Role of Government in Creating Supportive Policy

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Role of Government in Creating Supportive Policy
Regulation
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Role of Government in Creating Supportive Policy
Regulation

• This presentation is intended to reflect on
• Several key issues for Government to consider as
  they create infrastructure policies
  regulations/deregulations in terms of public
  needs expectations

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Role of Government in Creating Supportive Policy
Regulation

• Policy is the job of Government Civil Servants
  enunciate, develop support it through advising
  and drafting Regulations
• Sustainability of infrastructure demands that
  appropriate attention be paid to efficient use
  maintenance of existing capacity, far-sighted
  planning, integration of new technologies,
  responsiveness to users
• Policies for better infrastructure are needed for
  improved marketing of products sustainable
  generation of electricity greater involvement
  improved coordination at the local level

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Brief History
Looking Back to See the Way to Go Forward

• Traditionally, Governments have controlled all
  aspects of infrastructure. From the 17th to the
  20th century, private participation had been
  extensive essential
• Road tolling is not new in Ireland. In 1729 the
  first Turnpike Act was passed to finance the
  repair of the Dublin to Kilcullen Road. In the
  1700s about 80 Turnpike Acts were passed. In 1816
  the Hapenny Bridge in Dublin was built for
  3,000 continued as a toll bridge until 1919

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Brief History
Looking Back to See the Way to Go Forward

• In the early 1800s Turnpikes were supplanted by
  canals that could carry heavier bigger loads
  more cheaply reliably than road transport
• In the latter half of the 1800s canals succumbed
  to railways
• In 1834 the first Irish railway line Dublin - Dun
  Laoghaire was opened. In the 1920's, rail traffic
  levels were at their peak. In 1925, the Irish
  railway companies were amalgamated as the Great
  Southern Railways Nationalised into CIE in
  1950. Only 16 of the systems peak mileage
  remains

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Recent History
Looking Back to See the Way to Go Forward

• The trend from the late 1920s until the mid 1980s
  was the Government dominating the provision
  operation of infrastructure through its state
  company agency monopolies
• The State controlled nearly everything
• By 1980 it was clear that Government Policies had
  to be altered. Remember the 1980smass
  emigration, unemployment 17, marginal tax rate
  68 (set so low that labourers paid it) public
  debt that required almost the entire tax yield to
  service it

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Recent History
Looking Back to See the Way to Go Forward

• The expectation that Government could perform
  where private markets could not was questioned.
  Public leadership involving ownership, financing,
  operation has seldom demonstrated any advantage
  over private sector involvement
• In the 1980s, the EU requirement that changes be
  made in Government Policy for the provision,
  operation regulation of infrastructurebroke
  the mould of infrastructure monopolies that
  equally disadvantaged all

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The Mould' was Broken in the 1980s is
Typified by 3 Cases
Looking Back to See the Way to Go Forward
Case 1 IFSC

• The Custom House Docks Authority (often referred
  to as IFSC) proves we can do things in Ireland
  when there is the will to so do. It also
  highlights the business approach rather than the
  construction approach to providing workable
  infrastructure
• The management innovation that went into the IFSC
  was outstanding. Consider its context at the
  time? a) the country was broke, b) you could not
  give away Dublin's docklands for development, c)
  all IFSC promoters at that time wanted it to be
  south of the Liffey, d) only a few believed that
  it could work e) Government underwriting was
  out of the question

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The Mould' was Broken in the 1980s is
Typified by 3 Cases
Looking Back to See the Way to Go Forward
Case 1 IFSC

• It is worthwhile to consider how IFSC management
  overcame incredible obstacles. Their innovations
  included a very short time-scale from appointment
  (Jan 87) to plan (Jun 87) to submitted tenders
  (1st week Sep 87), them getting EU tax
  incentive derogations, financial risk transfer
  convincing both politicians civil servants that
  the project could work
• The convincing was done by copying the tender
  submissions immediately to Cabinet Ministers
  inviting them senior Civil Servants (on the
  following Wed) to an exhibition of the tendered
  models

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The Mould' was Broken in the 1980s is
Typified by 3 Cases
Looking Back to See the Way to Go Forward
Case 2 Aviation

