Module 4 Final PDF

Sustainable Urban Mobility
in Developing Countries
Module 4
Management, Financing
and Institutions
In Cooperation with
Sustainable Urban Mobility in Developing Countries
– Module 4 –
Management, Financing and Institutions
Published The United Nations Institute for Training and research (UNITAR)
by: Palais des Nations
CH-1211 Geneva 10
Switzerland
Copyright: Copyright © 2010

United Nations Institute for Training and Research (UNITAR)
ISBN: 978-92-9182-061-0
Disclaimer
Opinions expressed in this volume are those of the authors and do

not necessarily reflect the views of the United Nations Secretariat,
UNITAR, or any other United Nations organs and agencies men-
tioned in this publication.
The designations employed and the presentation of material in this

publication do not imply the expression of any opinion whatsoever
on the part of the secretariat of the United Nations concerning the
legal status of any country, territory, city or area or of its authori-
ties, or concerning the delimitation of its frontiers or boundaries.
This publication is protected by international copyright law. All

rights reserved. No part of this publication may be reproduced,
stored on a retrieval system or transmitted in any form or by any
means, electronic, mechanical, photocopying, recording or other-
wise, without the prior written permission of UNITAR
FOREWORD
“We cannot talk about urban transport until we know what type of a city we want.
And to talk about the city we want is to talk about the way we want to live. Do we want
to create a city for the poor, the children, and the elderly, and therefore for every other
human being, or a city for automobiles? The important questions are not about engineer-
ing, but about ways to live. A premise of the new city is that we want society to be as
egalitarian as possible. For this purpose, quality of life distribution is more important than
income distribution. The equality that really matters is that relevant to a child: Access to
adequate nutrition, recreation, education, sports facilities, green spaces, and a living en-
vironment as free from motor vehicles as possible. The city should have abundant cul-
tural offerings; public spaces with people; low levels of noise and air pollution; and short
travel times.
Cars destroy the common silence; pollute the air; and require extremely costly
road space and infrastructure that absorbs scarce public funds. While only an upper mid-
dle class minority uses cars, despite enormous costs and injustice, the system works. But
it would not be possible for every citizen to use a private car for his or her mobility; oth-
erwise jams would be massive and high velocity roads would destroy the human qualities
and structure of the city. Many developing cities are moving in this direction. Bangkok,
Manila, Cairo, Kuala Lumpur and other cities are already notorious for severe traffic con-
gestion, despite relatively low levels of motorization.
Urban transport is a political rather than a technical issue. The technical aspects
are relatively simple. The difficult decisions relate to who is going to benefit from the
models adopted. Do we dare to create a transport model different from that in the so-
called advanced world cities? Do we dare create a transport system giving priority to the
needs of the poor majority rather than the automobile owning minority? Are we trying to
find the most efficient, economical way to move a city’s population, as cleanly and as
comfortably as possible? Or are we just trying to minimize the upper class’s traffic jams?”
These questions are posed by Enrique Peñalosa, the former mayor of Bogotá
(Colombia), who introduced a number of sustainable transport measures in his city1.
This Course on Sustainable Urban Mobility in Developing Countries is designed to

provide answers for Peñalosa’s questions and learn about solutions and alternative ap-
proaches in urban transport planning that target a more sustainable transport system in
Developing Cities. For this purpose, six modules have been developed that focus on the
following main topics:
Module 1: Urban Growth and Strategies for Sustainable Urban Transport

Module 2: Municipal Mobility Management
Module 3: Public Transport Services
Module 4: Management, Financing and Institutions
Module 5: Energy and Environment
Module 6: Social Issues and Safety
These modules together form a complex picture on what sustainable transport can
be and how it may be implemented.
Local Development Programme

UNITAR
1
Peñalosa, E., 2005: Urban Transport and Poverty, GTZ Sourcebook Module 1a, Eschborn.
ACKNOWLEDGEMENTS
This course on Sustainable Urban Mobility in Developing Countries has been initi-
ated by the United Nations Institute for Training and Research (UNITAR), in collaboration
with the Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ).
The substantive content of this module was provided by Dr. Niklas Sieber (editor)
a Transport Economist, Regional Planner and University Lecturer from Germany, based
on extensive material provided by GTZ. This publication was prepared under the supervi-
sion of the Local Development Programme of UNITAR and GTZ, especially Mr. Manfred
Breithaupt, Mr. Armin Wagner and Mr. Carlos Pardo for reviewing the module.
Special thanks are due to the aforementioned individuals and institutions for their
support and contributions.
Table of Contents
1. Financing and Economic Instruments.......................................................... 1
1.1. Basics of economic instruments in transport ........................................... 1

1.2. Fuel taxation as essential element of urban road financing ........................ 6
1.3. Road Pricing and Congestion Charging ................................................... 9
1.4. Vehicle taxation and parking fees ........................................................ 13
1.5. Public Transport pricing and finance..................................................... 15
2. Transport Institutions............................................................................... 20
2.1. Responsibilities of urban transport institutions....................................... 20

2.2. Coordination of transport related activities............................................ 24
2.3. Institutional reform of the road sector .................................................. 29
2.4. Public Transport institutions ............................................................... 34
2.5. Overcoming human resource constraints .............................................. 34
3. Public Private Partnerships in Urban Transport ......................................... 38
3.1. Characteristics of Public Private Partnerships......................................... 38

3.2. Institutional, legal and regulatory framework ........................................ 40
3.3. Analysis of risks and guarantees ......................................................... 42
3.4. Critical review of Public Private Partnerships ......................................... 43
List of Tables
Table 1: Incentives and economic instruments ......................................................... 2

Table 2: Types of congestion pricing systems ......................................................... 10
Table 3: Profitability of bus systems in Developing Cities.......................................... 16
Table 4: Allocation of strategic functions ................................................................ 20
Table 5: Professional organization for municipal transport functions ........................... 23
Table 6: Typical structure of a reformed road sector administration ........................... 31
Table 7: Advantages and challenges of PPP in transport ........................................... 39
Table 8: Characteristics of private involvement in infrastructure provision .................. 40
List of Figures
Figure 1 Average external costs of passenger transport in 2000 EU 17 ......................... 5

Figure 2 International fuel prices 2009 .................................................................... 8
Figure 3 Vertical integration of different planning levels ........................................... 25
Figure 4 Overlay of land use plans ........................................................................ 26
Figure 5 City centre of Kampala, Uganda, 1992 ...................................................... 30
List of Boxes
Box 1 Internal and external costs ........................................................................... 4

Box 2 Discussion on average and marginal cost pricing .............................................. 6
Box 3 Fuel surcharge in Bogotá .............................................................................. 8
Box 4 Lessons learned from the Singapore Road Pricing Scheme ............................... 11
Box 5 London congestion charging ........................................................................ 12
Box 6 Tax incentive scheme in Hong-Kong ............................................................. 13
Box 7 Leveraging urban transport coordination in Brazil ........................................... 22
Box 8 Reforming transport institutions and empowering ........................................... 24
Box 9 Verband Region Stuttgart, Germany ............................................................. 28
Box 10 Road management restructuring in Africa – the two waves ............................ 32
Box 11 Characteristics of the “Second Generation” Road Fund .................................. 33
Box 12 Some indicators of performance for “Second Generation” Road Funds in SSAfrica
................................................................................................................. 34
Box 13 Types of Public Private Partnerships ........................................................... 38
Box 14 Risks of the PPP project Manila Metro Star Express line ................................. 42
Box 15 PPP project: Blue Line - Bangkok Metro....................................................... 43
Acronyms
ALS Area Licensing Scheme

BAC Blood alcohol concentration
BLT Build-Lease-Transfer
BOO Build-Own-Operate
BOOT Build-Own-Operate-Transfer
BOT Build-Operate-Transfer,
BrAC Breath alcohol concentration
BRT Bus Rapid Transit
CDM Clean Development Mechanism
CER Certified Emission Reduction
CH4 Methane
CNG Compressed Natural Gas
CO Carbon Monoxide
CO2 Carbon Dioxide
DBFO Design-Build-Finance- Operate
DBOM Design-Build-Operate-Maintain
EIA Environmental Impact Assessment
ERP Electronic Road Pricing
GDP Gross domestic product
GEF Global Environmental Facility
GHG Greenhouse Gas
GNP Gross National Product
GPS Global Positioning System
GTZ German Technical Cooperation
HOV High-Occupancy Vehicle
I/M Inspection and maintenance
ICT Information and communications technologies
IEA International Energy Agency
IMT Intermediate Means of Transport
IPCC Intergovernmental Panel on Climate Change
ITDP Institute for Transportation & Development Policy
ITS Intelligent transport systems
JI Joint Implementation
LDV Light Duty Vehicle
LEZ Low Emission Zone
LOS Level of Service
LPG Liquified Petroleum/Propane Gas
LPT Local Public Transport
LRT Light rail Transit
MPT Motorised Private Transport
MRT Mass Rapid Transit
N2O Nitrous Oxides
NGO Non-Governmental Organisation
NMT Non Motorised Transport
NMV Non Motorised Vehicle
NOX Nitrogen Oxide
NPV Net Present Value
OECD Organisation of Economic Co-operation and Development
P&R Park & Ride
Pkm Passenger kilometre, unit to measure transport volume for
PM Particulate Matter
PM10 Particles with aerodynamic diameter less than 10 µm
pphd Passengers per hour and direction
PPP Purchasing Power Parity
PPP Public Private Partnership
PT Public Transport
ROT Rehabilitate-Operate-Transfer
ROW Right-of-way
ROW Right-Of-Way
rpm Rotations per minute
SUTP (GTZ) Sustainable Urban Transport Project
SUV Sports Utility Vehicle
TDM Transport Demand Management
TFL Transport for London
tkm Tonne kilometre, unit to measure transport volume for goods
TOD Transit-Oriented Development
TSP Total suspended particles
UNEP United Nations Environment Programme
UNFCCC United Nations Framework Convention on Climate Change
VOC Vehicle Operating Cost / Volatile organic compounds
WBCSD World Business Council for Sustainable Development
WHO World Health Organisation
WRI World Resources Institute
3
µg/m Pollutant concentration of air pollutants in microgram per square
Module 4 Management, Financing and Institutions
1. Financing and Economic Instruments
This chapter is explains which economic instruments exist and why they support the es-
tablishment of a sustainable transport systems. For the justification the external costs of
transport play a major role. For road transport four instruments are presented: fuel taxa-
tion, road pricing, vehicle taxation and parking fees. The last subchapter explains pricing
and financing of Public Transport.
1.1. Basics of economic instruments in transport
1.1.1. Why should economic instruments be used?
Economic instruments are characterised by their use of market forces, i.e. the price
mechanism, to achieve policy objectives. Their use can be beneficial in Developing Cities
for a number of reasons:
• Market-economy compatibility. By using the price mechanism as a vehicle for cost

internalisation, market allocation processes are not distorted. Therefore economic
instruments will allocate resources optimally.
• Enforcing the user-pays principle. By charging for the use of infrastructure and
vehicles, as well as for indirect costs such as congestion, pollution, noise and acci-
dents, travellers pay for the costs of their transport.
• Incentive-based transport policy approach. As part of demand side management,

economic instruments can contribute to reducing transport demand, change the
modal split by inducing substitution (e.g. in favour of Public Transport) and
change transport behaviour. On the supply side, economic instruments can enable
fair competition among the transport modes and induce incentives for technical
change and higher efficiency of vehicles, transport infrastructure, and mass transit
systems. Economic instruments can set as well dynamic incentives for substitu-
tion, technical change and the research and development of pollution abatement
technologies.
• Greater flexibility. In general, economic instruments offer more flexibility than

regulatory instruments as individuals and firms can more flexibly adapt to eco-
nomic incentives than to administratively set restrictions.
• Revenue generation. Price instruments usually generate additional revenues. In

many countries fuel and vehicle taxes play a major role for state funding and fi-
nancing of transport policy programs.
By using the price mechanism as a vehicle for cost internalisation,

market allocation processes are not distorted. Therefore
economic instruments will allocate resources optimally.
Page | 1
Table 1
Incentives and economic instruments
Source: Breithaupt (2002) Gtz Sourcebook Module 1d
1.1.2. Which types of economic instruments exist?
Economic instruments can be applied in various forms and ways (see Table 1). There are
three basic types of economic instruments in transport policy:
Page | 2
• Charges and taxes should be levied as a means to reduce transport demand in

