Sri Lanka - Transport Sector Strategy Study (Vol. 2 of 2) : Background Papers

Report No. 1 6269-CE Sri Lanka Transport Sector Strategy Study (In Two Volumes) Volume 11 Background Papers March 1 997 Infrastructure Operations Division South Asia Country Department I Government of the Democratic Socialist Republic of Sri Lanka with assistance from the UNDP FOR OFFICIAL USE ONLY Document of the World Bank, This docurment has a restrictedt disitibution and maiy le uisedl by recipients only inr thie performance of ttheir ofticial duties. tLIs contents may not otherswise be disclosed wilhout World Bank authorization  SRI LANKA FOR OFFICIAL USE ONLY TRANSPORT SECTOR STRATEGY Table of Contents VOLUME I BACKGROUND PAPERS AND PRESENTATIONS Table of Contents I. ROLE OF THE GOVERNMENT 1. Vision of the Transport Sector as an Effective and Efficient Public-Private Partnership Athulathmudali, S. 2. The Changing Role of Government in Ports and Shipping Bennett, M. and J.E. Ricklefs 3. Changing Public Roles in Road and Passenger Transport: An Overview and the Example of Highways G6mez-Ibainez, J.A 4. OECF's Assistance Strategy for Privatization and Introduction of Private Sector Participation in Infrastructure Including the Transport Sector Hashimoto, K 5. Decentralization and the Public Investment Program in Sri Lanka: Some Aspects of Budgetary and Planning Processes Jegarasingham, K 6. Public Infrastructure: Private Investment Opportunities Nanayakkara, M 7. Decision-Making in Project Procurement Norman, A. IT. SUSTAINABLE PROVISION OF TRANSPORT INFRASTRUCTURE AND SERVICES 8. Opportunities for Employment Generation in the Transport Sector Chandarasena, S. 9. UNDP Goals of Sustainable Development and Transport Sector Strategy Conroy, R 10. Complexities in the Relationships Between Railway Costing, Railway Marketing, Joint Development, Externalities, and Transit Integration Diandas, J. 11. Economic, Social, and Environmental Demands on Transport: Past Performance and Emerging Challenges Dheerasinghe, K.G.D.D. and D.S. Jayaweera 12. The National Highway Program for Economic and Social Development Fowzi, * 13. Traffic Management for Congestion Control and Safety Kumar, A., with contributions from R. Parker 14. Urban Structure Planning and Transport Kumar, A.with contributions from W. Mendis and S. Wickremasinghe Vice President: Ms. Mieko Nishimizu Acting Director: Mr. Fakhruddin Ahmed Division Chief: Ms. Marie Robinson Task Manager: Ms. Frannie Humplick This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  15. Implementation of Clean Air 2000 Action Plan Kumar, A. with contributions from R. Perera and S. Pilapitiya 16. Access and Mobility in Rural Areas Perera, L. 17. Regional Integration and National Highways Senanayake, D. III. OPPORTUNITIES FOR COMPETITION IN TRANSPORT 18. Bus Industry Issues and Options G6mez-Ibainez, J.A. 19. Study of Transportation Services Provided by School and Office Vans Lye, *. 20. Methods of Managing Routes Served by Multiple Operators Premaratne, M.C. 21. Development of a Local Road Construction Contracting Industry Norman, A. 22. Towards a Better Image of Road Construction Contractors Munasinghe, E.I. IV. MAKING PUBLIC SECTOR MANAGEMENT MORE MARKET SENSITIVE 23. OECF's Recommendation for Restructuring Road Agencies in Sri Lanka Abe, H. 24. OECF's Assistance Strategy for Private Sector Participation in the Port Sector Kusaka, H. 25. Efficient Utilization and Development of the Sri Lanka Rail Network McCullough, G.J. 26. Strategic Issues in Development of Sri Lankan Ports Mobarek, I. 27. What to do About Peoplized Companies? Premaratne, M.C. 28. Reforming the Railway Weerasooriya, G.P.S. V. PRICING AND FINANCING IN TRANSPORT 29. Competitiveness of Charges in Sri Lanka Ports Abeywickrema, R.J. 30. Subsidy Allocation in Road Transport and Operation of Bus Services on Unremunerative Routes Diandas, J. and M.J. Sahabandu 31. Road User Charges and Their Purposes G6mez-Ibantez, J.A. 32. Are Current User Charges in Roads Adequate? Jayaweera, D.S. 33. Operation of Non-Economic Routes by RaiL Weerasooriya, G.P.S, and U.E., Storm  PART I. ROLE OF THE GOVERNMENT 1. Vision of the Transport Sector as an Effective and Efficient Public- Private Partnership Hon. Athulathmudali, S.1 The importance of transport in promoting the economy of the country cannot be over-emphasized. Its role has been recognized by all concerned. As the Minister of Transport I am very much concerned about evolving a realistic transport policy. As such this Workshop is most welcome and could not have been better timed. I thank the World Bank, the UNDP and our own professionals in the field of transportation for their assistance and participation. Transport had received special attention in Sri Lanka even in Colonial times. At the time we received independence nearly half a century ago, we inherited from the British an effective network of roads and a railway system. Since the middle of the last century the British rulers had recognized the importance of roads for administrative, military and commercial purposes. With a booming coffee plantation industry to be followed by the even more prosperous tea industry, roads from the plantation areas in the "up country" to the Colombo port became an absolute necessity. With transport costs by road using bullock carts going up and the realization that no increase in the means of transport