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Road pricing and user restraint: Opportunities and constraints in developing countries
Trwqm Res.4 Vol. 2OA. No. 2. pp. 123-127. 1986 RinlcdinOM1BnLain.
0191-2607/86 SUO+.M) 0 1986 Pcrgamm hmals L.td.
ROAD PRICING AND USER RESTRAINT: OPPORTUNITIES AND CONSTRAINTS IN DEVELOPING COUNTRIES A. T. ARMSTRONG-WRIGHT Water Supply and Urban Development Department,World Bank, Washington, DC 20433, U.S.A. Abstract-Urban traffic congestion is growing most rapidly in the developing world, and it is here, mainly because of infrastructureand resourceconstraints,that traffic restraintis likely to be most urgentlyrequiredin the near future. This paperexamines the specific problemsof developing countriesand the attemptswhich have been made to introducepolicies of road pricing in a number of their cities. The findings are that, given the conditions prevailing, a numberof fiscal restraintpolicies offer at least a partialsolution. Road pricing is found to be technically feasible, but its wider use is likely to be limited for some time by political factors. Thus second-best policies that gradually move towards more effective restraintsare likely to be the best option in many countries. INTRODUCTION In 1950 there were only three cities in developing coun-
tries with populations in excess of four million. They were Shanghai, with 5.8 million people, Buenos Aires, with 5.3 million, and Calcutta, with 4.4 million. By 1980, however, there were more than 20 cities whose populations topped four million, and by the end of the century there are expected to be at least 60 cities. Indeed, more than 20 cities in developing countries are forecast to have populations of more than 10 million each by the year 2000 (United Nations, 1980). The rate of urban growth has been especially rapid in countries that have traditionally been largely rural. The urban populations in the least urbanized countries in Africa, for example, appear likely to quadruple between the year 1980 and 2000. But in absolute terms, the Asian countries are where the largest growth in urban population is taking place. India is a particularly notable example. There the total urban population is currently expanding at a rate of more than 600,000 people every month. These unprecedented rates of urban growth create a corresponding or even higher increase in the demand for transport. Cost of transport has also risen sharply, particularly where there has been a swing from pedestrian to motorized trips. In developing countries, it is not uncommon to find 5-10% of household incomes spent on transport; in some cities it is more than 15%. Also city governments usually spend between 15% and 25% of their annual budgets on transport investments and operations. Increasing demand and increasing costs of urban transport clearly create a heavy burden on resources and create considerable problems for city authorities and users. The sheer speed with which demand and costs have grown in developing countries has often overwhelmed institutions responsible for transport; many of which are ill-equipped to cope with the changing situation. But despite the serious implications, demand has been allowed to grow virtually unrestrained so that transport infrastructure and services in many cities have become severely overloaded. This is likely to create pressure for expansion of the urban
transport network and, in some cases, unneeded investment in infrastructure. A primary reason for excessive traffic is that users rarely pay the true cost of road use. For example, a private car user usually pays only the direct costs of operating his vehicle, yet when he joins traffic crawling along a congested road he reduces the speed and increases the costs to all other users on that road. If congested roads are not to be used excessively, then there is a need for some form of road pricing so that costs and benefits are brought more closely into balance. While the need for road pricing has long been recognized (Walters, 1968), its introduction as an effective means of controlling congestion in urban areas faces formidable technical, administrative and political problems. For a system to be reasonably effective, charges to individual users would need to be related to the amount of use of congested streets and to the degree of congestion. These will vary for different locations, times and vehicles, and charges may prove difficult to calculate. Also the application and collection of charges will be a major problem. In most urban areas it is likely to be impractical to collect charges on streets as they arise (for example the use of toll booths might well aggravate congestion). It would seem necessary to devise some means of identifying individual vehicles in motion and recording their movement through segments of the congested area. This information would then have to be conveyed to an accounting and billing system. While many thousands of vehicles and movements would be involved and the collection of charges a mammoth task, the billing system, for example, could be similar to that for the collection of telephone charges. Obviously enforcement would be a major concern. Any system would have to be designed to make it possible to identify vehicles that evade charges; equipment would have to be proofed against tampering. The system would also have to cope.with unintentional infringements, errors of recording and other anomalies, if it is not to come into disrepute with the public. Above all else, the introduction of the system would have to overcome the natural 123
