Original publication: December 2014
Authors: Wolfgang Schade and Lucia Mejia-Dorantes (Fraunhofer, Institut für System- und Innovationsforschung, Germany) ; Werner Rothengatter (Karlsruhe Institute of Technology, Germany) ; Olaf Meyer-Rühle and Stephan Kritzinger (ProgTrans, Switzerland)
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Annex I:

Update on Investments in Large TEN-T Projects

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This study updates the TEN-T investment study completed in early 2013 and adds five new case studies to the analysis, three of which deal with mega projects that are still in the planning or early implementation phase: Lyon-Turin, Iron-Rhine and S21/Stuttgart-Ulm. Findings confirm that not all stakeholders have learned past lessons on successfully developing projects. There is a particular need for early and transparent public participation and a clear project definition prior to the project decision. New findings suggest that measuring wider economic benefits and European added value are necessary to justify the socio-economic benefits of multibillion euro cross-border projects.

Aim

The purpose of this study is to update the previous study of April 2013 on “TEN-T Large Projects – Investments and Costs”. This dealt with the process of assessing and selecting large transport projects for EU co-funding. The literature and the European Court of Auditors had identified several operational problems in such assessments and the 2013 study presented conclusions and recommendations on how such operational problems could be avoided. This 2014 update describes the advancements of the policy process achieved at the European level during the revision of the TEN-T guidelines by the time they were agreed at the end of 2013. Furthermore, five new case studies on mega projects have been carried out, and some selected case studies of the 2013 report have been updated to take into account recent developments in their planning or construction. In total twelve case studies are presented in this study.

Background

The development of Trans-European Networks (TEN) is a premier issue of European economic and social policy that dates back to the Treaty of Rome (1957) – which included the adoption of a Common Transport Policy (CTP). TEN serve the goals of economic development, regional competitiveness, regional and social cohesion and environmental sustainability. With the establishment of the European Regional Development Fund (ERDF, 1975) European funding was made available for TEN, with funding options expanded in 1982 through a specific line of the EU budget dedicated to transport infrastructure of European interest. However, the implementation of this infrastructure was very slow, even after 1982. Therefore, the Treaty of Maastricht (1992) included an obligation for the European Commission and the European Parliament to prepare guidelines for the development of TEN and to update them periodically. TEN include communications, energy and transport (TEN-T) infrastructure networks. The first TEN-T guidelines were published in 1996, followed by revisions in 2004 and 2011/13, the latter setting the policy and financial framework for the current 2014-2020 programming period.

The first TEN-T network concept was developed top-down by the European Commission and enhanced by a high-level expert group led by Henning Christophersen, a former Vice- President of the European Commission. The “Christophersen Group” proposed 14 projects which were approved by the European Council of Essen in 1994 and formed the backbone of the TEN-T guidelines in 1996 (the “Essen Projects”). The budget for the implementation of these projects was roughly EUR 96 billion and it was decided that EU co-financing should provide up to 10% of this (with a budget limit of EUR 1.42 billion), together with financial assistance by the European Investment Bank (EIB) and the European Investment Fund (EIF). The cohesion countries could receive additional funding from the Structural Development Funds (ERDF) and the Cohesion Funds (CF).

The revision of the TEN-T guidelines proposed by the European Commission in 2011 intended to overcome fundamental shortcomings of TEN-T planning and implementation. TEN-T projects should fit both into the strategic European transport network, being the core network developed by an analytical top-down approach, and into the Strategic Transport Plans to be set up by each Member State. Projects had to demonstrate European added value, so that cross-border projects receive particular support. Additionally, the European Parliament was advocating a binding socio-economic Cost-Benefit Analysis (CBA) and a binding Climate Impact Assessment (CIA). This has now become part of the new TEN-T guidelines of 2013 (EU REG 1315/2013).

Methodology

The methodology of this study comprises three major elements: (1) consideration of our previous study (Schade et al. 2013) and the feedback received; (2) literature research and (3) case studies of large TEN-T projects. The relevant scientific literature can be divided into two groups:

  • Literature on transport modelling and forecasting, transport project assessment and new assessment approaches.
  • Literature on governance of decision-making on large transport infrastructure projects, focusing particularly on European policy-making and taking into account the experience of national infrastructure projects.

