Sustainable Transport by World Bank (1996)
Sustainable Transport by World Bank (1996)
Sustainable Transport by World Bank (1996)
I N P R A C T I C E
Sustainable Transport
Other Recent Development in Practice Books
Improving Women's Health in India
Better Urban Services: Finding the Right Incentives (also available in French
and Spanish)
A New Agenda for Women's Health and Nutrition (also available in French)
East Asia's Trade and Investment: Regional and Global Gains from
Liberalization
T H E W O R L D B A N K
W A S H I N G T O N, D. C.
(C 1996 The International Bank for Reconstruction
and Development / THE WORLD BANK
PREFACE ix
ABBREVIATIONS xi
SUMMARY 1
3 Environmental Sustainability 50
Combining Reduction of Transport Costs
with Environmental Awareness 54
Priority Components of a Transport Strategy 55
Addressing High-Priority Problems 64
Notes 70
v
vi SUSTAINABLE TRANSPORT
4 Social Sustainability 72
Designing General Transport Policy to Help the Poor 73
Addressing the Particular Problems of the Rural Poor 79
Mitigating the Unwanted Social Effects
of Transport Policies 82
Note 84
GLOSSARY 118
REFERENCES 121
TABLES
FIGURES
BOXES
During the past twenty-five years, detailed policy studies have been
prepared for specific subsectors, such as urban transport (World Bank 1986c),
and on specific topics, such as road maintenance (World Bank 1988a). Since
1972, however, there has been no review of the transport sector as a whole.
During this period, and in the past decade in particular, rapid changes in the
global economy have increased the need for flexibility and reliability in trans-
port services; growing individual aspirations for more access and mobility have
generated the need for a greater variety of transport services; and mounting
social concern about the degradation of the environment have increased the
need to evaluate transport strategies more carefully. The Bank has already
responded to some of these needs both at the project level (for example, by
introducing the environmental assessment of projects) and at the policy level
(for example, by expanding the role of competitive markets in transport).
This book distills the lessons of Bank experience and relates them to the
emerging problems of developing and transition economies. There is a wide
diversity of problems and experience; no simple solution fits all countries.
Nevertheless, some generally applicable principles and best practices can be
identified as the basis of a policy for more sustainable transport.
In preparing this book, a wide range of groups was consulted both inside and
outside the Bank. Within the Bank the draft was circulated to professional staff
for comment and to participants in a review meeting held in September 1994.
The draft was also circulated to professionalsand academics, to nongovernmen-
tal organizations (NGOS), and to other aid and lending organizations. Consulta-
tion with advocacy NGOS and operational organizations in borrowing member
countries was greatly assisted by Dutch trust funds. Meetings were held in
October and November 1994 in Bangkok, Brussels, Budapest, London, Nairobi,
Paris, and Santiago. Consultation with U.S.-based international NGOS was facili-
tated by a task force established by the U.S. Department of the Treasury. The
document has been enriched by the constructive comments received during the
consultation process. A serious effort was made to incorporate these comments
ix
x PREFACE
into the book in order to establish a coherent yet broad-based framework for
reforming transport policy and practice.
Kenneth Gwilliam and Zmarak Shalizi prepared the book, which has
benefited from in-depth comments from colleagues in the Transport Division
of the World Bank's Vice Presidency for Environmentally Sustaioable Devel-
opment. Jerry Lebo provided research assistance, and Barbara Gregory, Emi-
lie Fernandez, Arlene Elcock, and Susanne Holste were responsible for pro-
duction. Elizabeth Forsyth edited the final version. Alison Pefia was the proof-
reader. The work was carried out under the direction of Louis Y. Pouliquen,
director of the Transportation, Water, and Urban Development Department,
and his successor, Anthony J. Pellegrini.
Abbrev iations
xi
Summarr
The World Bank Group has been active in transport lending since the late 1940s.
Nearly $50 billion in loans and credits has been committed exclusively for
transport sector development through more than 1,000 projects, and $12 billion
more has been committed for transport components of other lending operations
in support of agricultural, industrial, and urban development.' Lending exclu-
sively for transport projects peaked at 40 percent of the Bank's overall lending
between 1956 and 1965. During the late 1980s and early 1990s the share fluctu-
ated between 13 and 16 percent, and some transport issues have been addressed
through public enterprise reform loans and adjustment loans rather than trans-
port loans. Rail and port lending has declined from two-thirds of the portfolio in
the period of postwar reconstruction to about 15 percent at present, while urban
transport lending has increased from a very low level to about 15 percent of the
transport portfolio. Highway lending has stabilized at about 60 percent of the
transport portfolio; 70 percent of highway lending is now devoted to rehabilitat-
ing rather than expanding networks. Transport accounted for nearly 4 percent of
projects approved by the International Finance Corporation (IFc) in 1994 and
1995. The Multilateral Investment Guarantee Agency (MIGA) has also recently
commenced operations in the sector.
The Bank has successfully financed the construction of physical infra-
structure and the acquisition of transport equipment, increased the construc-
tion and engineering contracting potential in borrowing countries, and as-
sisted in establishing technical capabilities. However, it has learned from
experience that physical completion of projects does not in itself generate the
expected benefits if institutions are weak and the policy framework is inad-
equate. This has frequently been the case where the state is the sole provider
of transport infrastructure and is either a monopoly supplier or a strongly
interventionist regulator of the provision of transport services.
The dominance of the public sector in the operation of transport services
has had several adverse effects. Costs have been too high (for example, road
haulage costs are five times as high in the heavily controlled transport sectors
of some West African countries as in the liberalized transport sector of Paki-
stan), and tariffs have been too low, resulting in high public deficits. For
example, for some years before rail services were granted as a concession to
the private sector in Argentina, the deficit of the state-owned rail enterprise
was between 1 and 2 percent of gross domestic product (GDP). Despite the high
costs, assets were not maintained, and service did not respond flexibly to
rapidly changing demand.
their adequate maintenance. But it also requires attention to the new problems
posed by user aspirations for better-quality services, by participation in the
opportunities and risks of a competitive global marketplace, and by the adverse
consequences of rapid motorization. Appropriate strategies and actions will be
required both to improve provision and maintenance of transport infrastructure
and to improve the provision of transport services using that infrastructure.
The Republic of Korea, Malaysia, Taiwan (China), and Thailand have based
their rapid growth on the export of their manufactured goods through participa-
tion in globally integrated production and assembly chains. Even in low-income
developing countries (excluding Sub-Saharan Africa), manufactured goods ac-
count for more than half of exports. Many countries have difficulty competing
for increasingly mobile production and assembly processes because the admin-
istrative arrangements and regulations that govern freight and passenger trans-
port are inefficient. Bottlenecks in transport infrastructureare constraininggrowth
in some rapidly growing countries, such as China. Economic reform and politi-
cal realignment in Eastern Europe and the former Soviet Union, and emerging
free trade areas and customs unions in Latin America, also promise to generate
a need for investment in transport and for harmonization of regulations to
facilitate new patterns of trade and transport.
The primary economic and financial objective is to make transport more cost-
effective and continuously responsive to changing demands. The strategy for
achieving this involves creating competition in those parts of the sector where
a commercial market can operate without significant adverse spillover and
distributional consequences, and enhancing user participation in those parts
where it cannot. Competition must be facilitated by regulatory reform to
enable private firms to enter and exit the market freely. Where social or
environmental consequences are important, as for infrastructure with signifi-
cant economies of scale, competition for the market through tendered fran-
chises may be more appropriate than free competition in the market. The com-
mercialization of remaining public sector firms can also contribute significantly
6 SUSTAINABLE TRANSPORT
to economic and financial sustainability. In all these cases, markets will not
work properly unless users are charged the full cost to society of their use of
transport infrastructure (see the last bulleted point, p. 9).
The objective is to increase the responsiveness of transport supply to user
needs by creating competition and by enhancing user participation. The World
Bank Group can assist countries in the following ways.
Environmental Sustainability
More than half a million people are killed in road accidents each year. In
recent years in India only 5 percent of those killed were in vehicles; the rest
were pedestrians and cyclists. In Kenya, losses associated with road accidents
amount to 1.3 percent of GDP. In some large city centers, road traffic accounts
for 90 to 95 percent of health-threatening lead and carbon monoxide in the air
and a major share of suspended particulate matter. Reducing the threats to life
and health is the highest priority. Cost-effective (rather than state-of-the-art)
technology is necessary, but not sufficient, for transport to be environmentally
sustainable. Strategic action is also required in the form of better-directed
planning of land use, stricter management of demand, and greater incentives
to use public transport through efficient pricing for congestion and pollution.
The objective is to ensure that environmental issues are addressed as an
integral part of the formulation of transport strategy and project design through
actions that have a high ratio of benefit to cost or are cost-effective. The
World Bank Group can assist countries in the following ways.
Social Sustainability
Meeting the transport needs of the poor requires more attention to the roles of
the informal sector and of nonmotorized transport and to the maintenance of
rural access facilities, particularly with the use of labor-intensive techniques.
Specific provisions are sometimes necessary to offset the effects of commer-
cialization on the price of transport and the level of service and to mitigate the
effects of occupational and spatial dislocation.
SUMMARY 9
* Improve their physical access to jobs and amenities and reduce "excessive"
time spent walking.
* Reduce barriers to the informal supply of transport (subject to reasonable
and enforceable levels of safety).
* Enable greater use of nonmotorized transport by improving rights-of-way
and interchange infrastructure and eliminating fiscal and financing impedi-
ments to vehicle ownership.
* Eliminate gender biases by integrating the transport needs of women into
the mainstream of transport policy and planning.
2. ImproNe I he approach and
11cr1 iteria for adr((1iessing tile Ira Ilsmport
i pl or.
proIb lems of' tile 1-cii-
* Emphasize access (for example, by ensuring that bridges and culverts are
durable and do not collapse or wash out) rather than high standards of perfor-
mance (for example, by paving surfaces to increase speed) in rural transport
networks.
* Support cost-effective, labor-intensive methods for constructing and main-
taining subsidiary roads
* Ensure community participation in decisionmaking on local transport
investment and maintenance, establish extension services to provide neces-
sary technical advice and training, and support the development of rural
funds.
3. IPlrotectthe poor iagaiilst the ad(erse ltetels (of'chlangesif] genlel-.
transport policies and prograins.
Note
1. All dollars are U.S. dollars unless otherwise noted. A billion is 1.000 million.
C H A P T E R O N E
20
15
10
0
At appraisal At completion
';' 1 Hlt;,
r g~~~~~~~~C .ks;
,^v,*-lB'
I,wi>alsoil .,E 40A.5
Within this context, the World Bank Group contributed to the development of
the transport sector in its borrowing member countries by finanicing the con-
struction of physical infrastructure and equipment. technical assistance to
evaluate and implement required reforms and adjustments in sector policies
and management practices, and traininig programs to facilitate human re-
source development. It has also engaged in a continuing dialogue with gov-
ernments to assist policymaking.
Since it started lending for transport in the late 1940s. the Bank has provided
nearly $50 billion in loans and credits through more than 1,000 projects in
direct support of transport sector development. Additional funding, amount-
ing to roughly $12 billion up to 1994, was provided through the transport
components of lending operations for agricultural and industrial develop-
ment. The share of transport lending in the Bank's overall lending has varied
substantially. Through the end of 1955 it averaged 18 percent, increasing to
40 percent between 1956 and 1965 and then declining to 30 percent between
1966 and the early 1970s. Since then it has fluctuated between 13 and 16
percent. The composition of transport lending has also changed substantially
(see figure 1.2). with the share of road and urban transport lending increasing
at the expense of railway and port lending.
Railway anitldwaterborne transport lending accountedfor abouttwo-thirds
of the Bank's lending for transport up to 1960. largely in loans to Japan and
European countries for equipment to make up for the replacement lag and
prolonged shortages following World War II. These loans could be disbursed
quickly and needed little supervision. After 1960 the emphasis shifted to
building infrastructure in the developing countries. including the newly inde-
pendent African countries. Beginning in the mid-1970s the emphasis in both
subsectors moved to institutional reform, and during the 1980s the Bank
began to engage in much broader policy dialogue with borrowers. For ex-
ample, the Maritime Sector Development Program in Indonesia covered a
REFOCUSING TRANSPORT SECTOR POLICY 15
Within this context, the World Bank Group contributed to the development of
the transport sector in its borrowing member countries by financing the con-
struction of physical infrastructure and equipment, technical assistance to
evaluate and implement required reforms and adjustments in sector policies
and management practices, and training programs to facilitate human re-
source development. It has also engaged in a continuing dialogue with gov-
ernments to assist policymaking.
Since it started lending for transport in the late 1940s, the Bank has provided
nearly $50 billion in loans and credits through more than 1,000 projects in
direct support of transport sector development. Additional funding, amount-
ing to roughly $12 billion up to 1994, was provided through the transport
components of lending operations for agricultural and industrial develop-
ment. The share of transport lending in the Bank's overall lending has varied
substantially. Through the end of 1955 it averaged 18 percent, increasing to
40 percent between 1956 and 1965 and then declining to 30 percent between
1966 and the early 1970s. Since then it has fluctuated between 13 and 16
percent. The composition of transport lending has also changed substantially
(see figure 1.2), with the share of road and urban transport lending increasing
at the expense of railway and port lending.
