Table 2: Appraisal Results for a Public-Private Highway Project
Part of Toolkit for the Economic Evaluation of World Bank Transport Projects
(Institute for Transport Studies, University of Leeds, 2003)
Transport projects have an impact not only on citizens and businesses, but on governments – central, regional and local.
Financing and managing the project will place demands on the government’s capital and current accounts. Whether these demands are greater or smaller, and how they are phased over time, will depend on the financing mechanisms used and the extent to which the public sector is involved. Alternative approaches for private finance and management are described in the World Bank’s ‘Public-Private Options’ toolkit [http://www.ppiaf.org/toolkits/ppphighways/index.htm].
Once the project is operational, it may generate a positive net revenue stream or require an operating subsidy, so there may be ongoing implications for the government’s current account. Infrastructure projects which are provided on the traditional ‘public good’ model – free at the point of use – will not generate a direct revenue stream, so operations and maintenance may require funding in other ways. Conversely, infrastructure projects which are provided according to the ‘user pays principle’ will, by definition, be self-funding.
Transport is a major generator of tax revenue in many countries, and the most taxed items are: fuel, vehicle ownership and vehicle purchase. A World Bank funded infrastructure project may – for example – stimulate demand for all of these, leading to an increase in tax receipts, or may shift the pattern of tax receipts – between modes for example – or may in the worst case reduce total tax receipts.
Sometimes the effects on government will be felt indirectly through competitive interaction between modes. For example, rail projects which abstract demand from (relatively highly taxed) private transport may act to reduce total tax receipts. In another example, if a road project abstracts demand from modes that are in state control (such a public rail or metro services), then there may be a negative fiscal impact from deficits on those modes, but a positive fiscal impact on tax revenue.
Finally, there may be effects felt indirectly through other government departments – for example, healthcare costs of road accidents.
In this paper we consider how the appraisal should take these effects into account, and how they fit within the appraisal results, as described in the Framework [Link].
The costs to the government of financing and managing the project should be taken from a carefully prepared financial appraisal. Usually, they should be reported at resource cost (see Framework [Link]) – this will typically involve no adjustments as the expenditures involved do not usually incur indirect tax (VAT).
Fuel consumption in the study area is roughly proportional to total vehicle km, although trends in fuel efficiency have an impact too. Functions for vehicle fuel efficiency should be consistent with the vehicle operating cost model (see Note Source of Vehicle Operating Costs [Link]. The demand for vehicle km should be taken from the demand model (see Framework [Link] and Note Demand Forecasting Errors [Link]. Induced traffic will be quite important here.
These estimates can be combined with the relevant tax rate data to produce an estimate of tax revenue impacts. World Bank data on fuel and vehicle taxation is available for 160 countries [[1]].
Table 1: Examples of fuel and vehicle taxation
|
Country |
Fuel tax at Nov 2000, $/litre |
Annual vehicle tax (Toyota Corolla) at Nov 2000, $ |
|
Indonesia |
x |
98 |
|
Chile |
x |
435 |
|
Colombia |
x |
70 |
|
Russia |
x |
4 |
Indirect effects on other modes will emerge automatically if the transport model is set up in a multi-modal way. If it is not, key variables will be the responsiveness (elasticity) of demand on competing modes to the project.
Having estimated fiscal effects, the remaining task is to report them within the Framework.
The Framework allows fiscal impacts to be reported in the appraisal results. Table 2 gives the example of a public-private partnership highway project, in which the users are charged tolls and the operator receives a relatively small contribution of $4.5million from the Government towards the project. In addition, public sector bus and rail operators who lose through abstraction of demand to private car, receive subsidies of $110,000 and $230,000 respectively. The fiscal impacts are shown in the block of rows headed ‘Government impacts’.
The fiscal impacts are added to the impacts on users and transport providers (public and private), to give the overall project Net Present Value.
[[1]] Metschies GP (2001). Fuel Prices and Vehicle Taxation with comparative tables for more than 160 countries: Pricing Policies for Diesel Fuel, Gasoline, and Vehicle Taxation in Developing Countries, Second Edition. The World Bank: Washington, DC. http://www.zietlow.com/docs/Fuel%202000.pdf
[2] UK Department for Transport (2000), Guidance on Methodology for Multi-Modal Studies. (See Volume 2: Chapter 6 and Annex F), London: DfT. [Also available online at