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aversion of motorists to direct payment for a facility which has traditionally been free or at least perceived as being free. Also opposition to the loss of privacy due to the element of surveillance that would be involved would need to be overcome. These formidable obstacles have been tackled by the Hong Kong Government. For many years Hong Kong has been subject to rapid growth in the use of motor vehicles and a serious spread of congestion. From 1976 to I98 1 the numbers of private cars grew at a rate of 13% per annum, resulting in a density of about 280 vehicles for every kilometer of road-the highest concentration of vehicles in the world. Faced with a deteriorating traffic situation, the Hong Kong Government in early 1982 decided to apply severe financial restraints on the ownership of private cars. It recognized this as a very crude and indirect approach to the control of private car use; a stop-gap while a more effective and equitable method was devised. After an exhaustive examination of various options (including the Singapore area-licensing scheme described later in this paper), the government decided to pioneer electronic road pricing (Hong Kong Government, 1985a). The system involves the fitting of all vehicles with an electronic number plate (ENP) about the size of a video cassette tape. It is designed to be simple to fit, robust and tamperproof. Electronic loops buried under the road surface at each charging point collect encoded information about passing vehicles via the electronic number plates and transmit this data, together with the time and place, to a central computer. Charges, which will be displayed at each charging point, could vary depending on the time and location of the charging point. The appropriate fee will be recorded on the vehicle’s account, and bills will be presented for payment monthly. If a driver wishes to query his account he will be able to obtain a detailed statement of every charge. At a selected number of key locations, cameras will automatically photograph vehicles with defective or improperly operating ENPs for enforcement purposes. Initially, a pilot scheme was undertaken involving only a limited area and some 5000 vehicles mainly in the government fleet. Although the scheme has proved to be technically feasible it has encountered strong political opposition, and a decision to introduce the system as a whole will only be taken when the government is satisfied that electronic road pricing is the only appropriate SOlution. Although elements of the Hong Kong system may prove to be suitable for use elsewhere, almost certainly the introduction of similar systems in other cities would require careful study and design to meet the different conditions likely to be found. It is likely to be some time before such systems have been sufficiently developed to be suitable or acceptable for general application. Fortunately, less sophisticated demand management schemes (World Bank, 1986), well within the capability of cities in developing countries, will often suffice or at least greatly alleviate congestion problems. As discussed be-
low, these alternatives to comprehensive pricing solutions are unlikely to be optimal, but nevertheless they provide reasonably worthwhile results. AREA LICENSING
A form of road pricing that has been put into practice and has proved to be effective is a system called area licensing, in which charges are applied to low-occupancy vehicles entering the congested area during rush periods. The desired effect is to reduce congestion and achieve more efficient use of limited road space. To this end the system encourages greater use of public transport and shared private cars, and discourages unnecessary journeys during rush periods. For the system to be successful, public transport has to be adequate and suitable for handling motorists and passengers diverted from private cars. It is necessary to provide some means of prepayment; collection of charges at entry points would likely increase congestion. Vehicles that have paid the charges need to be readily identified in some way and enforcement has to be sufficiently effective to avoid evasion of charges. Alternative routes of adequate capacity have to be available for traffic that is diverted from the congested area. Also to facilitate area licensing, the road layout has to permit the isolation of the restricted area. This has to be achieved without the need for an excessive number of entry points on the one hand and without unduly impeding traffic flow on the other. Clearly of considerable bearing on the success of any such scheme will be decisions on the hours of operation and charges to be applied. To date, Singapore is the only city to have actually applied area licensing (Yee, n.d.). In 1975, in order to combat traffic problems that were progressively becoming more acute, the Singapore Government introduced a scheme to restrain the use of private cars. In this scheme, which has achieved a large measure of success, a charge is applied to low-occupancy vehicles entering the central business district (CBD) during the morning rush periods (7:30 a.m.- lo:15 a.m.). A cordon around the CBD demarcates the extent of the restricted area. Vehicles enter this area at clearly marked entry points and low-occupancy private cars are required to display a special area-license disk for which a fee is charged (US$250/day or US$SO/month). Private cars with four or more occupants, goods vehicles and buses, are exempt from paying the area-license fee. Included in the scheme was the provision of cheap car parks at the periphery of the license area with shuttle bus services to the city center, designed to attract motorists from their cars. At the same time, parking charges within the restricted area were raised substantially to further discourage the use of private cars. Reducing the rapid growth in the ownership of private cars was considered to be a vital element in the success of the scheme and has been achieved by the imposition of high annual license fees for these vehicles. An important part of the scheme has been the provision of alternative routes for through traffic. Public acceptance of the scheme coupled with effective enforcement has resulted in a low incidence of offences against the scheme.