then in use could keep pace with the increase in production, planters were prompted to consider the feasibility of a railway between Kandy and Colombo. When Brazil, even then a major coffee producer, developed its own railways to transport the product, thereby reducing the price of Brazilian coffee, the British Government pursued assiduously its plans to build a railway here to keep costs down to meet the threatened competition from Brazilian coffee. It was Governor Ward in 1855 who considered the establishment of a railway "an absolute and imperative necessity". The construction of the railway began in 1858. I have delved into a little bit of history purposely to show that administrators of a bygone era had a clear vision of which we at the present time happen to be the beneficiaries. Making use of the road network available early entrepreneurs took the initiative to start a bus transport industry. The first bus service on record was in 1907, when a passenger cum goods service was operated between Colombo and Chilaw. The industry seems to have expanded over a period of ten years to that level, that in 1916, Government sought to intervene by enacting the Vehicles Ordinance act of 1916. These early years saw more than a flurry of activity among individual bus owners which developed into unbridled and intense competition with many attendant unsavory features. This naturally called for greater Government intervention in 1942 which compelled these individuals to group themselves into Companies, with territories of operation being allocated to them on 1 Minister of Transport, Environment, and Women's Affairs  2 the basis of route monopolies. This experiment too was a failure as the Companies could not put in the required number of buses. The service was provided through aging buses inefficiently managed. In 1951 Government made an attempt to compel the formation of public companies. But this too was a failure for the same reasons. The discontent of the traveling public was expressed through newspapers and on some political platforms. With the coming into office of a new Government in 1956 with distinct socialist leanings under the leadership of the late Hon. S.W.R.D. Bandaranaike MP, the days of the private sector were numbered. In 1958 the new Government nationalized the bus services bringing them under the Central Transport Board (CTB). It is of interest to note that it was during the same period that a wave of nationalization swept through Britain as well, under the Labour Government. The setting up of the CTB with the monopoly of road bus transport vested in it was a landmark event in the transport history of this country. Discipline, efficiency and professionalism became hallmarks of the new monolith. By 1978, however, within a period of two decades signs of deterioration were becoming quite patent. Financial difficulties due to fares not keeping pace with escalating costs and overstaffing were among the host of problems that plagued the CTB at this time. This was reflected in a drop in efficiency and the consequent inability to satisfy the expectations of the traveling public. In 1977 with the coming into office of a new Government with a mandate to "open up" and "liberalize" the economy, the private sector was allowed to come back, initially to complement the CTB services. Very soon the private operators, most of them "single bus owners", were there in a big way offering severe competition to the CTB, making serious inroads into its market share. In 1989 the same Government decided to peoplize the CTB and set up 93 Peoplized Bus Companies by peoplizing 93 depots, with workers owning 50% shares and the Government owning the balance. These Companies are a halfway house between privatization and nationalization and are legally recognized as Public Companies under the Company Law. The same problems that plagued the CTB such as inadequate finances, have visited these companies. Today they have become financially unviable, struggling to survive while venturing to serve the community. Subsidies, though inadequate to cover up in full the operational costs and new buses provided with bank financing on a Government guarantee, have propped up these companies. The recently announced fare increase will no doubt be a welcome, much-needed shot-in-the-arm for them. There is competition today within the private sector itself as well as competition between the private sector and the Peoplized Bus Companies. This unbridled competition is neither in the interests of the industry nor that of the public.  3 This sequence of changes will show that in Sri Lanka too the bus industry has gone through the vicissitudes of "classical cycle" of private and public involvement in the industry, as elsewhere in the world. The story of the railway is that of a valuable asset that has been run down over the years. Lack of adequate capital has led to the poor maintenance of track, locomotives and rolling stock. Poor maintenance has in turn led to a drop in the efficiency of the services. As a result the transport of bulk freight, the very purpose for which the railway was constructed, is no more a major revenue earner for the railway. Road transport seems to have won over a significant share of the freight business which at one time was the monopoly of the railway. Where passenger traffic is concerned too the picture is no better. While