Railwtavand waterborne transport lending accounted for about two-thirds
of the Bank's lending for transport up to 1960, largely in loans to Japan and
European countries for equipment to make up for the replacement lag and
prolonged shortages following World War 11.These loans could be disbursed
quickly and needed little supervision. After 1960 the emphasis shifted to
building infrastructure in the developing countries, including the newly inde-
pendent African countries. Beginning in the mid-1970s the emphasis in both
subsectors moved to institutional reform, and during the 1980s the Bank
began to engage in much broader policy dialogue with borrowers. For ex-
ample, the Maritime Sector Development Program in Indonesia covered a
FIGURE 1.2 MODAL DISTRIBUTION OF WORLD BANK LENDING FOR TRANSPORT, FUNDS COMMITTED, 1947-94
Percent
100
80-
60
40
20
broad spectrum of ocean and inland waterway transport, port, and trade logis-
tical issues. The successful concessioning of Argentina's railways is a broad
spectrum of ocean and inland waterway transport, port. and trade logistical
issues. The successful concessioning of Argentina's railways is a case in
which the Bank played an important role in assisting a government that was
already committed to institutional reform. However, as experience with Bra-
zilian ports and Pakistani railways shows, Bank lending operations aimed at
facilitating institutional reforms have not been that successful in the absence
of government commitment.
Highway sector lendinigincreased steadily until the late 1970s, by which
time it accounted for two-thirds of the transport portfolio. It now accounts
for about 60 percent of transport lending. In earlier years the emphasis was
on the creation of a basic road network. During the 1970s and 1980s atten-
tion was directed more toward rehabilitation and maintenance, which ac-
counted for 70 percent of highway sector lending between 1988 and 1993
(see figure 1.3). Concerted efforts to establish effective maintenance organi-
zations and budgetary commitment gained momentum only in the late 1970s.
Lending in the sector has not been confined to principal roads. In most
countries the total length of the network of rural roads, paths, and tracks is
Institutional
development
2.4%
Project preparation
and implementation
support
4.4%
Policy support
1.2%
Equipment
10%
Periodic
maintenance Routine
10% maintenance
4%
five or more times that of the primary interurban highway network. For
example, during the twenty-five years from 1964 to 1989 the Bank provided
about $1.7 billion in loans and credits to construct, rehabilitate, or maintain
more than 160,000 of the 880,000 kilometers of classified rural roads in
Sub-Saharan Africa.
Urban transport lending began in the mid-1970s. A sector policy paper
published by the World Bank in 1975 emphasized the need to rationalize the
use of transport facilities, promote efficient public transport companies, and
devise patterns of spatial development to reduce transport requirements. Al-
though the paper placed a heavy emphasis on increased charges for road use in
congested areas, much of the effort in Bank projects, and much of the atten-
tion of the subsequent 1986 policy paper, was devoted to traffic management
and the development of public transport (World Bank 1975, 1986c).3 In some
Latin American countries radical measures to give buses priority over private
cars were successfully implemented.4 In East Asia measures to assist private
sector minibuses in Kuala Lumpur and jitneys in Manila improved the quality
and affordability of public transport.
Aviation sector lending funded the construction and rehabilitation of some
international airports in the postwar period and of local airports from the
1970s on, but such lending is now negligible. It is likely that future investment
needs in airports and air navigation facilities will be met predominantly by the
private sector. More recently, the Bank has been involved with airport
privatization and with the privatization or restructuring of airlines on a na-
tional or regional basis to eliminate major drains on public finance (in Angola.
Bolivia, Cameroon, Jamaica, Poland, and Sri Lanka).
addressed a wide range of sector policy and management issues, often cov-
ering several transport modes within a single lending operation.
Bank financing of transport vehicle fleets has been decreasing as the Bank
has concentrated on assisting the transfer of transport enterprises from the
public to the private sector (particularly in road freight haulage and air trans-
port) and on reducing constraints on private initiative (as in the case of the
Mexican trucking industry). This approach has been pursued through nar-
rowly targeted policy reforms in the context of investment projects (for ex-
ample, as in road freight haulage privatization in Yemen) or, more usually, as
an integral part of broader structural adjustment loans (as in the privatization
of air and urban transport in Peru). or public enterprise reform adjustment
loans (for example, Argentine railways). In other cases, such as the privatization
of trucking in Hungary, Poland, and Russia, the Bank has had an indirect
influence through its participation in the general policy dialogue on reform of
the transport sector.
Transport policy and management issues have also been addressed in
public expenditure reviews, in fiscal studies, and in reforms associated with
structural adjustment lending and public enterprise reform projects. These
new-style operations have been particularly successful in Argentina, Chile.
and Mexico. where governments adopted liberal economic management poli-
cies to redress the failure of protectionist regimes. In some countries, the Bank
has supported institutional development, such as the creation of a national
highway maintenance organization (as in Chile), metropolitan planning orga-
nizations (as in several Brazilian cities), and traffic management organiza-
tions (as in Tunis).
markets for labor. capital. and goods and services, and spatial and industrial
structures are changing as a consequence. In particular. labor continues to shift
from agricultural employment in rural areas to industrial and service sector
employment in urban areas. It is estimated that by 2000. 38 percent of the
population of Africa and Asia. 67 percent of that of Eastern Europe, and 77
percent of that of Latin America will live in urban areas; a large proportion of
these people will live in megacities.5
On present trends, demand for both freight and passenger transport will
24 SUSTAINABLE TRANSPORT
continue to grow faster than population and GDP in most developing countries.
Although developments in telecommunications may bring about some
substitution of movement of information for movement of people (for ex-
ample, increased telecommuting). in other ways they may increase the move-
ment of goods by making longer-distance international outsourcing of manu-
facturing processes easier (for example. through improved ability to track,
trace, and control freight movements). The bulk of the expected increase in
demand will be for road transport. The worldwide fleet of road motor vehicles
is expected to grow 34 percent between 1989 and 2000, from 557 million to
745 million. This rapid growth will occur particularly in countries that are on
the threshold of industrialization. For example. a tripling of the vehicle fleet is
expected in China in the decade 1990-2000 (see Daimler Benz 1990). The
number of car-miles traveled tends to grow even faster than the number of cars
owned (see figure 1.4). Demand for freight transport in industrial countries
typically grows less rapidly with GDP than does demand for personal transport.
In the developing countries, however, the growth rate expected for the move-
ment of road freight (and hence for trucks) is close to that expected for the
movement of people (automobiles). The highest growth rates for road freight
800 Urbanpopulation*
600 - A
0
1960 1970 1980 1990 2000 2010
a.Extrapolatedfroii OECDdata.
Source:Faiz 1993.
REFOCUSING TRANSPORT SECTOR POLICY 25
are expected in the former socialist countries of Central and Eastern Europe,
where trucking activity is expected to triple within twenty years.
The world growth rate of air travel now exceeds that of car travel (Schumann
1992). In China the growth rate for the past few years has been 20 percent a
year. In the maritime sector, aggregate movement of tonnage for all cargo
classifications is expected to grow at average annual rates of around 3 percent
to reach about 5 billion tons at the beginning of the next century. The trans-
pacific and transatlantic routes will remain important, but movement within
Asia will grow most rapidly, and significant increases in movement between
Asia and Europe can be expected. Inland waterway transport, particularly of
freight, has a long tradition in countries with extensive river systems (for
example, Brazil. China, Russia, and Vietnam). In these countries, and in
several others in South America and West Africa, further development of
inland waterway transport is likely. Rail transport will continue to play a very
important role in China, India, and some smaller countries with substantial
bulk freight movements. The absolute decline in rail transport that has oc-
curred in Central and Eastern European countries in the past five years has
bottomed out in some countries, and traffic should recover with economic
growth. Nevertheless, given present trends, the share of rail transport in tran-
sition and developing countries may decline. Within nonmotorized transport,
animal-drawn transport is generally decreasing. The ownership and use of
personal bicycles are currently high and increasing in China and some other
Asian countries, and low and stable in Latin America, but have been declining
in Africa over the past decade (Doulet 1994). In poorer countries the role of
cycle rickshas has also been increasing.
These "business-as-usual" projections imply a continuing high demand
for investment in transport infrastructure. In countries with high per capita
GDP growth rates, much investment will be needed to eliminate emerging
bottlenecks in interurban transport. For example, in Asia the share of infra-
structure investment in GDP is expected to rise from 4 percent at present to
more than 7 percent by 2000, with transport and energy expected to demand
the most resources. Even in countries with low per capita GDP growth rates.
transport infrastructure will be increasingly congested in major cities, where
an average population growth rate of 6 percent a year is often associated with
high rates of local income growth.
Unfinished Business
Continued improvement of transport systems requires completion of some
"unfinished business" of extending basic infrastructure networks and provid-
ing for their adequate maintenance.
Effective performance of the economic and social role of transport also requires
attention to the new problems posed by participation in the opportunities and
risks of a competitive global marketplace, by user aspirations for better-quality
services, and by the adverse consequences of rapid motorization.
../ \
/ ECONOMIC AND
X FINANCIAL \
In rural areas the poor are mainly dependent for their livelihood on their
abilityto produceand marketagriculturalproducts.Increasedaccessto traded
inputs (for example.fertilizers and equipment)and the possibilityof trans-
portingagriculturalproductsto distant marketscreate the conditionsfor cash
croppingto replacesubsistencefarming.This transformationwill also facili-
tate the developmentof nonagriculturalactivitiesin rural areas.
Inadequateprovisionfor vehiclescan be very costly. The commonprac-
tice of head-loadingheavy freight can damage health. Accidentsinvolving
motorizedvehiclesand pedestriansor cyclists are frequent.due to a lack of
shoulderson roadwaysand poor maintenanceof rural roads. 7
In urban areas the principalresource of the poor is their labor, and ad-
equateand affordabletransportto work is thereforea criticalneed. In practice,
individualshave to makeexcessivelylongjourneysto work in major citieson
most continents(for example, in Bangkok, Lagos, and Sao Paulo). Where
incomesare very low in comparisonwithtransportcosts,a high proportionof
long walks to work is found, as in Nairobi(Oudho 1992).
In both urban and rural areas, anythingthat limits the provisionof basic
public transport,or makes it more expensive,is particularlydamagingto the
poor. The ultimatedamage that can be done to the poor is the eliminationof
either the home (resettlement)or the job (redundancy),and these can be by-
productsof rationalizingthe provisionand operation of transport networks
and services. Particular problems arise in meeting the transport needs of
women. Many of the trips made by women are in categoriesconventionally
and often incorrectlyregardedas inessential(that is, trips not associatedwith
formal work). As a result, these needs have received inadequateattention,
both in the planningand in the financingof public transport.
Central to these problems is the failure to provide or maintain those
activitiesand services that are most critical in ensuringthat the poor have
access to markets,employment.and social facilities.Becauseplanning skills
and paradigmsthat are relevantto industrialcountrieshavebeen deployedin
developingcountries,priorityhas beengiven to the provisionof high mobility
rather than basic accessibility. This has favored persons who are already
mobile, particularlyvehicularroad-users.
Notes
1. For crowding out. see Easterly and Rebelo (1993), who show that investment
in transport and communication infrastructure does not crowd out other investments
because it is highly correlated with growth but not with private investment. On
agricultural productivity, see Antle (1983); on agricultural input prices and produc-
tion costs, see Binswanger and others (1987): on market access and agricultural
diversification. see Riverson and Carapetis (1991); on urban transport issues. see
Hamer (1986): on labor costs in urban areas, see Lee and Anas (1989).
2. An analysis of the economic rates of return (ERRs) at appraisal and completion
of 1,015 projects between 1974 and 1987 showed that transport and urban projects had
the smallest disparity between the ERRS at appraisal and completion (4 percent for
transport and 2 percent for urban projects) and that the average reestimated ERRS for a
transport project appraised at 10percent would also be 10percent. (See Pohl and Mihaljek
1992.)
3. World Bank (1975. p. 60) states that "demonstrable willingness to advance in
this direction [pricing] must be regarded as a sine qua non for Bank support."
4. World Bank (1986a) states that "the [Brazil Urban Transport] Project was
successful in implementing some of the most imaginative and radical bus priority
measures carried out anywhere in the world."
5. HABITAT (1987). Of twenty-three cities expected to have populations larger
than 10 million by the year 2000, seventeen will be in developing countries, which are
expected to have a further eighteen cities with populations greater than 5 million.
6. Economic efficiency is not synonymous with technical efficiency. A techni-
cally superior infrastructure is only economically superior if the extra benefits accru-
ing from its technical superiority outweigh the extra costs of its construction.
7. A study of urban road accidents in Cote d'lvoire found that 60 percent of
pedestrian accidents and 40 percent of all accidents were related to a lack of pedestrian
facilities. An additional 20 percent of accidents were related to deteriorated road sur-
faces. (See Saad 1989.)
C HA P T E R T WO
attempts to protect the poor by keeping fares at uneconomically low levels have
led to the physical deterioration of the vehicle fleet and to a reduction in the
services provided by many urban bus companies in such cities as Dakar. Panama
City, and San Salvador and by many state-owned railway companies (Siele
1992). Public roads have also deteriorated to the point of collapse in many
countries, particularly in Africa and Latin America. A recent Bank study con-
cluded that 45 percent of the entire network in Latin America and the Caribbean
requires either reconstruction or rehabilitation, at a cost of $2.5 billion a year
over the next decade (Gyamfi 1992).