Road pricing and user restraint in developing countries
A considerable measure of success of the scheme can be attributed to the government’s recognition of the benefits and the will to overcome the difficulties of introducing a scheme of this type. A flexible approach was adopted with the government responding quickly to problems that arose at the start of the scheme. These included serious congestion each day immediately after the end of the restricted period which initially was from 7:30 to 9:30 a.m. Also the park and ride arrangement proved to be unpopular with motorists. This prompted the redeployment of the shuttle buses to routes linking residential areas to the city center. Fears that the scheme might adversely effect business and other activities have generally not been substantiated. Any impact that the scheme may have had on land values, land use and the environment, has been largely eclipsed by other factors in the economy. The effect of the scheme was a dramatic decrease in private cars entering the restricted area during the restricted period, prompting suggestions that the fees were pitched too high. But despite initial minor difficulties, the scheme stimulated the use of public transport and shared vehicles and substantially reduced congestion. Furthermore, the greatly improved traffic conditions experienced during the working day in the CBD have been sustained to the present time. However, during the evening peak period, which is free from restriction, main roads in and around the CBD are heavily congested. The authorities are overcoming this problem by improving alternative cross-town routes, and there is a possibility of imposing evening restrictions. Clearly, the scheme has achieved its main objectives and has proved to be very cost effective and easy to administer. While it would undoubtedly require modification and adaption for use elsewhere, the scheme provides a valuable model for cities faced with serious traffic congestion. Although successful in Singapore, area licensing has proved to be difficult to introduce in other countries. With doubts that a radical system of this type will work in their cities, and fears of public opposition, authorities have been reluctant to embark on area licensing, despite its clear advantages for dealing with congestion. In the case of two cities, Kuala Lumpur and Bangkok, where steps have been taken to introduce area licensing, initial setbacks have delayed implementation. In the case of Kuala Lumpur, an area-road-pricing scheme was included in the city’s second urban transport project financed by the World Bank. However, implementation has been deferred by the government because of the prior need to improve public transport and to develop the inner ring road as an alternative route for through traffic. Also the success of other road improvements have, at least for the time being, reduced the pressure to deal with the congestion problem in the central area. The scheme is again being considered as part of the Master Plan Transportation Study for the city. Similarly, area road pricing was included in the Bangkok Traffic Management Project, also financed by the World Bank. In this case, implementation of the scheme has been deferred by the government because of second
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thoughts as to its political impact and effectiveness and the need to reexamine the technicalities. This reevaluation is being undertaken as part of a comprehensive review of transport in Bangkok. Despite these delays and the obvious difficulties with schemes of this type, in many situations area road pricing would probably provide the most cost-effective and practical means of rationing limited road space, and reduce demands for costly expansion of the transport infrastructure. PARKING RESTRAINTS
Another effective measure to achieve better use of limited road space is the application of special charges for parking. As with other restraints methods, the aim is to reduce entry of cars into congested locations during rush periods, but at the same time avoiding interference with business activities, shopping, etc. This can be achieved by some form of differential parking charges. For example, by setting the charges comparatively low for an initial short period, and applying progressively higher charges for longer periods, commuters, who are longterm parkers, would pay substantial charges and be discouraged from parking in the area. On the other hand, people with business