The case studies considered for revision out of the original 10 in the first study were those which showed significant changes since 2012. Five further mega-projects were also included in the case study analysis, making a total of 12 case studies included in this report.

The analysis of the case studies follows a template that was developed for the previous study which was adhered to for each of the case studies. These are presented as 12 annexes to this study. The focus of the analysis is on the research questions concerning the assessment of projects related to investment costs, socio-economic cost-benefits including environmental benefits, environmental impact assessment, transport demand forecasts and updates of such studies over time. The latter is important for understanding the reasons for cost increases of the projects, since cost overruns for many transport projects have been observed in the literature. This study is written as an addition to the previous study, so that the focus of this update is on (1) issues which have gained importance over the past two years through the development of the new TEN-T guidelines and the CEF regulation, and (2) findings particularly related to the five new case studies which are also relevant to the previous cases. This includes the analysis of wider economic effects, (climate-related) longterm effects and of the role of public participation. In this sense, the two reports should be read as two complementary volumes on the same topic.

Analysis and findings

Figure 1 shows a scheme of an integrated planning process, which can serve as a baseline for deciding on TEN-T project assessment, selection and funding. The scheme reveals the complexity of the decision process involving actors in Member States, at the European Commission and external experts including project promoters and project funders. Guidance is provided by highlighting the main project decision process (following the red arrows). The planning process is subdivided into phases of strategic and project planning. It is the aim of the strategic planning phase to develop a multi-modal network configuration (e.g. a core network) which is concordant with the strategic goals of the EU, as defined in the Transport White Paper of 2011. Strategic planning can be supported by methods for evaluating wider socio-economic impacts, by strategic environmental assessment (SEA) and climate impact analysis (CIA). These methods can address network configurations and measure their contribution to sustainable development. Project planning aims to select the most beneficial alternatives and define appropriate priorities. This is supported by methods of partial analysis which focus on the direct impacts of projects for users, operators and exposed population. Cost-benefit analysis (CBA) is the most widely used instrument. It can be extended to multi-criteria analysis (MCA) if impacts cannot all be monetised. A financial analysis can show the expected financial internal rate of return (FIRR). The environmental effects can be measured by an environmental impacts analysis (EIA) which focuses on the area surrounding the project. In addition to the above ex-ante evaluations, ex-post studies are also suggested to control the achievement of objectives and provide information for the evaluation of similar projects, which are still in the planning phase. In the light of this study’s findings the need for early and continuous public participation (including that of local stakeholders) should be emphasized. The scheme ends with the project decision and it should be noted that stakeholder participation is a continuous process which also needs to be followed during project implementation.

Figure 1: Proposed decision-making process on TEN-T funding

Table 1 presents an overview of the 12 case studies. The first five cases represent rail projects, the sixth a mixed rail-road project, the next two are road projects, projects 9 – 11 are base tunnels for Alpine rail crossings and the twelfth project is a waterway. Total costs of the projects range between EUR 131 million and EUR 9.7 billion. When benefit-cost ratios are available and reasonably low discount rates are applied for their calculation, the benefit-cost ratios are estimated to be between 1.5 and 6.5; payback periods lie between 15 and 50 years; economic internal rates of return amount to between 4.7% and 9.4%.

Two of the case studies allow for ex-post analyses, two others are partially completed, and two others are under construction. The other six case studies concern infrastructures at different levels of planning. Two of them are in an exploratory phase which has already started (Brenner, Lyon-Turin), and this phase is also likely to start soon for the Fehmarn Belt. Rail Baltic and Seine-Scheldt are still in the project design and planning phase while the Iron-Rhine seems to be at a preliminary planning phase.

As far as transparency is concerned, the generic observations found in the previous study can be confirmed. More recent projects, in particular when still in the planning phase, already seem to be adapting to requirements of becoming more transparent and providing more detailed studies online (e.g. Rail Baltic, Lyon-Turin) or on request (e.g. Fehmarn Belt Fixed Link). However, in some cases too many, and sometimes contradicting, documents and statements hinder clear understanding of a project. This underlines our recommendations from the previous study to maintain a central project data office at the EC, which compiles and distributes relevant data and relevant study information (e.g. for the Rail Baltic(a)).

