Technology and incentive XI Riunione regulation in the I talian - PowerPoint PPT Presentation

Technology and incentive XI Riunione regulation in the I talian Scientifica SI ET Napoli, motorways industry 3-5 ottobre 2007 Luigi Benfratello Alberto Iozzi Paola Valbonesi Università di Torino Università di Roma Università di Padova and Ceris-CNR ‘Tor Vergata’

I ntroduction � Rather limited analysis of the technology adopted by motorways concessionaires � However, motorways concessions are very common in the EU � Several differences between concession agreements across and also within EU countries � Size � Ownership Is there any � Financing “best” solution ?? � Tariff regulation � Institutions � … � Italian motorways industry is a very good laboratory to study some of these issues XI Riunione Scientifica SIET Benfratello – Iozzi – Valbonesi 2 Università degli Studi di Napoli "Federico II“ Technology and incentive regulation in the Italian motorways industry Napoli, 3-5 ottobre 2007

The I talian motorways industry � More than 8.000 km of motorways (around 20% of the network in EU15), most of it built before 1975. � 24 concessionaires, managing (and sometimes building) different portions of the motorways network � Concessions awarded at different stages (mostly during the ’60s) and expiring between 2012 and 2050 � Huge differences between concessionaires: e.g. � ASPI: 2.854,6 km (3.402,3 km with partecipates) � VE-PD: 41,8 km � In the late 90s, motorways in Italy experienced a change in � regulatory regime ( � from ROR to PC) � ownership ( � privatisation) XI Riunione Scientifica SIET Benfratello – Iozzi – Valbonesi 3 Università degli Studi di Napoli "Federico II“ Technology and incentive regulation in the Italian motorways industry Napoli, 3-5 ottobre 2007

Our dataset � We build a unique dataset with information over the 1992-2004 period for 20 Italian motorways concessionaires. � The database contains � financial and traffic indicators (costs, revenues, inputs, kms travelled, etc), � characteristics of the motorways (length, no. of stonework, % of network with 3 lanes, etc) � concessionaires’ institutional characteristics (ownership, type of regulation, etc). � Currently working on updating the dataset to more recent years… XI Riunione Scientifica SIET Benfratello – Iozzi – Valbonesi 4 Università degli Studi di Napoli "Federico II“ Technology and incentive regulation in the Italian motorways industry Napoli, 3-5 ottobre 2007

Our analysis � Our main aim is to explore the technology adopted by motorways concessionaires, especially with respect to � Economies of scale � Economies of density � Technical progress � Useful policy indications, not only for Italy: � Optimal size of a concession � Toll levels and toll update mechanism (e.g. X factor) � Need for further network expansion � We also control for possible effects on the productivity of the concessionaires of the regulatory reform of the 90s. � Effects of the changes in ownership � Effects of the changes in regulatory regime XI Riunione Scientifica SIET Benfratello – Iozzi – Valbonesi 5 Università degli Studi di Napoli "Federico II“ Technology and incentive regulation in the Italian motorways industry Napoli, 3-5 ottobre 2007

Regulatory reform (1) � Regulatory reform during the ’90s, main provision is Delibera Cipe of December 1996. � All concession agreements renewed after the definition of this new regulatory framework � Regulatory framework resulting from these provisions rather incomplete and somehow contradictory � More recently, further provisions attemp to modify, complete and clarify the regulatory framework � However, the analysis of these more recent provisions is beyond the scope of this paper, since their effects is not captured by our data. XI Riunione Scientifica SIET Benfratello – Iozzi – Valbonesi 6 Università degli Studi di Napoli "Federico II“ Technology and incentive regulation in the Italian motorways industry Napoli, 3-5 ottobre 2007

Regulatory reform (2) Before ~ 1996: � Most concessionaries publicly owned � Tariffs set at the start of the concession period to ensure cover of all costs borne over the concession period � Tariffs increased uniformly (across concessionaires and types of vehicles) by law each year � Building costs covered partly with government funds and partly with highway revenues Also, � Preferences for publicly owned firms in the award of the concessions � Loans taken up (for building purposes) by publicly owned concessionaires covered by government backup � Excess profits to be transferred to the government XI Riunione Scientifica SIET Benfratello – Iozzi – Valbonesi 7 Università degli Studi di Napoli "Federico II“ Technology and incentive regulation in the Italian motorways industry Napoli, 3-5 ottobre 2007

