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Financing and Procurement

Many countries suffer from a lack of finance in general – and in particular, a shortage of funds for investment in ITS which has to compete with traditional road infrastructure programmes that absorb a large portion of available funds.

Some countries have overcome the problem by concentrating on the building of toll roads – which generates revenue that can be directed towards funding other road infrastructure and ITS services – such as traveller information and traffic management. Electronic toll collection (ETC) is often one of the first ITS applications. In other countries there is reluctance to charge road users directly – or at a level necessary to cover the cost of the investment.

Many countries seek International Financing Instruments (IFIs) – grants and loans – to support ITS deployment programmes. In other cases, public-private participation cost-sharing schemes are developed to attract investors and system integrators to participate in the set-up and operation of ITS schemes. Electronic fee collection can be bundled with traffic management schemes – if the business model is robust enough.

There are some fundamental considerations that need to be taken into account when comparing ITS investments in industrialised countries with investments in countries with emerging economies. For example:

  • the ratio of labour to capital costs may be much lower (sometimes more than ten times lower)
  • foreign exchange to pay for specialised equipment may be in short supply which may affect affordability and slow down deployment
  • the opportunities offered to private sector to invest in ITS service delivery

A variety of funding instruments can be used for the deployment of ITS. The selection will depend on the countries’ individual circumstances and the nature and scale of the proposed scheme. The level and pace of development of ITS technologies is rapid and may represent a barrier to public agencies decision making on deployment. Tapping into private sector technical and management skills and financial resources can help public authorities to engage effectively. In the case of a public-private partnership (PPP), both sides share risk as well as potential benefits. (See Financing ITS)

The infrastructure costs of some measures – such as traffic management, traffic enforcement and public transport management – are absorbed largely by the public sector. The advantage of involving the private sector is to benefit from their ability to manage the design, deployment and operation of the ITS measures through cost-sharing arrangements.

In other cases – such as services for electronic road pricing, fleet management and traveller information – the private sector may be willing to invest directly on the basis of providing a self-sustaining (revenue-funded) service.

Incentives for Private Sector

One important role for government is to set the policy framework on commercial engagement in ITS. The private sector needs to be confident that the policy framework is stable so that risks will be manageable and investments have a good prospect of achieving a reasonable return. Government is responsible for identifying where private sector investment is welcome – and establishing the ground rules and institutional arrangements within which business has to operate. This may involve offering incentives.

In countries where private companies have experience in operating transport terminals and links, the opportunity to develop public private partnerships for ITS deployments may be easier. For example:

  • in China and Egypt, the level of private sector involvement in developing and managing transport services is not yet high due to a lack of clear guidance and rules that ensure a level playing field for all service providers
  • in contrast countries such as Malaysia, Indonesia, Latin American countries and South Africa have a good track road in private sector participation in ITS deployments – notably electronic fee collection schemes

Procurement and Contracting

In many emerging countries, design-build procurement and contracting schemes are traditionally used. Many road transport operators are not familiar with other forms of procurement and contract – such as:
  • turnkey ITS solutions readily available with little adaptation
  • service-level agreements that specify the minimum levels of functionality and performance

International Financing Instruments (IFIs) often require applicants to use internationally recognised forms of contract and arbitration – such as those supported by the International Federation of Consulting Engineers (See FIDIC) – with which road authorities may not be familiar. The key to adopting these more innovative contracting mechanisms is to provide staff in procurement and contracting with the necessary training. (See Procurement and Contracts)

Developing Procurement Skills in Egypt

In Egypt, specialised training has been organised for staff in contract departments at the Ministry of Transport. Procurement regulations have been adapted to enable private sector participation in transport infrastructure and operations.

 

 

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