged the preparation of Slovene motorway construction programme. The programme anticipated faster construction of new motorways on priority direction connecting entilj on the Slovene Austrian border and the port of Koper with connections to Italian and Hungarian borders. The National Assembly suggested the adoption of a so called law on petrol tolar (with tolar being the Slovene currency at the time) to assure financing and the study on possible long term financial sources for programme realisation.

Table 1:

The comparison between Slovene motorways construction programmes, adopted in years 1995, 1998 and 2004 Planned new roads lengths (km) 500 554 640 Estimated programme investment value 2.170 mio EUR 4.100 mio USD 3.476 mio Planned program construction period 1994 - 2004 1994 - 2004 2003- 2013

NPIA 1995 NPIA 1998 ResNPIA 2004

Main strategic goals that Slovenia is planning to achieve with programme realisation are the assurance of suitable and effective inner and

outer road connection of the state, stimulation of further economic growth and development and better safety for all road traffic participants.

Figure 1: National Motorway Construction Programme in the Republic of Slovenia from 2003 - 2013

The Slovene Parliament and government, numerous ministries and local community administrations are included in program realisation. All the investors tasks were trusted to a Motorway Company in the Republic of Slovenia (DARS), a joint-stock company established by law in 1993. In accordance with the decisions of the National Assembly of the

Republic of Slovenia, DARS was in charge of financial engineering, preparing, organising and managing construction and maintenance of the motorway network, and is responsible for the management of motorways in the Republic of Slovenia. In 1994 two contracts were signed between the state and DARS that redefine responsibilities allocation for motorway programme realisation.

2. PLANNED FINANCIAL SOURCES FOR NATIONAL MOTORWAY CONSTRUCTION PROGRAMME REALISATION

concessions and cohesion funds among other sources.

The NPIA from 1995 envisaged the following financial sources for motorway construction: petrol tolar, loans by international financial institutions, loans from commercial banks and other sources. In 1998 the NPIA allowed the addition of bonds to the financial sources and in 2004 the ReNPIA included the possibility of

Petrol Tolar Act on the Provision of Funds Earmarked for the Construction of National Roads was adopted in 1993. It established that a part of the fuel tax will be transferred from the state budget for the purpose of motorway construction.

Table 2:

The comparison between planned amount of petrol tolar in Slovene motorways construction programmes, adopted in years 1995, 1998 and 2004

Planned period in which petrol Planned amount of petrol tolar tolar is a source for programme realisation NPIA 1995 1994 -1999 1.240 mio USD NPIA 1998 1998 - 2007 3.065 mioUSD ReNPIA 2004* 2003 - 2013 1.960 million * petrol tolar will be used for loan repayments even after 2013 (likely till 2019)

Tolls A share of collected tolls is allocated to cover investment costs of motorway construction. The importance of tolls as a direct financial source for motorway construction is only marginal. Besides for financing the ReNPIA however toll is intended for the maintenance and operation of motorways and financing of the loans. In this context the importance of tolls becomes crucial. Table 3:

Loans and Bonds In NPIA 2005 favourable loans from EIB and EBRD were envisaged, some loans from domestic and foreign commercial banks were planned, too. In 1998 NPIA the possibility of issuing bonds for domestic and foreign sale was allowed.

The comparison between planned amount of loans and bonds issued in Slovene motorways construction programmes, adopted in years 1995, 1998 and 2004 Planned amount of loands Planned issued amount of bonds

NPIA 1995 596 mio USD NPIA 1998 1.783 mio USD - (allowed) ReNPIA 2004* 494,3 mio 2.112 mio * loans and bond will be an important financial source even after 2013 (likely till 2033)

Other sources Local governments participate in financing the construction of those motorways that are solving traffic problems of large cities (Ljubljana, Nova Gorica etc). In 2004 the ReNPIA included the possibility of concessions and cohesion funds among other sources.