• Sean Lemass may have ended our industrial
  isolation, but it was Seamus Brennan who
  effectively ended our infrastructural isolation
  when in 1986 he allowed Ryanair to connect us, by
  air highway, competitively to the UK beyond
• Ryanair almost collapsed before it started when
  you consider besides the country being broke, in
  1984 the Department of Transport their agents
  supported along with most of our then Politicians
  a Dail Bill against deregulation competition

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The Mould' was Broken in the 1980s is
Typified by 3 Cases
Looking Back to See the Way to Go Forward
Case 2 Aviation

• It culminated in the Air Transport Bill, 1984. Do
  you remember it? It was a total effort to shut
  down what should be done, namely competition.
  Section 7 of the Bill dealt with enormous
  penalties for a new crime of selling below
  approved air fares (cartel). Penalties included
  conviction on indictment not exceeding 100k
  along with possible imprisonment. However, by
  sustained efforts of one Politician it was not
  passed. M O'Leary avoided prison!
• In May 1986 Ryanair was finally allowed fly the
  Dublin London route. Fares fell 54 immediately
  in the first full year of operation, to August
  1987 passenger numbers were up 92

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The Mould' was Broken in the 1980s is
Typified by 3 Cases
Looking Back to See the Way to Go Forward
Case 3 Road Tolls

• In 1984 the Dublin East-Link toll bridge was
  opened
• In 1985 Dublin Co. Co. made a Toll Scheme in
  respect of the 3.2 km section of the M50 that
  links the N4 Galway Rd with the N3 Navan Rd. In
  Dec of the same year the Minister approved the
  Toll Scheme. The Scheme opened in 1990 at a cost
  of 27m
• The regulation of the toll scheme is most
  interesting can be seen to be most advantageous
  to the Exchequer at the expense of the road user.
  We know what NTR makes from its tolls, but do we
  know what the Exchequer makes what, as en
  example of Regulation, the level of toll should
  be?

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The Mould' was Broken in the 1980s is
Typified by 3 Cases
Looking Back to See the Way to Go Forward
Case 3 Road Tolls

• An EU Directive states that the level of tolls
  should be related to the cost of constructing,
  operating developing the infrastructure network
  concerned
• However, Westlink toll is structured so that over
  50 of the toll take goes to the Exchequer. On
  this basis, I believe that, the Westlink toll
  should be 50 less. What we have here is unusual
  in that a regulator, who is the effective
  operator, setting its own toll regulations

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Confusion in Tender Invitations - An Illustration
Looking Back to See the Way to Go Forward

• In 1989 a special committee with members from the
  Dep. of Env. Dep. of Finance as well as Dublin
  Co Co invited proposals to toll the M50 from
  Sandyford to the M1. From the 4 submissions
  received they recommended the acceptance of a
  140m bid to the Minister for approval. The
  Councillors later blocked it
• In 1995 the NRA obtained bids again to toll the
  M50. Three bids were received taken no further.
  One surprising aspect is that the tender
  documents failed to facilitate an offer in 1992
  by a consortium to build the section of the M50
  opened last year between Sandyford the M11
  was Policy enunciated?

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Confusion in Tender Invitations - An Illustration
Looking Back to See the Way to Go Forward

• In 2004 the NRA again sought expressions to
  upgrade toll the M50. They received 2
  expressions for the tolling part, but took it no
  further
• In 2006 (a 4th time after Westlink) the NRA
  advertised the above again are now consistent
  with advise given to them in 1997 that a toll
  franchise be given on a management concession fee
  based on a of the toll collected
• To date, state private firms have wasted
  millions of euros on aborted 'tender' invitations
  such as those outlined for the M50

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Lessons by Experience
Looking Back to See the Way to Go Forward

• One ingredient for successful infrastructural
  facilities development seems to be a high degree
  of autonomy. I believe, that the relatively
  autonomous IFSC is a good case-study many
  successful projects abroad can be seen to have
  followed a similar stratagem. Another example
  is Madrid where numerous mega infrastructural
  projects were completed over the last 10 years
  under the management of Prof. Manuel Melis Maynar
  who is speaking at this Summit tomorrow