Regulatory reform (3) After ~1996: � Massive privatisation programme � New regulatory framework: � No discrimination according to ownership � Prices set at the start of the concession period to ensure cover of all costs borne over the concession period � Prices updated each year according to a price cap formula, with parameters (possibly) specific to each concessionaire � Price cap formula parameters reviewed every 5 years � Pricing flexibility Also, � No back-up for loans taken up for building purposes � Share of revenues transferred to the government XI Riunione Scientifica SIET Benfratello – Iozzi – Valbonesi 8 Università degli Studi di Napoli "Federico II“ Technology and incentive regulation in the Italian motorways industry Napoli, 3-5 ottobre 2007

Regulatory reform (4) Regulatory regime switch 1998 2000 2001 2002 2003 Concessionaires under 1 16 17 18 20 new regulatory regime Ownership change 1992 1996 1999 2003 Private 2 4 6 13 concessionaires XI Riunione Scientifica SIET Benfratello – Iozzi – Valbonesi 9 Università degli Studi di Napoli "Federico II“ Technology and incentive regulation in the Italian motorways industry Napoli, 3-5 ottobre 2007

Price cap mechanism � Average toll level set at the beginning of the concession to cover cost over the concession period � Concessionaires free to vary tolls each year, provided they satisfy the Laspeyre-type price cap formula ∑ ⎡ − ⎤ 1 t t p q − ≤ Δ − + β Δ ⎢ i i ⎥ 1 x 100 i RPI X Q ∑ − − 1 1 t t ⎢ ⎥ p q ⎣ ⎦ i i i � Δ RPI change in the Retail Price Index X offset productivity factor � Δ Q change in a composite quality index � β scaling positive factor � � X normally redetermined every 5 years to reflect changes in the economic environment (traffic, productivity, costs, etc) XI Riunione Scientifica SIET Benfratello – Iozzi – Valbonesi 10 Università degli Studi di Napoli "Federico II“ Technology and incentive regulation in the Italian motorways industry Napoli, 3-5 ottobre 2007

Quality regulation (1) � Quality correction term allows the concessionaires to “sell” higher quality for higher prices � Quality index Q based on: � accidents � roughness of road surface � Choice lead initially by data availability (but not amended later on) � As for β … XI Riunione Scientifica SIET Benfratello – Iozzi – Valbonesi 11 Università degli Studi di Napoli "Federico II“ Technology and incentive regulation in the Italian motorways industry Napoli, 3-5 ottobre 2007

Quality regulation (2) ASPI Other concessionaires if Δ Q > 0 Other concessionaires if Δ Q < 0 XI Riunione Scientifica SIET Benfratello – Iozzi – Valbonesi 12 Università degli Studi di Napoli "Federico II“ Technology and incentive regulation in the Italian motorways industry Napoli, 3-5 ottobre 2007

Quality regulation (3) Main features � Higher quality “buys” higher prices (and viceversa) � For a given increase in the quality index, the effect on prices is larger the higher is the starting level of quality � For a given reduction of the quality index, the effect on prices is larger the smaller is the starting level of quality � Effects are magnified when the starting level of quality if above an “acceptable” level (Q=60) Rationale � For quality increases, the quality correction term is cost- rather than welfare-related � It ensures the firm recovers the cost of quality-related investments, very much in the spirit of cost-of-service regulation XI Riunione Scientifica SIET Benfratello – Iozzi – Valbonesi 13 Università degli Studi di Napoli "Federico II“ Technology and incentive regulation in the Italian motorways industry Napoli, 3-5 ottobre 2007

Data (1) � Balance sheet data of 20 concessionaires over the 1992-2004 period (costs, revenues, employees) � Other variables recovered from Aiscat publications (kms travelled, network characteristics) � Ownership and regulation information from concessionaires’ official reports � Unbalanced panel, 253 observations XI Riunione Scientifica SIET Benfratello – Iozzi – Valbonesi 14 Università degli Studi di Napoli "Federico II“ Technology and incentive regulation in the Italian motorways industry Napoli, 3-5 ottobre 2007

Data (2) XI Riunione Scientifica SIET Benfratello – Iozzi – Valbonesi 15 Università degli Studi di Napoli "Federico II“ Technology and incentive regulation in the Italian motorways industry Napoli, 3-5 ottobre 2007