PPIAF ExecBrief TollingPrinciples PDF
PPIAF ExecBrief TollingPrinciples PDF
EXECUTIVE BRIEF
TOLLING PRINCIPLES
by Matt Bull (Acting PPIAF Program Manger) and Anita Mauchan (PPIAF Senior Transport Sector Advisor)
PPIAF is supporting a number of developing country clients who are looking to use public-private partnerships
(PPPs) as a means of financing highway construction, rehabilitation and maintenance. However, before
government decides on if and how to structure a PPP for a highway project, it needs to tackle the more
rudimentary policy question of whether it is possible to charge tolls to highway users so as to create a more
reliable and dedicated funding source for improving highways. This can be a challenging policy area and PPIAF
is currently working in both Laos and Uganda with central government to help formulate policy and strategy
towards tolling in advance of launching major highway PPP projects in both countries. PPIAF’s technical
assistance in this area has a key role in helping government understand the inherent policy trade-offs and risks
associated with charging road-users.
INTRODUCTION
M ost countries find it difficult or even impossible to provide sufficient resources for the optimal maintenance
and rehabilitation of their highways. Highway infrastructure has a very long life if maintained properly.
However, rapid growth of traffic, and goods vehicles in particular, which make the highest contribution to the ‘wear
and tear’ of the highway, exert pressures on both the highway capacity and pavement performance. Highway
deterioration is costly to existing highway users, whose vehicle operating costs increase and suffer from the
negative effects of increasing congestion, and on social and environmental grounds as highway safety deteriorates
and vehicle emissions rise.
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Traditionally the public sector repairs deteriorating • Facilitates Private Sector Development. Some
highways from its fiscal budgets. However, if governments have sought private sector
fiscal budgets are constrained, highways will participation in highway provision and to develop
continue to deteriorate and economic, social and the private sector within their economy. The
environmental costs will increase. Many countries involvement of the private sector can allow
have tried to combat this by levying tolls on users the government to finance at least part of the
of highways. In fact, toll revenues already provide highway development ‘off balance sheet’.
a much-needed source of revenue to expand and
maintain highway networks in countries as diverse as Toll revenues can also be used to promote regional
Argentina, Australia, Austria, Brazil, Canada, Chile, equity through cross-subsidization of highway
China, France, Germany, Ghana, Greece, Hungary, construction and maintenance. Some countries,
India, Indonesia, Italy, Japan, Malaysia, Mexico, including France and Japan, have introduced tolls on
Mozambique, Nigeria, Peru, Philippines, Paraguay, one highway in order to support the development of
Poland, Portugal, Russia, Senegal, Spain, South Africa, infrastructure networks in less developed regions.
Sri Lanka, Switzerland, Thailand, United Kingdom and
the United States of America. It is crucial that a government considering highway
tolling has established clear objectives in pursuing a
WHY TOLL? highway tolling policy as these objectives will direct
Charging highway users provides the following all activities undertaken, both in the early years and
benefits to the public sector1: during the operation of the highway as regulatory
questions arise. The objectives of tolling directly
• New, Stable and Dedicated Source of Funding and influence the final toll tariffs charged to highway users.
Finance. Toll revenues represent a “new” source
of revenue, where previously highways were POTENTIAL CONSEQUENCES OF TOLLING
supported out of general government revenues The introduction of a toll charge on new or upgraded
(and were free at the point of use). Tolls provide highways can have far-reaching consequences. Some
an incremental and ongoing revenue source, of these consequences will be deliberate, such as the
which is not tied to the annual government generation of revenue, but others may not have been
budgetary process; and importantly can be used foreseen. Intentional and unintentional consequences
as collateral to raise third-party finance (e.g. of tolling may include:
project finance/PPPs) that can fund further
expansion of the road network. The funds from • Cost Recovery. Traffic and toll tariff levels may not be
toll revenues are dedicated to support the sufficient to cover all costs, including construction,
construction and maintenance of a particular operation and maintenance. In developing countries
highway and therefore do not compete with the where traffic levels are low or where construction
requirements of other highways in the network. costs are high, it is unlikely that the toll revenues will
• Applies the ‘‘User Pays’ principle and the ever cover more than operation and maintenance
Internalization of External Costs. Some and perhaps a part of the construction cost. Tolling is
governments have introduced tolls in pursuit of therefore not a complete solution for low-trafficked
a general policy to increase the extent of “use highways requiring significant capital expenditure.
related payment” or with the goal of reducing Additional funding will be required from sources
highway use and internalizing the negative such as government subsidy, public (e.g. from
effects of highway usage (e.g. congestion, air development banks) or private borrowing.
pollution and accidents). Charging for highway • Revenue Risk. Whether the risk is held by the
usage is central to a ‘sustainable’ transport public sector, the private sector or shared, there is
policy. The “user-pay” principle is considered always a risk that outturn toll revenues may be
a fair and precise way of paying for insufficient to cover debt payments and operating
transportation facilities. costs which may lead to bankruptcy or sovereign
debt guarantees to banks for payment of the debt.
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http://www.worldbank.org/transport/roads/toll_rds.htm
WHAT IS THE USER PAY PRINCIPLE? • Internal costs: are incurred from the provision
Tolling is a method for a motorist to pay only for the (construction, maintenance) and use of transport
section of highway that they are using. This concept infrastructure. These costs are recovered from
is often referred to as the “user-pay” principle infrastructure users (“user-pays”) or from the public.
because the toll highway is partially or completely • External costs: stem from (mostly negative)
funded by those choosing to pay for the use of the side-effects of transportation, such as congestion,
facility. Motorists using a toll highway pay directly accidents, emissions and pollution, noise, and
for the benefits it offers whereas traditionally funded aesthetic factors which all negatively affect people
highways receive budgetary funds collected from all and/or future generations. They are rarely borne
tax payers regardless of their use of the highway. by highway users.
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The challenge: sustainable road transport http://www.unescap.org/ttdw/Publications/TPTS_pubs/pub_2216/roadprice_ch1.pdf
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Specialist Study on the Potential Impact of the Proposed N2 Wild Coast Toll Highway on Traffic Diversion, Tolplan (Pty) Ltd,
22 April 2008
Cover Photo, Toll plaza in China, © PPIAF; Page 3, Toll plaza in Macedonia, © PPIAF; Page 4, Toll plaza in Lao PDR, © César Queiroz,
Former World Bank Consultant; Page 7, Toll plaza in China, © PPIAF.
ENABLING PPIAF is a multi-donor trust fund that provides technical assistance to governments
in developing countries to develop enabling environments and to facilitate private
INFRASTRUCTURE investment in infrastructure. Our aim is to build transformational partnerships to enable
INVESTMENT us to create a greater impact in achieving our goal.