appointments and shoppers who need short-term parking are encouraged, they benefit from both lower charges and the greater availability of places because of more rapid turnover. This approach to parking proved to be successful when adopted in Singapore and is seen as an important contribution to the success of the area licensing scheme. Parking restraints are inclined to give rise to substantial increases in illegal parking and therefore need to be accompanied by strict enforcement of regulations. High parking charges may also encourage additional trips during the peak period (as in the case of people being driven to work in the mornings by other family members, who then return home and repeat the journey in the evening). In addition, parking controls may create many unproductive trips, for example, when drivers circulate in the CBD waiting for the passengers or looking for parking places. These various side effects may add substantially to congestion if allowed to develop. Furthermore, parking controls do not deter through-traffic which is often a primary cause of congestion in city centers. As a result, parking may be more effective as a restraint measure when it forms part of a more comprehensive demand management scheme, as in the case of Singapore. USER TAXES
Vehicle use may also be restrained through user taxes imposed on fuel, tires, spare parts, etc., thus adding to the operating costs in relation to the distance travelled (World Bank, 1975; Churchill er al., 1972). While potentially restraining total usage, these taxes will not affect where and when vehicles are used. In particular, they do not differentiate between usage during peak and off-peak periods or in congested or noncongested areas. However, although lacking in finesse, user taxes, if
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pitched sufficiently high, provide an overall dampening effect on the growth of vehicle use and, in turn, on the level of congestion. While a variety of user taxes may be available, some have side effects which mitigate against their use. For example, although a tax on tires may provide a restraint directly related to the amount of vehicle use, it can give rise to the use of unsafe tires. Similarly, a tax on spare parts may lead to poor maintenance, breakdowns and accidents, and hence tend to increase rather than reduce congestion. To be effective, these particular taxes would need to be associated with comprehensive vehicle inspection programs which may prove to be difficult and costly to introduce. On the other hand, a fuel tax usually is comparatively simple to administer and also has a direct relationship with the amount of vehicle use. It is therefore attractive as a means of restraint. However, some form of exemp tion needs to be provided for fuel to be used for buses and trucks, if these forms of transport are not to be restrained. To avoid distorting the benefits of different types of fuel, there is a need to vary the tax rate with regard to the performance of each. Only a few countries apply fuel tax for the specific objective of restraining vehicle use to control congestion. In fact, in a number of countries fuel charges are set below world market prices, which may unintentionally encourage vehicle use. Such a situation exists in Egypt. Rapid growth in private cars in recent years ( 17% per annum) has created very serious congestion throughout the central area of Cairo with prospects of much worse to come. However, there is little or no restraint applied to the use of private cars. Although the domestic price of gasoline has been increased in recent years, it is still only about 60% of world prices, while diesel fuel is as low as 20% of world prices. Such underpricing must add considerable impetus to the growth in private cars both with regard to use and ownership. By far, the greater part of vehicle use in Egypt is concentrated in the urban areas. Hence an overall increase in fuel prices could have a significant impact on excessive private car use in the urban areas; in particular, in Cairo. Also pressure for heavy investment in transport infrastructure would be relieved. An added advantage would be the reduction in domestic fuel consumption, thus releasing more oil for export and assisting badly needed foreign exchange earnings. The proper pricing of fuel in other countries is likely to lead to similar benefits. VEHICLE OWNERSHIP RESTRAINTS