Table 1: Overview of the results of the case studies Table 1: Overview of the results of the case studies

Recommendations

(1) The methodologies for planning, forecasting and assessment need further development to effectively support decision-making for large transport projects in a multi-modal network context. This includes:

  • Consideration of interdependency between the three basic pillars of transport planning: (i) strategic goal setting, (ii) systems analysis and optimal network design and (iii) comprehensive project analysis and assessment.
  • Cost-benefit analysis (CBA) for all projects is necessary following harmonised European guidelines and considering network effects by appropriate network modelling tools.
  • European added value and wider socio-economic benefits are typical benefits of mega-projects which should not be neglected. Hence, it is important to further develop the existing scientific knowledge and practical approaches to this field to improve the accuracy of measurement.
  • Environmental Impact Assessment (EIA) is obligatory. However, the scopes and the levels of detail differ between analysed case studies. Definition of EIA-standards for the different phases of planning (pre-feasibility, feasibility, final project plan) is necessary. Furthermore, a clear definition of thresholds for intolerable environmental risks is necessary, particularly for the early phase of planning, to reduce planning costs, avoid problems of implementation and increase public acceptance.
  • Strategic Environmental Analysis (SEA) is obligatory. It should be included in the initial phase of developing optimal network plans design rather than being placed at the end of the process of developing an investment programme. It seems that the new nine TEN-T corridors would provide the right scale to carry out an SEA.
  • Climate Impact Analysis (CIA) has, up until now, not been obligatory. It is necessary, however, to check the compliance of the projects with EU climate goals. Beyond the carbon footprint of traffic activities the climate impacts of infrastructure provision and upstream/downstream processes should also be included.

(2) Planning and procurement processes in each Member State are different and may be biased by particular political interests. Moral hazards can lead to inappropriate project design if Member States are seeking EU funding. Therefore the EU co-funding mechanisms for transport projects need strict control and monitoring:

  • It will be necessary to give narrower and clearer definitions of eligibility and the quality of documents (as e.g. of the strategic transport plan and the assessment process for projects). Conditionality for receiving EU co-funding should be defined more precisely and the enforcement of conditions should be ensured. The new TENT guidelines and the CEF regulations move in this direction, for example through the explicit definition of links belonging to the core network and the key performance indicators (KPI) to be achieved by link improvements. Conditionality and proportionality should go hand-in-hand. The higher the proportion of EU co-funding provided for a transport project the greater the importance of the EU conditions in decision-making and the higher the requirements for ensuring their enforcement. A project receiving 10% EU co-funding, apart from being bound by general requirements (e.g. provided by European legislation like the EIA directive), will have to respect the results of national assessments and decision criteria for issues under the responsibility of the Member States individual legislation. Projects receiving higher co-funding rates, particularly those above 50% or where the EU is the single largest co-funder (as in cross-border projects with 40% co-funding), should make EU conditions the dominant decision base.

(3) Better information, coordination and participation are central issues:

  • Better coordination and information is a pre-condition for a learning process, taking into account the good and bad practice experiences of the past. It is recommended that a central data office is established, containing the project fiches with links to all underlying documents (incl. documents from the Member States) and that results after project completion are monitored, including ex-post analysis on the project and corridor scale. This central data office should build on the TENtec information system operated by INEA that should be extended to also store the ex-ante studies and make them accessible to the public, at least in the form of meaningful summaries of the studies.
  • Better participation of stakeholders is indispensable because of a growing resistance to large transport investment projects (see the annexes on the case studies Lyon- Turin or HSR Stuttgart Ulm). This will also improve the project decision base and thus the implementation decisions. Participation is an ongoing process which should begin long before deciding on a project and should not stop after the formal approval of a project. For mega-projects, a public vote on their implementation should also be considered.

In general we understand that the decision process on TEN-T co-funding has significantly improved in the last seven years. The new TEN-T guidelines and the new CEF regulation will further improve project selection and funding of TEN-T. Naturally, due to the emphasis of cross-border projects and increased EU co-funding, Member States will have to accept a greater role of the EU in project decisions and project implementation. This seems reasonable for the development of a true European network.

Enforcing the new guidelines and respecting the existing and newly established conditionalities, taking into account the recommendations given in this study, seem to be the key elements for improving the TEN-T concept and making its co-funding most beneficial for the European Union. Transparency in decision-making seems to be an asset to this end, both for the project promoters who develop better performing projects which are less risky and more widely accepted, and for European citizens who will benefit economically and environmentally.

Link to the full study: http://bit.ly/529-081

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