Second, service has failed to respond to needs. Securely protected mo-
nopolies have failed to satisfy demands for expanded service or improved
quality. For example. they often fail to serve growing low-income peripheral
areas of the megacities. while at the same time making it difficult for informal
transport modes to develop and serve the poor. Similarly, protected trucking
and rail sectors have been slow to develop integrated high-quality logistics
systems.
Third. costs have been too high. In Argentina the privatization of the
railways demonstrated that labor costs were more than double those needed to
maintain a financially viable system (Kogan and Thompson 1994). In the
United Kingdom average operating costs per vehicle-kilometer in the bus
industry were reduced by 30 to 40 percent following deregulation and
privatization (Heseltine and Silcock 1990). There is also considerable evi-
dence that road maintenance workforces directly employed by government
departments (known as force accounts) are less efficient than competitive
private sector contractors. In Brazil routine road maintenance costs by con-
tract were 25 percent lower than by force account, and in Colombia. they were
50 percent lower (Gyamfi and Ruan 1992.). International transport is also
affected; in Venezuela. the practice of reserving cargo for national carriers has
increased shipping costs approximately 30 percent (see Peters 1993: see also
box 2.1).'
The critical weakness of the traditional approach is the absence of any
structure of incentives to align the private interests of the supplier with the
public interest. The absence of competition has enabled management, favored
customers, and organized labor to appropriate part of the potential monopoly
profit. The potential loss of patronage, earnings, and, ultimately, employment
resulting from a failure to respond to consumer demand in competitive mar-
kets is the most powerful means of forcing suppliers to respond to consumer
requirements. Thus, the basis for increasing economic sustainability in trans-
port is to create a competitive, market-based transport sector.
Competitive pressures can be introduced in a variety of ways. Where there
is no restriction on entry. competition in the market occurs. This type of
competition can be between individual operators within a mode of transport,
between groups of operators within a mode, or between modes. Even where
entry is restricted, it is possible to organize competition for the market-for
ECONOMIC AND FINANCIAL SUSTAINABILITY 35
the right to serve individual routes, for the sole right to provide a whole
network, or for the right to undertake particular functions as a subcontractor to
a monopolist operator.
is often the best basis on which to obtain the advantages of competition (as
shown by the experience of shipping deregulation in Chile). More generally,
free entry may be preferable to the alternative of ineffective or corrupt regula-
tion if public administrative skills are scarce, as is the case in many develop-
ing countries (Mwase 1992). In contrast, some transport infrastructure cannot
be efficiently duplicated, and free entry cannot, therefore, be relied on to
prevent a private monopolist from charging unduly high prices.
There are few examples of state-owned enterprises having successfully
shed their privileged financial status vis-a-vis the state budget. The absence of
a genuine arm's-length relationship tends to undermine the development of a
real competitive market. For example, in Odessa a subsidized bus company
run by the public authority responded to the approval of a service to be
provided by a private operator by beginning an unprofitable competitive ser-
vice at one-third the fare of the commercial operator. The key to effective
competition is the ability to fail, without which discipline is weak. Private
ownership tightens the budget constraint and strengthens this threat.
In an unregulated market, profit may be sought through the creation of an
operators' cartel, as occurred in the bus industry in Santiago. or by the combi-
nation of operators with suppliers of vehicles or terminals to exclude competi-
tors from access to crucial supplies or facilities. Controlling anticompetitive
commercial behavior requires a regulatory institution to prevent the acquisi-
tion and exploitation of excessive market power (Henry and Pacheco 1994).
In practice, the regulation of cartelization is not a simple task because some
forms of combination, such as operators' associations in public transport (for
example, in Buenos Aires buses) or strategic alliances in logistics (most com-
mon in Japan and Western Europe), may actually contribute to the efficient
workings of the market (Armstrong-Wright and Thiriez 1987). Even without
cartelization, wherever there is a financially strong incumbent in a market.
there is a danger that anticompetitive (predatory) behavior will occur. It is.
however, almost impossible to distinguish between predatory and strongly
competitive behavior. Pricing close to short-run marginal costs may well be
efficient behavior when a firm has excess capacity. but it might equally form
part of a strategy by a dominant firm to drive others from the market. For
example, following deregulation of the trucking sector in Ethiopia, the state-
owned enterprise was able to maintain parts of its market by continuing to
operate at a deficit and failing to cover its depreciation costs. To minimize
such dangers, it is advisable to accompany privatization and deregulation with
restructuring the industry into a number of smaller firms. Where optimal scale
is very small (as in taxi and trucking sectors), ownership should be frag-
mented, if necessary, by transferring the ownership of assets to former em-
ployees. Competition in transport markets should then be subject only to
general oversight by the competent national authority responsible for ensuring
fair competition.
ECONOMIC AND FINANCIAL SUSTAINABILITY 37
ties or systems. This has been applied to urban and interurban railways in
Argentina and to the management of urban bus systems, particularly in
francophone Africa.
Competition between groups within a licensed franchise system can be
promoted by ensuring that the routes for which monopoly franchises are
granted overlap sufficiently to encourage competition for patronage on com-
mon sections of the route. This approach is practiced to secure competition
among different bus operators' associations in Buenos Aires (and other Latin
American cities) and operators of different kinds of public transport vehicles
in some African countries. It is also common in taxi markets in many coun-
tries where single-vehicle ownership is the rule but where operators combine
in competing marketing groups or in the use of competing radio-dispatching
circuits. This form of competition makes it possible to organize supply to
some degree and limits anticompetitive or chaotic operating practices, so long
as there is a competent franchising authority to prevent the emergence of a
single strong cartel.
Competition between modes can be effective where demand is dense and
varied, as exemplified by the role of privately operated minibuses in Dakar
and Hong Kong. The introduction of some new categories of services at
higher prices may be a means of reconciling the maintenance of a basic low
fare with the provision of adequate total capacity and a sufficiently varied
range of price and quality combinations to meet demand. Within regulated
systems, this can arise either by design (as in the two-tier bus systems in Seoul
and Shanghai) or by default (as in the case of illegal but uncontrolled shared
taxis in many African and Latin American cities). A system allowing the
informal sector to provide a range of services legally is less susceptible to
exploitation by criminal elements. As table 2.1 shows, all services can be
operated by the private sector in some form.
Air Airports are usually publicly owned but can be concessioned, Nationally owned flag carriers should be privatized.
either for specific functions or through private management
contracts.
ECONOMIC
ANDFINANCIALSUSTAINABILITY 41
BOX2.2 DESIGNING
AN EFFECTIVE lar bus fares had increased in real
COMPETITIVE
SYSTEM:BUSES
IN terms to nearly three times their 1977
SANTIAGO,CHILE level (partly due to collusion between
operators), and the differential be-
At the end of 1977,public road pas- tweenbusfaresandtaxibusfareshad
sengertransportinSantiagowaspro- disappeared. The average age of
videdby a publicsectoroperatorwith buses increasedfrom 7.0 to nearly
710 large buses (capacity: ninety 11.6yearsand that of taxibusesfrom
seats) and a numberof strictly regu- 5.0 to 9.5 years between 1980 and
lated private associationsoperating 1986. Congestionin the central city
about 3,167 regular buses (capac- and bus-generatedair pollution in-
ity: seventy-eight passengers) and creased substantially.
1,558taxibuses(capacity:forty pas- Those problemshave since been
sengers).Fares,routes,frequencies, addressed. In 1987 each weekday,
and bus imports were strictly con- on a rotatingbasis,20 percentof the
trolled. vehiclefleet was prohibitedfrom op-
In November1979entryto the sec- erating.In March 1989buses built in
tor was effectively deregulated, al- or before 1966 were banned in the
though a formalpower of regulation city. Most recently,in order to main-
remained.Fares were progressively tain competitionwhile restrictingthe
decontrolledand becamecompletely congestionand environmentaleffects
unregulatedin June 1983. Entry to of buses in the central city, licenses
the taxi businessand taxi fareswere were put to competitivetender, with
also liberalizedover thesameperiod. the qualityand cleanlinessof the ve-
The effects of deregulationwere hicle, as well as the price to be
dramatic.The public sectoroperator charged,being among the decisive
was driven out of the market. Total criteria.In this way, competitivepres-
capacitymorethan doubledover the sure has been retained,while new
next decade, with beneficialeffects environmentaland qualityincentives
on the frequencyof schedulesand have been introduced.
availability of seats. Other effects
werenot so benign.By 1985theregu- Source: Thomson 1992.
Negligible.
Note:Nuimbers in parentheses indicate numnberof projects.
a. Cost information is incomplete.
b. Actual financial investment by the private secior, not total project costs.
Source: Pub&ic 8orks Financing 1993, 1994: World Bank data.
ECONOMIC AND FINANCIAL SUSTAINABILITY 43
the case of toil roads and urban mass transit infrastructure, private firms are
normally given a concession to manage and operate the facility for a period of
years, with ownership of the asset returning at some point to the public sector.
Build-operate-transfer (BOT) is one possibility, with the transfer occurring at
the end of the operational concession period. In ports and airports the public
sector is often primarily a landlord, providing only the basic access services
(such as channel dredging and air traffic control), while the private sector
provides and owns most other facilities. As of early 1994, no less than fifty-
four countries were considering some type of privatization of the national
airport system. The objectives of private involvement are to increase effi-
ciency in service provision, to avoid political interference in operations, and
to circumvent public sector budget constraints.
Supply can be made more efficient by involving the private sector in the
design and construction of infrastructure even when it is owned and managed
by the public sector. Private sector skills can then be used in putting the initial
project together, assembling the necessary partners to complete the scheme,
and managing procurement and operations. Concessioning is. therefore, par-
ticularly appropriate when these skills are scarce in the public sector, which is
even more likely to be the case for urban rail schemes than for roads.
Private sector firms can maintain and manage operations more efficiently
if political interference in their affairs is minimized. Concession schemes can
facilitate this, particularly for enclave projects in situations where a broader
reform of public procedures is difficult. The private sector usually has more
flexible procurement rules than the public sector, and this can speed up imple-
mentation. It is critical to ensure, however, that cost savings from speedier
implementation are not made at the expense of adherence to planning and
environmental assessment procedures. Private provision can be less environ-
nmentallydamaging than public sector provision if the contractual arrange-
ments firmly establish the necessary standards and if penalties for infringe-
ment can be enforced.
Concessions can ease a government's fiscal problems by moving infra-
structure projects off-budget during the years of construction. This advantage
is reduced to the extent that the government makes payments that allow
dividends to be paid to investors before the facility is commissioned or gives
revenue guarantees in excess of the revenue-earning potential of the facility.
Moreover, in principle, a public road administration, if given the status, obli-
gations. and freedom of a commercial corporation, could borrow more cheaply
than a single-project concessionaire because it can spread risk over a number
of schemes or repay over longer periods (Blackshaw, Flora, and Scurfield
1992). Hence the corporatization of the road network, which would also move
road investment off-budget. may in some cases be a better way of mobilizing
private sector skills and incentives than a program of single-project conces-
sions.
44 SUSTAINABLE TRANSPORT
The private sector can become involved in most modes of transport operation
as long as there is a sound legal framework protecting private property and
contracts. Large efficiency gains are achievable in much transport infrastruc-
ture as a consequence of the absence of efficiency incentives in traditional
ECONOMIC AND FINANCIAL SUSTAINABILITY 45
It is notable that those state-owned transport enterprises that are the most
successful in providing economical and efficient services are also those that
have the greatest degree of commercial autonomy, whether they are operating
in domestic markets (for example, buses in Tamil Nadu and Zimbabwe) or in
highly competitive international markets (for example, Ethiopian Airlines
and the Port of Singapore). Hence, even where the pursuit of environmental or
social objectives implies the need for public transport subsidies (see chapters
4 and 5). the setting of political objectives should be separated from the
management of the enterprise. This can be achieved by combining commer-
cial objectives with management autonomy within perfonnance agreements.
These should explicitly state the public service obligations (psos) and perfor-
mance criteria that the enterprise must meet and the price that the government
will pay to the enterprise for the performance of those obligations. Perfor-
mance agreements are common in the railway sector in such countries as
Bolivia, Ghana, Mexico, and Tunisia but are equally applicable to other
transport activities (Shirley and Nellis 1991).
Experience with performance agreements in developilg countries has high-
lighted some serious problems in implementation. First, it is difficult to specify
efficient performance in a way that suppliers cannot manipulate to their owIn
advantage (unit cost measures may be manipulated easily by changing the
product mix). Second, it is difficult to formulate efficient penalties for failure
to perform (withholding finance may penalize customers more than the sup-
plier if there is no alternative supplier). Third, it is difficult to identify realistic
targets when tastes and technologies are changing rapidly. Performance agree-
ments require discipline on the part of the government as well as on the part of
enterprises. In Senegal the government failed to can-y out its commitments
under a performance agreement with its railway enterprise. In Mexico a series
of convenios (agreements) has failed to improve railway performance notice-
ably because a valid and explicit role for the railways has not been defined
adequately so that clear financial targets and responsibilities can be set. Dis-
appointment with these devices is a major reason for the growing interest in
finding more credible mechanisms to provide finms with appropriate degrees
of autonomy in the process of private sector concessioning.
Where possible. greater market discipline in infrastructure provision is
best achieved by full corporatization, giving the supply agencies a commer-
cial remit and the freedom to set tariffs and determine expenditures. This will
work well where there is a method of pricing directly for use and there are no
externalities. These conditions appear to hold for interurban freight railways
(though not for urban passenger railways. where externality effects may be
large), for selected liks or sparse networks of interurban roads, and, to a
lesser extent, for airports and seaports (because of water. air, and noise pollu-
tion) or for urban and rural secondary roads (where there are both externalities
and a limited ability to price).
