ROADING AGENCY OF THE FUTURE

Dr. R. J. Dunlop

General Manager, Transit New Zealand

P.O. Box 5084, Wellington, New Zealand

ABSTRACT

Reform of road management has been at the forefront of change in the transport sector in the last decade. This paper looks first at the New Zealand experience followed by world wide trends. A brief discussion on the provision of roading is followed by a look into the future with particular attention to the use of technology to enable better pricing and managing of roads.

1. NEW ZEALAND GOVERNMENT REFORM POST 1984

The Government of the day decided that the public sector should be reformed based on the following principles:

In particular the reforms in the transport area were based on the following principles (Stack 1995):

Transport Reform

The Government in the mid eighties decided that all land transport expenditure needed to be considered on an equal basis. That is, expenditure on roads, passenger transport and traffic enforcement should be prioritised within one body.

The structural forms followed in NZ for the transport sector were modelled on the Scandinavian approach using the principles outlined in the previous section (see Figure 1). The principal roles of the Ministry of Transport are both to advise and service the Minister of Transport in the policy and legislative areas.

Separate safety agencies have been established, each with their own individual boards, to manage the safety regulations on behalf of Government for the respective modes of land, sea and air.

The activities of allocating road funds to passenger transport and local roads has been allocated to a crown entity known as Transfund New Zealand. This body also has a separate board which is directly accountable to the Minister of Transport for performance in terms of a government contract known as the "Performance Agreement". A separate entity also with its own board known as Transit New Zealand manages and controls the strategic roading network in New Zealand.

The main rail activity has been sold by Government and hence now operates as a private sector business. Land occupied by the rail operation was not sold by Government but leased for a nominal rental.

2. NEW ZEALAND ROADING MODEL

Starting from a public works department known as the Ministry of Works and Development, with staff and wage worker force of nearly 9,675 a process of reform started in 1986. On 1 April 1988 all the commercial activities were grouped into one organisation known as Works and Development Services Corporation (NZ) Ltd a wholly government owned company (see Figure 2).

All the policy and regulatory functions were assigned to existing government departments with the roading activity being transferred to the Ministry of Transport.

In October 1989 Transit New Zealand was formed with the responsibility of managing the strategic roading system (state highways) and also allocating funds to passenger transport and local roads. On 1 July 1996 a separate entity known as Transfund New Zealand took over the funding role of Transit New Zealand, leaving Transit to manage and control the state highways.

3. NEW ZEALAND STRATEGIC DIRECTION

The Government has adopted a strategic direction for the country entitled "Investing In Our Future - Towards 2010" with specific strategic result areas affecting the environment and transport.

Flowing from this strategic document and the "Transport Direction 94-99" published by the Ministry of Transport, a national land transport strategy (NLTS) is currently being developed to provide the framework for future direction in the land transport area, while planning requirements are covered by legislation in the form of the Resource Management Act 1991 (RMA). With the adoption by the Minister of Transport of a NLTS, regional land transport strategies (RLTS) will be aligned, each bearing in mind community aspirations, resource availability, and the viability of alternative transport modes.

A key feature for determining the Government's direction shall be the NLTS. The following points are important for developing such a national strategy:

State Highway Strategies

A national state highway strategy (NSHS) is also being developed that will set out Transit's vision for the state highway network and translate this vision into specific policies and targets related to specific performance measures covering factors such as:

At this stage, New Zealand roads are generally designed for 44 tonne vehicles with sufficient road user charges for different axle configurations and weight limits. However a separate heavy vehicle route study is being undertaken to determine if some heavy routes should be designated.

To supplement the national state highway strategy, separate strategies for each highway have been either completed or are in development. In order to ensure that new roading projects take on board the above-mentioned strategies, there is a statutory requirement that all such works are not inconsistent with the National Land Transport Strategy and the relevant Regional Land Transport Strategy.

