Has infrastructure assessment gone out of fashion?

Three years ago, the cost-benefit analysis of certain major works opened up a broad public debate. Now the ministry has released more, about new infrastructure. The critical elements are not lacking. However, so far they have not aroused anyone’s interest.

2019 and 2022 assessments

During the first months of 2019, the cost-benefit analyzes of certain major works were made public: the working group mandated by the Minister of Infrastructure and Transport (of which the writer was a member) analyzed five projects: the third crossing between Genoa and Milan, the new rail link between Turin and Lyon, the high-speed rail line between Brescia and Verona, the “Gronda” in Genoa and the underpass in Florence. The result of the evaluations was negative for the first three works and positive for the other two.

In any case, the executive at the time decided to build all the assessed infrastructure. Far from the spotlight of public debate, the scientific debate continued within Sipotra, the Italian Transport Policy Society, where it was agreed on the correctness of the methodological approach adopted in the evaluation of these projects, both with regard to the calculation of the benefits for users than with regard to the inclusion of taxation, such as a transfer. A similar conclusion is now drawn in a scientific article. To my knowledge, there is to date no scientific publication in which the numerous criticisms put forward in the public domain have been taken up.

In recent months, the Ministry of Transport and Sustainable Mobility has made available cost-benefit assessments of some new infrastructure projects. They have been established by the investment manager, who will receive the public resources for the realization.

All reviews, without exception, are positive. So far, neither the media nor academics seem interested in investigating the matter. However, the elements worthy of discussion seem numerous.

Methodology

To calculate the surplus of consumers who, thanks to the implementation of the project, change the mode of transport, the most recent analyzes use a methodology which considers the savings on the operating costs of the vehicle used previously as one of the advantages. This is the same approach adopted, for example, for the analysis of the new Turin-Lyon route before that of 2019, which, precisely by virtue of this approach, was very positive (even if it took into account the drop in revenue taxes for the State and lower tolls, for sums almost identical to those accounted for during the last valuation).

This is not a correct methodology, since the estimation of the benefit for those who change the mode of transport must also include all the non-monetary elements that affect the choice and, therefore, must refer exclusively to the improvement of the vehicle. chosen in terms of time or price of the transport service. For example, for users who are indifferent between car and train in the reference scenario, the benefit is identical to this improvement. While the benefit is nil for those who initially consider the train worse than the car in an equal measure to the improvement in the performance of the first obtained thanks to the project. All other users who switch modes have an intermediate advantage between the two. As a first approximation, assuming a linear demand curve, the average profit is therefore equal to half of the maximum.

The case of the Salerno-Reggio Calabria high-speed line

If the latter approach is adopted, in the case of one of the projects analyzed – the first batch of the Salerno-Reggio Calabria high-speed line – the estimated benefits for consumers are reduced from 2.2 billion to 600 million.

In addition, there are several critical elements in the evaluation of this project. Among the negative externalities, those linked to the construction phase of the new line have not been taken into account, although they are very high since 52 of the 127 kilometers of work are in tunnels. In monetary terms, this leads to an additional cost of 206 million. The fall in tax revenue for the State due to the drop in vehicle mileage affects more than 330 million people. Moreover, the residual value of the work seems to have been overestimated by an amount of just under 400 million.

Taking all these elements into account, the result of the analysis changes sign: the NPV (net present value) goes from +732 million to -1,890 million.

It should also be added that certain parameters retained for the quantification of externalities differ from those defined by the European Commission. Finally, the official analysis does not take into account possible, or even likely, cost overruns between the budget and the ending balance and assumes that the marginal cost of public funds is zero. If a 10 percent increase in spending were planned and a Compf (marginal cost of public funds) value of 15 percent (the central under national guidelines) were adopted, the budget would be negative for over $3 billion. .

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Francesco Ramelle

Ramel F. He graduated in mechanical engineering and obtained a doctorate in transport at the Politecnico di Torino. He teaches “Transport” at the University of Turin. From 2016 to 2019, he was a consultant to the Technical Mission Structure of the Ministry of Infrastructure and Transport. He is Executive Director of Bridges Research and Associate Researcher at the Bruno Leoni Institute and IREF.

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