general, discourage the use of certain modes of transport, or certain transport
technologies. Charges are normally directly linked to the public provision of ser-
vices (such as road use charge, parking fees, etc.), whereas taxes do not have
this direct link to any particular service. Rather, they are seen as specific sources
for the general budget. In many countries charges, fees, surcharges and so on
can often be imposed by city governments, while taxes and excises can only be
applied by the national level of government.
• Subsidies aim at decreasing the cost of certain transport modes, such as Public
Transport. That is, financial incentives encourage switches towards more favoured
transport modes such as Public Transport, walking and cycling.
• Auctions and bidding schemes are used to put a price on transport in a regime
that quantitatively restricts access to transport. When the number of cars is re-
stricted, auctioning can assign licenses or certificates to those market participants
with the highest willingness to pay. Thus, auctions and bidding schemes reflect
the market price of a scarce good.
1.1.3. What are the limitations of economic instruments?
There are several drawbacks that possibly reduce the appeal of economic instruments in
certain situations:
• Initial public antipathy. Perhaps the major obstacle to applying economic instru-
ments is that politicians and the public tend to react negatively to new charges
and fees.
• Uncertainty about the right level of prices. Correct prices require information
about the level of internal and external costs. Due to valuation problems this in-
formation may not be adequately obtained, thus making it difficult to set levies at
the “right” level. Furthermore, policy objectives can only be reached indirectly as
economic instruments only set up a framework within which each individual
makes his or her own decision. Such market reactions cannot be exactly pre-
dicted; hence the use of economic instruments may require several readjustments
in order to reach a certain policy objective.
• Uncertainty about the reaction lags. Reaction times of market participants may be
long.
• Unpredictable and unstable revenues. Despite their large potential to create reve-
nue, economic instruments may sometimes provide a shaky basis for revenue
generation. This is particularly the case with environmentally motivated price in-
creases, which trigger substitution, technical change and a reduction of environ-
mental use.
Taking the above concerns into account, economic instruments should always be embed-
ded in a broader policy strategy for sustainable transport. Economic instruments can be
implemented in a step-wise manner as medium to long term policy measures to improve
the efficiency of the transport system, and reduce congestion set economic incentives for
technical changes raise start-up capital for Public Transportation. Economic instruments
should be adjusted frequently and in a predictable manner.
Page | 3
1.1.4. External costs of transport
External costs are costs of transport which accrue to people other than those engaged in
the transport activity. They stem from mostly negative side-effects of transportation,
such as congestion, accidents, emissions and pollution, noise, and aesthetic factors which
all negatively affect people and/or future generations. Such costs are rarely borne by
road users.
Box 1
Internal and external costs
Internal costs stem from the provision (construction, maintenance) and use of trans-
port infrastructure (vehicle operating cost, time costs). These costs have to be recov-
ered from infrastructure users or from the public. Internal costs are the basis for all
decisions on the transport market. They largely determine both individual mobility
demand, and transport supply via economic decisions of transport providers or calcu-
lations on the economic feasibility of infrastructure projects, etc.
External costs, on the other hand, are not part of supply or demand decisions on the
transport market. They are external to these decisions. They stem from (mostly nega-
tive) side-effects of transportation, such as congestion, accidents, emissions and pol-
lution, noise, and aesthetic factors which all negatively affect people and/or future
generations. They are rarely borne by road users. Even countries that have imple-
mented the "user pays principle” (every transport user pays for all costs he/she in-
curs), basically apply it to internal costs only, and do not factor in the external ones.
As a consequence, road transport is too cheap and its use inefficient. This results in
negative environmental and social effects that would be less severe if external costs
were borne by road users as well.
INFRAS/IWW (2004) estimated the total external cost in Europe at annually at 650 billion
Euro, being 7.3% of GDP, with road modes contribute 83%. Figure 1 compares the ex-
ternal cost per 1,000 pkm: rail is the mode causing the least external costs, while buses
increase costs by 2/3 and cars cause more than triple the costs. The biggest share of
road costs are caused by accidents (40%), followed by climate change (23%) and air
pollution (17%).
Page | 4
Figure 1
Average external costs of passenger transport in 2000 EU 17
Source: INFRAS/IWW 2004
In order to comply with the ‘polluter pays principle’, in which the polluter is required to
cover the full cost of their pollution, and in order to establish an efficient and sustainable
urban transport system, it is essential that external costs are minimised. It is important
to minimise or eliminate externalities because in a market economy transport users base
their decisions (e.g. how, when and where to travel) on the costs of different options. If
prices of some options (e.g. travel by private car) underestimate costs such as air pollu-
tion, congestion, road infrastructure, global warming and others, then allocation of re-
sources in the transport system will be inefficient and unfair. Though the cost structure of
urban journeys varies in different cities, in general road transport by private motor vehi-
cle is currently too cheap for the traveller. A substantial portion of the cost of such jour-
neys is imposed upon the wider community.
The best way of reducing externalities is through a price-based

approach which aims to make transport users pay the full costs
(private, environmental, other) of their individual trips.
Economic measures are often the most effective components of a comprehensive TDM
strategy, although they often face resistance from drivers and so can be politically diffi-
cult to implement. For these reasons it is important to implement pricing reforms with
clear goals for the revenue stream they create, sometimes accomplished through ear-
marking, i.e. the allocation of revenues for a specific project or purpose.
Page | 5
Pricing measures can generate revenue that can be used to improve mobility options or
substitute for other taxes. The earmarking of revenues constitutes the basis for a self-
financing of the transport sector. Revenues from the transport sector are dedicated to
specific expenditure items in the transport sector. Earmarking of revenues for transport
sector investment increases public acceptance of economic instruments. Revenues can
serve as a basis for making alternative transport modes more attractive. Charges on in-
dividual car use make that mode of transport less attractive (push factor), whereas facili-
ties for non-motorised transport and comfortable and reliable Public Transport at reason-
able prices offers a promising alternative (pull factor).
Box 2
Discussion on average and marginal cost pricing
Research on transport pricing has revealed two schools of thought that discussed the
issue whether marginal or full cost pricing is the appropriate approach for transport
pricing. Even though the discussion has been ongoing for a long time, no consensus is
reached to date. This is probably due to the heavy theoretical content of the issue
and the difficulties related to the practical implementation of the theoretical concept.
The Efficiency Approach is more focussed on optimisation of social welfare. The aim is
to increase the efficiency of the transport system by using the principle of marginal
social cost pricing. The underlying theory is that the markets will, over time, cause
goods to be sold at their marginal cost of production. The EU White Paper (1998, p.10)
defines marginal costs as “those variable costs that reflect the cost of an additional
vehicle or transport unit using the infrastructure. Strictly speaking, they can vary
every minute, with different transport users, at different times, in different conditions
and in different places”. This approach is pursued as well be the World Bank.
The Equity Approach is focusing on cost recovery and fair pricing: The basic idea is to
undertake a cost assessment which is as comprehensive as possible by calculating the
specific average costs. Specific means along the lines of modes, road types, times of
day etc. The aim of the equity approach is to identify, for each vehicle category, the
total costs they cause and compare these costs with the total charges paid by the
category in question. When actually calculating transport costs, this approach has
proven to be much more practical the complicated marginal cost pricing.
Source: Sieber/Bickel 2008.
1.2. Fuel taxation as essential element of urban road financing
Fuel consumption can be regarded as a good approximation of road use as it is generally

related to individual road use. Taxing fuel consumption is the most common form of
‘proxy’ user charging in road transport. Fuel tax does have one great advantage com-
pared with taxation on vehicles (vehicle excise duties, registration taxes, insurance
charges, and so on), which does not vary with vehicle use. Therefore, higher fuel prices
can be an important driving force to a low-carbon and energy efficient transport sector.
Fuel taxation can effectively be applied to recover variable infrastructure costs. It offers a
simple and reliable way of charging the users of transport infrastructure relative to their
individual use, and implementation and enforcement is rather easy as the tax can be lev-
ied at a few fuel distribution centres. Such taxes can be considered a general tax or a
road user fee. Fuel tax revenues are generally used for transportation purposes, and in
some cases are strictly limited to the road network. Above all, however, fuel taxation is
Page | 6
usually a national prerogative, with revenues accruing to the national treasury rather
than to the municipality. For this reason it is likely to be difficult to fit it into, or coordi-
nate it with, a city-level strategy, except on the basis of a countrywide agreement on
allocation of all transport-related tax revenues and expenditure responsibilities.
Fuel taxation offers a simple and reliable way of charging the

users of transport infrastructure relative to their individual use,
and implementation and enforcement is rather easy as the tax can
be levied at a few fuel distribution centres.
In the U.S., the federal fuel tax for gasoline and diesel of US$0.048 and US$0.064 per
litre. However, this level of fuel taxation is too low to function as a TDM measure, nor is
that an aim of U.S. fuel taxation. In Europe, where policy makers do aim to reduce car
use through fuel taxation, the tax levels are much higher. In Germany, for instance,
drivers paid in March 2010 a federal fuel tax equivalent to US$0.88 per litre gasoline and
US$0.63 per litre diesel.
Taxation of fossil fuels remains a powerful instrument to generate revenues for road in-
frastructure and its maintenance. In Developing Countries, fuel prices can be a crucial
element in financing road maintenance. For example a US 10 cent duty earmarked for
road maintenance in Developing Countries - as advocated by the Sub-Saharan African
Policy Programme (World Bank) - is feasible and will not lead to major economic distor-
tions, but generate enough revenues for maintenance.
Taxation of fossil fuels remains a powerful instrument to

generate revenues for road infrastructure and its maintenance.
An international comparison of fuel prices is produced by GTZ and published regularly2.

Figure 2 gives examples of retail fuel prices from Asian countries. Dark green countries
charge fuel prices that do not only cover road expenditures but generate additional reve-
nues for the state. Yellow and red countries provide state subsidies for fuels. The latter
has major macroeconomic negative impacts: Firstly, the state has less public funds avail-
able, for example for social purposes such as education and health. Secondly the reve-
nues are not sufficient for maintenance, with the result that roads deteriorate and cause
higher transport costs, which again entail large scale macroeconomic losses. Thirdly, fuel
subsidies set the wrong incentives with respect to the environment since car owners tend
to buy high consumption vehicles rather than environmental friendly smaller cars.
2
www.gtz.de/fuelprices
Page | 7
Figure 2
International fuel prices 2009
Source: International Fuel Prices 2009, GTZ
There is often strong public resistance to fuel and vehicle taxation. Opposition to fuel
taxation, however, should not be seen as an insurmountable obstacle to the introduction
of or increases in fuel taxes. It should rather be a reminder that increases should take
place gradually (e.g. with no more than 10% increase at a time) and that building public
awareness is very important (see Module 6 Chapter 2). In many European countries fuel
tax increases follow a foreseeable schedule with small but continuous tax increases.
These are notified well in advance in order to reduce public resistance and to allow con-
sumers to take foreseeable medium-term fuel price increases into account when buying a
new (and hopefully fuel-efficient) car.
Box 3
Fuel surcharge in Bogotá
In the city of Bogotá a 25% surcharge is collected on all gasoline sales. 50% of the
resources generated are used for the construction of the infrastructure required for the
operation of the Bus Rapid Transit system. In this way the private vehicle owners
(19% of the population) finance part of the infrastructure for the operation of a mas-
sive public service transportation system that has a 72% utilisation by low income
citizens. Through this system of cross subsidy a social equilibrium is generated in the
city. The rest of the country has a 20% fuel surcharge.
Source: Breithaupt (2002) Gtz Sourcebook Module 1d.
Page | 8
1.3. Road Pricing and Congestion Charging
Road pricing is a flexible and efficient way to charge road users for their actual road use.
It can be differentiated by vehicle type or time of the day. Road pricing is mostly applied
to selected routes or infrastructures only. It is either implemented in order to recover
investment costs for expensive infrastructure, such as express motorways and bridges or
to impose an extra charge on the use of congested roads during peak periods. However,
in an increasing number of cases, toll schemes are implemented to finance infrastructure
investment (see Chapter 3 of this Module). In many instances private investors are in-
volved on the basis of BOO/BOT models (build, own, operate / build, own, transfer)
where the private sector invests in infrastructure and is allowed to recover investment
costs by collecting tolls for a certain period of time.
Road pricing is a flexible and efficient way to charge road users for their
actual road use. It can be differentiated by vehicle type or time of the day.
In urban areas, tolls are not necessarily raised for financing purposes but rather as an
incentive not to use congested roads. In many densely populated urban areas in it is vir-
tually impossible to provide sufficient road capacity to meet peak time demand. If road
capacities would be designed for peak hour traffic volumes, large diseconomies are
planned, since the infrastructures are used far below their capacities in off peak hours.
Additionally, negative environmental and urban effects would be generated. Therefore
urban congestion pricing tries to contain demand by increasing travel costs in congested
areas.
The main objectives of road and congestion pricing typically include i) a change in the
time of travel from peak to off-peak traffic with a consequent reduction of peak period
traffic and a potential reduction of total traffic; ii) a shift in routes: to roads without tolls
or less tolled roads a shift towards a more sustainable traffic mode; iii) a reduction in
negative environmental effects and iv) an improvement in the quality of urban life; and
iii) a means to generate revenues. There are four main forms of road and congestion
pricing a listed in Table 2:
i) Cordon ring
ii) Area licensing
iii) Corridor pricing
iv) Network pricing
Page | 9
Table 2
Types of congestion pricing systems
Source: Broaddus, Litman, Menon (2009): TDM, Gtz Training Document
Technically, road and congestion pricing can be implemented in different ways at various
levels of complexity:
• Purchase of a paper permit (vignette): For each vehicle that is used within the
controlled area, a permit has to be purchased and displayed at the windscreen.
• Manual toll station: Motorists have to pay a road charge on entering the priced
area.
• Electronic road pricing (ERP): Vehicles are equipped with electronic tags that allow
the automatic identification of vehicles at non-stop tolling stations.
Congestion pricing should be seen as a gradual process that starts on a pilot scheme ba-
sis and then aims at successive extensions and improvements. Two practical examples of
congestion pricing schemes are given for Singapore Box 4 and London Box 5.
Page | 10
Box 4
Lessons learned from the Singapore Road Pricing Scheme
In 1998 Singapore introduced an Electronic Road Pricing (ERP) system that is aimed at
managing transport demand. The ERP systems consists of two elements that allow for
automated payment: Every car is equipped with an ERP in-vehicle unit, i.e. an elec-
tronic device installed in the vehicle that accepts a stored value cash-card. Their value
can be topped up at the automatic teller machines available at most banks, post of-
fices and petrol stations. Vehicles simply pass under gantries and the system auto-
matically identifies the vehicle and deducts the appropriate amount from the user.
Enforcement is by way of cameras installed on the same ERP gantries. Measures are
complemented by parking restrictions and charges.
High public acceptance. The pricing schemes are generally considered as fair because
they charge on a per-pass basis and pricing structures are time- and congestion-
sensitive. Automation increased reliability, effectiveness and convenience. Further-
more, the integration of push factors (congestion pricing) and pull factors (cheap,
convenient and ubiquitous Public Transport) allows for substitution and effective modal
split changes. Embedding the use of economic instruments in a wider strategy raised
public acceptance for economic instruments measures. A high proportion of commut-
ing trips are made by Public Transport.
Use of funds raised for Public Transport projects. Singapore has been able to attain a
revenue that significantly exceeds the annual capital and operating cost of the road
network, thus enabling it to meet the expenditure requirements of Public Transport
Electronic road pricing in Singapore
Source: Breithaupt (2002), Gtz Sourcebook Module1d.
Page | 11
Box 5
London congestion charging
In February of 2003, Mayor Ken Livingston introduced London’s Congestion Charge as