Key Strategies

In developing a NSHS, four key strategic drivers have been incorporated. These are:

Project Development

Strategies need to be broken down into projects in order to seek planning approval and funding. The development of projects in New Zealand is based around consultation and, in particular, the requirements of the Resource Management Act. Considerable effort is expended in developing options and then carrying out public consultation. The completion of an environmental assessment is an essential part of this process.

Once a viable option has been developed and consulted on, a designation is requested in the appropriate local authority district plan. Objections and then appeals are permitted as part of the ongoing public input into the further development of a project.

When the designation has cleared planning requirements and funding is obtained, the project is either initially designed and then tendered or tendered as a "design and build" contract. Pre and post construction safety auditing is very much part of project development on all significant works.

New Zealand Experience of Competitive Pricing

From 1 July 1991 all design supervision and construction of work on state highways and a large part of the work on local roads was bid in open competition. Over the period 1991-95 the following average savings have been made:

This amounts to a saving of approximately $135 million over five years just for the maintenance and management of the 10,453 km of state highways in New Zealand.

Road User Views

A survey of user perceptions of the state highway system conducted in 1993 found that:

People on average rated the performance of state highways overall between "adequate" and "good" for most of the attributes. Commercial road users tended to rate attributes rather more poorly than other road users.

In general, the performance of state highways on safety-related attributes was rated quite highly, especially on:

Attributes which were regarded as important but for which performance was relatively poor, were:

This bears out similar findings in Australia, where in both cases aspirations were not linked directly to payment for services being requested.

Nevertheless a quote from a letter to the editor of the Otago Daily Times on 9 August 1996 provides an insight into some of the achievements made recently in New Zealand:

"Transit NZ has carried out much excellent work on our highways. Its efforts seem to be based on good quality research and, despite budgetary constraints, have made a real net contribution to the decline in road injuries and fatalities in New Zealand."

Local Roads

The responsibility for owning and managing public roads other than state highways and Conservation Department roads is the local government sector. Funding on average is allocated on a 50:50 basis between central government collected road user revenue and locally collected property rate money. Local government also carries out approximately $30M of roading work without Government support. All local authorities are responsible for their own roading strategies, but they must not be inconsistent with RLTS.

Alternatives to Roading

Legislation which came into force on 1 July 1996 permits Transfund NZ to fund alternatives to roading, eg passenger transport and barging of logs. While the procedures for evaluating these alternatives have not yet been finalised, the outcome will provide the opportunity to produce more integrated land transport solutions.

How this change in legislation will affect the development of the roading system is yet to be determined.

4. ROAD AGENCY REFORM AROUND THE WORLD

General

Many countries have recognised the benefits of roading reform and embarked on this course of action. Their objectives for reform have been mainly efficiency driven although in more recent times the restraint on governments to adequately fund road maintenance and new development has brought increased private sector participation and funding.

Many developing countries have been obtaining advice on this reform process from organisations such as the World Bank and the International Road Federation.

Process of Reform

Mr A P Talvitie of the World Bank (Reference 1) has summarised the reform process that has been occurring around the world by identifying a five stage process as follows:

Phase I Traditional construction and maintenance organisation. A traditional public works ministry of either state or federal government employing large numbers of employees.

Phase II Identification of client and provider functions. More emphasis on efficiency in service delivery and the start of contracting-out work. Public works organisations tend to be replaced by a Ministry of Transport for policy direction.

Phase III Separation of client and delivery organisations - increasing emphasis on policy, especially the environmental issues and the continuing drive for more efficiency, pushes the separation of client and provider. The traditional public service providers or deliverers are normally corporatised in this phase.

A Roads Board for management of funding normally appears in this phase.

Phase IV Corporatisation/privatisation of the deliverer. In this phase government-owned delivery organisations are at least corporatised or more likely privatised by either sale or devolution of these activities to the private sector.

A more dedicated road fund normally appears in this phase.

