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ROAD AGENCY MANAGEMENT
Dr Robin J Dunlop
Transit New Zealand
World Bank Presentation
April 1998
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Introduction

The level of oversight on a road management agency is dependent on the degree of governance influenced by or local central government as the case may be. If, as is common still in many countries, government makes the decision on charging and expenditure levels and even priorities for roads, then accountability and control on the road agency in legislation is normally minimal. As the road agency becomes more independent of government, the controls need to be strengthened.

Crown Entity Control

When the New Zealand Government set up Transit New Zealand as a Crown entity in late 1989, it did so with the following key features:

With the Transit New Zealand model, the Government still determined the level of funding but Transit had the ability to decide where to invest funds. An independent safety authority called the Land Transport Safety Authority (LTSA) was set up to determine safety standards which needed to be achieved.

Transit have developed key operating procedures and systems to run the state highways. The following are the key initiatives:
 

Company Model

When roads are managed in a company model which also allows for pricing independent of government control, quite specific legislation and a contract with government is required. A possible list of drivers required for such a company is attached (Attachment 1).

Road Advisory Group Proposals

The then Minister of Transport established a Ministerial Road Advisory Group (RAG) to report on where reform in the road sector should move next. The following objectives were established for this study as follows:

1     To develop a safe, sustainable road system at reasonable cost that is fair because it:

In addition to these objectives, the Road Advisory Group was advised by the Minister of Transport that it should take two wider Government policy goals into account. These were:

   The existing national road network, including state highways and roads managed by territorial local       authorities, is to remain in public ownership. This principle will be established in any relevant legislation.

3    The principles of the Treaty of Waitangi should be incorporated in any recommendations.

The following were key findings from the Road Advisory Group report:

1.   To establish between 4 and 6 new regionally based road companies to take responsibility for the road asserts currently managed by Transit New Zealand and local authorities.

2.  To replace the present road funding system with one where road users directly pay road service providers fo the actual costs of their roads use.
3.  To safeguard community interests through Corridor Management Plans, developed by the companies in consultation with their local authorities and communities.

4.  To make road companies responsible for the safe design and management of their roads. Aviation, maritime and rail all have safety systems which are integral to good safety management.

Key Issues Which Arose from Consultation Conclusions

The following are key issues which arose following consultation:
 

  • The commercial company approach
  • The number of companies
  • The ownership of companies
  • The proposed planning hierarchy
  • The corridor Management Plan
  • The price setting proposals
  • Maintaining the network
  • Passenger transport
  • Transition to a new system
  • Conclusions

    Road management throughout the world is moving to a more accountable and transparent structure, but the challenge of placing road pricing and management into a company structure will require considerable debate in the next decade.
     
     

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     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.
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     Attachment 1
    POSSIBLE MANAGEMENT DRIVERS
    FOR A ROAD COMPANY
     
    Drivers for the management of a  road company should be either contained in legislation or in the statement of corporate intent (SCI) negotiated between the company and the shareholders.

    Legislation

    The following requirements should be instilled in legislation if it does not exist in current legislation:

    Statement of Corporate Intent (SCI)

    The SCI is the key document which sets out the shareholders' requirements, on a road company.

    Provided the SCI is carefully worded and the company complies with its requirements, the risks to shareholders can be minimized.

    Key elements of the SCI should be:

    (a)    Commercial objectives
    (b)    Nature and scope of commercial activities
    (c)    Commercial performance targets
    (d)    Other business management objectives
    (e)    Capital structure
    (f)     Information to be provided
    (g)    Dividend policy
    (h)    Procedures for sale or purchase of shares or assets
    (i)     Activities for which compensation is sought
    (j)     Shareholders' value in the company

    The following are suggested provisions which could be included under each of the above key elements of the SCI by negotiation between company and shareholders.

    (a)     Commercial Objectives

    (b)     Nature and Scope of Commercial Activities
    In this section the principal commercial activities that the company will engage in need to be covered. Also there needs to be a process agreed for departing from the principal activities.

    The methodology for determining prices and the consultation process to be undertaken needs to be covered as does the requirement, if any, for making dividend payments.

    (c)      Commercial Performance Targets (d)     Other Business Management Objectives (e)     Capital Structure
    The company will need to specify for the next three years estimated capital to be employed, broken down into debt and equity.
    (f)       Information to be Provided
    This section needs to specify what information will be provided. As a minimum, all information normally supplied to a controlling private shareholder will be made available.

    Half yearly and annual reports will be presented to shareholders, with the road company business plan being made available before the commencement of the financial year.

    Because of the monopoly nature of this business, information of the kilometres of road closed along with all the performance measures covered above needs to be made freely available for scrutiny.

    (g)      Divided Policy
    This will be a very controversial provision which will require considerable thought, especially in the early years of establishment.
    (h)      Procedure for Sale and Purchase of Shares and Assets
    The requirements of shareholders in respect of the sale and purchase of both shares and assets need to be covered. If there is only one company or a holding/subsidiary company structure the exchange of shares will play a less significant role than would be the case if autonomous regional companies were put in place.
    (i)      Activities for which Compensation is Sought
    This section provides the opportunity for shareholders to specify how activities will be funded which are outside the normal commercial operation of the road company. Special compensation might be sought where non-paying users have to be provided with services which would not normally be made available in a commercial framework.
    (j)      Shareholders' Value in the Company
    The road company would be required to report annually on the value of the company.
     
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    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.
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