a measure to address traffic congestion in the central city — the worst in the UK in
terms of driver delay. Drivers in central London spent an estimated 50% of their time
in queues, adding up to a time loss of £2–4 million every week. The aims of the con-
gestion charging scheme were to discourage the use of private cars, reduce conges-
tion, and support investment in Public Transport. It is considered a success for having
achieved these aims.
The effects of the congestion charge were immediate and dramatic. In the first two
days, traffic levels fell by 25%, and drivers reported that journey times were reduced
by as much as half. An extra 300 buses were introduced on the same day. Although
London already had a relatively high share of commuters using Public Transport, it
further increased significantly. As of 2007, London remains the largest city in the
world to have adopted a congestion charge model. The organisation responsible for
the charge is Transport for London (TfL), in conjunction with a private operator. The
congestion charge is a flat fee charged to motorists within a central London area, de-
fined by a cordon. It is an area charging scheme, meaning that motorists crossing the
cordon are charged, as well as vehicles operating entirely within the zone. The cordon
was initially limited to the eastern business districts of London, but was extended to
include western residential boroughs in February of 2007. The charged zone is an area
of approximately 8 square miles.
When launched, the congestion charge was £5; since 2005, the charge is £8. Vehicles
are charged upon entry to the congestion charge zone between 7:00 and 18:00. The
scheme is enforced by ANPR plate-recognition cameras monitoring vehicles within the
zone. Non-compliant vehicles are automatically mailed a penalty. The traffic-reduction
effect of the congestion charge has remained consistent over time. In 2003, TfL as-
sessed the first six months of the charge and found that the number of cars entering
the central zone was 60,000 less than the previous year. Around 50–60% of this re-
duction was attributed to trips shifted to Public Transport, 20–30% to journeys avoid-
ing the zone, and the remainder to car-sharing, reduced number of trips, more travel-
ling outside the hours of operation, and increased use of motorbikes and cycles. Jour-
ney times were reduced by 15%. In 2006, TfL found that congestion reductions and
journey time saving effects remained in place. Congestion was still reduced by about
26% in comparison with the pre-charge period.
Source: http://www.tfl.gov.uk/tfl/roadusers/congestioncharge/whereandwhen/
Page | 12
1.4. Vehicle taxation and parking fees
1.4.1. Vehicle taxation
Throughout the world, vehicle taxation is used as a stable source of state revenues. It is
fairly easy to collect once a comprehensive system of car registration is in place. In de-
veloped countries, car owners are commonly charged an annual or bi-annual fee which
contributes to a road maintenance fund. The level of the fee may be based on engine
size, in order to encourage more fuel efficient vehicles. In the US, it is called a registra-
tion fee and ranges from around US$30 to US$150 per year, and is enforced by a sticker
displayed on vehicle plates.
However, vehicle taxation may be designed in a manner that environmental goals are
met. Singapore’s road tax is differentiated according to engine size, fuel type, and type
of vehicle (car, motorcycle, etc), in order to encourage the use of low emission vehicles.
Under this system, a small car with a 1,000 cc engine may pay US$600 per year, while
one with a large 4,000 cc engine may pay over US$6,000. Diesel vehicles pay 6 times
the amount by a similar gasoline car.
In Germany, the introduction of stricter EU emission limits3 was supported through tax
reductions for low emission vehicles complying with the strict EU standards. In 2009,
when the vehicle fleet had improved environmental performance considerably, a new
system was introduced that encourages the purchase of climate friendly cars. For each
gram of CO2 emitted above the limit of 120g/km two Euros additional vehicle taxes have
to be paid annually. For example, a compact car with a 1,000 cc benzene engine and a
CO2 emission of 100 g/km pays 20 Euros p.a. A luxury vehicle with a 3,000 cc engine and
250 g/km costs 320 Euro. Box 6 explains how tax incentives for environmental friendly
vehicles are provided in Hong Kong.
Box 6
Tax incentive scheme in Hong-Kong
A tax incentive scheme was introduced in April of 2007 in Hong Kong, with the aim of
improving air quality by encouraging the use of environmental friendly petrol private
cars with low emissions and high fuel efficiency. The program offers a 30% reduction
of the First Registration Tax to buyers of newly registered environmental-friendly pet-
rol private cars, subject to a cap of US$6,450 per car. Cars must meet the following
criteria to qualify as environmental-friendly: emit about 50% less hydrocarbons and
nitrogen oxides and consume 40% less fuel than conventional petrol Euro 4 cars.
1.4.2. Parking fees
In many countries parking is provided free of charge or at a subsidised rate. Such subsi-
dies are, for example, provided by companies offering parking space free of charge to
their employees, or by municipalities that do not charge for on-street parking. Providing
parking facilities, however, involves considerable costs that should be passed on to mo-
torists. Many developed countries have followed the social service approach to parking,
with a practice of providing ample and free parking in cities. Parking is routinely provided
for free by shop owners, employers, and home developers, meaning that drivers do not
3
EU emission standard are explained in Module 5, Chapter 2.
Page | 13
take it into account when making travel choices. An oversupply of parking encourages
excessive car use and resulting increases in air pollution and traffic congestion.
An oversupply of parking encourages excessive car use and

resulting increases in air pollution and traffic congestion.
A paradigm shift in parking policy is currently underway. Planners and city leaders are
starting to see free parking as a hindrance to improving urban quality of life and housing
affordability. Out-dated parking policies are coming under scrutiny as many cities move
to improve parking management as a strategy promoting compact, transit-oriented
smart growth. Cities are moving from supply-oriented to demand-management (TDM)
oriented policies.
Parking fees may create revenues for the local municipality. In many developed cities,
fees for public parking are in the range of US$ 1 to 2 per hour. In developing mega Bue-
nos Aires, Argentina, for example, parking fees at private car parks in 2001 amounted to
about US$ 2 per hour (and US$ 8–10 per day in 2001). Although these private car parks
also include a guarding component, it shows a willingness (and ability) to pay for park-
ing. However, the financial revenues should not be overestimated: For example in the
German City of Karlsruhe Parking Fees finance less than 5% of the total road expendi-
tures.
By introducing parking fees, car use in urban areas becomes more expensive and thus
less attractive to many motorists. This can help reduce congestion and encourage alter-
native modes of transport. When combined with a policy of limiting parking space, park-
ing fees have also proved successful in stimulating commuters to switch from private
cars to the use of Public Transport. This contributes significantly to the reduction of con-
gestion, as commuting is the main cause of peak hour congestion. In many cities, the
introduction of parking fees is regarded as a first step towards more sophisticated
schemes of pricing urban traffic.
Parking fees are rather easy to implement and they gradually make urban road users
aware that driving within the city cannot (and will not) be free of charge. It thus helps to
create awareness for and acceptance of pricing schemes in general. Parking fees can be
charged on-street (metered on-street parking, ticketed on-street parking), or off-street
(public parking space, private car parks). Some criteria for creating differentiation in
parking schemes and their corresponding charges are:
• area/zone, in order to reduce parking in crowded inner city regions through the
use of higher charges;
• time of day, in order to discourage long-term parking by solo commuters through
peak parking surcharges
• calendar day, in order to distinguish between weekday commuter parking and
weekends;
• duration of stay, in order to set incentives for short-term parking, and to set in-
centives for commuters to use certain parking areas designated for long-term
parking.
As part of a comprehensive sustainable transport strategy that aims for a modal split
shift toward Public Transport, parking fees can also be combined with other measures.
Restrictive parking regimes in the inner cities with high parking fees and limited parking
space can be supplemented by the provision of parking space in the periphery and incen-
tives to access Public Transport. Park & Ride (P&R) models – as they have been imple-
Page | 14
mented in many OECD countries – combine parking spaces in less congested areas of the
periphery and Public Transport terminals in order to facilitate switching from the vehicle
to Public Transport.
1.5. Public Transport pricing and finance
Setting Public Transport prices and raising the necessary finance, raises problems be-
cause of the multiple objectives faced by decision makers. The primary objective of Public
Transport pricing is to generate revenue that can ensure an efficient and adequate supply
of Public Transport service. Public transport pricing may also be expected to contribute to
the reduction of congestion and environmental impact of road traffic, efficient coordina-
tion between Public Transport modes, and the reduction of poverty.
It is commonly argued that if urban Public Transport is to satisfy these latter objectives,
it cannot be expected to cover its full costs. Consequently Public Transport is heavily
subsidised in most of the cities of Europe’s Developed Countries. There, an average of
just 50-70% of the operating cost is covered by income form passenger fares. However,
against the background of enormous deficits in the public budgets of the Developing
Countries and, in particular, the precarious financial situation of the Megacities and the
urgently required public resources for health and education, the scope for public subsi-
dies for local transport is fairly small.
Similar policies have traditionally been applied in the transition economies and some
postcolonial Developing Countries, but many of these countries are no longer in a posi-
tion to fund such policies, and their Public Transport sectors are facing decline because of
cash starvation.
As a rule, the need to cover at least the operating costs of Public Transport services is an
inevitable consequence. The Fare Box Ratio gives an indication of economic viability of a
Public Transport system. It describes the ratio between fares collected and operational
costs. Most railway system have a Fare Box Ration below one, i.e. operations are subsi-
dised by an agency or surpluses in other branches of the city budget. The Fare Box Ratio
of BRT systems in Porto Alegre, Curitiba, Bogotá, and Quito exceeds one, as do most bus
systems throughout the Developing World. Furthermore, BRT revenues from the
TransMilenio BRT in Bogotá do not only cover operating costs for the trunk line operators,
but also cover a range of other costs, including the costs of the feeder services, the sys-
tem planning and regulatory body, the fare collection company, the funds administrator,
and a contingency fund. Table 3 lists a number of BRT systems their need for subsidies
and level of fares. Nine of 19 BRT systems require no subsidies and another three sys-
tems are partly subsidised.
As a rule, the need to cover at least the operating costs