struggling to overcome the legacies of the past the railway has lost a good share of its passenger traffic to road transport, though when taking into account the congestion on the highways the desirable trend should have been the other way about. With this somewhat dismal backdrop what should be our aspirations and what should be our vision. We are about to see the dawn of a new century. The aspirations of our people are not that grandiose. What they need is a transport system which a low income earning country could afford to speed up socio-economic development. It should cater to those who cannot afford the luxury of private transport. The community expects a service with minimum waiting time, particularly at peak periods, to enable them to be at their places of work and schools in time. In short it should be a service that is regular, reliable and safe, affordable to all regular passengers and with a rational fares policy. Effective cost recovery measures, with subsidies or public service obligations schemes in place will make the services viable. In a developing country like ours the social service character of public transport should be upper most in our thinking when planning for the future. Thus the responsibility of providing public transport cannot be left exposed solely to the vagaries of market forces resulting in undue inequalities and distortion in fares structures. At the same time it will be too much of a strain on the Government if the Treasury were to absorb all the commitments of a State sponsored transport system where the State would be subsidizing inefficiency in the industry. To my mind therefore, public road transport is an area of economic activity deserving an effective merging of private and public resources. If the private and public sectors are to play a meaningful role sufficient safeguards have to be made available to the private sector to make bus transport an industry worth investing in. In Sri Lanka, to achieve this I see two major steps that should be taken. The first is to phase out the "single bus owner" system that now operates. A system where only companies or cooperatives would qualify for route licenses should be evolved, with provision being made for the present single bus owners to join such companies or cooperative. I am happy to state that this policy has already been approved by Government and that legislation is now being drafted to implement it. Government has  4 also realized the need to restructure the Peoplized Bus Companies. Legislation is now under way to set up 11 new companies more or less on a regional basis with professional managers to run them. It is my expectation that they would not only give an improved service, but would also be viable financially and not be a burden on the Government. The second is a rational policy on fares. Fares are a very sensitive area, where for political and social reasons the tendency would be to keep them down as far as possible regardless of economic consequences. Such an unrealistic approach would slowly but surely bring about the ruin of the industry. I am happy to announce that on recommendations made by me to Government, after a competent committee had studied their implementation, Government has recently taken a decision to make a modest raise in railway fares by 20% and bus fares by 15%. This increase has come after nearly five years and should give confidence to those in the industry that Government is committed to a realistic fares policy. I would even go further and recommend the setting up of an independent "Fares Forum" which would make recommendations to Government on fares having considered representations from the industry as well as from the users of transport. this would avoid the need for "ad hoc" decisions on fares or a situation where no decisions to be taken at the correct time. A policy on Public Service Obligations is also to be commended as it would take care of Government's obligations to satisfy community demands, on non-remunerative routes on which operators, be they state or private would be normally reluctant to provide services. With the public and private sectors operation services, an important area that would be worth watching is as to how they compete with each other and even among themselves. "Healthy competition" would of course be the ideal. But we are yet to see an area of economic activity where this ideal has been achieved. If however both groups are given equal opportunities to compete we would with the benign guidance or monitoring by a central agency avoid the extremes of monopoly and ruthless competition, of the type which we see today. When it comes to the railway, which since its inception has been a Government concern, one may not straight-away see a ready made private sector, public sector partnership. But the possibilities are always there and they should be explored. In the area of intermodal transportation, links between road transport and railway is an area rich with possibilities for such partnership. For instance with the proposed development of the Port of Galle, I see for the railway a major role in transporting containers between Colombo Port and the Dry Port. When it comes to passenger transport, feeder bus services to suburban community services should be rewarding field for exploitation. The freight transport sector is yet another area where I would expect