Phase V Corporatisation of the client organisation. In this phase the client road manager would become the formal owner of the roads on behalf of government and manage them as a government corporation.

To my mind there is clearly a sixth phase (see Figure 3) and that would involve some form of privatisation of some or all of the roading network. This has occurred to a limited degree throughout the world although no country has yet privatised or corporatised its entire network and hence dealt with all the ramifications of a natural monopoly. Also, nearly all privatisation agreements to date have had an end date after which the road is handed back to the Government.

Where privately managed roads are operated as part of a country's highway network, this integration appears to work well, provided the standards and procedures for operating such roads have been well established before the commencement of private management.

Roading management and roading organisations throughout the world are currently between phases I and IV of Talvitie's five stages, depending on the particular government's role in directing reform. However, the trend has been to progress towards phase IV over time. Each country has adopted different methods of reform and moved at different rates but nearly all have moved through the phases in sequence without omitting any stage.

From observation and discussion with world roading agencies, I believe the debate is now centred around the benefits and disbenefits of continuing to phases IV, V and possibly even to VI. The complex policy implications involved in further changes which would require the introduction of a dedicated roading fund and a clear establishment of road ownership with the client (roading agency) have slowed the pace of reform.

5. PROVISION OF ROADING

Commercial Infrastructure or Public Good

Provision of roading has tended to be treated as a public good because of the way it has been managed and investment decisions made. For instance, roads have been used to implement land development to the point where the value of many roads has been built into adjoining property values, eg subdivisional roads.

Many goods have mixed public/private good characteristics, but can be profitably provided by the private sector. Pricing of roads is complex, not because they are a public good but because of other issues such as common costs, joint costs, and billing costs.

Clearly individual roads can be privatised, but once a move is made to privatise a whole road network the following issues have to be addressed:

(a) Monopoly Supply

It is not realistic to develop a contestable market for roading supply without excessive duplication of road resource use. While 3 or 4 regional roading businesses could be developed and benchmarking used to compare performance, this is bound to fail given the very different ground, climatic, and traffic conditions which exist throughout New Zealand. It would therefore appear that there would have to be strict control on the operation of the road network if one went down the privatisation and/or corporatisation path.

(b) Uneconomic Parts of the Network

In order to commercialise a roading network, much of the uneconomic roads would have to be discarded and funded by other than direct user charges or by explicit identification of a component in user charges for the "network" effect.

(c) Method of Revenue Collection

In order to commercialise a road network, some form of assured funding or preferably direct revenue collection is required. With technology changes occurring at a considerable pace, cost effective, reliable direct revenue collection should be available for main roads within 5-10 years. However protection from exploitation by a road agency would be required, both in terms of superprofits and privacy issues for users.

(d) Managing Intermodal Connection

A binding national land transport strategy could ensure that any roading operator would provide adequate connections to other modes.

(e) Incentives to Maximise Travel

A commercial organisation is likely to have the incentives to maximise the level of travel in order to increase revenue which may not be a good thing in terms of waste, economic cost or New Zealand's obligations to reduce emissions into the atmosphere.

(f) Manage and Protect Property Access

Apart from roads which have no property access there is a danger that a commercial road operator will attempt to exploit charging for access to properties. Regulations could be used to restrict the level of charging.

(g) Utility Charging

Many utility operators now corporatised or privatised are utilising road corridors without making payments for these privileges. This issue would need to be addressed if a commercial operation was to be adopted.

6. PARTIAL PRIVATISATION

Many countries have permitted individual privatised roads by allowing developers to either construct and operate a new road, or take over an existing road for a long concession period (usually 20-30 years). This way governments can reduce both their financial input and risk in the roading area. However many questions arise from adopting this course of action, namely:

7. FUNDING AND PRICING

For any organisation required to manage an efficient and safe roading network, a secure method of funding is essential, be that by assured Government funding or direct charging. Funding from Government taxation has been demonstrated, in many countries, to be undesirable in that inappropriate maintenance and investment in new infrastructure has nearly always been the outcome.