48 SUSTAINABLE TRANSPORT
ban railways, buses, airports, and. in some cases, air transport services. The
important requirement is that the freedom of enterprises to deternine the level
and structure of prices should only be constrained if there is a real danger of
monopoly exploitation. Distributional interests should be handled through
PSOcomponents in contracts between enterprises and government.
Within a competitive transport market, it is also critical that charges for
the use of infrastructure be set correctly. Privatization or commercialization
of public transport without appropriate charges for the use of public infra-
structure may accentuate distortions both within the sector and among sectors.
This danger presently threatens the public transport systems in the larger cities
in transition economies, such as Hungary and Poland. Charges for the use of
road infrastructure are the critical element. The onus for achieving the right
level and structure of charges falls on the government. Because the factors
that determine those charges include both environmental and distributional
concerns (see chapters 3 and 4), we return in chapter 5 to infrastructure pricing
as one of the most important functions of governments in a market-based
transport sector.
Notecs
Environmental Sustainability
TABLE 3.1 AMBIENT AIR QUALITY INDICATORS FOR SELECTED CITIES, 1987-90
(average mean concentration)
Carbon Nitrogen
City Lead' monoxideb dioxidec Ozone
Bangkok o a o O
Beijing 0 0 G
Bombay o a a
Cairo o o
Jakarta o o a a
London a o O a
Los Angeles a o 0 0
Mexico City o O 0 O
Moscow o o o
NewYork 0 C 0 O
Sao Paulo C) o0 0
Seoul o a O a
Tokyo a O
Keyw
* WHO guidelinesexceededby more than a factorof two
O WHO guidelinesexceededby a factorof up to two
0 WHO guidelinesnornally met
A blank indicatesnot available.
a. 90-100 percentfrom transponsources
b. 80-100 pementfrom transportsources.
c. 60-70 percentfrom transportsources.
Source:WHO and UNEP 1992.
problems in many cities. Transport also causes noise, and insensitively de-
signed transport infrastructure is visually intrusive and, by physically dividing
neighborhoods, can have adverse effects on local amenities (Frybourg and
Bureau 1985; Lambert 1986). While local conditions have improved recently
in many industrial countries, those in many developing-country cities have
continued to decline.
At the regional level, a lack of attention to the impact of transport can
damage habitats and biodiversity. For example, shipping can contribute to
pollution in ecologically sensitive coastal waters, and automotive air pollu-
tion can contribute to acid rain and problems associated with forest degrada-
tion. One of the most contentious issues is the impact of roads-and the
subsequent induced development-on forests and other ecological habitats
and cultural sites. Whether or not to open a new area for settlement (as in the
52 SUSTAINABLE TRANSPORT
Billions of tons
10
9.00
6.00
6
4.80
4 3.60
3.00
I0.50
0
United OECD CEE and China and Other
States FSU CP Asia developing
countries
0 2010 * 1986
Now:eCEE. Central and Eastern Europe: FSU, Former Soviet Union: cP Asia. centrally plannedAsia.
Source: Faiz 1993.
Fuel
2,100 improvements
Emission
standards
1,600 - I
\\Passenger cars -
1,100 _ Taxis\ _ _ I
\(elcement)\ _Srnte d
\ \ x J in~~~~spection
Gasoln 1\ I
600 Minibu es trucks Inspection of I
M <_ _ ~~~~~passenger
cars | Target
100 Inspection of high-use vehicles' Ireduction
Restricting the size of the fleet has been the traditional approach to demand
management in developing countries. High import tariffs (in the range of 300-
400 percent) performed this function. as many countries did not produce their
own cars and trucks. Trade liberalization will not undemiine this approach if
ENVIRONMENTAL SUSTAINABILITY 57
Fares and service levels for public transport (whether supplied by state-owned
enterprises or by the private sector) should be determined in a systemwide,
multimodal context and be clearly related to comprehensive economic and
social strategies for urban development and transport. Efficient charges for road
use will increase the use of public transport: even if modal diversion does not
occur, they will allow greater cost recovery. The option of charging efficient
prices for the use of scarce urban road space, together with unsubsidized public
transport, is therefore preferable to any alternative involving unpriced road use
and compensatory public transport subsidies. not only because a superior incen-
tive structure is created, but also because a lower fiscal burden is imposed. As
long as road use (particularly the use of scarce road space) is underpriced,
however, the financial viability of public transport will be prejudiced, and a
"second-best" case can be made for setting public transport fares in such a way
as to compensate for the undercharging of private road transport. This would
involve linking moves to recover the full costs of public transport with moves to
set appropriate levels of fuel taxes or road-user charges (as recently proposed in
the strategy for secondary cities in Poland: see Mitric 1995).
Setting public transport fares below cost to countervail undercharging
private road-users raises two major problems. First, fare revenues will be
insufficient to meet full operational and vehicle replacement costs. Financial
sustainability thus requires some other secure source of revenue. This might
take the form of contract payments from government in association with
annual performance agreements financed from general taxation or by ear-
marked taxation (as in Paris). Many municipal governments, particularly in
Eastern Europe. have neither sufficient grant revenue from central govern-
ment nor sufficient local taxing power to satisfy this requirement. In those
circumstances, because failure to sustain the service will also involve failure
to meet environmental and distributional objectives, financial sustainability
must be the preeminent concern.
The second problem concerns management incentives. Where a public
transport mode is expected to help reduce uncharged externalities such as
congestion or pollution, efficient resource allocation does not require that the
full cost of public transport be recovered directly from users. Similarly, exist-
ing facilities that have a large component of sunk cost of infrastructure, such
as metros, may be sustainable, given lower ratios of total cost recovery than
bus operations, although investment in fixed track systems should only be
made in the first place if the expected benefits over the life of the system are
greater than the costs-including the capital costs-of providing them. But in
order to stimulate managerial efficiency and to prevent subsidies from being
appropriated by employees, any support, whether in the form of a capital or an
operating subsidy. must be based on a contract specifying clear standards of
performance and effective penalties.
ENVIRONMENTAL SUSTAINABILITY 59
In the absence of appropriate prices for road use. it may be necessary to resort
to direct physical restraint of traffic. In Singapore a strict vehicle licensing
policy, in combination with high import duties on cars, has helped restrain car
traffic to a sustainable limit.5 In Europe car-free central districts have made a
remarkable improvement in the quality of urban life and the attractiveness of
central districts. However, such direct controls are not without problems
(Bleijenberg. Velthuyzen. and Oegema 1990). For example, programs to ex-
clude subsets of vehicles selected by license plate number from being on the
streets on particular days. as in Athens and Mexico City (see Eskeland and
Devarajan 1996), have had the perverse effect of making people reschedule
their activities or buy more cars rather than restraining the total amount of
traffic. In particular, without appropriate alternatives, such as sufficiently
high-quality public transport and adequate facilities for changing from one
mode of transport to another (bus to rail, bicycle to transit), congestion and
adverse environmental effects are likely to spread rapidly to the periphery of
cities (as in Asian cities such as Bangkok and Seoul).
Even public transport may contribute to local impacts enough to justify
specific operational constraints, such as restricting the points at which public
light buses pick up passengers, as in Hong Kong. Direct regulation and legal
enforcement are also likely to maintain safety more effectively than any
market process. Where an excess supply of public transport is damaging the
environment, constraints can be reconciled with market forces by competi-
tively tendered franchises, as applied in the central areas of Santiago. The
environmental quality of the vehicle can then be one of the factors on which
competition is based. The most important point is that the adverse spin-off
effects of competition should be addressed by introducing selective controls.
such as enhanced vehicle inspection and monitoring and enforcement of road
behavior, not by imposing blanket restrictions on entry.
cities in many developing and transition countries that are on the threshold of
motorization, the existing land-use patterns have not yet foreclosed the option
of development structured to maintain a better balance between public and
private transport. as well as between motorized and nonnmotorized modes
(Rizet 1992). This has frequently led to proposals for more extensive control
of land use and, particularly, of residential density. Such controls must be
based on better knowledge of the wider development process.
In this context, it has been observed that low-density Australian and U.S.
cities exhibit much higher fuel consumption per capita than higher-density
cities elsewhere (Newman and Kenworthy 1991). Much emphasis has thus
been placed on avoiding low-density land-use patterns. particularly where
they occur because the private costs of mobility are much lower than the
social costs. In practice, controlling the growth of urban areas is fraught with
problems, which suggests that caution should be used in attempting to impose
any rigid control of urban structure (Hayashi and others 1992; Miyamoto and
Udomsri 1992). First, the relatively lower use of fuel and the high density in
urban areas are usually associated with the disadvantage of high housing costs
and a low level of residential space per person (see figure 3.3). Second, master
plans typically underestimate urban growth and demand, and controls may
prevent densities from growing as they might in some areas, while forcing
them to be too high in others. For example, the demand for the Calcutta metro
has been stifled by regulations effectively limiting development around sta-
tions. Third, master plans to date have not succeeded in controlling overall
urban growth or in ensuring efficient use of urban land and urban transport.
The answer-particularly in rapidly developing cities where land markets
are turbulent and land use can change rapidly-is to recognize and work with
the underlying preferences being exhibited in the market. For example, growth
tends to be concentrated initially in clusters on the major radial routes around
cities. This is generally consistent both with the development of cost-effective
mass transit facilities and with varying preferences for residential density.
Although micro land-use control is neither feasible nor desirable, guidance is
possible by determining the location of major public sector facilities and by
influencing large-scale private sector developments that have a major influ-
ence on the efficiency of urban form (Frybourg 1992). This may include the
development of a clear strategy on the reservation of rights-of-way and ad-
equate space for transport infrastructure (Scholy and others 1993), the provi-
sion of limited-access trunk transport facilities (particularly rail-based sys-
tems), and the structure of public utility extensions (as in city development in
Saudi Arabia). Although attempting to maintain a more localized balance
between job and residence will tend to even out directional flows, this will not
necessarily reduce the length of most journeys to work (Andan and D'Arcier
1992).The combination of a well-functioning land market and efficient charges
for the use of transport infrastructure is essential in this strategy of working
with the market because it will encourage the use of public transport on the
ENVIRONMENTAL SUSTAINABILITY 61
main arterial routes. Conversely, where transport prices do not reflect full
social and environmental costs, the land market can generate inefficient land-
use patterns (Egal 1994).
Some transport modes are more environmentally damaging than others. The
balance between modes should therefore reflect their environmental, as well
as their economic, characteristics.
THE POTENTIAL OF NONMOTORIZED TRANSPORT. Nonmotorized transport-
particularly the bicycle-can benefit the environment by giving high local
accessibility to the relatively sparse public transport network for longer-dis-
tance movement. Much more can be done at low cost to incorporate
nonmotorized transport into an overall urban transport strategy. Appropriate
measures might include the provision of routes and parking for bicycles and
proper recognition of slow-moving vehicles within traffic management
schemes, as demonstrated in countries like Japan and the Netherlands. The
Washington, D.C. A
50,000
40,000
Toronto A,
30,000 A Melbourne
20,000
Paris A Stockholm
London *M nich
10,000 Tokyo A msterdam
A Singapore
A Hong Kong
0 l l l l
0 10 20 30 40 50 60 70 80
Residential floor area per capita (square meters)
Note: Low gasolineuseis associatedwith residentialcrowding;89 percentof the variation in per
capita gasolineuseis explainedby the sqniareof floor areaperperson.
Source:Calculatedfrom data on gasolineusederived from Newmanand Kenworthy 1991anddata on
floor areafronmWorld Bank.
62 SUSTAINABLE TRANSPORT
The most damaging environmental impacts of transport are those that directly
threaten life or health. Road accidents and some of the more noxious local air
pollutants clearly qualify on this basis and therefore merit high-priority treat-
inent. There are also many other environmental impacts that, although not
ENVIRONMENTAL SUSTAINABILITY 65
Road Safety
Road safety is a serious problem throughout the world. Each year, more than
half a million people die in traffic accidents, and many more are injured.
Motor vehicles are usually involved. Even in Shanghai, where nonmotorized
traffic dominates, more than 95 percent of fatalities and nearly 75 percent of
all registered traffic injuries involve motor vehicles. Worldwide, however, up
to two-thirds of injuries are suffered by pedestrians, of whom one-third are
children; in developing countries the injury rates of pedestrians and cyclists
are much higher. In India only 5 percent of those killed or critically injured in
traffic accidents were in cars. In addition to the immense human suffering
involved, the economic cost of these accidents is high. In Kenya in 1990, it
was estimated that traffic accident costs were equivalent to about 1.3 percent
of GDP (World Bank 1990).