a lot of possibilities for private sector/public sector collaboration. The railway was established originally to carry commercial commodities. It maintained its monopoly in freight till the 1940s when it had to face severe competition from road haulers. The time has come to  5 recapture this lost area by new methods of collaboration with the clients. The railway has still an edge over road transport in the freight of bulk commodities such as flour, petroleum limestone, cement and fertilizer. As the railway is just now short of locomotives to be totally dedicated to freight transport, it would be worthwhile to negotiate with these prospective customers as to whether they would participate in a partnership to provide the much needed locomotives, rolling stock and even track rehabilitation. The railway controls real estate above and beyond that required for its railway operation. These would be eminently suitable for development with collaboration of the private sector. There are also areas such as central railway stations that would lend themselves for development as shopping malls, etc., while continuing to serve railway purposes. Private sector participation is required for these developments. Building up a workable partnership between the public and private sectors both in road transport and railways should be the answer for the future. It would perhaps add a new spoke or dimension to the "classical cycle" of public and private sector involvement in the industry. Such a partnership would fall in line with Government's policy to maintain an open, challenging, competitive environment within a liberal economy, free of unnecessary Government intervention and controls and conducive to restoring market incentives. In conclusion I would like to refer to the series of studies that had been done on transport in Sri Lanka in recent years. Several conferences, seminars and workshops have also been held at different levels on this subject. We, thus, have a wealth of information on the subject. What seems to be lacking, however, is a clear cut program of action to translate into reality the findings and recommendations made from time to time. I would like to draw your attention to this lacuna and express the hope that with the conclusion of the ongoing National Transport Strategy and the Colombo Urban Transport Study a coherent and workable plan of action would emerge.  6 2. The Changing Role of Government in Ports and Shipping Bennett, M. and J.E., Ricklefs2 2.1. INTRODUCTION Since the pioneer Asian privatization at Port Klang, Malaysia, in 1986 private sector investment in infrastructure has become widely accepted (at least in principle) throughout the continent. Now, ten years on, the question is much less whether to "privatize" in some way and much more "how to" implement the concept . The first question dealt with such macro issues as philosophies of governance and socio-political considerations. The second involves the details, sometimes at a micro case- by case basis. Socio-political factors persist, but they are now joined by the hard world of commercial reality. To address either question is to grapple with defining the role of government within a particular environment at the outset of the twenty-first century. By framing the issue as location and time specific one realizes that there is no single universal answer available off-the-shelf Solutions must be shaped in a local context. Nevertheless, there is now sufficient experience, both worldwide and within Asia, from which one can draw useful lessons. This paper addresses a few of the broad lessons regarding infrastructure and government. I then turns to transport infrastructure with particular emphasis on ports. 2.2. ROLE OF INFRASTRUCTURE In defining what should be the ongoing role of government, it is necessary first to identify what is the role of infrastructure. It is an economic world and economists would argue that provision and operation of physical infrastructure is not a primary activity, that is, it is not an end in itself Instead it represents service: service to domestic industry (e.g., communication, power generation and transmission); service to domestic and international trade (e.g., roads, airports and seaports); and service to the population in improving the quality of life (e.g., all of the above as well as education, health care, water and sanitation, etc.). A number of actions are needed to arrive at the appropriate role of government in the ports sector. These include: 1 Define Objectives of Government in Ports Sector 2 Define Guidelines for Ongoing Government Involvement as Conservator/Regulator (how to fill statutory role for safety, enviromnent, etc.) 2Frederic R. Harris  7 * as Landlord (how to fill trusteeship role; including tendering and evaluating investment opportunities and ongoing performance monitoring) * as Operator (how to fill this role if it is an objective) * as Investor/Equity Shareholder (how to fill this role if it is an overall objective or required for a specific project) * as Facilitator (how to fill this role for, e.g., land acquisition, permitting, utilities) * as Partner in Transport (how to fill this role in providing or assisting in provision of supporting transport, e.g., road rail) * as Guarantor? (if desired) 3 Define Guidelines for Private Sector * as Investors * as Operators 4 Define and Establish