The World Bank has been pushing very hard in recent times to ensure countries set up a dedicated roading fund managed by an independent board. New Zealand is the only country to do this for all Government funded roading but Kenya has developed a dedicated fund for maintenance expenditure, and others are considering the issue.

Direct charging using technology which is rapidly developing will present countries with new opportunities and challenges. The following questions will probably be asked:

Many countries have carried out extensive analysis of most of these issues in the form of pricing studies, but have not made the progress one would expect. Maybe the issues are soluble but the outcomes are unacceptable politically.

At the end of the day, the technology might be available to price roads directly but is this the right way to go and will it be acceptable to the users? How will the network effect discussed in the previous section be accommodated? These and many more questions face governments and roading agencies worldwide in the next few years. One thing is certain: relying on general taxation as is the case in most countries other than New Zealand is very unlikely to bring about the management and development of an efficient safe roading system.

8. OPERATING ENVIRONMENT

Road maintenance and development should be accomplished within a normal planning framework like any other infrastructure development, in particular environmental and planning requirements.

With the recent reforms in all transport modes to the extent that the Government in New Zealand is now confining its activities to minimal regulations and management of the safety of operation, the roading sector remains the focus of attention.

As noted earlier in this paper, roading reform around the world has been active in recent years but the big issues like desirable ownership of infrastructure, pricing for the roading network and intermodal relationships have been struggling to receive the attention they deserve. Maybe the establishment of a clear vision for roading will assist the further reform process.

9. NETWORK EFFECT

Highways, like any network, be they power or telephone, depend for their survival on branch lines feeding the collectors which, in turn, feed the main arterials. If the network is treated as an income earning asset, four features become important, namely:

In a road network, one can treat the system as a whole and therefore fund it from any source, normally taxation.

If a decision is made to implement more direct charging and hence act in a more commercial mode, then the challenge will be to balance the four features listed above.

10. ROAD OWNERSHIP

It has been said many times that road ownership would have no effect on the management of a roading network. However in a more commercial mode the discipline of managing efficiently the roading asset is likely to be better if the organisation has direct ownership interest in the asset and hence accountability for its asset value and consequent increase in shareholders' funds. Lack of ownership in a public environment brings about risks of inappropriate Government direction, whereas private ownership has its own inherent problem as discussed previously in this paper.

Another possible arrangement could be club ownership with road users being members of the club and thus removing Government involvement.

11. FUNDING OF OTHER MODES

Should road users funds be made available to fund passenger transport or to subsidise freight being moved by rail, or should the pricing of roads be compatible with other modes; hence there would be no need to fund alternative modes.

12. THE FUTURE ROAD AGENCY

Before attempting to develop a vision and structure for a road agency of the future, it is important to look at the externalities which are inclined to provide boundaries around which a future organisation will have to work. Issues such as:

will all need to be considered in policy development within the next ten years.

One option might be to price roads in the way the telecommunications industry does, allowing premium pricing for peak periods. This method will ensure fair competition with other transport modes.

Another option could be to apply average prices to the whole network as is common in many countries now. This method will end up with considerable cross subsidy occurring between urban and rural areas and no relief from heavy congestion on key routes.

A third option might be to use average prices over the entire network but to charge extra for heavily congested and uneconomic road links. This would result in a fairer charging regime but would have a severe effect on remote rural areas.

A fourth option would be tocontinue to fund roads and passenger transport at least partly from general taxation money. This method has been found wanting in most countries, given the poor investment decisions and inadequate levels of investment which normally occur.

Clearly combinations of the above funding mechanisms can also be used to accomplish specific desired outcomes.

For instance, if a government wanted to fund passenger transport or promote regional development, both of which were not commercially viable, then they could do this in a transparent way by making a separate payment from general government taxation. This way the roading system can be priced on a transparent basis using direct user charges.