of Public Transport services is an inevitable consequence.
Page | 15
Table 3
Profitability of bus systems in Developing Cities
Need for
Fares Total infrastructure costs
BRT System operational
[US$] [Mill US$ per km]
Subsidies
5.3 (Ph. I)
Bogota(TransMilenio) No 0.58
13.3 (Ph. II)
Pereira No 0.48 1.7
Curitiba (Rede Integrada) No 0.74 1.1 – 6
Goiânia (METROBUS) Partly 0.59 1.3
Porto Alegre (EPTC) No 0.68 1.2
São Paulo (Inteligado) Yes 1.00 2 – 22
Guayaquil (Metrovía) No 0.25 1.4
Quito (Trolé) Yes 0.25 5.1
Quito (Ecovía) Yes 0.25 0.5
Quito (Central Norte) Partly 0.25 1.4
Santiago (Transantiago) No 0.70 Not available
León (Optibus SIT) No 0.50 1.0
Mexico City (Metrobús) Partly 0.35 1.5
Beijing Yes 0.26 4.7
Hangzhou Yes 0.40 0.5
Kunming No 0.12 – 0.26 0.8
Jakarta (TransJakarta) Yes 0.30 1.0
Taipei No 1.00 1.2
Seoul Yes 0.45 0.4
Source: BRT Planning Guide 2007, Annexes
By and large, general subsidies that cover more than the investment cost of Public
Transport may be considered as problematic under economic and social aspects. In order
to reduce subsidies, the cost for Public Transport services need to be decreased. This can
not only be done through the right choice of the transport system, but as well through
improved competition amongst service providers.
1.5.1. Subsidised fare levels
Subsidies for Public Transport systems may be warranted by wider economic and social
objectives, especially where reducing car use is an objective, but there are strong argu-
ments for setting fares at cost-recovery level where possible. A subsidised system in-
volves greater administrative complexity and accountability. If fares are set below cost,
operating deficits are covered either from a progressive income tax or a tax on private
motoring, the distributional (poverty alleviation) impact will be positive.
The “Armstrong-Wright maxim” states that situations in which more than 10% of house-
holds spend more than 15% of household incomes on work journeys can be regarded as
discriminatory. Although the maxim was not originally intended as a pricing policy pre-
scription, it has often been interpreted as a reasonable rule for determining the level of a
politically administered price. However, caution should be advised over this maxim! The
impact of any particular level of transport costs on the aggregate welfare level of the
household does not depend only on household income and the price of transport.
Subsidies entail a number of unintended effects. All Public Transport users are benefiting
from a general subsidy no matter what income they receive. ECORYS (2004) revealed
Page | 16
that poor income groups are benefiting little from these types of subsidies. Additionally,
subsidies are given exclusively to the formal transport modes and exclude the informal
paratransit, which is mainly used by poor inhabitants. In the United Kingdom it was esti-
mated that over one-half of subsidies aimed at lowering fares or improving service qual-
ity actually “leaked” into benefits for management or workers or were lost through re-
duced efficiency of operation.
The most serious problem is that many governments control general fare levels without
making any accompanying fiscal provision for subsidies. The rationale for this, often ex-
plicitly stated, is that it will force operators to cross-subsidize unprofitable services from
profitable services, leading to cross-subsidy of poor people by the rich. In practice, in
many countries there is no such basis for cross-subsidy, since the rich do not use Public
Transport and there are no profitable services from which to squeeze cross-subsidy fi-
nance. In these circumstances the main effect is to reduce the quality, and eventually the
quantity, of Public Transport services.
1.5.2. Fare reductions or exemptions
Instead of providing subsidies for all users, special fare reductions may be given to needy
user groups, especially extremely poor households. The distribution of poverty-oriented
subsidies should ideally be explicitly related to the income levels of service users. There
may be some vulnerable categories of passenger (schoolchildren and senior citizens not
in receipt of a full income) that can be easily distinguished and for which charging a
lower price is possible. However, there is a pervasive tradition of providing free or re-
duced-fare transport for a wide range of public servants. This raises two major problems.
First, the categories in receipt of free fares are often not the most needy, so that the re-
distribution effects of supporting the concessions by internal cross-subsidy are perverse.
Second, where there are a large proportion of non-fare-paying passengers, it becomes
more difficult to enforce payment by those who are supposed to pay.
The distribution of poverty-oriented subsidies should ideally be

explicitly related to the income levels of service users.
Rarely is there any specific mechanism for remunerating suppliers for these fare exemp-
tions or reductions. This has two effects. First, it means that some passengers are paying
more, or receiving poorer service, than would otherwise be the case in attempts to se-
cure cross-subsidy. Because the rich often do not use Public Transport, this means, at
best, subsidy of the poor by the poor. Second, it creates a vested interest of benefiting
non-transport agencies (health, education, police, and so on) in maintaining a subsidy for
their particular user group, that they might not favour if it had to be financed from their
own budgets.
An alternative approach is, to treat transport supply more as a commercial business, and
to target subsidies explicitly at disadvantaged individuals in the form of tickets pre-
purchased by relevant social agencies. The transfer of responsibility for social subsidies
from the accounts of the transport operators to those of the relevant line agencies is be-
ing widely advocated as a means of addressing the decline of public service in many
countries. This approach not only imposes a lesser fiscal burden but also has the merit of
giving clear signals and incentives to operators to adjust their services and fares in such
a way as to maintain their equipment in operation.
Page | 17
1.5.3. Fare structure
Flat fares are frequently adopted throughout a municipal or conurbation area in the belief
that this is equitable. Where longer work journeys have been forced on the poor, flat
fares may indeed compensate for other forms of discrimination against the poor. The
danger, however, is that in larger cities, a flat fare may need to be set at such a high
level that it encourages shorter-distance travellers to seek alternative modes, and hence
to undermine any “within-mode” cross-subsidy. Where residential locations are highly
segregated by income group, specific routes may also be identified for subsidy on in-
come-distribution grounds.
1.5.4. Financing of infrastructures
The sources of funding for public sector investments may include i) transfers from central
government, ii) local borrowing, iii) local taxation, and iv) service charging. Public expen-
ditures on urban transport in capital cities may be fully financed by the central govern-
ment. More generally, and almost exclusively in non-capital cities, the main responsibility
for finance will rest with the regional or municipal government with some degree of coun-
terpart funding from the central government.
Local borrowing may be secured against general municipal revenues or occasionally

against toll revenue. Some municipalities are at least as creditworthy as their national
governments and may be able to issue bonds of their own. That is not usually the case
for smaller cities, however, and borrowing may have to be by government on their be-
half.
Local taxing capability is also very limited in many countries, often being restricted to
property taxation and various minor licensing revenues. In many Developing Countries,
sales tax and income tax are central government prerogatives. On the principle that “he
who benefits should pay,” it may seem desirable to capture in tax revenues part of the
benefit due to infrastructure investment accruing to local residents or businesses, and to
use these funds to finance investments.
Public funding is done through intergovernmental transfers and counterpart funding. With
respect to intergovernmental transfers, a mechanism is needed that channels finance in a
way that neither distorts the allocation of resources between alternative modes or in-
struments nor weakens the incentives to efficient operation of the individual modes.
Counterpart funding by national governments of urban transport infrastructure invest-

ment, particularly in capital cities, is common, while current account support to the mu-
nicipalities for transport purposes is rare. The effect of this is to bias the cities in the allo-
cation of resources at their disposal in whatever way attracts the most generous coun-
terpart funding. The partiality of cities for road investment in many countries, and even
for heavy rail investments in some countries, often derives from the high degree of coun-
terpart funding that such investments attract. It may also undermine collaboration, be-
cause authorities see more benefit in competing for the “cheap” counterpart funds than
in collaborating to develop effective programs.
The above considerations suggest the need for a mechanism to integrate urban transport
finances, whether secured from users, from local taxes, or from intergovernmental trans-
fers, and to ensure their efficient allocation among uses. For smaller, unitary cities, an
existing all-purpose administration might be quite adequate without the creation of any
special new institution. But the larger the city size and the more complex its jurisdictional
and functional organization, the more likely it is that a “ring fenced” fund and authority
will be beneficial. One straightforward solution for larger conurbations is the creation of
an urban transport fund into which all local transport trading profits, transport- related
Page | 18
intergovernmental transfers, or local tax allocations should be paid, and from which all
local public sector transport expenditures should be financed. The essential features to
be sought in an arrangement would thus be the pooling of all available transport reve-
nues and their allocation between uses on the basis of the contribution made to the
overall municipal development objective.
Funding through private investments in treated in Chapter 3 of this Module.
Further Reading on Financing and Economic Instruments
Breithaupt 2002: Economic Instruments. Gtz Sourcebook Module 1d
World Bank 2002: Cities on the Move, Chapter 10
GTZ International Fuel Prices, www.gtz.de/fuelprices
Heggie, Ian G. and Piers Vickers. (1998): Commercial Management and Financing of
Roads, World Bank
Brushett; Stephen (2005): Management And Financing of Road Transport Infrastruc-

ture in Africa, Sub-Saharan Africa Transport Policy Program (SSATP), Africa Region,
The World Bank, Washington, DC.
GTZ Sourcebook Module on Financing, forthcoming
Page | 19
2. Transport Institutions4
This chapter is about the important role that institutions have when planning and imple-
menting sustainable transport strategies. These are not confined to transport, but com-
prise as well other ministries, regional planning agencies, police, public health institu-
tions, etc. It is the primary task to define the responsibilities of these institutions and
coordinate their responsibilities. An important issue is the development of an integrated
regional and land-use plan, which involves larger numbers of institutions. Another impor-
tant issue is the development of institutions in the road and Public Transport sectors that
ensure the planning and implementation of sustainable policies. In order to achieve this
goal, the institutions need well trained staff and adequate human resources.
2.1. Responsibilities of urban transport institutions
Urban transport responsibilities are all those functions relating to the planning and man-
agement of the circulation of vehicles, passengers and pedestrians on the road system,
and where relevant, on local rail and water transport networks. They generally include:
• planning and development of transport infrastructure (road & rail networks)

• management of roads and road use, including the licensing of vehicles and driv-
ers,
• Public Transport organization,
• development and regulation financing and investment, and
• an interface with land use and urban planning.
Table 4 gives an overview on the strategic functions and the responsible agencies. These
are clustered according to they functionality “for the city”, i.e. the national level, “of the
city”, the administrative municipal level and “in the city”, the private and individual ac-
tors. For urban transport strategy to be effective, each of these three levels must have a
technical competence to perform their tasks, and the levels of strategy must be consis-
tently aligned and efficiently coordinated.
Table 4
Allocation of strategic functions
Strategy level Function Agency Comments
“For the city” National roads Ministry of Construction Private sector construction
Public enterprises Ministry of Economy Sometimes municipal
Tax levels Treasury May be function of a quasi
Intergovernmental transfers Treasury independent commission
Regulation and competition Ministry of Economy
policy Ministry of Transport
Vehicle registration and
safety
“Of the city” Urban structure planning Planning Department Direct responsibility to mayor
Strategic transport planning Transport Department Sometimes national
Local road management Roads Department
Public transport planning and Public Transport Agency
procurement Traffic Department
Traffic management Police Department
Law enforcement Interdepartmental Unit
Road safety
“In the city” Public transport operations Private companies Franchised or contracted
Road construction and Private companies Some force account
maintenance NGOs and individuals maintenance typical
Local facility consultation Sometimes under formal pub-
lic inquiry laws
Source: World Bank 2002, p. 154
4
Adapted from Meakin (2002), GTZ Sourcebook Module 1b.
Page | 20
2.1.1. Major institutional weaknesses
There are a number of sources of potential weakness including a lack of technical capa-
bility, poor spatial and jurisdictional coordination, poor functional coordination, and poor
operational coordination. Few cities have any comprehensive strategic land-use and
transportation- planning agency. There is often no traffic management institution or unit
worthy of the name, and often not even an adequately trained transport or traffic engi-
neer within the municipal institution. Traffic police are often involved with traffic man-
agement planning simply because there is no professional civilian alternative. They are
often underequipped, not well trained in traffic management enforcement, and do not
appreciate the role and function of traffic management. The Public Transport planning
and regulatory function is too often tied to operations. If the institutions exist, they tend
to be understaffed and their staff poorly trained. The net result is that politicians and
senior executives without transportation training are making important transport deci-
sions without informed professional input and with predictable adverse consequences.
An ‘effective’ institution is one that is capable of pursuing and achieving its assigned ob-
jectives, and capable of managing a transition to new or revised objectives. Institutions
that are not effective tend to ‘muddle through’, with incremental measures to issues as
they arise. The following are essential requirements for an effective Public Transport
planning and regulatory institution: i) clear, attainable objectives which are consistent
with broader policy objectives; ii) well-defined working procedures with limits to officers’
discretion; iii) adequate resources: funds and qualified, iv) motivated staff; v) an appro-
priate and sound legal basis for the exercise of powers and duties; vi) accountability for
performance to a higher administrative or political body; vii) procedures for public report-
ing and consultation with stakeholders.
An ‘effective’ institution is one that is capable of pursuing and

achieving its assigned objectives, and capable of managing
a transition to new or revised objectives.
2.1.2. Organisational options
The basic organizational requirements for good urban transport are that each major func-
tion is recognized, that responsibility for each function is clearly assigned to an identified
management unit, that the units are properly resourced for their tasks, and that their
relationship with other organizations is clearly designated. The majority of local planning
and day-to-day operational functions will fall to the municipal or metropolitan level. A
typical organization for the performance of these functions, together with the responsi-
bilities and resource requirements of the departments or agencies, is shown in Table 5.
Page | 21
Box 7
Leveraging urban transport coordination in Brazil
Responsibility for urban Public Transport in the Brazilian conurbations has historically
been very fragmented. The federal government owned and operated suburban rail-
ways, the states were responsible for inter-municipal buses within the conurbation,
and municipalities were responsible for intra-municipality bus services. Metros were
under either state or municipal control. Policy was not coordinated, especially when
the various levels of government were under different political control. In the early
1990s, as part of a policy of decentralization, the federal government decided to reha-
bilitate the various urban rail systems and transfer them to the states.
The World Bank financed part of the rehabilitation in several cities. As part of the
process, the opportunity was taken to address the broader issues of urban transport
coordination. In addition to funding infrastructure or rolling stock rehabilitation, each
project contained the following elements:
• Establishment of a regional transport coordination body