Structure of Government's Ongoing Ports Body 2.3. ROLE OF GOVERNMENT The importance of its society-wide role is one of the primary reasons that governments historically adopted the practice of "public works" to provide necessary infrastructure. The other reason, of course, is that the high capital investments required and the low or slow revenue potential often inhibited private entrepreneurial interest. It remains the role of government to promote society-wide benefits including economic advancement. Now, however, governments across Asia are soliciting the private sector to enter the infrastructure field, either in pursuit of improved service efficiencies or because of financial limitations or both. Infrastructure is not longer solely within the purview of government. At the same time it would be both irresponsible and unrealistic to thing that infrastructure can be turned over totally to the private sector. The challenge is to design procedures and, where necessary, institutions which protect the public interest while also satisfying the private investors' need for fair and reasonable returns on investment. This situation need not be characterized by natural antagonism but rather by creative tension. One of the lessons which can be identified is that successful infrastructure privatization arises from an effective public/private partnership, at least in attitude if no in fact. It is the responsibility of government, which is the party seeking the investor, to take the initiative in creating this essential partnership.  8 2.4. STRUCTURING A PUBLIC/PRIVATE PARTNERSHIIP IN PORTS There are four key actions the in order to structure an efficient public/private partnership in ports: 1. Define the Roles of Ports Within Government's Economic Development Planning 2. Define the Ongoing Role of Government in Ports (regulator? investor? equity shareholder? operator?) 3. Define Requisite Protection for Port Users (policy considerations which must be built into program) 4. Define Requisite Protection for Investor/Operator (commercial considerations)  9 3. Changing Public Roles in Road and Passenger Transport: An Overview and the Example of Highways G6mez-Ibanfez, J.A.3 My assigned to! J- for this 15 minute talk is incredibly ambitious: to survey the changing role of the publicsector in road and passenger transportation, drawing on international experience. To do so I will first provide a brief overview of the types of public involvement and the broad trends in both industrialized and developing countries. Then I will use one particular type of transportation -- high performace highways, also called expressways -- to illustrate in more detail the motives, possibilities, and limitation of increased private involvement. I choose expressways as an example in part because in a later session of this workshop I have been asked to discuss the case of local bus services in detail. Types of Public Involvement Briefly, there are three main forms of public sector involvement of roads and passenger transportation, as illustrated in Table 1: * First, the public sector may subsidize transportation services or facilities, so that the users of those services and facilities do no pay the full costs of providing them. * Second, public agencies or enterprises may directly provide or operate transportation services or infrastructure. Examples are public bus companies and roads built and maintained by public highway authorities. * Finally, the public sector my regulate the behavior of private firms or individuals providing transprotation services. Such regulations can focus on several different aspects of their behavior: competition, safety or pollution. An Overview of the Variation and Trends Table 2 presents an impressionistic overview of the variation in levels and trends in public sector involvement in road and passenger transport in both industrialized and developing countries. Briefly, most forms of public involvement are declining, the principal exceptions being safety and environmental regulation. Subsidies, for example, are generally declining but still substantial for some types of transportation services or facilities. The levels of subsidy for use of highway infrastructure vary enormously among and within countries, although there is much controversy and confusion about how such subsidies shoudl be measured. Generally, highway use is subsidized less in those countries, such as many in Europe, that tax motor 3 Kennedy School of Govermnent, Harvard University  10 vehicle fuels heavily or rely on toll financing for expressways. Thsi is true even if the environmental effects of highway use are included with the infrastructure costs. Even in the countries that tax fuels heavily, however, certain types of users often do not pay their full costs, most notably heavy trucks and motorists on congested and costly urban highways. The general trend has been to increase hgihway taxes and tolls, however, and thus to reduce subsidies. Aside from infrastructure and environmental costs, trucking and long distance bus service are rarely directly suidized. Local bus service, by contrast, is heavily subsidized in industrialized countries and more modestly subsidized in those developing countries which have public bus companies, although in both cases the levels of subsidy appear to be declining slightly. The degreee for which public enterprises