A blueprint for increased public funding

Date: 29/02/1996

By Michael Mann

HIGH-profile Trans-European Network (TENs) projects should continue to be subsidised from public funds, even if initial calculations of potential financial returns do not look promising, according a major report.

The study by Dr Rana Roy of the European Centre for Infrastructure Studies (ECIS), a Dutch-based think tank, suggests an increase in EU financing for projects such as the PBKAL (Paris, Brussels, Köln, Amsterdam and London) rail link on the basis that “PBKAL is a good project - but it is so by virtue of its supranational benefits”.

According to ECIS, evidence that TENs may have greater socio-economic benefits for the Union as a whole than the apparent financial gains for participating member states provides a compelling argument for increased EU funding up to the limit of 10&percent; of total investment. This would encourage higher national subsidies from governments and also draw in more private investors.

The ECIS report has been seized on by TENs supporters as justification for the use of public money in cross-border projects.

“Up until now, there has been a genuine mistake in economic calculations of the potential benefits of the TENs. This actually seems to represent a rational basis for funding the projects which should be acceptable to finance ministers,” said one rail industry expert.

ECIS says the Commission has relied on general political and economic arguments to justify EU involvement in TENs, failing to appreciate that “separate, uncoordinated national evaluations of their respective national sections will tend to generate an incorrect estimation of their global economic return and, consequently, an incorrect estimation of the degree of public support which they merit”.

In working out the probable returns on investment in an international rail project, governments usually calculate gains which benefit their own economies. But they fail to take account of the income generated by non-resident international passengers - what ECIS calls the 'community component'.

“In cross-border projects, the whole really is greater than the sum of the parts,” the report concludes.

Benefits such as time saved, fewer accidents, reduced congestion, improved network efficiency, less pollution and regional development are virtually impossible to quantify in monetary terms, it argues.

In the case of PBKAL, the Commission has calculated that it is some half a billion ecu short of necessary financing for work already under way. National measurements of economic returns are not high enough to justify the levels of public subsidy needed to shore up the project.

But following its own method, ECIS found the community component to make up a quarter of total returns, “as much as the national share of international economic benefits”.

More than just providing a rational basis for saving the PBKAL, “the cross-border project par excellence of the TENs programme”, ECIS believes its system provides an overall blueprint for increased public funding of all the networks.