• Completion of an integrated urban transport, land-use, and air-quality strategy
and a regional Public Transport plan
• Introduction of financing mechanisms to establish the basis for financially sus-
tainable Public Transport
• Increased involvement of the private sector in operations and investment in the
sector.
The reforms have limitations. The coordinating bodies usually lack executive power,
because mayors and governors are unwilling to delegate their regulatory powers. Even
good transport plans do not ensure consistent implementation. The financial provisions
may simply be the inclusion of a budget line rather than a secure, long-term source of
finance—and private participation does not exclude all need for public funding. Never-
theless, the achievements have already been considerable. In Rio both the metro and
the suburban railways have been successfully concessioned to the private sector. In
São Paulo metro and suburban rail systems are being linked, and their development
coordinated. In Fortaleza, state and municipality work together to restructure net-
works and introduce integrated ticketing systems.
World Bank 2002.
Page | 22
Table 5
Professional organization for municipal transport functions
Principal Policy Relationship to

Function Professional skills
responsibilities functions other organisations
Urban structure Prepare and maintain Shape development Land-use planners, Responsible to mayor
planning metropolitan struc- structure, create Environmental special- or city council
ture plan. basis for development ists, Responsible to
controls. sociologists strategic transport
authority.
Strategic Conduct strategic Prepare broad Transport planners, Receives input from
transport transportation studies strategies that other economists, other municipal
planning Prepare organizations should civil engineers transport units in
comprehensive follow. preparing strategies
transportation plans and plans
for the city or metro-
Traffic Prepare traffic man- Determine traffic Traffic engineers, Responsible to
management agement plans; priorities consistent economists, strategic transport
review development with general strategy. parking specialists, Must work in
authority.
proposals with traffic Create parking and electrical engineers coordination and
impacts; traffic management consultation with local
operate Traffic framework for lower- police authority.
Control and ITS level districts.
(Intelligent Transport
Systems);
manage vehicle
inspection and
maintenance scheme;
monitor
environmental im-
Public Plan and regulate Prepare passenger Public transport and Responsible to
passenger Public Transport transport policies regulatory strategic transport
transport systems including consistent with specialists Should be separate
authority.
buses, trams and strategy and with from any passenger
light rail, taxis, and financial capability. transport operations
Procure services.
metros. Set parameters for
procurement agency.
Traffic Enforce traffic regula- Collaborate in traffic Police officers Traffic police provide
enforcement tions; management system traffic accident and
manage traffic events design. traffic incidence
and incidents; Enforce traffic information to safety
collect accident data. management policy. and traffic
management or-
Road design, Responsible for Maintenance prioriti- Civil engineers Work closely with
Construction designing, con- zation Traffic Management
and structing, and Organization to
maintenance maintaining streets. implement detailed
traffic engineering
Traffic safety Road traffic safety Analyze safety data; Statisticians; Directly responsible to
strategy. orchestrate inter- traffic engineers mayor or city council.
Coordinate all departmental Relationship with
departmental inputs, collaboration to im- health authorities
including those from plement strategy. necessary
health, education,
and so on.
Source: World Bank 2002, p. 158
Page | 23
Box 8
Reforming transport institutions and empowering
local authorities in South Africa
The Gauteng Province is the economic engine of South Africa and Southern Africa. It
has three metropolitan municipalities including the City of Johannesburg and Tshwane
(previously Pretoria). It also includes three districts municipalities. The Gauteng TCC
(Transport Co-ordination Committee) was created in 1996 in view of the fact that the
Gauteng Province is largely urban and operates as a functional transport area and be-
cause of the large percentage of transport movements across the boundaries of the
municipalities. The TCC co-ordinates transport policy between the three metropolitan
municipalities, the three district municipalities, the province, the local rail operators
and the national railways government agency. Nevertheless, all three metropolitan
municipalities are advanced in the investigation to establish Transport Authorities. This
will enable many functions to be devolved to the municipalities, and will ensure that
the previous fragmented approach to the planning, management and control of Public
Transport can be eliminated. Municipalities are now, for the first time, preparing inte-
grated transport plans which include Public Transport as well as transport infrastruc-
ture. The planned taxi recapitalisation process, which is aimed at replacing the 16-
seater vehicles with 18 and 35-seaters, will have a major impact on the Public Trans-
port system. Gauteng is also advanced with the implementation of a Rapid Rail trans-
port system to link all three metropolitan municipalities.
Source: UITP 2003.
2.2. Coordination of transport related activities
2.2.1. Spatial hierarchy of planning
The structure of government may be seen as a hierarchy comprising several tiers ranging
down from central (national) government to district (a suburb or a part of a city) gov-
ernment (Figure 3). Each descending tier of government covers a progressively smaller
geographical area. The division of a country into provinces, metropolitan areas and towns
requires coordination across the geographical boundaries between jurisdictions. At each
tier there may be both an administrative body with executive powers and a consultative
(elected or appointed) body. Generally, the range of responsibility will reduce with each
descending tier of government. The distribution of responsibilities between tiers may be
formalized by legislation. There is a trend towards the devolution of responsibilities and
more autonomy for decision-making, to the lower tiers of government.
Page | 24
Figure 3
Vertical integration of different planning levels
Source: Petersen 2002, Gtz Sourcebook Module 2a
2.2.2. Land-use and transport planning
Suburbanization of population growth, particularly where associated with continuing cen-

tralisation of employment and economic activity, leads to a situation where the major
traffic flows are between traditional local government jurisdictions rather than within
them. The city region, rather than the municipality, becomes the effective unit of major
transport interaction. In order to reduce future transport demand in the fast growing
conurbations, the development of a strategic land-use and transport plan is necessary at
the municipal or metropolitan level. The necessities and planning options are described in
Chapter 3 of Module 1.
In order to reduce future transport demand in the fast growing

conurbations, the development of a strategic land-use and transport
plan is necessary at the municipal or metropolitan level.
Sustainable land use is primarily a local issue but needs to be promoted and guided by
national and provincial strategies and resources. The aim is to ensure that development
takes place within a spatial framework. Decisions about land use should be jointly taken
at the regional, municipality and district levels. According to the principle of subsidiarity,
details of planning ought to be decided on the lowest level possible because of the better
familiarity with the problems. On the other hand, these decisions and plans have to fit
into the guidelines and the framework of spatial planning issued at the provincial and
national level.
Page | 25
Figure 3 shows the vertically structured pyramid of levels of responsibility. From the or-
ganisational perspective, the pyramid also illustrates the transfer of information top-
down and bottom-up, including the practical links between levels in the mapping proce-
dures. Lower-level maps will be based upon the frame delivered from the upper levels,
and vice versa. As different administrative and political structures of responsibility can be
found in the various Developing Countries, the scheme has to be adapted to local condi-
tions. With respect to the links between land use and transport, close cooperation be-
tween the responsible bodies is necessary. Growth of cities beyond their traditional bor-
ders may have led to the establishment of metropolitan authorities between the munici-
pal and the provincial level.
Cooperation between the various hierarchical levels should be organised according to the
principle of “counter-current”. Plans designed for instance in urban district level have to
be agreed upon by the upper level (the municipality) before implementation; permission
has to be granted from the upper to the lower level if the formal requirements are met.
The same happens with land use planning on municipal level towards the regional plan-
ning authorities, and vice versa. Figure 4 shows the principle of overlaying various land
uses in urban planning. According to the functions allocated to the areas, transport and
other infrastructures have to be decided upon, to avoid frictions, bottlenecks and associ-
ated economic losses.
Figure 4
Overlay of land use plans
Source: Petersen 2002, Gtz Sourcebook Module 2a
2.2.3. Overlapping and unclear responsibilities
However, the above planning process is hampered through overlapping and unclear re-
sponsibilities within the planning hierarchy:
• Overlapping levels of authority within a hierarchical system are often the source of
jurisdictional conflicts.
• Contiguous authorities, at the same hierarchical level, make up many metropoli-
tan areas. Where transport interaction occurs significantly across the boundaries
between them, it is desirable that they should act in concert.
• Local district and municipal interests may not be well aligned on detailed matters
of transport policy even in unitary cities.
• Coordination between land-use and transport development is fundamental to effi-
cient city development.
• Coordination between transport modes is required to secure effective physical in-
terchange between modes, particularly when the modes are independently and
privately operated.
Page | 26
• Coordination in traffic management and enforcement

• Private and public sectors interact increasingly as central and municipal govern-
ments find themselves incapable of financing their strategies alone.
2.2.4. Options for a regional planning authority
The above problems show the challenges an integrated regional transport and land-use
planning process is facing. Additionally, managing Public Transport is particularly difficult
when there are many modes, operating across communal boundaries of autonomous
municipalities, some in the private and some in the public sector. In these circumstances,
it is important that responsibility to ensure the coordination of physical infrastructure,
service systems, fares, and finances is clearly allocated. There are several different op-
tions for this, including:
1. A regional coordinating committee composed of political representatives of all the

jurisdictions, but without its own executive powers.
2. A regional coordinating authority governed by a board of political representatives
of the constituent authorities, having a professional executive agency to imple-
ment its policies, with operators either directly controlled by the executive or op-
erating under contract to it.
3. A regional mixed coordinating authority governed by a board containing both po-
litical representatives of the constituent authorities, and operators. An example
from German are Transport and Tariff Associations for Public Transport (see
Chapter 2.2.6)
4. A two-tier arrangement, in which there is a political body and an operators’ body
linked by a formal agreement. This is the arrange A legally established independ-
ent authority governed by a broadly based representative board of directors, in-
cluding directors nominated by the political jurisdictions but not under direct po-
litical control.
5. A democratically legitimated regional decision-taking body in charge of regional
and transport planning (Box 9).
2.2.5. A regional authority for integrated planning
Creating a local or regional transport authority to support local policy-making Urban

transport is a great challenge in many aspects, due to numerous conflicting issues. To
address these challenges, an integrated transport authority may ensure cohesive policies
with respect to all the different stakeholders. Indeed, planning a transport network and
financing infrastructure ought to be done in a coherent way if projects are to be realized.
Also, regulating traffic and Public Transport can be difficult to balance if done separately,
as measures from one administration could counteract those of another administration. A
transport authority once established must build legitimacy by developing strong ties with
the local stakeholders in order to address urban transport challenges. They include: i)
local communities ii) transport user associations iii) businesses and major employers iv)
public/private transport operators v) land-use agencies vi) intercity operators and vii)
decision-makers/elected officials.
In Germany some large communities and their surrounding districts have formed so
called Conurbation-Hinterland Associations that have the task of integrated regional
planning for the whole conurbation and its hinterland. A positive example of an inte-
grated regional land-use and transport planning is the Verband Region Stuttgart VRS,
given in Box 7. Its strength stems from a regionally elected democratic body, that pro-
vides the legislative power to enforce regional plans sometimes even against the resis-
tance of communities.
Page | 27
Box 9
Verband Region Stuttgart, Germany
The Greater Stuttgart Region, Germany, comprises the city of Stuttgart and five other
districts, hosting 179 communities counting 2.7 m inhabitants. The Verband Region
Stuttgart (VRS), is a Conurbation-Hinterland Association that has the tasks of regional
planning, landscape planning, traffic and transport planning, business promotion and
tourism marketing, local Public Transport, and waste disposal. The VRS is as well a
political organisation with its own directly elected representatives: the Regional As-
sembly. This democratically legitimated decision-taking body covers the central plan-
ning policies in the region.
The VRS draws up and finalises a Regional Plan, with a time-horizon of some 10 to 15
years. It formulates the goals, basic principles, and suggestions from which the plan-
ners at community level have to take their line. The main goals of the regional plan
are i.a.:
• Concentration of new developments in existing settlements