are used to provde transportation also has been declining, although public enterprises still dominate several important types of services or facilities. Public highway agencies are responsible for providing local roads everywhere and most high performance roads in the industrialized countries. They typically contract with private firms for major construction and resurfacing, however. Moreover, almost all expressways in developing countries are now built and operated by private concessionaires. Finally, public regulation of competition is generally declining, but public regulation of safety and environmental damages is genrally increasing. The reasons for these trends are not hard to fathom. Public subsidies and public enterprises have been declining in large part because governments in both industiralized and developing countries face increasing claims on their limited tax revenues. Making transportation users pay their way is attractive because it saves scarce public resources to be used to finance needed social services, such as health care, education, and support for the very poor. Public enterprises are in decline because they are often higher cost than private providers, and thus more likely to require subsidy. The increase in environmental and safety regulation has two sources. First, as awareness and incomes rise, so to does the public's demand for safety and environmental protection. Second, the costs of complying with environmental and safety regulations are borne primarily by private firms and individuals, and thus more stringent standards usually have little impact on the public sector's budget. Circumstances Favoring Private Involvement: The Case of High Performance Highways Increased private involvement is not always a good idea, however. An interesting case in point is high performance highways. The motivations for granting private concessions to build and operate expressways shown in Table 3 are probably universal:  11 * The first, and by far the most important, is the desire to access private capital markets to finance needed new infrastructure investments, usually because of constraints on the borrowing capacity of the public sector. * The second is the hope that a private firm might build and operate the expressway more efficiently. Yet private concessions for new expressways are far more common and successful in some parts of the world than others. In particular: * Private concessions are most common in the higher income developing countries where auto ownership has been growing rapidly for a number of years. Mexico has constructed over 4000 kilometers of private tole expressways since 1989, for example, although not without problems. Argentina and Malaysia have substantial systems of private expressways open or under construction, and many other countries of Latin America and Southeast Asia have smaller networks, mainly around or in the largest metropolitan areas such as Jakarta or Bangkok. In fact, among these countries virtually every expressway under construction is a private concession. * By contrast, private concessions make up a fairly small proportion of the expressway systems in industrialized countries. France and Spain have approximately 700 and 1000 kilometers, respectively, although these date back to the 1960s and 1970s and most new construction is by public expressway authorities. The United States and Britain have less than 100 kilometers of private expressways or bridges open or under construction. * Finally, private expressways--or expressways of any type--are comparatively rare in lower income developing countries, particularly where auto ownership is still less than 50 to 100 vehicles per 1000 population. The reasons for this are reasonably simple. There are four circumstances that favor private concessions for any type of infrastructure--be it roads, ports, electric generating plants, or telecommunications systems. These cicumstances, listed on the bottom of Table 3, vary among the types of infrastructure and the specific local market and political environment in which a facilty is to be built. Briefly, they are: * that the facility operates in a reasonably competitive market or environment, * that it be profitable from user charges alone, * that there are few environmental or other siting controversies that might delay or add costs to the project, * and that any cost savings expected froim the project be realized from real efficience gins rather than transfers of costs from one party to another.  12 Given the time available, I will discuss only the first two.4 It will also be helpful to introduce another type of transportation facility--container ports or terminals--to contrast with expressways. Virtually all studies of privatization agree that it is easier if the private firm or facility operates in a competitive environment. This is so for three reasons, listed in Table 4: * First, competition is the pricipal incentive for the efficiency gains that are usually hoped for from privat provision. * Second, a competitive environment insures that most or all of the efficiency gains will be passed on to the facility user rather than retained as profit by the enterprise. This is important because it makes private provision politically more acceptable. * Finally, competition reduces the need for public authorities to regulate the profits or tariffs charged by the