If pricing cannot be correctly charged eg. for congested lengths of highway, then it is appropriate for road users to contribute towards more efficient alternatives or the building and expanding of the road network. For instance it may be more efficient to cart logs by barge than build a new road.

Technology

Technology will soon exist to enable direct charging and even enable vehicles to be managed on an automated highway. This will present the real excitement for roading agencies in the future. While much has been made of the future benefit of the automated highway, I cannot see who will take on the risk of managing such highways, given the global trend to seek redress through the courts for any accident caused by malfunction of the technology.

On the other hand, the use of technology for providing the vehicle driver with traffic information such as approaching tight corners, objects on the road, approaching vehicles, will be very helpful, but who shall pay for it?

Clearly, charging for road use with the aid of technology is the opportunity of the future. However, a word of caution was signalled by an article titled "Living With The Car", in the 22 June 1996 edition of The Economist.

"There are a lot of little things that can be done (and are being done) to make the car easier to live with, but only one thing that would make a difference: using it less. That can happen only if all the costs incurred are fully identified and charged to its users. Only then will passenger transport improve, because it will compete on equal terms. In the end, putting economics in the driving seat is the only magic solution, however unwelcome."

Planning for a Better Future

Traditionally, planning for transport has played a significant role in road network development, yet if we are honest with ourselves we would find that land use, normally dictated by developers, has played a much more influencial role in more recent times. When opening up new lands in the development of any country pushing transport routes ahead of development is appropriate. However in most countries the situation has now reversed and developers pushing land use changes are driving road development by overloading the existing network. Maybe it is time to look at the role of planning and turn it somewhat on its head by driving rule setting and pricing decisions as depicted in Figure 4.

Education would need to play a significant role in this process, but at the end of the day you can plan as much as you like but you will never get compliance with say government goals on vehicle emissions, and probably never achieve adequate attitude change unless you price the road infrastructure to reflect real costs.

13. CONCLUSIONS

Road agency reform carried out in New Zealand has been a real success when you consider that the charges to the road user are the same as in 1988, yet more new capital works are being completed now than at that time. This was no mean feat, given that inflation over this period has been about 27% and heavy traffic has increased by 35%.

The challenge now is to look for continuous improvement without radical change diverting energies into structural reform. Any structural reform needs to be based on a clear vision and to look forward to see what technology might deliver and then consider appropriate operating environments which could deliver the best outcomes based on the direction technology might take us.

It is now time to look at many of the questions raised in this paper and start addressing the big issues of congestion, traffic management, optimal pricing, increased safety and developing technology. A possibility is to identify demonstration projects to address some of these issues and maybe even seed them with some additional funds. This would enable the public to feel they are being given a choice and not being dictated to by Government. Whatever happens it needs to recognise the importance of balancing planning, rule setting and pricing of infrastructure (see Figure 4).

Technology is likely to provide the tools for addressing many of these issues, but will road users support the necessary changes? One thing I am certain of is that large expenditure on passenger transport will, on its own, not assist in relieving congestion in the urban areas. The only way forward must be a large range of measures, accompanied by a general change in popular attitudes to personal travel.


Disclaimer

Any views expressed in this paper are those of the author and do not necessarily reflect the views of either Transit New Zealand or the Government.


References

1 Stack J. "The New Zealand Transport Sector Model", Public Sector Journal Vol.18, 1995

2 Wilcox P.J. "Strengthening the Management of Roads: the New Zealand Experience": Paper given at The World Bank Road Maintenance Initiative Seminar, Pretoria 1-7 April 1995.

3 Talvitie A.P. "International Experiences in Restructuring the Road Sector": Paper given at Training Seminar on Management and Financing of Roads, World Bank, 1996.


Figure 1


Figure 2

Structure Initially Adopted (Wilcox 1995)


Figure 3


Figure 4