• Retain green belts from settlements
• Strengthening of CBD and cities
• Mapping of new settlements in proximity of railway lines and existing facilities
for supply
• Further development of polycentric settlement structures
• Development of focal points for settlements and business
• Extension of Public Transport
• Central Locations and Development Axles
Many of the above regional planning measures are designed to contain the volume of
individual motor vehicles and promote Public Transport. For example the new Regional
Plan will only allow new developments in communities directly adjacent to the rail ax-
les. Before VRS was founded, the settlement activities could not be effectively con-
trolled, and thus in the past developments took place that contradicted regional plans
and had strong negative impacts on regional traffic. Nowadays, the VRS has the right
to authorise local land use plans and restricts all activities contradicting the regional
plan.
The Region has an integrated traffic and transport concept which is at the same time
co-ordinated with regional and landscape plans. The Regional Traffic and Transport
Plan contain long-term strategies for roads, railways, and cycle paths, and a list of
priorities for future investments. This traffic programme represents a blueprint for Dis-
trict and Community planning and ensures that the VRS is able to influence the in-
vestment programmes.
2.2.6. Transport and Tariff Associations
Next to the planning conducted by a regional planning authority, the execution of trans-
port services needs coordination as well. For this purpose in Germany Transport and Tar-
iff Associations play an important role. They associate districts or towns (communities) in
legal bodies that have the task to i) create a single tariff for all Public Transport services ,
modes and tickets, ii) provide common service schedules, iii) unified information on ser-
vices, and iv) interconnections between the service providers. The advantages of an inte-
grated association for the customers are:
• Free choice of transportation system (e.g. bus , tram, regional rail);

• Comprehensible strategy „one tariff - one ticket“;
Page | 28
• Coordinated timetables (best connections); and

• Improvement of quality.
The Advantages for the association are:
• synergy effects for marketing, customer information etc,;

• unification of distribution (e.g. ticketing),
• simple tariff system for all public transport systems;
• consistent market presence; and
• higher demand on public transport.
Often Transport and Tariff Associations play larger roles than this minimum approach.
They conduct planning, coordination and may even order transport services from the
providers.
2.3. Institutional reform of the road sector
2.3.1. The importance of road maintenance
The road network constitutes the largest public infrastructure asset. Thus the costs to
road users of a degraded network are very high and constrain national economic devel-
opment potential. The importance of roads is further reflected by the fact that spending
on roads can absorb as much as 5 to 10 percent of a governments recurrent expenses
and 10 to 20 percent of its development budget. Roads in many parts of the world are
poorly managed and badly maintained, usually by bureaucratic government road de-
partments. The poor state of the road network is reflected in the large backlog of de-
ferred maintenance. The economic costs of poor road maintenance are borne primarily by
road users. When a road is allowed to deteriorate from good to poor condition, each dol-
lar saved on road maintenance increases Vehicle Operating Costs VOC by between $2
and $3 Poor road maintenance also raises the long-term costs of maintaining the road
network. Maintaining a paved road for 15 years costs about $60,000 per km. If the road
is allowed to deteriorate over the 15-year period, it will cost about $200,000 per km to
rehabilitate it. In other words, rehabilitating paved roads every 10 to 20 years is more
than three times as expensive, in cash.
When a road is allowed to deteriorate from good to poor condition,

each dollar saved on road maintenance increases
Vehicle Operating Costs by between $2 and $3.
Poor road maintenance is mainly due to:
• weak institutional framework,

• human resource constraints,
• inadequate financing arrangements, such as
o too few and poorly allocated funds, and
o too much new investment,
• lack of clear responsibilities, and
• ineffective management.
Page | 29
Figure 5
City centre of Kampala, Uganda, 1992
Source: Metschies, Gtz Transport Photo CD
Cities usually have a massive investment in their road systems, which are often very
poorly maintained. Road projects typically show very high returns on maintenance ex-
penditures, yet there is a persistent tendency to underfund maintenance.
The Economic Rate of Return is typically at 10% for new construction,

at 20% for rehabilitation and at 40% for maintenance.
2.3.2. Outline of a road sector reform
The continuing rapid growth of motorization, the associated growth of road networks, the
large demands these road networks placed on the government's budget, and the acute
shortage of fiscal revenues worldwide, have led to a growing consensus that roads do not
need to be managed and financed in the same way that governments manage and fi-
nance their health and education sectors. They are perfectly capable of standing on their
own feet.
In the old administrative structure all tasks were concentrated within the Ministries of
Transport or Works: financing, planning, prioritisation, road construction, rehabilitation
and network maintenance. Oversized ministries with large numbers of staff conducted
the planning tasks and implemented the works by force account. This entailed long plan-
ning procedures, inefficiencies, diseconomies and insufficient maintenance that resulted
in a deterioration of big parts of the road networks.
Roads should be commercialized and systematically subjected

to the discipline of the market place, put them on a
fee-for-service basis, and manage them like a business.
Page | 30
However, an agenda for a road sector reform was brought forward by the World Bank. Its
main idea is that roads should be commercialized and systematically subjected to the
discipline of the market place, put them on a fee-for-service basis, and manage them like
a business. The general direction of the reforms can be grouped under four main head-
ings:
• Separating the planning and management of roads from implementation of road

works and contracting out implementation to the private sector.
• Establishing a more autonomous Road Agency that operates at arms length from
government.
• Replacing the previous model of administrative accountability, with better over-
sight arrangements that strengthen accountability and pay more attention to the
needs of road users.
• Streamlining the structure of the Road Agency and improving terms and condi-
tions of employment for Road Agency staff.
As a result of the above, a number of the Road Agencies have been set up under new
legislation. The main idea is to manage roads through a state agency, that differs from a
public administration through the organisation of a private enterprise. Most countries
have either already done this, or are working towards it. The costs of in-house road
works (force account) are typically 20 to 30% higher than work subjected to competition.
Thus separating client and supplier by tendering road works has proven to be an appro-
priate solution. Countries have tackled this in three main ways: They have: (i) kept an
integrated structure, but ii) have clearly separated the client and supplier functions
within the organization; iii) contracted out the supplier function; or iv) contracted out
both the client and supplier functions. These reforms have produced spectacular results.
The general message is that separating planning and management from implementation
of works can reduce costs by up to 20 percent, whilst contracting work out to the private
sector can reduce costs by a further 5 percent.
Typically, the new structure has four layers with different functions: The ministries, the
Road Fund, the Road Agencies and the private contractors as depicted in Table 6.
Table 6
Typical structure of a reformed road sector administration
Actor Legal Status Tasks
Ministries of Transport and/or

Public Administration Policy directives, planning goals
Works
Collection of funds, assignment to Road
Road Fund Public Agency
Agencies, Control of adequate spending
3 Road Agencies for Prioritisation, planning, budgeting and
interurban, urban and Public Agencies tendering of road works, quality control of
rural roads works.
New construction, rehabilitation and
Contractors Private Sector
maintenance
2.3.3. Road Agencies
Commercialization seeks to ensure that the Road Agency operates along the same lines
as any other infrastructure provider subjected to market discipline. This comprises cus-
tomer orientation (the road user), performance targets, operational objectives, business
planning and staff restructuring. The agency has more autonomy and is held accountable
for results on the ground.
Page | 31
The new Road Agencies are primarily managed by a representative board of directors
under an independent chairman of standing. Although some of these boards remain
weak, others have turned out to be examples of emerging good practice. The best have
non executive powers, and a broad-based, representative membership defined in terms
of clearly defined constituencies (e.g., key ministries, Chamber of Commerce, road
transport associations, the professions, farmers, etc.). Members are normally nominated
by the constituencies they represent (i.e., they are not simply appointed by the minister
or senior officials) and the private sector members are usually in the majority. An added
feature is that the chairperson is usually independent. These boards help to protect the
Road Agency from unwelcome interference in day-to-day management matters, they
enable the Road Agency to draw on a wider range of skills and contacts among board
members, and the private sector members help the Road Agency to recognise that it is
delivering services to clearly defined customers. Customer-orientation is particularly im-
portant when the Road Agency is trying to seek public support for more road spending.
The final element for a commercialized Road Agency is an effective set of management
information. This needs to include a modern road management system which informs
about decisions on routine and periodic maintenance, rehabilitation of pavements and
bridges, upgrading roads and adding new roads to the network. Additionally a cost ac-
counting system is established together with a set of commercial accounts. This frame-
work needs to be supported by both internal and external audit functions. The internal
audit function assists the board in its oversight task, while the external audit - which
usually forms part of a statutory audit - checks, on a sample basis, that: i) all revenues
due have been collected and properly accounted for; ii) all payments are consistent with
the regulations and are supported by adequate documentation; iii) accounting systems
and internal control procedures are adequate; and iv) all work has been done according
to specification (which involves site inspections). The overall aim is to ensure that road
spending has produced value for money.
Box 10
Road management restructuring in Africa – the two waves
First Wave … Second Wave …

Contracting out works Create new institutional structures
Downsizing plant and equipment pools Contracting out network management
Restructuring roads departments Bring in representative boards
Retraining and retrenching Add new services
Improving staff incentives Deconcentrate service provision
Strengthening road management systems Strengthen public relations
Separating responsibilities, Sharpening accountability and
identifying the core client functions emphasizing client orientation
Source: Brushett 2005.
2.3.4. Road Funds
Relying solely on government budgets for financing road maintenance nearly always
leads to roads being under-funded. As a consequence, road assets are eroded, vehicle
operating costs increase and the country builds up a large backlog of rehabilitation work.
To overcome this problem, Road Funds were established that have the task to collect
funds from the users (e.g. fuel levies, vehicle registration fees) manage and forward
them to the relevant Road Agency according to their needs. After initial failures, a new
Page | 32
generation of Road Funds were developed in the mid-1990s, based on the fee-for-service
concept, meaning that road users pay explicitly for roads (mainly through fuel levies),
the funds are managed through an independent Road Fund Administration and the ar-
rangements are designed to ensure that funds are not abstracted from other sectors. T
In the United States, Japan and New Zealand Road Funds have been in place since the
1950s. The New Zealand one especially, is an excellent example of good practice. Simi-
lar, so called 1st generation Road Funds, were established in other countries in the
1970s, 80s and 90s, but these often lacked proper specifications and controls, leading to
misuse. As a result, most were closed down or restructured as 2nd generation Road
Fund.
Box 11
Characteristics of the “Second Generation” Road Fund
• Sound legal basis – separate Road Fund administration, clear rules and regulations
• Strong oversight – broad based private/public board
• Agency which is a purchaser not a provider of road maintenance services
• Sound financial management systems, lean efficient administrative structure
• Regular technical and financial audits
• Revenues are incremental to the budget and come from charges related to road
use
The following features characterise Road Funds:
• What type of expenditures should the Road Fund finance? Most funds finance
maintenance and, when maintenance is fully covered, then spend the balance of
revenues on rehabilitation and minor new works.
• Which roads should be financed by the Road Fund? Most modern Road Funds meet
all costs on national roads and provide some funds on a cost-share basis to fi-
nance urban and rural roads.
• Where will revenues come from? Revenues mainly come from a fuel levy, vehicle
license fees and international transit fees. These charges - the road tariff - are
usually collected by the Ministry of Finance and are deposited into the Road Fund
bank account.
• How should the Road Fund be managed? Most successful Road Funds are man-
aged through an independent Road Fund Administration. Oversight is provided by
public-private board consisting of representatives of government and key private
sector road organisations, e.g., Chamber of Commerce, Road Transport Associa-
tion, etc.
• How should funds be divided between the different agencies entitled to draw from
the Road Fund? This is usually done through a formula that attempts to share the
funds in relation to road length, traffic volume and population served. It is essen-
tial for urban roads, that funding is made available to the Urban Road Agency
through the Road Fund that covers a share of the costs. However, urban munici-
palities need to seek additional sources of funding for road works.
• How is the Road Fund audited? Most modern Road Funds are regularly subjected
to technical and financial audits by private sector auditors and/or are audited by
the Auditor General.
Page | 33
Key lessons of experience with 2nd generation Road Funds centre on good governance,
transparency and comprehensive stakeholder involvement and consensus building. A
Road Fund needs to:
i) Have an effective oversight board under an independent chairman of standing;

ii) The concerned Minister should not chair the board;
iii) Publicise their work to win public support for the fuel levy, other charges and
the associated road program;
iv) Operate transparently; and
v) Subject the working of the Road Fund to regular technical and financial audits.
Box 12
Some indicators of performance for “Second Generation”
Road Funds in SSAfrica
• 27 Road Funds are in place - of which 9 established since 2000

• 18 Road Funds are established by law of which 12 have a board with private
sector majority
• 14 Road Funds rely on 80% or more of road user charges as revenues
• In nearly all cases, fuel levy is the principal means of raising road user charges
• Fuel levy in US cents/litre is between 8 and 7 for petrol and diesel, respectively
• 11 Road Funds have their revenues channelled directly to their bank account
• Only about one third of Road Funds may now be meeting routine maintenance
expenditure needs on a regular basis.
Source: SSATP RMF Matrix (2006).
2.4. Public Transport institutions
Effective Public Transport management is built on four foundations:
1. A coherent policy, and implementation strategies;

