Who should pay for infrastructure?

Public investment in dredging at Liverpool has been criticised. Credit: Andrew Public investment in dredging at Liverpool has been criticised. Credit: Andrew

COMMENT: Who picks up the bill for infrastructure investments is a key issue in port development, writes Peter de Langen

In many parts of the world, governments are still required to stump up the cash for port development. Even in the UK – where private funding is most dominant – investments in maritime access, hinterland access and in a few cases terminal infrastructure, have been financed by government. For example, necessary dredging in Liverpool was largely publicly funded, while road connections often require government cash. In other countries, partial government funding is the rule, rather than the exception.

The core argument for public funding is that port infrastructure creates value for society, for instance through reducing emissions as investments may lead to a shift of transport flows to environmentally-friendlier shipping. Investments in infrastructure may also lead to increased energy efficiency, or more trade and associated employment. Academic research on the relationship between the quality of ports, trade volumes and cost/benefit analysis indeed confirm that investments in port infrastructure do, in specific cases, create value for society. A recent Policy Report from ESPO confirms that conclusion (https://www.espo.be/media/Port%20Investment%20Study%202018_FINAL_1.pdf).

However, while partial government funding is legitimate for investments that create value for society, they can also distort the playing field and disadvantage competing ports. This argument was put forward by private UK port companies when they filed a complaint against the public funding for both the dredging and terminal investments in Liverpool.

In addition, partial government funding may shift investment decisions from the commercial to the political domain, with the associated risk of allocating resources to projects that do not create the value they were designed to create.

Both issues can be overcome with a competitive mechanism for partial co-funding of port infrastructure investments, which is open to competing ports, even if they are located in different countries. While that may seem a distant dream in many parts of the world, surely it’s worth making moves in that direction?

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