An even more general restraint device is to inhibit vehicle ownership through high import duties, purchase taxes or registration and annual licensing fees. These can be effective in reducing the severity of transport problems by raising ownership costs and making cars systematically less available. Like user taxes, vehicle ownership restraints are insensitive to location and times of use. In practice, ownership restraints are likely to do little more than slow down the growth in vehicles; as income levels rise, moreover, ownership taxes will have to be periodically adjusted upward to remain effective. Of the various ownership restraints available, high an-
nual licensing fees, by providing periodic charges that are not recovered on the resale of vehicles, are probably the most effective. Purchase taxes and other acquisition taxes on new cars are inclined to be reflected in resale values and may be seen by a few purchasers as an investment. But for the majority, high purchase taxes will have a considerable effect on their ability to buy new cars. A side effect of this is that the retention and use of older cars may be encouraged; these are likely to be less safe and break down more frequently, thereby adding to congestion levels. In order to offset these tendencies, special incentives to replace older cars or inspection procedures can be implemented. Similarly, high penalties for traffic infringements and obstructions may suppress journeys in congested areas by older, less reliable vehicles and thus lower any adverse impact on safety and traffic flows. While many countries apply various forms of taxes on vehicles and fuel, the primary objective usually is to raise revenue or to reduce foreign exchange expenditure. Nevertheless, such taxes undoubtedly help to restrain vehicle use and reduce congestion, even though this may rarely be the declared intention. A country which effectively applies both user taxes and vehicle-ownership restraints is Korea. Here the use of private cars is discouraged through heavy ownership and user taxes and is complemented by the provision of a very comprehensive public transport network. While total acquisition taxes at about 60% of cost are not particularly high on world standards, annual vehicle tax is over US$400, and the price of gasoline is extremely high at US.‘M4.50/gal(1985). By contrast, commercial vehicles (in particular, buses) are encouraged by very low taxes (purchase taxes 15% of cost; annual tax US$SO). At the level of per capita income, currently Korea has one of the lowest automobile ownership rates in the world (6 cars per 1000 population in 1983). However, this situation may not last since there is pressure to reduce taxes on private cars in order to encourage the national auto industry. If this takes place, the use of private cars could be greatly stimulated, and city authorities will have to introduce some other means of demand management or face worsening congestion and heavy investment in infrastructure. While it has to be accepted that user and ownership taxes may fall well short of providing the optimum or equitable solution to congestion, they can usually be applied relatively quickly within the framework of existing legislation and thus can provide an urgent stop-gap while more effective measures are being devised and implemented. This approach has been adopted by Hong Kong to deal urgently with serious congestion; very heavy financial restraints have been introduced pending the results of experiments with more sophisticated methods of demand management (Hong Kong Government, 1985b). REFERENCES
Hong Kong Government (198Sa) Electronic Road-f ricing Pilaf Scheme. Hong Kong Government Publications, Hong Kong. Hong Kong Government (1985b) A Fair Way to Go. Hong Kong Government Publications, Hong Kong. Churchill, A. with Huber K., Meldau E., and Walters A. (1972)
Road pricing and user restraint in developing countries Road User Charges in Central America. World Bank Staff Occasional Paper No. 15, Washington, DC. United Nations (1980) Patterns of Urban and Rural Population Growth. United Nations, New York. Walters A. A. (1968) The Economics of Road User Charges. World Bank Staff Occasional Paper No. 5, Washington, DC.
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World Bank (1975) Urban Transport. Sector Policy Paper, World Bank, Washington, DC. World Bank (1986) Urban Transport. World Bank Policy Study. Washington, DC. Yee J. (n.d.) Area-Liccnring Scheme in Singapore. Singapore Public Works Department Publications, Singapore.
0191-2607/86 SUO+.M) 0 1986 Pcrgamm hmals L.td.