Fatality rates per capita tend to increase until relatively high levels of
Low-income
Lower-middle-
income
Upper-middle-
income
I High-income
can be achieved with existing technology. In the case of lead, the necessary
action is to control the quality of automotive fuels that can legally be supplied
to consumers. In developing countries these fuels are generally dirtier than
those available in industrial countries, with a lead content of gasoline as high
as 0.8 to 1.1 granmper liter (compared with 0.15 gram per liter for leaded fuel
in industrial countries). The sulfur content of diesel is more than I percent by
weight in developing countries, compared with 0.5 percent or less in industrial
countries. Additives to diesel can also reduce particulate emissions. Compre-
hensive emergency programs. such as that sponsored by the Thai government,
have introduced lead-free gasoline and low-sulfur diesel, better inspection
and monitoring of vehicles, and high standards for new vehicles. Transport
fuel derived from biomass has substantial environmental benefit but is uneco-
nomic when oil prices are below the peak reached in the early 1980s. It could
only be a main fuel in land-rich countries like Brazil. tn contrast, the substitu-
tion of liquefied petroleum gas and compressed natural gas for gasoline may
be justified, both environmentally and economically, in many countries that
have local gas resources.
The introduction of cleaner fuels must be supported by other policies. Ad-
equate infrastructure is needed. In Jakarta a pilot program to substitute com-
pressed natural gas for gasoline in public transport vehicles has been con-
strained by the absence of adequate filling stations and the perception of only a
marginal advantage to the operator (World Bank 1993c). Relative fuel prices
must also be adjusted to give efficient incentives to use clean technology and
clean fuels. Misfueling occurred in Mexico where. despite annual emission
inspections to ensure the use of catalytic converters, high-mileage-vehicleusers
opted for leaded fuel because it was cheaper. This practice destroyed the cars'
converters, which then had to be replaced at each annual inspection.6
The average age of the vehicle fleet in developing countries is almost double
that in industrial economies. Older vehicles pollute more. In addition, the typi-
cal domestically manufactured vehicle in China, Eastern Europe. India. and
Latin America is only half as fuel-efficient as best-practice vehicles in industrial
countries (automobile fuel consumption rates of 17-20 miles per gallon versus
40 miles per gallon). As a result, emissions characteristics are equivalent to
those of 1950-60 vintage motor vehicles. Carbon monoxide and nitrogen oxides
can be suppressed by the use of catalytic converters, but retrofitting old vehicles
with catalytic converters is often not cost-effective in low-income developing
countries, both because the gases suppressed are not usually the most health-
threatening and because. in the absence of the capability to enforce maintenance
of the equipment, retrofitting becomes ineffective. To be considered as an
option, retrofitting should be focused on high-mileage fleets of taxis and buses,
which can be monitored more easily. In many cases it will be preferable to
introduce policies and efficient fiscal incentives to accelerate the scrapping of
high-pollution, high-use vehicles such as older taxis, buses, and trucks (as in the
ENVIRONMENTAL SUSTAINABILITY 69
Taxi Modernization Program supported by the Bank in Mexico City and in the
renewal of the bus fleet in Santiago) and to limit the second-hand import or local
production of particularly polluting vehicles.
Whether or not retrofitting or scrapping is introduced, maintenance con-
trol remains a major challenge. Enforcement of mandatory regular inspections
has already begun in Chile. and similar provisions are being made in urban
transport projects in Indonesia and considered in Costa Rica. Increasing the
number of random roadside inspections, as has happened in Taiwan (China)
under the supervision of the local environmental protection agency bureaus,
may be even more effective if the combination of inspection rate and penalty
enforcement is well chosen. The Bank has assisted Sri Lanka. Thailand,
medium-size cities in Mexico, and Sao Paulo to develop their capacity to
monitor and control emissions. Success is contingent on strong support for
specialized institutions with adequate equipment and trained staff.
Motorcycles and other simple motorized means of transport represent an
affordable step-up in power, speed, and range from the pedal cycle. In many
middle-income countries in South and Southeast Asia, intermediate transport
vehicles already account for up to three-quarters of the vehicle population.
That trend is being replicated in lower-income cities such as Hanoi and Phnom
Penh and may be expected as more people emerge from poverty in Africa.
Unfortunately, most of these vehicles are powered by two-stroke engines,
which emit hydrocarbons and smoke at up to ten times the rate of modern
four-stroke automobile engines. Thus, the most polluting vehicles are rapidly
replacing the least polluting. To counter this. technical assistance programs
should disseminate best-practice technology (as improved technologies for
motorcycle efficiency and cleanliness are now appearing) and encourage the
development of local conversion equipment.
Notes
1. The Montreal Protocol (1987) and its strengthening revisions in the second
World Climate Conference in Geneva (1990) involved a public agreement in which
fifty-five countries pledged to eliminate the use of CFCSwithin their boundaries. Fully
halogenated cFcs are to be completely phased out of new vehicles by 2000 in indus-
trial countries, while developing countries have an additional ten-year grace period.
2. Other agencies are also adopting formal environmental assessment require-
ments. For example, see Japan International Cooperation Agency (1992).
3. Almost all transport projects get at least a partial environmental assessment;
more than 90 percent of the transport projects approved during fiscal 1991-94 re-
ceived full (category A) or partial (category B) assessments. Full assessments are less
common but are becoming more frequent. In fiscal 1991 only two of the nineteen
projects approved were subjected to full assessments (10 percent). while in 1993 the
percentage rose to 16 percent (five of thirty-two). In fiscal 1994 the proportion was
even higher. with nearly one-fifth of the transport projects approved being subject to
full environmental assessments.
4. Regionally, the majority of full environmental assessments are done in Asia:
between fiscal 1991 and fiscal 1994eight out of fourteen were done in China. The other
Asian assessments were in Bangladesh and Pakistan. Two assessments were done in
Africa (Botswana and Nigeria) and one each in Middle East and Northem Africa (Yemen)
and Europe and Central Asia (Hungary). On a modal basis, however, the split is gener-
ally proportional to the modal distribution of Bank lending, with the greatest number of
full assessments occurring in highway projects (five), followed by railways (three),
ports (two), and urban transport (one). The remaining three full assessments were part of
sector loans. Sctoral environmental assessments are proportionally more common be-
cause they are often used to design sector investment programs and to study sector
investment altematives; the effect of sector policy changes; institutional capacities and
requirements for environmental review, implementation, and monitoring at the sectoral
level; and the cumulative impacts of many smaller. similar investments that do not merit
individual project-specific assessments.
5. However, if the emissions of the existing fleet are not effectively controlled,
high import duties on new vehicles may make matters worse by extending the life of
vehicles and keeping less efficient and more polluting vehicles in operation.
6. For example, in Mexico until November 1991, the price of leaded gasoline was
ENVIRONMENTAL SUSTAINABILITY 71
Social Sustainability
Transport strategies and programs c(anbe designiedto provide the poor with/
better physical access to employment, education, and health services. For the
urban poor. adeqtuatepublic transport. including the services of the infornal
sector and noninotorized transport, is essential. For the rural poor, the provi-
sion and maintenance of rural access facilities can be improved by extending
coMMunity participation in decision1making and project implementation7.
Effective arrangements are also necessar-yto address occupational and spa-
tial dislocationt anid an} distributionallY unacceptable consequences of fur-
ther commercialization of transport.
72
SOCIAL SUSTAINABILITY 73
The high financial cost of journeys to work can be a significant drain on the
income of the poor, whose prospects for employment in cities in developing
countries also suffer from lack of access to transport. This particularly affects
people living on the periphery of cities, where the disadvantage of having a
low income is often aggravated by poor connections to the main radial routes
on which public transport service is concentrated. The high costs of freight
transport also adversely affect the income, as well as the expenditures, of the
poor. whether in urban or in rural areas.
Public transport subsidies are often a wasteful response to the mobility
problems of the poor. First, they do not always focus explicitly on poverty.
The Calcutta metro is a classic example of a subsidized system on which the
poor caninot afford to travel. Second, even where subsidies are targeted in the
form of reduced fares for selected categories of persons, they still often ben-
efit the nonpoor, reduce the return on enforcement of payment (if those re-
ceiving concessions account for a disproportionate share of the patronage),
and encourage fare evasion by those who should pay. Finally. some of the
benefits of general subsidies on operations go to the management and staff of
operating companies in the form of higher wages and slack operating conditions.
Where the problem is well-defined geographically (as, for example, in the
black townships in South Africa). subsidies may be directly targeted by route.
Where deprivation is geographically more diffused, income supplements are
preferable to payments in kind. However, direct income transfers to the poor
may be difficult to organize where income tax systems are weak (as in most
developing countries) or where there is no adequate basis for recording and
verifying income to support means-tested vouchers. In these circumstances.
subsidies on journey-to-work tickets channeled through the employer may be
a good way of targeting support. Unfortunately. this device, exemplified by
the Brazilian vtaletriaisporltescheme, tends to miss the informal sector, where
many of the very poorest are employed.
Attempts to use the operator of public transport as the instrument with
which to protect the poor frequently fail. Controlling the fares of commercial
74 SUSTAINABLE TRANSPORT
companies reduces profitability and normally has the perverse effect of reduc-
ing the amount of service provided (in some cases bankrupting the company).
Restricting competition (often by protecting a state-owned enterprise) to cre-
ate a basis for subsidizing unprofitable services from profitable ones not only
is likely to increase costs but may also create a situation in which services to
poor areas (where residential densities are high and demand is strong) subsi-
dize services to wealthier areas. Periodic competition for monopoly fran-
chises, either for specific routes (which may involve direct payments by the
public authorities) or for specified packages of service designed to have ac-
ceptable cross-subsidy characteristics, may be used either to minimize the
cost to government or to select the best combination of cost and quality of
service. This requires that the public sector be capable of fairly and effectively
administering the tendering and financing arrangements. Operators should
receive transparent subsidies to compensate them for losses legitimately in-
curred on services provided as Psos.
Hanoi .'
(Vietnam) t
Kanpur +
(India)
Phnom Penh
(Cambodia) , | l
Dhaka
(Bangladesh)
Manila +
(Philippines)
George Town
(Malaysia)
Chiang Mai ._ __*:_-_:_-__ _ l_ l
(Thailand)
Surabaya +_____:111_ 1
(Indonesia)
1 1 1 I l I
o 20 40 60 80 100
Percent
Bicyle/tricycle Commercial nonmotorizedvehicles Motorcycle
= 1 Truck/bus/auto = Commercializedmotorcycle
times that of an auto lane of the same width at normal levels of urban car
occupancy. Recent Dutch studies suggest cycle lane capacities even greater
than this (Botma and Papendrecht 1991). Where corridor traffic volumes are
very high, fully segregated busways or rail lines use scarce space even more
effectively than bicycles. Cycling may then be an efficient complement as a
local distributor, allowing longer spaces between stops and higher speeds and
flows through the corridor. For freight transport. a study in Ghana showed that
it takes two person-days to move I ton-kilometer by head-loading compared
with one person-hour with a bicycle and a trailer (Howe 1985). In low-income
rural areas and in some local urban areas this form of distribution will remain
important and may even grow. although its role in distribution outside local
areas is likely to diminish as incomes increase. On hard-surfaced roads, trucks
can move more than 1,000 tons per hour per meter-lane at an average speed up
to 40 kilometers per hour, while nonmotorized vehicles are unlikely to exceed
a productive capacity of 240 tons in the same road space at a maximum speed
of 10 to 15 kilometers per hour (Padeco Co., Ltd. 1995).
76 SUSTAINABLE TRANSPORT
Despite the potential of nonmotorized transport, its users have been disad-
vantaged in various ways. First, they are physically vulnerable, as a conse-
quence of the failure to separate motorized from nonmotorized traffic-for
example, by providing sidewalks for pedestrians and bike paths for cyclists
(Jamieson and Naylor 1992). Even where cycle paths exist, users of
nonmotorized transport are vulnerable to personal attack, which is a problem
in. for example, Lima. Second, governments often discriminate fiscally against
nonmotorized transport. For example, in Africa, the diminishing stock of
bicycles is partly a consequence of high taxation on imports (which treats
bicycles as a luxury). Markups on border prices have ranged between 200 and
500 percent in Ethiopia. Ghana. and Tanzania (see box 4.1). Third. there is
usually no national manufacturing capability. About a dozen countries manu-
facture more than 90 percent of the world's bicycles. Attempts to establish
local cycle industries in the 1970s in Kenya and Tanzania failed due to low
product quality and the high cost of protected manufacturing. After a similar
decline, partly attributable to the rationing of foreign exchange, production in
Mozambique is now recovering. Frames are produced locally and then are
assembled with imports of more specialized parts. Fourth. there is a lack of
financing alTangements. Although the ownership of a bicycle may substan-
tially reduce the real costs to the very pooI of moving both passengers and
freight, typically persons who are very poor cannot raise the capital to pur-
chase a bicycle. Finally. there is the question of image. Nonmotorized trans-
port is associated with poverty, and this association tends to make it some-
thing "planned against" rather than "planned for." The complementary role of
nonmotorized and motorized transport is now being emphasized in high-
income societies as a meanis of dealing with environmental and efficiency
problems: this growing emphasis might be the basis for making policymakers
in developing and transition economies more receptive to the incorporation of
nonmotorized transport in overall transport strategies.
BOX 4.2 THE INFORMAL TRANSPORT poor can benefit from the ricksha.