private firm. If the private firm has a monopoly, then regulation of tariffs or profits is usually necessary to protect the public. Although it is beyond the scope of this presentation, designing a regulatory scheme that is fair to both the customer and the firm is no easy task. Expressways actually fare rather poorly by this test. While there can be competition in the awarding of an expressway concession, competition is usually limited during the life of the concession. This is so because if the expressway is to be financed primarily by tolls--as most private expressways are--then the competition from parallel roads must not be too great; otherwise not motorist would pay the toll. Thus critical tasks in privatization are to insure that there is effective competition during the concession award and, equally important and more difficult, to design a concession contract that will serve to protect both the public's and the firm's legitimate interests throughout the 10 or 20 year life of the concession. Container ports or terminals, by contrast are much more competitive. Not only is there usuallly fierce competition between ports, but it is also possible to stimulate competition between individual terminals in the same port, as long as they are privatized separately. Thus all the complications of tariff or profit regulation can usually be avoided. The second condition favoring privatization is that the facility can recover its costs from user charges alone. Where the facility is financially self-supporting, the concessionaire does not need to search for additional sources of revenue, such as government assistance or profits from ancillary real estate developments. Dependence on public aid greatly complicates the negotiation of the concession agreement, since the govenrnment will want to add conditions to protect its interest and investment. Similarly, 4For a more complete discussions, see Jose A. Gomez-Ibanez and John R Meyer, Going Private: The International Experience with Transport Privatization (Washington, DC: Brookings Institution, 1993)  13 ancillary real estate developments are often highly speculative, and thus compound the risk and complexity of the project from the concessionaire's point of view. A comparison of toll expressways and container ports can be seen in Table 5. The possibility that an expressway can be financed from toll revenues alone depends, of course, on its traffic potential and its construction costs. In countries or metropolitan areas where motor vehicle ownership is still relatively low or where parallel roads have fairly high capacity and are not heavily congested, the traffic and toll revenue potential may be modest. This is the essential reason for the differences in the numbers of private expressways in various parts of the world. In the high income developing countries, vehicle ownership has reached the point where the conventional roads are becoming extremely congested, and thus the potential for tolling is high. The industrialized countries have high rates fo auto ownership but usually they have already built extensive expressway systems, so the number of unbuilt links that might be financially self supporting is small. In most low income developing countries, vehicle ownership has not reached the point where expressways could be financially viable. Within a metropolitan area or country, moreover, expressway projects tend to be of two types, development road or congestion relievers, and each carries its own type of risk. A development road extends the highway system into an area hat is thought to be ripe for development. While its construction costs are often low, its traffic potential is also uncertain; if development is slower than expected, the financial results can be disastrous. A congestion or bottleneck relieving highway or bridge may have high traffic potential, but usually the construction costs are much higher as well semply because the area is developed or because difficult terrain or a river crossing had limited the expansion of the conventional highway system in the past. Container terminals, by contrast, generally have much higher potential for financial self-sufficiency. This is not always the case--a port may have limited demand or excess capacity. But container traffic is growing rapidly world wide, and at congested ports the profitability of new investments is probably high. Conclusions In sum, although the public sector's role in roads and passenger transportation is generally declining it is not in certain areas, such as safety or environmental regulation. Even areas which are often touted as important opportunities to substitute private for public involvement, such as the provision of new infrastructure, it is often important to examine each case on its own merits.  14 TABLE 1:TYPES OF PUBLIC INVOLVEMENT (1) PUBLIC SUBSIDIES (2) PUBLIC OPERATOR (3) PUBLIC REGULATION OF PRIVATE FIRMS * COMPETITION (E.G., FARES OR ENTRY) * SAFETY * ENVIRONMENTAL POLLUTION  15 TABLE 2 VARIATION AND TRENDS LEVEL OF INVOLVEMENT TREND Industrialize Developing d Countries Countries Ind. Dev. PUBLIC SUBSIDIES * HWY INFRA. Varies Varies -4 * OTHER OPERATING TRUCKING None None -- -- LONG DIST. BUS None None -- -- LOCAL BUS =50% =30% IF 0 PUBLIC =0% IF PRIVATE PUBLIC PROVIDER * LOCAL ROAD ALL ALL 0 0 * EXPWAYS MOST FEW 4 4 - TRUCKING NONE NONE * LOCAL BUS ALL MIXED PUBLIC REG.