ROAD PRICING AND USER RESTRAINT: OPPORTUNITIES AND CONSTRAINTS IN DEVELOPING COUNTRIES A. T. ARMSTRONG-WRIGHT Water Supply and Urban Development Department,World Bank, Washington, DC 20433, U.S.A. Abstract-Urban traffic congestion is growing most rapidly in the developing world, and it is here, mainly because of infrastructureand resourceconstraints,that traffic restraintis likely to be most urgentlyrequiredin the near future. This paperexamines the specific problemsof developing countriesand the attemptswhich have been made to introducepolicies of road pricing in a number of their cities. The findings are that, given the conditions prevailing, a numberof fiscal restraintpolicies offer at least a partialsolution. Road pricing is found to be technically feasible, but its wider use is likely to be limited for some time by political factors. Thus second-best policies that gradually move towards more effective restraintsare likely to be the best option in many countries. INTRODUCTION In 1950 there were only three cities in developing coun-
tries with populations in excess of four million. They were Shanghai, with 5.8 million people, Buenos Aires, with 5.3 million, and Calcutta, with 4.4 million. By 1980, however, there were more than 20 cities whose populations topped four million, and by the end of the century there are expected to be at least 60 cities. Indeed, more than 20 cities in developing countries are forecast to have populations of more than 10 million each by the year 2000 (United Nations, 1980). The rate of urban growth has been especially rapid in countries that have traditionally been largely rural. The urban populations in the least urbanized countries in Africa, for example, appear likely to quadruple between the year 1980 and 2000. But in absolute terms, the Asian countries are where the largest growth in urban population is taking place. India is a particularly notable example. There the total urban population is currently expanding at a rate of more than 600,000 people every month. These unprecedented rates of urban growth create a corresponding or even higher increase in the demand for transport. Cost of transport has also risen sharply, particularly where there has been a swing from pedestrian to motorized trips. In developing countries, it is not uncommon to find 5-10% of household incomes spent on transport; in some cities it is more than 15%. Also city governments usually spend between 15% and 25% of their annual budgets on transport investments and operations. Increasing demand and increasing costs of urban transport clearly create a heavy burden on resources and create considerable problems for city authorities and users. The sheer speed with which demand and costs have grown in developing countries has often overwhelmed institutions responsible for transport; many of which are ill-equipped to cope with the changing situation. But despite the serious implications, demand has been allowed to grow virtually unrestrained so that transport infrastructure and services in many cities have become severely overloaded. This is likely to create pressure for expansion of the urban
transport network and, in some cases, unneeded investment in infrastructure. A primary reason for excessive traffic is that users rarely pay the true cost of road use. For example, a private car user usually pays only the direct costs of operating his vehicle, yet when he joins traffic crawling along a congested road he reduces the speed and increases the costs to all other users on that road. If congested roads are not to be used excessively, then there is a need for some form of road pricing so that costs and benefits are brought more closely into balance. While the need for road pricing has long been recognized (Walters, 1968), its introduction as an effective means of controlling congestion in urban areas faces formidable technical, administrative and political problems. For a system to be reasonably effective, charges to individual users would need to be related to the amount of use of congested streets and to the degree of congestion. These will vary for different locations, times and vehicles, and charges may prove difficult to calculate. Also the application and collection of charges will be a major problem. In most urban areas it is likely to be impractical to collect charges on streets as they arise (for example the use of toll booths might well aggravate congestion). It would seem necessary to devise some means of identifying individual vehicles in motion and recording their movement through segments of the congested area. This information would then have to be conveyed to an accounting and billing system. While many thousands of vehicles and movements would be involved and the collection of charges a mammoth task, the billing system, for example, could be similar to that for the collection of telephone charges. Obviously enforcement would be a major concern. Any system would have to be designed to make it possible to identify vehicles that evade charges; equipment would have to be proofed against tampering. The system would also have to cope.with unintentional infringements, errors of recording and other anomalies, if it is not to come into disrepute with the public. Above all else, the introduction of the system would have to overcome the natural 123
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A. T. ARMSTRONG-WRIGHT