SECTOR AS AN ECONOMIC FORCE: First, despite attempts(as in Jaipur
RICKSHASIN BANGLADESH and Nagpur) to ban the ownership
of multiple rickshas and to provide
There are morethan 4 million hand- cheaperfinancefor owner-operators
pulled or cycle rickshasin the world, (asin the DominicanRepublic),most
mostlyinAsia and LatinAmerica.The operators rent their vehicles from
number is growing, and in several owners who derive high rates of re-
countries, the ricksha plays an im- turn on ownership.Second, restric-
portanteconomicrole. In Bangladesh tive licensing has often been used
it accountsfor morethan 50 percent to encourage the replacement of
of Dhaka'svehicles,70 percentof its rickshas by motorized modes. In
passengers,and 43 percentof its to- poor countriesthis has failed to limit
tal passenger mileage. More than the numberof rickshas but has fos-
1.25 million people are employedin tered systematic corruption, trans-
this business, and 5 million poor ferring incomefrom operatorsto the
people depend directly on rickshas police. It has also workedto the ad-
for their subsistence,more than de- vantage of larger ricksha owners,
pend on the hand-loomtextile indus- who are frequentlybetterableto deal
try or the wholeof the modernindus- with the police.
trial sector.
Two factors limit how much the Source: Gallagher 1992.
In most developing countries a man's primary role is to earn income, and the
trip to work is the major transport activity for men. The concentrated flows of
traffic at peak periods when journeys to and from work are being made are
consequently viewed as more essential than other flows of personal transport.
78 SUSTAINABLE TRANSPORT
From the supply side, these flows attract particular attention both because
they define the system's capacity requirements and because they generate the
most revenues.
In contrast, women perform three roles: as workers, as hoinekeepers. and as
community managers. In rural areas most women ace engaged in agricultural
work and some small-scale commodity production and also, particularly in
Africa and the Caribbean, in marketing the produceof the family. As homekeepers
they are responsible for collecting water and ftiel. Poor accessibility necessitates
head-loading the goods to be moved. Studies in Mozambique and Tanzania
show women spending more than four hours a day solely on local transport
(three times the average for a man). As community managers, women are often
instiumental in securing better facilities or making them effective. In urban
areas many women are employed in the service sector. The availability of
relatively cheap female labor in the rapidly developing economies of Southeast
Asia has been an important factor in enabling these economies to enter global
chains of manufacturing production.
Women tend to work nearer their homes than meni do, and, particularly
when they are raising a family. they have to make more trips for educational.
health, and other welfare purposes. Their essential trips are hence more dis-
persed in time and location than those of men.
To date, transport policies have been geared primarily to the needs of men.
Many of the activities with which women are engaged are of low status and
are disregarded in resource allocation and planning. When public transport is
commercialized, rural and off-peak urban services, on which women are par-
-ularly dependent. are sometimes lost. Within the family, women have less
ess than men to bicycles or cars owned by the family and are much more
__.cndent on public transport and walking. In some countries this is accentu-
ated by strong taboos against women riding bicycles or driving cars. Public
transport is often particularly unsafe for women at night and in remote areas.
which restricts their employment possibilities.
Many of the problems that stem from social and cultural norms or the
deterioration of law and order are beyond the reach of transport policy to solve.
Some are not. Using the simplest form of wheeled vehicle would immediately
halve the amount of time that women require for local transport (Philpott 1994).
Making services and comrnodities more accessible in rural areas, either bv
improving the way services are provided or by increasing access to transport.
benefits the whole family by releasing a woman's time so that she can give her
attention to other more important tasks. In urban areas public transport services
can often be provided between peak times at low marginal cost. This both
increases the probability that services can be supplied commercially for lower-
than-peak flows and also means that the real costs of supporting them as a social
service are much less than the costs of providing peak service. Failure to con-
sider these possibilities for improving the lot of women often stems from inad-
equate analysis rather than excessive cost. Adopting a checklist of the effects
SOCIAL SUSTAINABILITY 79
that transport projects and policy reforms could have on the socially and eco-
nomically essential functions performed by women would sensitize the main-
stream of transport policy and planning to these needs (Turner and Fouracre
1993).
Emphasizing Accessibility
Trunk roads in rural areas, particularly if designed for limited access, prima-
rily offer mobility benefits to longer-distance traffic, whether originating in
the rural areas or not. For the rural poor, however, the dominant concern is
basic accessibility. both to local facilities and to the primary network. This is
provided by the network of subsidiary (nonprimary) roads, unclassified roads,
paths, and tracks. In many countries most rural roads, whether classified or
not, have an earth or gravel surface and serve motorized traffic flows that are
often exceeded by the flow of pedestrians, cycles. and animals (Riverson,
Gaviria, and Thriscutt 1991). Research in Ghana has shown that the returns to
providing reliable, basic access, even on the simplest of roads, are much
higher than those to improving surfaces on low-volume roads.
Although roads, paths. and tracks are the main element in rural subsidiary
networks, they are not always the only ones. Inland water transport performs
the same function in parts of Brazil. China, and Zaire as does coastal and
maritime shipping in the Philippines and Indonesia. In Nepal and Peru local
air transport is an essential part of the link between remote rural areas and the
main transport trunk routes. Upgrading these transport subsectors can contrib-
ute significantly to reducing poverty in some cases.
The state of these subsidiary networks varies by region. In Asia. particularlyin
China and India, the main problem is how to connect remote villages into a
network to allow them to trade. In Africa and Latin America the main problem is
maintaining the network. Recent Bank studies on Africa show a significantgen-
eral deterioration in these assets (Riverson, Gaviria, and Thriscutt 1991:World
Bank 1992a). The first priority of spending on rural roads should always be to
maintain those roads that form a core network, that have been identified by users
as functionally important,and that are currentlyin reasonablecondition.This may
imply that less can be spent on roads outsidethe core network.Durable alignments
and structures are more importantthan high-speedsurfaces. Given efficient main-
tenance. paving of gravel roads is not economically justifiable with traffic vol-
umes of less than 310 vehicles per day: deficient maintenance may push this
threshold down as low as 80 vehicles per day (World Bank 1988a). Returns are
80 SUSTAINABLE TRANSPORT
Managing Redundancv
The productivity gains for the economy (and the enterprise) arising from the
redeployment of redundant labor are analogous to those arising from the
SOCIAL SUSTAINABILITY 83
compensation. For example, in the port sector in Benin and Chile, in the
railway sector in Argentina, Brazil. Cameroon. Chile. Ghana. and Sudan.
and, to a lesser extent, in urban public transport in Ghana and Sri Lanka,
redundant labor has been reduced by severance pay arrangements. When
designed carefully, these can have measurable economic as well as social
benefits.' As shown in a study of state-owned transport enterprises in six
countries, the long-run savings on the wage bill may enable governments to
recoup costs in a short time (between four months and four and a half years
in the cases studied), despite high levels of severance payments (Svejnar
and Terrell 1991). Nevertheless, severance payments have to be financed.
Sometimes this can be handled within the enterprise-for example. Mexi-
can railways paid for their compensation payments by selling nonrailway
real estate assets-but often it cannot. Where the cash flow of the enterprise
is insufficient to meet the severance obligations, the enterprise may borrow
for the purpose or, alternatively. look to the government for assistance either
through budgetary transfers or domestic borrowing, with recourse to inter-
national borrowing only where local capital markets are not able to accom-
modate the need. Although it is preferable that such foreign borrowing
should not be tied to specific investments, there may be cases where general
borrowing is not feasible, and governments must explore the potential for
financing severance payments externally within project loans.
Note
1. Finding the appropriate arrangement is not easy. For example. Chile's ap-
proach of declaring redundancies with restriction on reemployment and paying sever-
ance prior to privatization appeared to be a good way of making purchase attractive to
the private sector. However. because the restriction on reemployment hampered the
ability of the eventual purchasers to recruit sector-specific skills, with hindsight it
would have been better to have made severance paymenitsonly after the new owner-
ship had selected the workers it wanted.
C HA P T E R FI V E
must make critical judgments on societal objectives that cannot easily be sub-
jected to market processes. Third, because issues regarding the distribution of
welfare cannot always be dealt with through general social and fiscal policies,
governments must protect or compensate those who suffer from the process of
transport development. This may justify their intervention in the sector, both
because general instruments of redistribution may be absent in societies with
weak tax bases and undeveloped fiscal systems and because very specific and
localized redistributioneffects may result from sector policies.
Performing these roles requires that government be active in a wide range
of ways. Establishing an efficient market requires the creation of a competi-
tive framework and the ability to discourage anticompetitive behavior. Creat-
ing incentives for economic efficiency requires the introduction of proper
pricing for public infrastructure. Both because of the high transaction costs of
establishing markets for some infrastructure (such as urban and rural roads)
and because of the strategic and distributional consequences of the absence of
effective markets, governments must also continue to be responsible for struc-
tural, fiscal and investment planninigto complement market activities in trans-
port. Finally, in areas where markets do not operate, governments must estab-
lish effective nonmarket institutions and processes, requiring both decentrali-
zation of political responsibilities and direct involvement of the local coimmu-
nity.
Enablincgthe private sector to play a larger role in the transport sector requires
some general institutional and market conditions that are often absent in very
poor countries. The development of an entrepreneurial culture in the provi-
sion of transport service requires that there be well-defined property rights,
well-defined liabilities and risks, strong and visible demand in the sector, and
a viably small scale of entry. Where state-owned enterprises have dominated
the market, both privatization and structural deconcentration of these enter-
prises will be necessary to ensure effective competition. For the private sector
to participate in transport infrastructure, where the viable scale of entry is
greater, there will also need to be either a well-established local capital mar-
ket or the involvement of foreign capital (these enabling conditions are dis-
cussed more fully in World Bank 1994f, ch. 5).
Changing the role of governments from having direct control over state-
owned enterprises to exercising indirect guidance through regulation and
pricing policy is likely to put greater demands on institutional capabilities in
developing and transition economies than can be satisfied immediately. In
some cases (for example. control of road vehicle overloading, vehicle safety
and the behavior of road-users, and civil aviation regtLlationi).improving
regulations is largely a matter of strengtheninlg the existing monitoring and
REDEFINING THE ROLE OF GOVERNMENTS IN THE TRANSPORT SECTOR 87
which the vehicles are moving. Road damage externalities occur when a
vehicle contributes to the wear and tear of the road, which reduces speed and
increases the wear and tear of the vehicles of other road-users. This occurs
throughout the network and, because damage is approximately proportional
to the fourth power of the axle weight, is caused largely by heavy vehicles.
In practice. few instruments are available for charging directly for road use.
Until recently, direct congestion charges could only be implemented by a cor-
don of toll points around the congested area. This has worked well in Singapore
but is suitable only when the number of toll points is small and enforcement is
efficient and scrupulously honest. Simpler forms of charging vehicles to cross a
cordon into the city (motivated by the potential to generate revenue rather than
by the wish to alter behavior) have been introduced in some Scandinavian cities
in the 1990s. New electronic tolling systems. such as that being introduced in
Singapore, will make more complex time-sensitive applications easier in the
future but are not yet proven for implementation in developing countries. Gaso-
line taxes that apply primarily to light vehicles, vary with use and hence offer a
reasonable proxy for some air pollution effects. They do not, however. vary as
significantly with road damage and as such are poor proxies for that purpose. In
addition gasoline use does not vary much with time, location, and speed and is
therefore a poor proxy for congestion and other location-related effects. Diesel
taxes, which primarily apply to heavy vehicles. vary with distance but do not
adequately reflect the variation in the degree of road damage caused by differ-
ent vehicles. Annual vehicle taxes can be differentiated by type of vehicle,
based largely on axle loading, both to correct for the imperfections of fuel taxes
in allocating variable costs and to distribute fixed costs. In only a very few
countries (for example. New Zealand and Sweden) has the tax related to heavy
vehicles also varied by distance traveled, thereby making it easier to tailor the
taxation burden according to the responisibilityfor incurring costs.' Direct tolls
can be varied both by type of vehicle and by distance traveled but are costly to
administer on a widespread basis.
Currently. despite their limitations, ftueltaxes are the primary instrument
through which any charge is made for road use in many countries. No unlique
retail fuel price is appropriate to all countries and circumstances. But it is
possible to state the principles on which price should be established. to iden-
tify the components to be included in constructing the price. and to use
international experience to suggest the broad orders of magnitude that this
process of formulating prices will generate.
The following principles should determine fuielprices:
* Users should pay for the resource cost of fuel (generally the intemnational
border price).
* Users should pay for the other costs imposed on society by the consumption
of fuel, such as externalities.
REDEFINING THE ROLE OF GOVERNMENTS IN THE TRANSPORT SECTOR 89
* Any taxation over and above resource and externality costs should be im-
posed on consumption goods but not on inputs to production.
* Any luxury or sumptuary consumption taxation should be set in ways that
minimize the distortion of consumptioni patternls.
These principles suggest that when better and more direct charges for road
use are not available, fuel taxation could be used to cover the resource cost of
the fuel plus some of the environmental costs imposed by consuming the fuel
plus some of the costs of road use (both road damage and occupation of scarce
road space). Although fuel price is generally a very poor proxy for congestion
charges, in cases where congestion occurs systemwide over the whole day. the
fuel price may also be the best available proxy instrument for a congestion
charge. Any additional taxation for general revenue purposes must be viewed as
distinct from user charges and must be consistent with the principles of
nondistortioniarytaxation.
The first component in a fuel charge should be the resource costs of the
fuel itself. For internationally traded goods, such as fossil fuels, this is repre-
sented by the price at which fuel is imported (for net consuming countries) or
the price at which it could be exported (for net producing countries). Pricing
below border price (as in Russia) or even below local production cost (as in
Venezuela) is difficult to justify (see figure 5.1).
The second component in setting fuel prices is the environmental impacts
(primarily air pollution) that are presently not directly priced. Gasoline taxa-
tion should be set at a level that internalizes these environmental effects.
