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Financing Transport Projects

Uploaded by palma on Sep 11, 2000

Sam Vaknin's Psychology, Philosophy, Economics and Foreign Affairs Web Sites


The role of government in facilitating transport projects is inevitable. But governments are monopolists and largely cannot be trusted with the efficient allocation of resources, not to mention the problem of corruption. So, the less the state is involved the better off everyone is.

Transport has gone a full circle. Until the beginning of the 17th century it was largely privately financed. The state took over until the last two decades of the twentieth century. And now there is a revival of the involvement of the private sector in financing infrastructure. Additionally, transport has become a commodity and is securitized, as we shall see.

All social (or public) goods carry social costs and bring on negative externalities (such as environmental damage). Embedded in every public good there is a moral hazard - others bear a disproportionate part of the costs while the perpetrators go "free". This is why accurate statistics, forecasting and cost benefit analysis systems are a must. I am not talking only about cost coverage calculations but also about finding ways to impose on the users of transport infrastructure the real costs of their actions. This is known today as "user pays" charging schemes. But to do so, the state needs to know what ARE these costs. This is one way of forcing the private sector to participate in the financing of infrastructure.

But we are digressing. Allow me to return to more conventional methods.

Transport infrastructure is financed today mostly by the state. Governments usually assume bilateral or multilateral debt from commercial banks, through the international bond markets - but, most often, from institutions such as the World Bank and regional development banks through the EBRD. I have already indicated my aversion to this method of financing. The money is sure to be spent either inefficiently or corruptly or both. Yet hitherto both the financial scope of most of these projects, their regional and international repercussions and the need to adhere to statal planning - inhibited most forms of alternative financing.

Recent developments in private sector financing allow for reasonable solutions to this age-old dilemma. These solutions are widely experimented with in dozens of countries, many of them poorer and less stable than Macedonia.

The most widespread and accepted private sector financing method is the Build-Operate-Transfer (BOT) system. The state grants a 15-35 years concession to a...

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Uploaded by:   palma

Date:   09/11/2000

Category:   Social Issues

Length:   4 pages (869 words)

Views:   1507

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