aversion of motorists to direct payment for a facility which has traditionally been free or at least perceived as being free. Also opposition to the loss of privacy due to the element of surveillance that would be involved would need to be overcome. These formidable obstacles have been tackled by the Hong Kong Government. For many years Hong Kong has been subject to rapid growth in the use of motor vehicles and a serious spread of congestion. From 1976 to I98 1 the numbers of private cars grew at a rate of 13% per annum, resulting in a density of about 280 vehicles for every kilometer of road-the highest concentration of vehicles in the world. Faced with a deteriorating traffic situation, the Hong Kong Government in early 1982 decided to apply severe financial restraints on the ownership of private cars. It recognized this as a very crude and indirect approach to the control of private car use; a stop-gap while a more effective and equitable method was devised. After an exhaustive examination of various options (including the Singapore area-licensing scheme described later in this paper), the government decided to pioneer electronic road pricing (Hong Kong Government, 1985a). The system involves the fitting of all vehicles with an electronic number plate (ENP) about the size of a video cassette tape. It is designed to be simple to fit, robust and tamperproof. Electronic loops buried under the road surface at each charging point collect encoded information about passing vehicles via the electronic number plates and transmit this data, together with the time and place, to a central computer. Charges, which will be displayed at each charging point, could vary depending on the time and location of the charging point. The appropriate fee will be recorded on the vehicle’s account, and bills will be presented for payment monthly. If a driver wishes to query his account he will be able to obtain a detailed statement of every charge. At a selected number of key locations, cameras will automatically photograph vehicles with defective or improperly operating ENPs for enforcement purposes. Initially, a pilot scheme was undertaken involving only a limited area and some 5000 vehicles mainly in the government fleet. Although the scheme has proved to be technically feasible it has encountered strong political opposition, and a decision to introduce the system as a whole will only be taken when the government is satisfied that electronic road pricing is the only appropriate SOlution. Although elements of the Hong Kong system may prove to be suitable for use elsewhere, almost certainly the introduction of similar systems in other cities would require careful study and design to meet the different conditions likely to be found. It is likely to be some time before such systems have been sufficiently developed to be suitable or acceptable for general application. Fortunately, less sophisticated demand management schemes (World Bank, 1986), well within the capability of cities in developing countries, will often suffice or at least greatly alleviate congestion problems. As discussed be-
low, these alternatives to comprehensive pricing solutions are unlikely to be optimal, but nevertheless they provide reasonably worthwhile results. AREA LICENSING
A form of road pricing that has been put into practice and has proved to be effective is a system called area licensing, in which charges are applied to low-occupancy vehicles entering the congested area during rush periods. The desired effect is to reduce congestion and achieve more efficient use of limited road space. To this end the system encourages greater use of public transport and shared private cars, and discourages unnecessary journeys during rush periods. For the system to be successful, public transport has to be adequate and suitable for handling motorists and passengers diverted from private cars. It is necessary to provide some means of prepayment; collection of charges at entry points would likely increase congestion. Vehicles that have paid the charges need to be readily identified in some way and enforcement has to be sufficiently effective to avoid evasion of charges. Alternative routes of adequate capacity have to be available for traffic that is diverted from the congested area. Also to facilitate area licensing, the road layout has to permit the isolation of the restricted area. This has to be achieved without the need for an excessive number of entry points on the one hand and without unduly impeding traffic flow on the other. Clearly of considerable bearing on the success of any such scheme will be decisions on the hours of operation and charges to be applied. To date, Singapore is the only city to have actually applied area licensing (Yee, n.d.). In 1975, in order to combat traffic problems that were progressively becoming more acute, the Singapore Government introduced a scheme to restrain the use of private cars. In this scheme, which has achieved a large measure of success, a charge is applied to low-occupancy vehicles entering the central business district (CBD) during the morning rush periods (7:30 a.m.- lo:15 a.m.). A cordon around the CBD demarcates the extent of the restricted area. Vehicles enter this area at clearly marked entry points and low-occupancy private cars are required to display a special area-license disk for which a fee is charged (US$250/day or US$SO/month). Private cars with four or more occupants, goods vehicles and buses, are exempt from paying the area-license fee. Included in the scheme was the provision of cheap car parks at the periphery of the license area with shuttle bus services to the city center, designed to attract motorists from their cars. At the same time, parking charges within the restricted area were raised substantially to further discourage the use of private cars. Reducing the rapid growth in the ownership of private cars was considered to be a vital element in the success of the scheme and has been achieved by the imposition of high annual license fees for these vehicles. An important part of the scheme has been the provision of alternative routes for through traffic. Public acceptance of the scheme coupled with effective enforcement has resulted in a low incidence of offences against the scheme.