Because environmental costs are notoriously difficult to estimate. the level of
this component will have to be determined case by case. If future studies show
high environmental costs related to the use of diesel fuel (for example, the
health effects of particulates), higher charges on diesel may also be justified
on this account.
The third component in a fuel charge is the proxy road-user charge. In the
absence of any direct user charge (such as tolls), this component should retlect
the cost of using road infrastructure. Recent U.S. studies have estinated this
cost to lie in the range of $0.03 to SO.07 per mile, according to location
(G6mez-lbanez 1995). Estimates of the long-run marginal costs of road space
(that is. excluding congestioni costs) for the United Kingdom are of the same
order (equivalent to $0.06 per car-mile on average and up to $0.09 per car-
mile on urbani motorways; Newbery 1994). Assuming that vehicles average
about 25 miles per gallon of gasoline, this suggests a fuel tax equivalent of at
least $1.00 per gallon.
Determniing the appropriate way of charginigfreight vehicles raises some
more difficult problems. Although muchicontroversy remains over the alloca-
tion of total "joint" costs among categories of vehicle and. hence. over the
-right" structule of road-user charges within the road mode. a kevyprinciple is
that no category of vehicle should pay less than the incremental or attributable
90 SUSTAINABLE TRANSPORT
costs that it causes. The first requirement for this purpose is that an account of
total road costs should be compiled, accompanied by an analysis of how these
costs can be attributed to different categories of vehicles. Good examples of
how this can be done include the studies undertaken for the World Bank in
Ghana and Zimbabwe and in Tunisia (Gronau 1994; Newbery and others
1988). Some general guidelines for tax and charging policies can also be
derived from these studies. The most germane conclusions are the following:
* Where road damage by heavy vehicles is the primary problem. and heavy
but not light vehicles are predominantly diesel-powered, diesel taxes should
be set at levels that reflect the marginal costs imposed by heavy freight-
carrying vehicles and by buses. These marginal costs can be determined either
from increases in the costs of operating the vehicle associated with increased
roughness of the road or from increased capital costs incurred by road agen-
cies to forestall the former. The precise figures will depend, of course, on the
nature of the roads and the volume of traffic. However, the studies of Ghana
and Zimbabwe suggest diesel taxes of between $0.15 and $0.20 per gallon.
* This level of diesel taxation will not yield sufficient revenues to cover total
maintenance costs because a proportion of the deterioration of roads is related
not to use but rather to weather and subgrade conditions. Moreover. the costs of
road damage caused by heavy vehicles vary more than the diesel taxes paid as
vehicle size increases because larger vehicles use less fuel per ton transported.
Nor are the costs of road capital included in the calculation. Distance-related
axle-load taxes would be the best way of reflecting these considerations in a
charging scheme. In the absence of such a tax. differential annual vehicle taxes
related to gross vehicle weight and axle loads should be used to ensure that the
full maintenance costs are recovered in a way that creates incentives for con-
sumers to choose types of vehicles that minimize the total cost of road and
vehicle use. The implication is that taxation on diesel fuel could be substantially
less than that on gasoline if the costs of road use by heavy vehicles transporting
goods were recouped from other forms of tax (such as annual registration fees).
Among those countries covering costs in total. there will be many for
which charges do not cover costs for specific categories of vehicles (particu-
larly very heavy vehicles), either because axle-related charges are not in use
or, as in the case of Korea. because the tax on diesel is very low compared with
that on gasoline, without there being any other more appropriate direct charge
on heavy vehicles. The main thrust of national policy on transport infrastruc-
ture pricing should be to eliminate such major distortions. The problem for
governments is thus to match a limited range of charging instruments to a
complex set of objectives.
The elements considered so far represent user charges for social costs im-
posed. Wherever possible. these costs should be recouped through direct user
charges. Where that is not possible, fuel taxation may be the best available
REDEFINING THE ROLE OF GOVERNMENTS IN THE TRANSPORT SECTOR 91
proxy. Fuel taxes set as surtogate road-user charges should be clearly distin-
guished from general tax policy. Countries with a weak direct tax base often rely
heavily on gasoline taxation for general revenue. Such taxation is not the subject
of this review. (Sumptuary taxation on gasoline may be politically acceptable.
both because the inelasticity of demand for gasoline limits the distortion it
causes and because, at earlier stages of development, gasoline is consumed
disproportionately by higher income groups.) Ratios of fuel tax to total costs
imposed by vehicles that are higher than unity, particularly for private cars, may
thus be part of general tax policy but must be justified as such.
Broad orders of magnitude may now be put on these components of an
optimum fuel price. The border price of fuel is approximately $1 per gallon
(figure 5.1). As discussed above, road-use costs (primarily road damage but
not congestion) may add another $1. For developing and transition countries,
with rapidly growing levels of motorization, up to a further $1 per gallon may
be needed to cover environmental externalities. as discussed in chapter 3. This
brings the indicative price up to the equivalent of low European levels without
considering any component to proxy a congestion charge or any element of
general or luxury taxation. (As such, this approach to setting fuel plices may
differ from the actual practice in some European countries insofar as the
suggested indicative price does not include a general tax but does include a
Pigovian tax or user charge component.) This price does not include the costs
of accidents or global environmental impacts. If these were included, a recent
calculation suggests that existing fuel prices in Europe would be between 40
and 70 percent of the levels necessary to internalize environmentalexternalities.2
Taken together. this evidence suggests that, if the gasoline price is the only
instrument being used to recoup the costs imposed on society by road transport.
European levels of retail gasoline prices may be a more appropriate benchmark
for gasoline prices in developing countries than those in the United States. Few
developing countnies currently have gasoline prices as high as the European
prices. These calculations are. of course. only indicative: actual prices should
reflect the principles but embody locally based calculations of the magnitudes.
The transition to higher levels of fuel prices may be a source of political
and social disruption, particularly in ftuel-producingcountries such as Nigeria
and Venezuela, where the tradition of low prices for domestic fuel may
be seen as an equitable way of distributing a national natural asset. The
experience of countries that have attempted the tranisition does yield some
lessons on making the shift to a sensible pricing structure for fuel more
palatable:
* Link the price of fuel to measures that improve the pertformalice of the
transport sector (as in Bolivia, where a fuel tax increase was earmarked for the
establishment of a road fundlto improve road maintenance).
4.75
4.50 -Norway
Netherlands
4.25 -Sweden
=--- Italy
4.00 Belgium - -France, Hong Kong
3.75 WesternEuropeanaverage($3.69)
-Portugal
3.50 - - United Kingdom
Austria ___-Ireland
Uruguay - 3.25 ---- Finland, Luxembourg, Greece
Suriname_ Barbados _ Spain
Republic ot Korea - .00
3--
Croabia
Argentina --
Hungary--- 2.75
Singapore -
Nicaragua --- 2.50
Peru, Bolivia
Taiwan(China) 2.25 - -Israel
Antigua - New Zealand
Poland, El Salvador 2.00
_Reveloping counry average (1.87) .
Paraguay- ___ Australia
r,renada - __ -Chile 1.75 Canada
Jamaica--
Panama - -______
Malaysia, Trinidad - Ghana-
Guatemala _ _Honduras 1 .50
Indonesia, Benin P.i!!Pippnes-Ecuador _ - United States
Colombia CostaRica,Vietnam 1.25 -- -Puerto Rico
MozambiqueThailand- --
China ---- 1.00
0.75
Russia 0.50
0.25
Venezuela-- 0.00
Soinrce:
Enferg Detente (1994): World Banik.
REDEFINING THE ROLE OF GOVERNMENTS IN THE TRANSPORT SECTOR 93
Even where the private sector finances transport infrastructure. it will usually
do so only in the context of public sector acceptance of responsibility for
planning the overall structure of the network. The existence of a functioning
land market is not sufficient to ensure an effective balance between the use of
94 SUSTAINABLE TRANSPORT
space for private and public purposes (including space for traffic to circulate:
see box 5. 1).
The starting point for designing a project should be the identification of
the problem to be addressed, rather than the presentation of a solution. The
process of preparing a project should include an evaluation of the full range of
modal possibilities, including nonmotorized transport and modal integration
and interchange facilities within the sector strategies. as well as consideration
of a variety of options at the project level. The potential benefits from making
new investments must be compared with those from maintaining existing
capacity. Priorities in maintenance must also be appraised carefully, particu-
larly when (as in the transition economies) the structure of demand is shifting
radically. Most importantly, the rational for public intervention must be clear
and explicit.
In this context, planning complements the market, ensuring that network
effects are considered and that all stakeholders have access to needed infor-
mation on the interrelated elements of a system. It should also provide a forum
executives and legislatures (Deran 1965). However. the Bank makes excep-
tions if there are cogent arguments to the contrary (World Bank 1986b).
Several arguments for automatic assignment of some tax revenues to
specified expenditures are applicable in the transport sector. First, the ear-
marking of taxes on inputs or outputs associated with use of an infrastructure
(for example, fuel taxes allocated to road funds) may be the best available
proxy for user charges. As such, they allow persons who value a particular
service to pay to ensure its continued existence. Where the management of the
funds is partly under the control of paying users of the services, it is less likely
that competing interest groups would argue for overprovision of services that
particularly benefit them. Second, if the budgetary system is weak, earmark-
ing may protect a range of essential allocations, such as road maintenance.
where the returns to public expenditure are often very high (Bird 1984). Third.
earmarking funds for maintenance but not investment may counter a system-
atic bias against maintenance in countries where both are funded from the
same sources. Priority is often given to road investment over road mainte-
nance despite evidence of the high long-term costs associated with allowing
roads to deteriorate to the point at which reconstruction is required. (Research
on Chile and Costa Rica has estimated this to cost two and a half times as
much as a policy of timely and effective maintenance, see World Bank 1988a.)
Fourth, the greater security of funding associated with earmarking reduces
costs by improving work scheduling, ensuring more efficient use of equip-
ment and manpower in force account activities, and facilitating contracting
out of maintenance, as in Ghana (Pankaj 1989; Gyamfi and Ruan 1992).
If governmetit and budgetary systems are good and operational implemen-
tation is effective, there is no justification for earmarking. At the other ex-
treme. where governance is bad and the government lacks self-discipline,
earnarked funds will not be secure. and earmarking serves no purpose. How-
ever. many countries fall in the middle ground. where the benefits of provid-
ing better service may outweigh the adverse effects that earmarking has on the
allocation of resources among sectors. For these cases the issue must be
decided on a case-by-case basis. Earmarking should only be introduced as part
of a general plan either to restore good fiscal governance or to secure greater
reliance on user charges linked to institutional reforms in the administration
of road maintenance. Earmarking funds for road maintenance or other trans-
port purposes is thus particularly appropriate where there is a well-recognized
need to protect a budget item that is highly productive (for example. there is a
maintenance crisis) and where the efficiency of maintenance planning and
implementation has been adversely affected by the insecurity of funding. But
it is not a panacea and should be approached particularly cautiously where
fuel taxes constitute a high proportion of total tax revenue and where many
sectors have equally valid claims for special fiscal treatment.
Above all, whether earmarking is to support the maintenance of infra-
structure or the operating deficits of public transport, appropriate legal and
98 SUSTAINABLE TRANSPORT
Notes
1. Good taxes do not necessarily survive. The Swedish kilometer tax on diesel
vehicles, which made it possible to capture the combined effects of differences in axle
REDEFINING THE ROLE OF GOVERNMENTS IN THE TRANSPORT SECTOR 101
respond to user needs is the key to success. This goal can be achieved by
increasing the role of competitive market signals and the involvement of the
private sector and by encouraging more direct participation of users and the
community in deliberations on proposed changes to the transport system.
particularly where markets fail. The World Bank Group can continue to play
an important role in the transfonnation of the sector by becoming a financial
catalyst and facilitator of private operation and finance (in which respect IFC
and MIGA have a particularly important role to play), as disseminator of best-
practice approaches to regulatory and concessionary designs, as promoter of
more commercial management of public sector activities. and as appraiser
and lender for major transport infrastructure projects.
Three types of World Bank Group action are most important to support policy
and institutional reform that enhances sustainability. First, actions that in-
volve synergy among the different dimensions of sustainability are pivotal to
the whole strategy. The most critical of these are the introduction of efficient
charging for infrastructure and the development of competitive market struc-
tures within the sector. Second, some actions are urgent. either because they
are basic to reform (such as actions to establish the institutional basis for a
more competitive and commercial transport sector) or because they address
problems that have already become critical (such as road safety and the most
serious health-threatening aspects of urban air pollution). Third. some actions
are relatively novel. These include measures to assist nonmotorized transport
and to mobilize the potential of local authorities, communities. and NGOS.
Economic and financial sustainability in all transport subsectors requires
that, both in selecting new investments and in deciding which assets to main-
tain and operate. resources should be allocated to the uses with the highest
return. Efficient resource use is best achieved in competitive markets so long
as any adverse distributional or spillover effects are corrected by regulatory or
fiscal means. Expanding the role of the private sector as operator and financier
is essential for ensuring competition both for and in the market. Many mem-
ber countries have not yet taken full advantage of the potential for efficiency
that can be generated by competition or by involvement of the private sector
in the transport sector (see box 6.1 ).