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Lessons by Experience
Looking Back to See the Way to Go Forward
Case 4 Metro Road

• Melis success is due to, as the IFSC was, in part
  to
• A small management design team that implemented
  design, procurement construction in a short
  time scale a 40 smaller team taking 30 less
  time to complete a project reduces its cost by
  58
• From the start ring-fencing total project
  finance. This helped greatly work could be
  scheduled, materials ordered prompt payment
  made to contractors which reduced their costs
  significantly
• Contracts were set up to implement innovative
  solutions to unforeseen situations contracting
  parties avoided legal advice on contract
  interpretations, above all construction delay
  its associated costs avoided

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The Way Forward
Policy as a Tool

• To policy makers, public works projects are a
  necessary strategic tool are in fact an
  excellent form of social engineering
• Embarking on a major infrastructure project can
  "prime the pump" of our economy also gives some
  autonomy to the Exchequer to influence money
  supply control
• The Stability Growth Pact which governs major
  work within the EU, dictates forms of financing
  that avoid financial liability on the part of
  state contracting administrations and requires
  them to look at diverse financing options

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The Way Forward
Policy as a Tool

• Infrastructure services, such as transport, water
  electricity, are intermediate inputs to
  production. Any reduction in input costs raises
  the profitability of production, thus permitting
  higher levels of output, income, employment
• Infrastructure services also raise the
  productivity of other areas, like labour
  capital, by permitting extra productivity,
  reducing workers' commuting time, improving
  information flows through electronic data exchange

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The Way Forward
Regulation

• In recent years, the area of regulatory
  innovation has become an activity as influential
  as technological change through promoting new
  forms of competition
• One direct consequence of regulatory innovation
  has been the unbundling of activities that were
  once performed exclusively by single state
  monolithic entities
• By isolating the natural monopoly segments of an
  industry, unbundling promotes new entry
  competition in segments that are potentially
  competitive. Cases in point involve the aviation,
  electricity generation telecommunication
  industries

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The Way Forward
Regulation Guidelines

• Given the Infrastructural deficit as outlined by
  Peter Brennan
• at this Summit, I believe, that Regulations
  should fully facilitate
• The wider application of commercial principles to
  generate more recurrent user pay income along
  with
• The broader use of competition, to reduce the
  cost of construction maintenance programmes

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The Way Forward
Regulation Guidelines

• That Regulations should take into account
• More aggressively separation of regulations
  responsibility from operation. Regulatory
  authority is often not separated sufficiently
  from vested interests. For example, the Dep. Of
  Transport Dublin Airport's treatment of the
  McEvaddy application to build a competing air
  terminal also the NRAs dual regulator/quasi
  operator role in the M50
• Regulators themselves are vulnerable, as we all
  can be, to manipulation in particular prejudice

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The Way Forward
Regulation Guidelines

• That guidelines should take into account
• They are not flawless. The correct regulatory
  mechanisms are not always evident. We often need
  to get on with what we have determine
  regulations later. Regulatory responsibility can
  also be maintained through contractual oversight
• We should be aware, that at times, unintended
  consequences of Regulation, can check or blight
  the competitive process that they are designed to
  release

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The Way Forward
Regulation Approach to Competition

• Direct competition in infrastructure is a
  relatively new resurrected
• approach for us
• Potential competition is most effective when new
  participants (as many as possible) have limited
  sunk market-entry costs
• For example Madrid Barcelona both bought a
  number of large tunnelling machines for their
  metro road works. This provides a greater
  opportunity to new entrants potential rival
  suppliers can be allowed to provide services.
  Recover of asset investments can be made by
  selling assets when their work is completed

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Conclusion
The Way Forward

• An appraisal, I believe, focused on the interface
  of following will pay
• dividends
• Policy is the job of Government. The critical
  area is how Civil Servants enunciate, develop
  support it through advising and drafting
  Regulations - how are decisions made followed
  through?
• One ingredient for successful infrastructural
  development is a political imperative with clear
  thinking along with a high degree of autonomy of
  small focused teams - is this the case?
• Government Departments have multi-annual budgets
  yet they have little autonomy from the Department
  Of Finance - why?

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