3. NATIONAL MOTORWAY CONSTRUCTION PROGRAMME REALISATION 1994 - 2006 From the beginning of the programme realisation in 1994 to the beginning of 2007 a total of 370 km of new motorways were constructed in Slovenia. Financial sources for this achievement are shown in Table 4

Table 4:

Planned and realised financial sources for motorway construction in the period 1994 - 2006 Realisation % 74% 338% 74% 78% 236% 43% 78%

Financial source Planned in 1994 - 2006 Realised in 1994 - 2006 Petrol Tolar 2.064 1.537 Kohesion Funds 8 27 Tolls* 784 580 Loans and bonds 2.216 1.731 VAT refunded 64 151 Other sources 63 27 Total 5.199 4.053 * only the share of tolls, earmarked for construction

4. CHALLENGES IN THE PERIOD 1994 2007

provision that this financial source can be also used for loan repayment after 2004. In

4.1. The law on petrol tolar Under the low on petrol tolar the state provides funds earmarked for state roads construction within the state budget. At firs the amount resulted to 16 % of retail price of every litre of motor and diesel fuel sold on the annual basis in the period 1993 1999. In 1998 changes to this law were adopted and a 16 % share was taken up to 20 %. The period of financing was prolonged to 2007 with the

2002 the law was changed again. This time the amount earmarked for construction was fixed for the year 2003 (to 37 billion SIT) with the provision that in the future the annual amount should reach at least the real value of the 2003 amount. The period in which petrol tolar will be a source for programme realisation was linked to the programme needs (till 2019). The planned amount of petrol tolar in the period 1994 2002 was 1.685 millions USD, actual sum of petrol tolar earmarked for construction in that period was only 75 % i.e. 1.264 millions USD. The comparison between planned and realised annual amount of petrol tolar is shown in Table 5.

Table 5:

Planned and realised annual amount of petrol tolar for motorway construction in the period 1994 - 2006 Planned Petrol tolar 119,20 mio USD 135,95 mio USD 135,22 mio USD 141,12 mio USD 168,45 mio USD 235,50 mio USD 242,50 mio USD 249,88 mio USD 257,38 mio USD 239,00 mio 158,20 mio 163,10 mio 24,76 mio Realised petrol tolar 120,29 mio USD 149,12 mio USD 137,86 mio USD 134,32 mio USD 159,21 mio USD 181,55 mio USD 126,46 mio USD 115,85 mio USD 139,44 mio USD 160,00 mio 99,53 mio 79,20 mio 24,76 mio Realised share (%) 100,91 109,68 101,95 95,18 94,52 77,09 52,15 46,36 54,18 66,9 62,9 48,6 100

Year 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Table 5 clearly shows that except in the firs three years of the programme realisation of petrol tolar does not keep up with plans. This trend is especially noticeable in the last few years, with drastic fall in 2006. In the period 1994 2002 petrol tolar represented 56 % of all financial sources spent for motorway construction, but by the year 2005 this share fell to 45 %. What was once main financial source for motorway construction now became rather insignificant in comparison to other financial sources. At the beginning of the programme the economic and political circumstances were in favour of such solution. In fact, from todays point of view, one could say the assurance of petrol tolar was the crucial decision for successful start-up of the programme. Current situation, on the other hand, is a result of numerous other investment and development needs of the county. That is why limited budget financial sources are distributed in a different way.

4.3. Concession and agent agreements From the beginning of the programme to 1994 all the investors tasks were executed by a Motorway Company in the Republic of Slovenia (DARS), a joint-stock company established by law in 1993. In accordance with the decisions of the National Assembly of the Republic of Slovenia, DARS was in charge of financial engineering, preparing, organising and managing construction and maintenance of the motorway network, and was responsible for the management of motorways in the Republic of Slovenia. The concession contract between the state and DARS was signed in 1994. The concessionaire is the one to collect tolls which represent his income. Tolls are the source for covering the costs of maintenance and toll collection as well as for debt servicing for loans raised for construction. Maintenance and toll collection is executed by DARS itself. The loans for motorways construction are raised by DARS, the state guarantees for them, but repayments does not burden the state budget. The other contract, signed between the state and DARS in 1994, defines DARS as the investor in the name of the Republic of Slovenia regarding the National Motorway construction Programme completion. DARS assures all activities that has to be done for motorway construction, i.e. designing of motorways, public procurements execution and construction survey. On top of it DARS is in charge of financial engineering to assure financial sources for programme continuation and completion by raising loans and issuing bonds. To assure professional expertise DARS uses public procurement procedures to choose the qualified consultants and engineers. 4.4. EU funds Slovenia became a member state of European Union on May 1st, 2004. In consequence, Slovenia has access to financial resources that under certain conditions - are available only to EU member states. National motorway construction programme benefited from EU cohesion fund. To this day two motorway sections were co financed from EU cohesion fund in an amount of 27,2 millions . In order to receive the EU financial participation a challenging procedure was carried out, where environmental issues are of great importance, as well as public procurement procedures.

