Not all investments in infrastructure contribute to socioeconomic development. Polish politicians and administration cannot forget about the experiences of Southern European countries, where the scope of economically ineffective investments has adversely affected the countries’ economic condition and made the crisis more severe. One of the reasons for that was the inappropriate assessment of the profitability of these projects – users often did not pay a price that would ensure that real costs are covered. They were often covered by all taxpayers, so those who did not use the roads in question or maybe even did not have cars partially subsidized those who did.
The expressway network in Poland has a little over 3000 km, including 1553.2 km of highways and 1472.5 km of expressways proper. As Julia Patorska points out in her analysis for the Research and Analysis Centre of Employers of Poland, the role of market factors in the financing and maintenance of national roads is marginal: using sections of some highways is subject to a toll, a fuel toll is also in place, the latter of which is transferred to the National Road Fund. Financing from the state budget is prevalent, so a strong redistribution effect comes into play.
J. Patorska diagnosed the main problems with the current financing and maintenance model for Polish roads. They are as follows:
The issue of the expenses on road infrastructure in light of the state of public finances has been and still is widely discussed, so it is perhaps advisable to focus on the inappropriate allocation of investments, caused partially by the shortage of market solutions in the financing models.
Economy has proven that democratic voting is a highly ineffective manner of revealing preferences of the public opinion. Thus, if possible the best way to do that is to check the willingness to pay for the service or good in question in market conditions.
The problem of allocation and the financing model is best illustrated by the case of Portuguese highways. In 1992-2010, Portugal spent 1.2 percent of its GDP on average on infrastructural investments, with an average of 0.8 percent for OECD countries. As a result, in 2010 the country had 0.26 km of highways per capita, compared to an EU average of 0.12 km (according to OECD figures). The intensive development of the road network brought less and less advantages for the economy while maintenance costs continued to grow, exceeding 1.25 percent of the GDP in 2013 – 125 percent of the OECD average.
The factual low profitability (critics point out that many roads run parallel to each other and at a close distance) was finally revealed in times of recession after 2009. According to some researches the inappropriate allocation was partially caused by the public-private partnership model, where the costs incurred by private investors were covered by all taxpayers rather than by road users alone (so-called shadow tolls). Under pressure resulting from the crisis and the rapidly increasing costs of the PPP system, the government introduced real tolls, which caused traffic in some road sections to drop by as much as 65 percent*. Thus, in revealing the real demand for these roads, the actual rate of return – much lower than initially estimated – was also brought to light.
Fig 1 1. Increase in the costs of PPP investments in roads in Portugal.
Source: D. Olko, Economies of beneficiary states in light of the Cohesion Master’s Thesis defended at the Warsaw School of Economy, based on: M. G. Santos, B. F. Santos, Shadow-tolls in Portugal: How we got here and what were the impacts of introducing real tolls, Association for European Transport and Contributors 2012.
Several objections could also be raised with regards to the allocation of road investments in Poland. First and foremost, investments easing exit traffic in the biggest agglomerations are neglected. Warsaw is an anomaly in Europe – one would be hard-pressed to find another capital of a similarly developed country that would have so few connections with the rest of the country, the neighboring counties and would not have a complete ring of bypasses.
There is no doubt that the return rate for each 1 km of express road is the highest in highly developed and densely populated regions. This shows the inappropriateness of the argument that there are many counties with no express roads or a shortage of them.
One other significant objection to the allocation of road investment allocation in Poland thus far has been the fact that a priority was given to creating transeuropean transport networks before the centres of the country’s economic activity had effectively been connected with one another. These objectives do not necessarily have to be congruent, as evidenced by many years of delay or downtime in the case of sections S7, S5 and S10, as well as the Bielsko-Biała – Kraków expressway.
All this taken together decreases the supply effects of investments connected to a possible increase of production and efficiency in industry and improved mobility on the labour market. As demonstrated by World Bank and OECD research, policies in his regard have a significant impact on the benefits of participating in the global value chain.
To conclude, introducing market mechanisms to the planning and maintenance of national roads improves the effectiveness of investments, as well as their size, if the PPP regulations are simplified and environmental restrictions eased. Removing barriers for private investors opens the way for the realization of projects that are economically justified, but are never undertaken by state administration, for political or other reasons. However, according to the consensus among experts, local and voivodeship roads with the status of so-called public roads should not be constructed and maintained commercially.
Damian Olko, expert of the Research and Analysis Centre of Employers of Poland
* J. Patorska, Możliwości budowy i utrzymania infrastruktury transportowej na zasadach komercyjnych, analysis for the Research and Analysis Centre of Employers of Poland, 2015.