2. A structure of the Public Transport industry that is amenable to competition or
regulatory control;
3. A regulatory framework that provides a legal basis to impose the right mix of obli-
gations and incentives;
4. Effective supervisory institutions that have sufficient capability and independence
to undertake basic network planning, administer regulation and guide the devel-
opment of the industry.
All of these issues are discussed in Chapter 5 of Module 3.
2.5. Overcoming human resource constraints
Human Capacities are the major bottleneck for many transport activities in Developing
Countries. Often ministries are understaffed, positions remain vacant or are endowed
with under-qualified personnel. This is especially problematic, since ministries need
highly qualified staff to adequately fulfil their duties as a regulatory body.
Human Capacities are the major bottleneck for many

transport activities in Developing Countries.
Page | 34
Private enterprises have similar problems to find adequately trained staff, especially
when engineering skills are required. Unqualified staff, missing entrepreneurial and tech-
nical experience is one of the main reasons for the low performance of many local road
construction companies, which gives them practically no chance when bidding for lucra-
tive large scale construction projects. Therefore, their works are rather confined to small
scale maintenance contracts. Consultancy services in the transport sector of Developing
Countries is often done by international experts and seldom undertaken by local consult-
ants. Missing expertise, insufficient experience and lack of reliable contacts to donors
might be the reasons for this deficit.
2.5.1. Planning and engineering
Institutions responsible for urban transport in Developing Countries, whether at a local or

national level, are generally short of adequate professional skills. In Bangkok and Ja-
karta, it is conservatively estimated that there are about one-tenth the number of traffic
engineers that would be found in cities of a similar size in industrialized countries. Tech-
nical and administrative staff to support the professional staff may be adequate in num-
ber, but also frequently lack necessary skills. Even those staff who do have technical
skills in urban transport may not be in positions to make the most effective use of them,
having achieved management status outside their technical field or being in units where
administrative, jurisdictional, or functional limitations restrict the extent to which they
can apply their specialized knowledge.
2.5.2. Traffic management and enforcement
Traffic management skills are particularly scarce. Although traffic management schemes
are of relatively low cost, they require a high staff input and the resolution of many de-
tailed and interrelated planning, design, and procurement issues. Success depends on
staff capabilities and thus on staff training. In many countries traffic management is not
recognized as a distinct discipline, and staff capabilities and training procedures are defi-
cient.
Capacity building can be assisted in a number of ways. Traffic management can be intro-
duced as an established part of curricula in institutes of higher education. Some universi-
ties in industrialized countries already have “twinning” arrangements with universities in
Developing Countries, often with the assistance of bilateral funds.
Traffic police training is mostly carried out at police-run training centres, and normally
emphasizes routine policing (such as license checking, stolen vehicles, city-checkpoint
security controls, and so on) rather than traffic management matters (traffic scheme en-
forcement, particularly selective enforcement techniques, gaining familiarity with traffic
laws and regulations, dealing with traffic emergencies, accident reporting and analysis,
and so on).
2.5.3. Distribution and retention of skills
Professionals tend to be concentrated in central government departments or in metro-

politan areas, which are not necessarily where they are most needed. Making the best
use of scarce professional skills may call for some institutional flexibility:
• Concentrate available expertise in ‘expert’ agencies, or ‘think-tanks’ with a degree

of autonomy that can prepare the all-important policy framework, oversee imple-
mentation and act as an agent of change. Creating expert bodies frees staff from
day-to-day administrative duties which are usually oriented towards ‘fire-fighting’:
prioritising short-term symptoms of problems rather than their fundamental
causes.
Page | 35
• Conduct a skills analysis to assess the range of specialisations and minimum

number of qualified personnel required to staff an expert unit, and ensure those
skills are acquired.
• Reward key expertise with market-level salaries to retain skills, even though sala-
ries may be higher than civil service salary scales. This is feasible within an expert
unit.
• Make use of external expertise, like consultants, universities and other expert es-
tablishments.
• Avoid an excessive turnover of staff in key posts. Allow generalist staff to learn
from the specialists.
• Put experts in positions where they can influence policy.
• Ensure that scarce skills are not rendered ineffective because they are engaged in
uncoordinated initiatives, or in unnecessarily complicated systems
The shortage of professional skills in Developing Countries inhibits the devolution of

transport responsibilities to the city (metropolitan and municipal) level of government.
Where professional resources are scarce, expertise tends to be concentrated in central
government. On the other hand, it may be more efficient and cost-effective for scarce
specialist skills to be maintained in centralized specialist technical units and brought in
when required by municipalities. Another option is to focus on developing the local con-
sulting industry and for government agencies to contract out services to consultants on a
project-by-project basis or comprehensively on a term basis.
2.5.4. Training institutions
One of the main reasons for human capacity constraints can be found in Developing
Countries’ training institutions. Often they conduct little dynamic capacity building activi-
ties and especially lack a training approach that focuses on the unique problems of De-
veloping Countries. In some countries transport specialists, such as engineers, economist
and planners are not trained at all, in other countries education is subject to severe con-
straints, caused by inappropriate curricula, missing of specialised teaching staff, inade-
quate libraries and lack of other training material and equipment. This results in a low
number of trained personnel and comparatively low skilled alumni of Developing Country
training institutions. Often students are not trained on sustainable transport issues.
Local training institutes should be enabled to train their students in a manner that allows
them to compete internationally with other students from Industrialised Countries. In
order to achieve this goal, curricula have to be upgraded to international standards, li-
braries have to be endowed with recent publications, lecturers have to be trained on sus-
tainable transport and a fast access to internet shall be provided.
Knowledge transfer of methodologies, curricula, know-how and innovative didactic ap-

proaches is one of the main means to achieve this goal. However, the curricula shall not
be transferred 1:1 from Industrialised Countries, but rather adapted to specific national
or regional problems. This may be done in cooperation between universities from the
South and North. One of the most important issues is the training of the lecturers, which
can be either done on specially designed workshops in the South or through exchange
programs.
In parallel, a professional accreditation and licensing system should be put in place.

Twinning with organizations having similar technical responsibilities in developing and
industrialized countries enables staff to gain valuable practical technical and city man-
agement experience.
Page | 36
Further Reading on Road Transport Institutions
Meakin 2002, GTZ Sourcebook Module 1b
World Bank 2002: Cities on the Move, Chapter 11
Brushett; Stephen (2005): Management And Financing of Road Transport Infrastruc-

ture in Africa, Sub-Saharan Africa Transport Policy Program (SSATP), Africa Region,
The World Bank, Washington, DC
World Bank Website: http://go.worldbank.org/G75GREYKH0
Transport Training Initiative, http://www.transport-training-initiative.org
Page | 37
3. Public Private Partnerships in Urban Transport5
3.1. Characteristics of Public Private Partnerships
3.1.1. What are Public Private Partnerships?
Traditionally, transportation infrastructure has been developed in a process whereby the

government awards a construction contract to a firm that builds the infrastructure ac-
cording to design specifications. The completed infrastructure is passed on to the gov-
ernment for operations and maintenance. Project funding comes from taxpayers and/or
user fees. However, insufficient sources for the financing of transport interventions com-
bined with deterioration of infrastructures and rapidly expanding urban areas calls for
Public Private Partnership in infrastructure provision.
Private participation in infrastructure aims to take advantage

of the private sector’s potential advantage in certain aspects of
the public infrastructure delivery process - particularly infrastructure
delivery and operations and maintenance.
Public-Private Partnership (PPP) describes a private sector business venture which pro-
vides a public service, traditionally provided by government, which is funded and oper-
ated through a partnership of government and one or more private sector companies.
There are many models for increasing Public Private Partnership in transport. These in-
clude i) management contracts, ii) lease contracts, iii) franchises and concessions, or iv)
full privatisation (see Box 13). They can also include construction, operation, and financ-
ing of infrastructure on existing (brownfield projects) or new facilities (greenfield pro-
jects).
Box 13
Types of Public Private Partnerships
Management Contract: is an arrangement under which operational control of the infra-

structure is vested by contract in a private enterprise which performs the necessary
managerial functions in return for a fee.
Lease Contract: is a process by which a firm can obtain the use of an infrastructure for
which it must forfeit a series of payments.
Concession or Franchise: is an infrastructure operated under a contract or license by a

private enterprise for a certain period.
Full Privatization:Construction, operation, and financing of infrastructure on existing

(brownfield) or new facilities (greenfield).
5
Adapted from Zegras (2006): GTZ Sourcebook Module 1c.
Page | 38
3.1.2. Rationale for PPP projects
The rationale behind urban transport infrastructure PPPs is similar to that used in pro-
moting private participation in other sectors. Some supporters cite the state’s poor per-
formance in infrastructure delivery or highlight the fact that government resources can
never keep up with investment needs. Several additional benefits of PPPs are also often
noted, including: i) delivery efficiencies in terms of saved time and resources; ii) at least
partial risk transfer to the private sector (improved risk management); iii) independent
and multiple verification of project feasibility (filtering out of “white elephants”); iv) the
introduction of technological and delivery innovations into projects; v) improved value
from different quality, price, delivery time combinations; vi) reduced public sector staff-
ing needs; and vii) reduction of political pressures on tolls or fares.
3.1.3. Advantages and challenges of Public Private Partnerships
Nonetheless, infrastructure PPPs are not without problems and detractors. Some of the
principal challenges to PPPs relate to the typical need for some form of government
guarantee, which reduces private sector efficiency incentives. The problems are com-
pounded in the urban transport sector since the investment costs are often high and of
no alternative use and demand estimates are often highly uncertain. Further challenges
in the urban sector relate to questions regarding exclusivity of service and the need for
some level of infrastructure and service integration with a larger network. Table 7 high-
lights some advantages and challenges of private sector infrastructure PPPs in urban
transport.
Table 7
Advantages and challenges of PPP in transport
Advantages Challenges
1. Not necessary to increase public 1. Potential inefficiencies due to user fees possibly ex-
expenditures for infrastructure. ceeding marginal costs (in order to cover capital
2. One firm in charge of construction costs).
and maintenance creates incentives 2. Creating the appropriate contract award mechanism
for construction quality. and regulatory and contractual framework.
3. Private firms more efficient than • To reduce firms’ fears of expropriation;
state-owned firms. • To regulate resultant monopoly;
4. Cost-based user fees easier to justify • To mitigate likelihood that firms will press for
politically when infrastructure guarantees and renegotiations.
providers are private. 3. Balancing risk allocation and incentive structure.
5. Positive distributional impacts (those • So firms do not underbid in expectation of fu-
who benefit, pay). ture renegotiation;
6. Market mechanisms guide project • To not reduce the “white elephant” filter func-
selection. tion;
• To reduce the risk of “privatising profits” while
“socialising losses”.
3.1.4. Varieties of PPP
Infrastructure PPPs are often simply referred to as Build-Operate-Transfer (BOT), al-

though the actual delivery mechanisms include Design-Build-Operate-Maintain (DBOM),
Build-Own-Operate (BOO), Build-Own-Operate-Transfer (BOOT), Design-Build-Finance-
Operate (DBFO), Rehabilitate-Operate-Transfer (ROT), Build-Lease-Transfer (BLT),
among others. Table 8 highlights some of the similarities and differences among the
common approaches.
Page | 39
Table 8
Characteristics of private involvement in infrastructure provision
Delivery strategy Principal characteristics
Traditional, segmented, infrastructure delivery strategy whereby

Design-Build (DB) the government provides planning, design, financing,
- not a PPP maintenance and operation, with the private sector providing
detailed design and construction.
Traditional, segmented, delivery strategy, with design fully
separated from construction, which are both separated from
Design-Bid-Build (DBB)
maintenance and operations; similar to the DB model, but
- not a PPP
including tendering; government provides all planning and
financing.
The government procures design, construction, maintenance,

Design-Build-Operate (DBO) and operation from a private concessionaire. The government
- PPP with subsidy provides initial planning and functional design and also provides
some portion of the cash flows required to finance the project.
The government procures design, construction, financing,