Environmental and ecological sustainability has many dimensions. Al-
though it will grow rapidly with unrestrained motorization, the global envi-
ronmental impact (carbon dioxide emissions) of developing-country transport
is currently less pressing than the local environmental effects of transport,
particularly in large metropolitan areas. Available technology can eliminate
much local air pollution. but this will take time and will require a mixture of
market and nonmarket actions. Where there are major distributional or spillover
effects, as is the case with some forms of transport, taxes and subsidies are the
104 SUSTAINABLE TRANSPORT
The objective is to increase the re- 2. Increase efficiency in the use, pro-
sponsiveness of transport supply to vision, financing, and management of
user needs by creating competition transport infrastructure.
and by enhancing user participation. * Introduce direct charges for infra-
The World Bank Group can assist *Inrdcdiethagsfrnr-
structure that closely reflect costs, in-
countries in the following ways: cluding the opportunity cost of
These are all areas in which the World Bank Group can be of assis-
tance-for example, through training courses sponsored by the Eco-
nomic Development Institute (EDI) that disseminate best practice among
countries and through reimbursable technical assistance programs. Eco-
nomic and sector work-particularly public expenditure reviews and
fiscal analysis-has a crucial role to play. Many of the reforms pro-
posed in this report-(for example, deregulation of transport operations
and direct charges for the use of infrastructure)-will reduce the fiscal
burden of transport. Some-for example, the replacement of internal
cross-subsidy by direct compensation for a specifically defined Pso-
may increase the burden. Public expenditure and revenue reviews are a
useful instrument for addressing these issues and evaluating priorities
(for example. between transport and other sectors or between mainte-
nance and investment) as well as appropriate financing arrangements
(for example, user charges versus taxes or earmarked revenues versus
allocation of pricing authority). Lending can focus and facilitate the
dialogue on sector reform. which needs to be more rigorously consid-
ered at the project initiation stage. However. the Bank must be willing,
in most cases. to be involved in the reform process on a sustained basis.
Policy reforms, particularly those that require the development of local
institutions and capabilities. may take ten years or more to implement
successfully (see box 1.2 on Tunisia).
It is still important for the Bank to continue lending for transport in order to
facilitate reform in the sector and to meet investment needs that will not be
satisfied by the private sector.
LENDING TO COMPLEMENT POLICY AND INSTITUTIONAL REFORM. Being di-
rectly involved in preparing and impleinenting transport programs and projects
in the course of defining a lending operation is a good way for the Bank to
identify critical institutional and technical issues in the borrowing country in
question. In this way the Bank can tailor with the borrower a practical strategy
for advancing policy and institutional reform. In fact, the Bank's credibility as
an adviser in any given country arises in part from its association with that
country in lending operations and in part from the experience it has gained
from its lending operations in other countries. Even if project lending ceases
to be the primary element in a policy and institutional reform strategy. it can
THE ROLE OF THE WORLD BANK GROUP 107
There is also a need to pay special than U.S. levels for developing coun-
attention to spatial issues and modal tries on the threshold of rapid motor-
options now even though their ben- ization.
efits may only be realized in the long * Establish a general urban transport
run. fund and assign revenues from the
ensure that the Bank's advice is relevant to local conditions. This is a strong
reason for the Bank to remain involved in the financing of transport infrastruc-
ture. This involvement will have to be selective and vary according to
country-specific priorities.
CONTINUED GROWTH OF INVESTMENT REQLUIREMENTS IN TRANSPORT. Better
pricing and the other demand management policies proposed in this book can
reduce the extent to which capacity must be expanded. and. as such, should be
central to a transport reform strategy. Some developments in information tech-
nology (such as telecommuting) may attenuate the growth in demand for pas-
senger transport in developing countries in the very long run. However, in low-
and middle-income countries where demand lor both freight and passenger
movement is growing more rapidly than per capita GDP, continued moderate or
high rates of economic and demographic growth, as well as major changes in the
location of economic activities and population conurbations, make it probable
that the demand for transport services and supporting infrastructure capacity
108 SUSTAINABLE TRANSPORT
will continue to grow in the medium term. This should be recognized in country
assistance strategy documents.
PRIVATE SECTOR INABILITY TO MEET ALL TRANSPORT INFRASTRUCTURE
FINANCING REQUIREMENTS. Private financing of transport companies and roll-
ing stock is commonplace in many developing countries. However. private
THE ROLE OF THE WORLD BANK GROUP 109
The broad policy reforms outlined in this book are best promoted by sector
investment loans that are not modal-specific (the Bank finances a time slice of
a sector investment program that has been mutually agreed with the govern-
ment) and, in some cases, by sector adjustment loans. Instruments that are not
sector-specific have also been used to advance transport sector reforms (as
was done in the public enterprise reform loan in Argentina and the structural
adjustment loans in Chile) by creating a financial capability within which
governments can handle difficult problems such as the financing of severance
compensation. In addition, sequences of project loans have been used to
advance components of transport sector reform in countries where no adjust-
ment or general refonn program is under way. as in China. In short, existing
project and other lending instruments can normally be used to anchor a pro-
gram to refonn and to improve the performance of the transport sector.
Thus traditional lending instruments can provide a framework for refonn.
However, encouraging wider participation in the provision and operation of
transport infrastructure and services. which is one of the objectives of sectoral
reform, may be materially assisted by the greater use of instruments such as
various forms of onlending arrangements (to involve lower tiers of govemnment
and NGOS more directly in the provision of transport infrastructure and services)
and guarantees (to catalyze private sector financing of transport infrastructure).
Extended onlending arrangements to local authorities or NGOs may allow
local knowledge and skills to be mobilized in the planning. construction, and
maintenance of local transport infrastructure and services. Participation of
local community groups can improve the setting of priorities and sequencing
of project components and can activate local ownership, accountability, and
willingness to pay. The Bank needs to assist governments to identify financial
and nonfinancial intennediary institutions capable of channeling lending ef-
fectively to local groups (particularly for local transpor-t infrastructure) and
individuals (particularly for vehicles) and to develop their capability to facili-
tate project implementation and monitor project performance. Both NGOs and
municipalities have already been involved in Bank-supported efforts to pro-
vide credit for nonmotorized transport for the poor (see box 6.4). The essential
objective is to make this local finance self-sustaining. Where World Bank
financing is involved thlough onlending arrangements including accounting
and auditing procedures. it will be crucial that local groups develop standard
business capabilities in tracking and servicing debt obligations.
Guarantees can have a useful role in tranisport(World Bank 1995b). Trans-
port infrastructure projects (toll roads. rail systems. or ai- and. water port
facilities) require loans with long maturities and grace periods in order to
ensure that amortization requirements do not necessitate excessively high
user charges. Private funds with the requisite maturities and grace periods
may not be available because of the perceived risk that government may not
THE ROLE OF THE WORLD BANK GROUP 111
comply with its contractual obligations to the developers of the project. The
Bank's partial risk guarantees can protect lenders against this risk and thus
enable the extension of maturities. as well as reduce the costs of borrowing to
the project. Partial credit guarantees can be used directly to extend maturities
by the Bank's assurance of debt repayment in the later years of the debt term.
In all cases the Bank requires a counterguarantee from the host government.
Bank guarantees are available to private lenders (but not to equity hold-
ers). A partial risk guarantee is triggered when a government action contra-
venes its contractual obligations and a default in debt repayment ensues as a
consequence. Contractual obligations of the government may include general
obligations, such as the conversion and transfer of foreign exchange and the
agreement to pay compensation if cash flow is disrupted due to war or other
major events, which might not otherwise be insurable. In the case of transport
concessions, Bank guarantees might also cover government compliance with
112 SUSTAINABLE TRANSPORT
The World Bank Group should help to promote partnerships at the country
level among the various actors and stakeholders. at the international level
between the development community and the government, between the finan-
cial community and the sector, and among professional and nongovernmental
organizations that are addressing the challenges of improving transport.
Many of the reformisenvisaged in this book, such as railway and port restruc-
turing, involve government decisions (such as changes in mandates regarding
social obligations and financial liabilities) that cannot be addressed by sectoral
ministries.Others, such as improving road safety or providing adequate rights-
of-way in growing urban conurbations, can only be addressed through wide
interagency collaboration. In such cases the Bank can be a helpful catalyst.
Experience has also shown that those policy and investment initiatives in
transport that are founded on consensus have a greater chance of being sus-
tained. To this end, the Bank can play a constructive role in promoting more
participation by informed and competent local governments and NGOS in de-
veloping and implementing policy and investment initiatives. These groups
are generally closer to the ultinate users and beneficiaries of projects and
policies and can offer more effective channels for improving and monitoring
performance at the local level.
THE ROLE OF THE WORLD BANK GROUP 113
types of vehicles-highlights the need for more strategic sector work on how
best to improve movement in urban conurbations as well as in major interur-
ban corridors. Country- or locality-specific sector work, while necessary, may
not be enough to address fundamental issues. The response to the growth in
demand for mobility in developing countries has so far followed the pattern
that prevailed in industrial countries and has been satisfied primarily by an
increase in the use of automobiles and trucks. The centrally planned econo-
mies tried to avoid this outcome by imposing restrictions on movement by
road, which now hampers their ability to respond with the flexibility required
in market economies. Now that the transition is under way, motorization is
growing in these countries as well. At low levels of motorization, the benefits
often far outweigh the costs, but safety. pollution, and congestion become
serious problems at higher levels. Unfortunately. incremental investments in
durable and long-lived road infrastructure and facilities create a fiamework
for movement that becomes increasingly difficult to alter.
Many developing and transition economies are not yet locked into a motor-
ized transport system but are entering a phase of accelerated growth in motor-
ization. As a result, many cities and interurban networks in these countries are
experiencing severe congestion. safety. and pollution problems at earlier stages
of development than their industrial-country counterparts. This suggests some
urgency in identifying and implementing an alternate strategy with higher net
benefits. Two different, but potentially related, issues must be addressed: the
need to develop a more appropriate pace for motorization (that is. to balance
decentralized private decisions on small capital outlays. such as vehicle acqui-
sition, with society's ability to mobilize resources and implement large capital
investments to expand road networks), and the need to identify a more balanced
inultimodal transport network, with fewer implicit or explicit subsidies, that
could become the long-term objective of transport policy. To date, industrial
countries have not been much more successful than developing countries in
establishing a long-term transport strategy. The Bank should therefore proceed
on a case-by-case basis and should not expect borrowing countries to achieve
easily what the industrial countries have found so elusive.
The central problem is to identify one or more strategies within a market
framework that are capable of simultaneously generating efficient and sus-
tainable spatial structures and multimodal transport systems and of accommo-
dating significant economic and population growth. Given that hunldreds of
billions of dollars are likely to be invested in surface transport over the next
two to three decades in developing and transitionl economies. it would be
appropriate to commence a process of consultation with various stakeholders
through workshops and conferences on motorization. This would create a
basis for gaining widespread commitment and contributions to an interna-
tional effort to develop and nurture more sustainable alternatives to the depen-
dency on automobiles. The World Bank Group should address the problems of
116 SUSTAINABLE TRANSPORT
coping sensibly and successfully with increased motorization through its op-
erations and operationally relevant research. In particular, the consistency
between transport policy, focusing on managing the rate of motorization, and
industrial policy, focusing on the development of the domestic automobile
and bicycle industry, should be addressed at the level of country strategy.
CREATING A COMMON FRAMEWORK FOR EVALUATING THE PERFORMANCE OF
THE TRANSPORT SECTOR. Many countries are experimenting with different
institutional combinations and regulatory and pricing regimes to improve
performance in the transport sector. Robust indicators are not yet available for
the various dimensions of performance. however, and these are needed to
enable different stakeholders-users. regulators, suppliers. and others-to
measure and monitor the performance of the transport sector and the private or
public suppliers involved (Gannon and Shalizi 1995). Comparisons within
and between countries that clearly demonstrate poor performance and its
consequences, as well as those that might help in diagnosing the problem. are
likely to be powerful stimulants to improvement. An international commit-
ment to provide resources for a joint effort to develop. test, and institutional-
ize indicators of the performance of the transport sector would reduce the cost
to individual countries.
these topics, the Bank needs to develop a program of more systematic learning
through its lending activities and through wider dissemination of these results.
In summary. improving the performance of transport will require that the
Bank interact more and more with other organizations and groups to ensure
that policy reforms and investments are instituted that are not only socially
and environmentally sound but also economically and financially sound. Closer
collaboration is also required within the World Bank Group to ensure consis-
tency between how it approaches industrial and transport issues. particularly
with respect to IFC financing of transport equipment manufacturing and IBRD/
IDA activities in the fields of traffic restraint, user charging, and environmental
standards. The criteria for determining the level and nature of the World Bank
Group's own involvement in the transport subsectors should be the clear
contribution of the intervention to improving the quality of life and to increas-
ing productive potential. the sustainability of project or program investments
and policy reforms in financial and economic as well as social and environ-
mental terms, and the comparative advantage of the World Bank Group as the
channel for a particular form of intervention. The operational and budget
implications of this book cannot be quantified explicitly, but the impact on
total resources is not expected to be large. Any changes in the number of
transport operations would be managed within the constraints of the country's
overall program and budget for assistance work. The changed composition of
the program will require the following principal changes:
* A shift in the skill mix in IBRD/IDA through recruitment in favor of special-
ists with experience in reforning transport institutions. sector pricing and
financing, regulatory reform, urban transport, and environmental issues in
transport.
* More training of existing staff to upgrade operational skills in line with the
new demands
* More economic and sector work in transport to adapt the recommendations
of this policy review to country priorities.
Glossary
118
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