Budget apportioned to the regions do not cover all of the projects

09Nov 2018
The Guardian
Budget apportioned to the regions do not cover all of the projects

Megaprojects--50 Billion-plus major infrastructure projects designed to meet the nation's growing needs--are critical to increasing the capacity of the transportation infrastructure and improving mobility

Unfortunately, the associated mega costs of the projects make it a challenge to finance these behemoths.

Regions or districts and localities already have their plates full meeting the requirements of operating, maintaining, and rehabilitating existing highway systems.

In addition, the size and scope of megaprojects make it difficult to use traditional pay-as-you-go financing methods.

The amount of transportation funding available to an agency in a fiscal year may not be enough to cover the cost of advancing a major project, but waiting until the money is available may result in increased congestion and further deterioration of the infrastructure, making delays unacceptable to the driving public.

And the costs of project delay or extending the project timeline increase over time in terms of disruption to public mobility, the value of money, and project overhead.

"There's simply not enough public-sector capital to undertake the backlog of transportation infrastructure work that needs to be done,” some road engineers lament "The only option is to find new delivery mechanisms and sources of capital."

To address the challenges of financing megaprojects, transportation agencies are looking at new financing tools and techniques to pay for these huge undertakings and ways to start projects sooner. Agencies also are considering new models of financing that bring private-sector funds into public projects to deliver the maximum infrastructure at the lowest cost to taxpayers and users in terms of time and money.

Most of today's megaprojects still rely exclusively on traditional public financing. A case in point is the Nyerere Bridge project at Kigamboni in Dar es Salaam, which was designed to unclog a significant traffic bottleneck across the ocean.

National funding participation for the Nyerere Bridge Project is approximately 85 percent, with the remainder of the funding coming from foreign sources.

An emerging trend in the transportation community is to use private-sector funds to partially or totally finance megaprojects.

For example, the Standard Rail Gauge, a statewide network of transportation routes, is a public-private partnership that has attracted billions in private investment.

The Channel Tunnel (Chunnel) between London and Paris is wholly funded through private investors in a joint English and French venture managed by a private company under a long-term concession.

Public-private partnerships provide new delivery mechanisms by allowing acceleration of what the public sector might be able to do. And they open access to sources of funds that are otherwise unavailable to the public sector.

Most megaprojects are designed to enhance the existing infrastructure in busy urban areas, presenting the challenge of keeping traffic moving while the project is underway and increasing the complexity and cost of construction.

As transportation agencies gained experience in developing megaprojects, they found that long-term cost projections, attrition of project staff, complex construction requirements, and unique engineering and design problems could make it difficult to keep cost overruns within bounds.

The flyover infrastructure project, which replaced an elevated highway with an underground expressway and new bridge to ease traffic congestion in Mandela road, has projected costs of more than a billion.

Today the monumental cost involved in megaprojects such as this raises serious concerns about the public's ability to bear the financial burden using only public dollars.

Lessons learned from 1990s megaprojects lead the country to include a requirement in the Transportation Equity Act for that every megaproject of  50 billion or more receiving public funds for construction have a financial plan that is updated annually.

The newly discussed and proposed Act to be enacted Safe, Accountable, Flexible, Efficient Transportation Equity Act: A Legacy for redefined a megaproject to include projects of 50 billion or more.

The focus of the financial plan is to compare original cost estimates to actual costs and project completion schedules, as well as to provide reasonable assurance that sufficient resources are available to complete the project as planned.

As the nation's infrastructure rehabilitation needs continue so will the need to develop and finance megaprojects.

At the end of fiscal year 2016/17, several active megaprojects receiving national funding were underway, ranging from projects in the final stages of environmental review to those under construction.

The 5th phase government anticipates the number of major projects to increase substantially over the next several years, especially with the new, lower threshold for defining a megaproject.

National or regional transportation agencies have compelling reasons to look to sources other than national funds to pay for megaprojects.

National dollars apportioned to the regions do not cover all of the projects eligible for public funding, so the nation must make hard decisions on how they will use the funds they do receive.

In many cases, smaller projects that have captured the interest of local or political stakeholders use up the available public funding in a given fiscal year.

In addition, many megaprojects are so large and the need for them is so critical that pay-as-you-go is not a viable option.

Instead, the regions or districts are stepping up with higher contributions and using innovative financing techniques--including national loans, the country bonding initiatives, and public-private partnerships--to secure funds sooner so they can get these projects underway.

New developments in megaproject financing involve more than differences in the split between national or public dollars.

Although innovative financing tools are making public dollars more available for project financing, they are not enough to meet the nation's transportation infrastructure needs.

Agencies have to look beyond public dollars and exploring public-private partnerships to help share the costs of major projects.

These partnerships enable transportation agencies to tap private-sector financial, technical, and management resources to achieve public objectives such as greater cost and schedule certainty, innovative technology applications, specialized expertise, and access to private capital.

The single most important thing the public sector gains in a public-private partnership is certainty in terms of funding, cost, and schedule for the project--it's not subject to annual appropriations.

The taxpayer benefits from that certainty, but he also gets a new or upgraded facility earlier than he might under a traditional financing approach.

And from a public policy standpoint, there is a better match between who bears the costs and who accrues the benefits of projects because many will be toll facilities.

Risk transfer is another significant benefit of public-private partnerships. PPPs shift some of the risks involved from taxpayers to the private capital markets and large global companies that can afford and are willing to take those risks under the right kinds of agreements.

The challenge is to develop PPPs that are genuinely partnerships and have benefits for both sides. An example of this new breed of public-private megaproject is the SRG.

As part of the financing arrangement for the proposed SGR probably stakeholders agreed to invest billions for additional transportation improvements between Tanzania and other neighbouring countries.

In return, the stakeholders may plan to negotiate a 50-year contract to maintain and operate the SGR.

The result is that the completed project will have more money for road building than it would otherwise. Additional public-private partnerships may play a key role in financing the corridor project.

 The Tanzania commuter rail system and private railroads; there is a need to work together to solve common transportation problems that lead to the railroads to partner with the transportation agencies.

If everybody waited around for the other person to do it, it would never get done, that’s what brought everybody to the table--shared pain and shared gain.

In capital improvements in the Tanzania regions’ railroad infrastructure, including new roadway overpasses and underpasses to eliminate traffic crossing tracks at grade level and others overpasses and underpasses to separate passenger and freight train tracks.

We think this could be one of the models for the future, we're getting away from the traditional 80-20 percent split of national or public funding and bringing private partners into the process.

We're figuring out what we can learn from each other. It's a matter of putting aside the idea that we've never done it that way and asking ourselves 'Why can't we do it that way?

The objective of setting up a public-private partnership, however, should not be to take advantage of private organizations.

The best public-private partnership is a win-win relationship, with risk shared between the public and private sectors.

From the public viewpoint, the objective is an infrastructure gain, while the private-sector priority is a return on investment.

When both public and private sectors win, it enhances the possibility for future private-sector investments in the transportation system.

By combining the various tools and techniques available, highway agencies will have more options to deliver innovation, cost savings, and quality improvements.

And by exploring ways to stretch public dollars with private investment, agencies will be able to get construction of megaprojects underway sooner and ultimately provide the maximum infrastructure at the lowest cost to users and taxpayers.