4.2. Loans and Bonds Ever since the first NPIA the role of foreign and domestic loans raised for motorway construction was very important. Slovenia decided to assure state guaranties for loans raised even though this has had a direct influence on public debt. From 1994 till now several laws on state guaranties were adopted and loans were raised from international financial institutions (EBRD, EIB), foreign banks (KfW etc) and consortium of domestic banks. Terms under which loans were granted were always negotiated and different results were obtained. In addition to loans DARS issued three series of bonds in 2004 and 2005 for trade on the secondary capital market. The main challenge in raising loans for motorway construction was how to compete with other applicants for state guaranties. The limit to a public debt was set not only by the government but also by European Union through conditions that were imposed to candidate countries waiting to become EU member states. Another challenge was and still is to succeed in negotiations with banks. If any of these two elements should fail, the financing of motorway construction would have been seriously endangered.

4.5. The impact of NPIA to the Slovene economy In 2003 a study on Macroeconomic and development consequences of motorway construction in Slovenia was performed. The study showed that the programme, accepted in ReNPIA has the most positive joint impact. The most interesting findings support the opinion that the realisation of this large investment project has a strong positive impact on the Slovene economy. The study showed that in case NPIA would not have been realised in 1994 2002 period, the total investments would be smaller for 7,8 % per year, GDP would be smaller for 0,91 % per year, employment would be smaller for 0,68 % per year and there would be no positive effects on other sectors of economy. 4.6. Tolls Slovenia is among those European countries which have rich experience in collecting tolls on motorways. Tolls on the Slovenian motorways have been collected since 1973, the open and closed systems of toll collection are used. The present system of toll collection on the Slovenian motorways is the result of the conditions prior to NPIA. It is also the consequence of the standpoints of the authorities, studies based on these standpoints and of taking into account the European Union's Directives. The European Union's Directives concerning traffic promote the principle that the users should cover, to the largest extent possible, the costs of the transport of goods and people. The open toll system has been introduced on all new motorway sections. The open system makes it possible to use motorways without paying tolls within the regions. Toll stations are situated on region borders, covering mainly long-distance transit. Since 1995 the ABC system (Electronic Toll Collection, ETC) has been used at all toll stations in Slovenia. Substituting the cash tolling with the electronic toll collection system has increased the lane fluency, decreased negative effects on the environment. In addition, the system enables a much faster, easier and more comfortable way of paying tolls, with the users staying completely anonymous. The number of ABC users has been constantly growing. Tolls were an important financial source for motorway construction, maintenance and

operation from the beginning of NPIA. During the programme realisation toll collection became more and more important as a source for loan servicing. Authorities decide on toll collection system(s) as well as on toll amount and by this they have a great impact on tolls collected. Past experiences suggest authorities are not always aware of the responsibility connected to those decisions.

5.

CONCLUSIONS

The construction of Slovene motorway network is a great challenge for a young county. The National Motorway Construction Programme, set in 1993, can be called a relative success despite numerous changes in scale and financial structure. The completion of construction is near but the time when the debt will be repaid is distant and sets new challenges in front of decision makers. Last revisions of NPIA were done in the right direction by recognising the toll system as a modern, permanent, stable and long-term source of financing the management and maintenance of the motorways, as well as their construction and the repayment of loans. This is consistent also with the European Union's Directives - stemming from the EU's Green Book on efficient transport pricing policy. The EU Directives on paying the use of toll roads define that tolls should depend on both real distance travelled by users on toll roads and the damage that a vehicle makes on the road. The efforts for implementation of a modern toll collection system, together with interoperability assurance, in Slovenia are growing and are supported by decision makers. In circumstances where petrol tolar is reduced to a marginal sum and debt repayments are growing the assurance of tolls as a permanent, stable and long-term source is of vital importance. Slovene experience with NPIA realisation is satisfactory, we need to assure it keeps this judgement by the time all loans will be repaid.

Sources used: various internal documents and reports, DARS, and http://www.dars.si slovene legislation on NPIA and DARS