While road infrastructure is commonly open access, and therefore unlikely to be challenged by the investor, costlier strategic infrastructure investments, such as railways, require a more nuanced assessment and a more complex framework for implementation.
The figure below outlines scenarios that may emerge from shared transport cost-benefit analysis, these include: little foreseen economic benefit from open access; companies willing to share infrastructure with other similar users; high concerns over stranded assets without government intervention; high potential to unlock economic development; and cross-border potential to increase trade and unlock economic development.
This report explores the relationships between extractive resources, regional integration, and economic diversification. It discusses the ...
The level of government intervention required will depend on the transport infrastructure in question and the strategic importance of the infrastructure to the national economy. As mentioned above, road infrastructure is commonly open access and therefore unlikely to be challenged by the investor. However, for costlier and strategic infrastructure investments such as railways, a more nuanced assessment is necessary and the framework for implementation is more complex. The figure below outlines several scenarios that may emerge from the cost-benefit analysis in the case of railway infrastructure investments. The arrow on the right shows the required level of government intervention that may be necessary to achieve shared use access.
The design, operational model, and necessary regulatory framework can be adapted using these five scenarios:
Scenario 1: Little foreseen economic benefit from open access
The extractive industry project and associated transport infrastructure is proposed in an area where there is little geological potential for additional mining or oil & gas projects, few agriculture opportunities, and no population centers. In such a case, it may not be necessary to impose shared use requirements. The leading extractive industry company can finance, own, and manage a vertically integrated transport infrastructure system to maximize efficiency. The government can focus on regulatory provisions that allow for renegotiation in case there is an access demand for the infrastructure in the future. An “access holiday” clause with an expiration date in the contract (also known as a sunset clause) could be included to give security to the leading extractive company with the anchor project. The right of way, however, should always be retained by the government, as it may present opportunities for economies of scope.
Scenario 2: Mining companies willing to share infrastructure with other similar users. Little further foreseen economic benefit from multi-purpose access
Two extractive projects are located close to each other and are interested in working together to co-invest and use transport infrastructure. Similarly, to scenario 1, there are no other business opportunities or population centers that could benefit from shared use. In this scenario, the government should aim to act as an intermediary between the stakeholders. A third party could act as the operator or the extractive companies could agree that one of the parties takes charge of the transport logistics. In the railway case, a haulage regime design may be of interest, whereby the operator of the infrastructure not only manages the below-rail infrastructure, but also the rolling stock of the various parties thereby increasing potential efficiencies. Once companies agree on how costs/payments and logistics are going to be organized along the transport infrastructure, there may be a role for the government or third party to oversee this agreement and intervene in case of disputes.
Scenario 3: High concerns over stranded assets without government intervention, but little further foreseen economic benefits resulting from multi-purpose access
The extractive project is located in an area with high geological potential for additional mining or oil and gas investments. As in scenarios 1 and 2, this region and associated transport infrastructure is far from other business opportunities (other than mining or oil and gas) and population centers that could benefit from access to the infrastructure. This scenario is common for pipeline infrastructure in the petroleum industry. Given the competitive dynamics between extractive industry companies, the emphasis should be placed on allowing for multi-user access to unlock the other projects. The operational model should lie on guaranteeing that the infrastructure is built to accommodate additional capacity and that access tariffs are non-discriminatory. If additional capacity requirements are unknown at the time of the negotiation, the government could require the infrastructure to be designed in such a way that future capacity expansion is possible.
The most effective mechanism to allow for open access that is non-discriminatory is to separate the ownership of the infrastructure from the extractive companies. A special purpose vehicle (SPV) could be setup, which owns and operates the transport infrastructure. To finance the investment, the SPV will have to be backed by long-term take or pay agreements at set tariff rates that the companies guarantee to pay. With extensive deposits known to be economically viable with access to transport infrastructure, the government can also explore the scope for tendering and awarding the construction and management of the infrastructure to a third party. The downside of awarding the infrastructure concession to a third party is that doing so could result in higher tariffs being charged to users by investors seeking higher margins.
The government can require shared-use agreements between the companies to award licenses or acquire an equity stake in the transport infrastructure investments. With higher risk of discrimination by the transport infrastructure provider, it is important to set clear regulatory mechanisms and setup a regulatory body to oversee shared-use agreements.
Scenario 4: High potential to unlock economic development along the corridor
The extractive industry project and/or its associated transport infrastructure is located along or near a region with high potential for other business opportunities that could be developed with access to infrastructure. In this scenario multi-purpose access to the transport infrastructure is desirable. Apart from the issues set out above, such a scenario may require defining tariff mechanisms that make it economically feasible for third parties to access the infrastructure. In road infrastructure, for example, it may be unfeasible to charge the same toll rates for extractive and non-extractive users. Public Service Obligation (PSO) schemes, in which the government subsidizes passenger services, have been used in the railway sector. However, the track records of these agreements are mixed because in practice governments may not pay out the subsidies. An alternative could be to contractually require price discrimination and cross-subsidization between the higher-profit extractive industry cargo and the price-sensitive agriculture sector/passenger services. In such a case, the regulator needs to pre-approve the tariffs that the operator wants to charge.
Scenario 5: Cross-border potential to increase trade and unlock economic development along the corridor
The extractive sector project is located inland, and the associated transport infrastructure is partly located in another country. As in scenario 4, there is a high potential for other economic business opportunities that can be developed with access to improved infrastructure. In this scenario, the regional dimension of transport infrastructure may make negotiations more complex as issues such as infrastructure standards, border and transit arrangements, and fees will have to be addressed. A tripartite agreement that establishes the binding nature of the provisions that are agreed on will need to be signed and an intergovernmental railway authority could be considered to help with the logistics of the corridor.