Build-Operate-Transfer (BOT) maintenance, and operation from a private concessionaire. The
and Design-Build-Finance- government provides initial planning and functional design, while
Operate (DBFO) the concessionaire assumes all financial risks. For BOT the infra-
- PPP without subsidy structure is transferred back to the government at the end of
the concession period.
3.1.5. PPP in practice
In 2006, some 108 transport projects with private participation valued at $ 26 billion in
30 low and middle income countries, were reported as being closed; a record that sur-
passed the previous 1997 peak. The most common type of PPP observed were PPPs for
existing assets and greenfield projects. The growth in PPPs is led by roads and bridges,
particularly in large, middle income or high growth countries like China, India, Brazil, RSA
and Mexico; in most of the 150 or so developing and transition economies, new private
finance for transport infrastructure remains very limited. Practical experience suggests
that the most promising areas where significant Public Private Partnership can be pur-
sued are where there are substantive current or future international transport revenues.
For this reason, PPPs are more common for port and airport terminals, rail and road
freight operations, urban or high density toll roads (often associated with export corri-
dors), plus urban Public Transport.
3.2. Institutional, legal and regulatory framework
The use of PPP aims to reduce the role of government in the physical production and op-
erations of infrastructure assets; nonetheless, the role of the government remains more
critical than ever when the choice to employ PPP is made. The economic regulations
which govern transport are important in situations where
i) the transport infrastructure or service involved is a natural monopoly (such as

a railway network or a major city airport), and/or
ii) where it confers significant market power (for example a time-bound exclusive
operating concession for bus services, or for providing all stevedoring services
at a particular port); and/or
iii) when the rights and obligations contained within a PPP agreement rely on
regulatory interpretation.
Page | 40
3.2.1. Tasks of the government
The government must be a reliable and professionally competent sponsor, defining well
the scope of the individual projects, promoting transparent and head-to-head competi-
tion; remaining open to technological innovation; and, importantly, being capable to im-
plement. Among the most important tasks for the government:
• Determine the need for the infrastructure project (within a strategic plan and
through appropriate project evaluation).
• Determine that private sector financing is feasible, desirable.
• Establish legal framework (property rights, contract obligations, security rights,
etc.).
• Establish regulatory regime (autonomous, independent).
• Establish bidding mechanism/process (competitive).
• Possibly contribute equity/guarantees.
• Enforce concession terms during construction/operation.
• Ensure proper avenues exist for user group-participation, complaints.
3.2.2. Legal and regulatory issues
A proper legal and regulatory framework will help to convince all parties of the viability of
the PPP approach. Regulation is needed to ensure that quality of service does not dete-
riorate, and to make sure that the infrastructure remains well maintained throughout the
life of the contract. An independent regulatory body, free from the strong lobbying power
of industry and with well-defined access to the necessary information, is essential.
Transparency is of utmost importance in the bidding process, the regulatory process, and
during any renegotiations. A regulatory agency can play at least two roles: either that of
simply enforcing existing contracts, or that of also modifying those contracts.
Regulation is needed to ensure that quality of service does

not deteriorate, and to make sure that the infrastructure
remains well maintained throughout the life of the contract.
Vague proposals to appoint a regulator should never be accepted simply as a token solu-
tion to make private participation politically acceptable. Even where independent regula-
tion is established, experience suggests it can be ineffective, captured or subverted by
special interest groups, including government. The details of the proposed regulatory
structure should be fully analyzed, namely:
• its real independence from special interests of any of the parties to the regulation,
including any government-owned participants in the industry;
• the effectiveness of its legal rights and obligations to meet its regulatory objec-
tives; and
• the skills and resources available to it to carry out its functions on a continuing
basis.
The approach to “privatize now and regulate later” can be considered as one of the big-
gest problems with current practice in PPP. Another major challenge to the effective im-
plementation of PPPs relates to the relationship between the concessionaire and the
regulator. This challenge is linked to the bidding process used, the flexibility of contracts,
and any possibilities for renegotiation. The bidding process should be designed to reduce
Page | 41
the likelihood of “opportunistic renegotiations”; i.e., allowing the concessionaire to take

advantage of the inherent difficulty in switching suppliers. At the same time the process
should allow for some flexibility in case the infrastructure needs to be expanded or the
fares/ tolls should be changed for efficiency reasons, i.e., congestion charges.
Box 14
Risks of the PPP project Manila Metro Star Express line
The Manila Metro Star Express line MRT3, Philippines, was completed in 2000 at a cost
of approximately US$700 million (US$190 million equity, US$488 million debt). The
MRT3 was created through a Build-Lease- Transfer (BLT) concession with a consortium
of Filipino developers, the MRT3 Project Company. The company has a 25-year con-
tract to finance, construct and maintain the project and can implement commercial
developments for 50 years.
The government operates the service, which runs light rail vehicles along the 17 km
grade-separated right-of-way. Average daily ridership on the system was 363,000 in
December 2005. According to an analysis for the World Bank, the MRT3 project was
considered successful, based on the criteria of ridership levels, infrastructure delivery,
and return to the concessionaire. However, the contract requires the government to
pay a guaranteed fixed revenue stream to the concessionaire, independent of operat-
ing revenue. All operating risk is therefore transferred to the government, which has
been faced with US$30 million to US$60 million in unexpected yearly payments to the
concessionaire due to shortfalls in forecast revenues. Apparently, these shortfalls are
not due to ridership, per se, but rather lower-than-expected fares.
3.3. Analysis of risks and guarantees
3.3.1. Adequate risk sharing
Transport infrastructure projects are fraught with risks throughout their life-cycle. These
risks include permitting and land acquisition risks, risks of cost and time overruns during
construction, risks of cost overruns during operation and management, demand and
revenue risks, inflation and currency risks, among others. How these risks are allocated
between the concessionaire and the government has important implications for project
selection and project performance.
Private concessionaires will aim to mitigate these risks through, for example, requesting
government guarantees. The problem with many forms of guarantees is that they end up
significantly reducing the benefits that PPPs aims to realise. For example, the govern-
ment may offer a demand guarantee, ensuring a yearly level of revenue. Such a guaran-
tee will reduce the purpose of using PPPs to filter out “white elephant” projects. There are
many other types and gradations of risk-sharing which can differ by project.
In all cases, the arrangement must be financially attractive to the private sector to be
viable. But the degree of risk transfer to the private sector tends to increase progres-
sively through the above challenges. As risk increases, the cost of debt and equity to the
private sponsors will increase; the projected returns then need to be higher if the PPP is
to be financeable. Public sector risk often remains substantial in transport concession
agreements to facilitate the transaction at acceptable cost.
If too little risk is transferred to the private sector, the likely costs to government will be
correspondingly higher. At the other extreme, if inappropriate risks are transferred that
Page | 42
the private sector cannot realistically manage or well quantify, the financing costs will
escalate, again increasing the costs relative to the comparator.
3.3.2. Renegotiation of contracts
The PPP road is paved with potential pitfalls and risks. If the toll road sector is any indi-
cation of the challenges facing the use of PPPs then we must be wary of: overestimation
of tolls; an inability to effectively manage risk; inadequate strategic network planning;
contract renegotiation risk; and general political dislike for the costs. About half of all
PPPs become subject to re-negotiation, often due to inflated demand or yield estimations,
or unrealistic operating cost assumptions. The renegotiation process introduces further
problems, such as firms purposely under-bidding with the knowledge that they can rene-
gotiate later. For governments looking to solidify their concession programs, the pressure
to accept the renegotiation - and not risk bankrupting a major infrastructure provider - is
great.
Box 15
PPP project: Blue Line - Bangkok Metro
The 20 km Blue Line opened in July 2004. Infrastructure for the subway system was
funded by the Japan Bank for International Cooperation and other Thai banks, while
an equipment, operations and maintenance concession was granted to Bangkok Metro
Public Company Limited (BMCL). Total project cost was estimated at US$3.1 billion.
Coming eight years after the BMA/Skytrain concession, the Mass Rapid Transit Author-
ity of Thailand (MRTA) developed a framework for concessionaire selection, soliciting
the assistance of various consultants to prepare the project for bidding and to evaluate
bids. In addition, feeder bus service to the Blue Line was coordinated with the Bang-
kok Mass Transit Authority.
Despite the well-formulated concession selection process, ridership levels have not
reached expectations and BMCL reported planned fare hikes for October 2005. In addi-
tion to poor forecasts, ridership growth may have been hampered by a series of debili-
tating technical malfunctions, derailments, and power failures during early 2005 that
prompted warnings from the MRTA to the equipment supplier, Siemens Thailand.
Source: Zegras (2006): GTZ Sourcebook Module 1c.
3.4. Critical review of Public Private Partnerships
When considering infrastructure PPPs for urban transportation, we first must keep in
mind the ultimate goal: to create “a stable, competitive infrastructure strategy that pro-
duces better services, higher quality, and lower costs to users and taxpayers” Although it
may help achieve this goal, Public Private Partnership will not be a panacea. In fact, PPP
will continue to play a relatively small role in infrastructure provision and maintenance.
Not all sponsoring ministries have sufficient capacity to implement, or to manage imple-
mentation by specialist advisers. Ministries need patience and staying power to drive the
process over what might be several years preparation, and need an ongoing capability to
ensure the agreement is properly monitored. A PPP also requires a willing private part-
ner. It is prudent to do some early market tests to establish whether there will be signifi-
cant private sector interest by credible participants. Up-front market fears of a tainted
selection process, or of weak regulation or of an inability to enforce concession agree-
ments, are danger signals which suggest that the institutional environment needs
strengthening before PPPs can be successful.
Page | 43
There are a number of problems observed in worldwide PPP projects that are all related
to institutions, including: poor attention to the political reality, government tolerance for
aggressive bids, poorly designed contracts, rule changes, pervasive renegotiations, lack
of regulatory and supervisory structures, poor concession design - in short, poor regula-
tory structure and foresight. The prevalence of guarantees and renegotiations mean that
losses are almost certainly being passed on to taxpayers.
For the PPP mechanism to grow in use it will require a private sector capable of respond-
ing, economic stability, and political will and consistency. Perhaps most importantly, the
regulatory tools and institutional processes must be improved. Ironically, privatisation
aims to get the government out of the sector, but it actually means a stronger, more
well-defined government role through the early creation of independent and accountable
regulatory institutions regulating fairly and effectively “at arm’s length”. As always seems
to be the case in the urban transport sector, the ultimate solutions lie in institutions, not
infrastructure
Further Reading on PPP
Zegras 2006, GTZ Sourcebook Module 1c
Amos, Paul (2004): Public and Private Sector Roles in the Supply of Transport Infra-
structure and Services: Operational Guidance for World Bank Staff.
Transport Paper – 1
PPIAF Toolkit for Public Private Partnerships in Roads and Highways

http://www.ppiaf.org/ppiaf/sites/ppiaf.org/files/documents/toolkits/highwaystoolkit/in
dex.html
Page | 44

Module 4 Final PDF

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Module 4 Final PDF

Uploaded by

Copyright:

Available Formats

Sustainable Urban Mobility

Copyright: Copyright © 2010

Opinions expressed in this volume are those of the authors and do

The designations employed and the presentation of material in this

This publication is protected by international copyright law. All

This Course on Sustainable Urban Mobility in Developing Countries is designed to

Module 1: Urban Growth and Strategies for Sustainable Urban Transport

Local Development Programme

1. Financing and Economic Instruments.......................................................... 1

1.1. Basics of economic instruments in transport ........................................... 1

2.1. Responsibilities of urban transport institutions....................................... 20

3. Public Private Partnerships in Urban Transport ......................................... 38

3.1. Characteristics of Public Private Partnerships......................................... 38

Table 1: Incentives and economic instruments ......................................................... 2

Figure 1 Average external costs of passenger transport in 2000 EU 17 ......................... 5

Box 1 Internal and external costs ........................................................................... 4

ALS Area Licensing Scheme

1. Financing and Economic Instruments

1.1. Basics of economic instruments in transport

1.1.1. Why should economic instruments be used?

• Market-economy compatibility. By using the price mechanism as a vehicle for cost

• Incentive-based transport policy approach. As part of demand side management,

• Greater flexibility. In general, economic instruments offer more flexibility than

• Revenue generation. Price instruments usually generate additional revenues. In

By using the price mechanism as a vehicle for cost internalisation,

Source: Breithaupt (2002) Gtz Sourcebook Module 1d

1.1.2. Which types of economic instruments exist?

• Charges and taxes should be levied as a means to reduce transport demand in

1.1.3. What are the limitations of economic instruments?

1.1.4. External costs of transport

Source: INFRAS/IWW 2004

The best way of reducing externalities is through a price-based

Source: Sieber/Bickel 2008.

1.2. Fuel taxation as essential element of urban road financing

Fuel consumption can be regarded as a good approximation of road use as it is generally

Fuel taxation offers a simple and reliable way of charging the

Taxation of fossil fuels remains a powerful instrument to

An international comparison of fuel prices is produced by GTZ and published regularly2.

Source: International Fuel Prices 2009, GTZ

Source: Breithaupt (2002) Gtz Sourcebook Module 1d.

1.3. Road Pricing and Congestion Charging

Source: Broaddus, Litman, Menon (2009): TDM, Gtz Training Document

Electronic road pricing in Singapore

Source: Breithaupt (2002), Gtz Sourcebook Module1d.

In February of 2003, Mayor Ken Livingston introduced London’s Congestion Charge as

1.4. Vehicle taxation and parking fees

1.4.1. Vehicle taxation

1.4.2. Parking fees

An oversupply of parking encourages excessive car use and

1.5. Public Transport pricing and finance

As a rule, the need to cover at least the operating costs

Source: BRT Planning Guide 2007, Annexes

1.5.1. Subsidised fare levels

1.5.2. Fare reductions or exemptions

The distribution of poverty-oriented subsidies should ideally be

1.5.3. Fare structure

1.5.4. Financing of infrastructures

Local borrowing may be secured against general municipal revenues or occasionally

Counterpart funding by national governments of urban transport infrastructure invest-

Funding through private investments in treated in Chapter 3 of this Module.

Further Reading on Financing and Economic Instruments

Breithaupt 2002: Economic Instruments. Gtz Sourcebook Module 1d

World Bank 2002: Cities on the Move, Chapter 10