Road pricing and user restraint in developing countries
A considerable measure of success of the scheme can be attributed to the government’s recognition of the benefits and the will to overcome the difficulties of introducing a scheme of this type. A flexible approach was adopted with the government responding quickly to problems that arose at the start of the scheme. These included serious congestion each day immediately after the end of the restricted period which initially was from 7:30 to 9:30 a.m. Also the park and ride arrangement proved to be unpopular with motorists. This prompted the redeployment of the shuttle buses to routes linking residential areas to the city center. Fears that the scheme might adversely effect business and other activities have generally not been substantiated. Any impact that the scheme may have had on land values, land use and the environment, has been largely eclipsed by other factors in the economy. The effect of the scheme was a dramatic decrease in private cars entering the restricted area during the restricted period, prompting suggestions that the fees were pitched too high. But despite initial minor difficulties, the scheme stimulated the use of public transport and shared vehicles and substantially reduced congestion. Furthermore, the greatly improved traffic conditions experienced during the working day in the CBD have been sustained to the present time. However, during the evening peak period, which is free from restriction, main roads in and around the CBD are heavily congested. The authorities are overcoming this problem by improving alternative cross-town routes, and there is a possibility of imposing evening restrictions. Clearly, the scheme has achieved its main objectives and has proved to be very cost effective and easy to administer. While it would undoubtedly require modification and adaption for use elsewhere, the scheme provides a valuable model for cities faced with serious traffic congestion. Although successful in Singapore, area licensing has proved to be difficult to introduce in other countries. With doubts that a radical system of this type will work in their cities, and fears of public opposition, authorities have been reluctant to embark on area licensing, despite its clear advantages for dealing with congestion. In the case of two cities, Kuala Lumpur and Bangkok, where steps have been taken to introduce area licensing, initial setbacks have delayed implementation. In the case of Kuala Lumpur, an area-road-pricing scheme was included in the city’s second urban transport project financed by the World Bank. However, implementation has been deferred by the government because of the prior need to improve public transport and to develop the inner ring road as an alternative route for through traffic. Also the success of other road improvements have, at least for the time being, reduced the pressure to deal with the congestion problem in the central area. The scheme is again being considered as part of the Master Plan Transportation Study for the city. Similarly, area road pricing was included in the Bangkok Traffic Management Project, also financed by the World Bank. In this case, implementation of the scheme has been deferred by the government because of second
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thoughts as to its political impact and effectiveness and the need to reexamine the technicalities. This reevaluation is being undertaken as part of a comprehensive review of transport in Bangkok. Despite these delays and the obvious difficulties with schemes of this type, in many situations area road pricing would probably provide the most cost-effective and practical means of rationing limited road space, and reduce demands for costly expansion of the transport infrastructure. PARKING RESTRAINTS
Another effective measure to achieve better use of limited road space is the application of special charges for parking. As with other restraints methods, the aim is to reduce entry of cars into congested locations during rush periods, but at the same time avoiding interference with business activities, shopping, etc. This can be achieved by some form of differential parking charges. For example, by setting the charges comparatively low for an initial short period, and applying progressively higher charges for longer periods, commuters, who are longterm parkers, would pay substantial charges and be discouraged from parking in the area. On the other hand, people with business appointments and shoppers who need short-term parking are encouraged, they benefit from both lower charges and the greater availability of places because of more rapid turnover. This approach to parking proved to be successful when adopted in Singapore and is seen as an important contribution to the success of the area licensing scheme. Parking restraints are inclined to give rise to substantial increases in illegal parking and therefore need to be accompanied by strict enforcement of regulations. High parking charges may also encourage additional trips during the peak period (as in the case of people being driven to work in the mornings by other family members, who then return home and repeat the journey in the evening). In addition, parking controls may create many unproductive trips, for example, when drivers circulate in the CBD waiting for the passengers or looking for parking places. These various side effects may add substantially to congestion if allowed to develop. Furthermore, parking controls do not deter through-traffic which is often a primary cause of congestion in city centers. As a result, parking may be more effective as a restraint measure when it forms part of a more comprehensive demand management scheme, as in the case of Singapore. USER TAXES
Vehicle use may also be restrained through user taxes imposed on fuel, tires, spare parts, etc., thus adding to the operating costs in relation to the distance travelled (World Bank, 1975; Churchill er al., 1972). While potentially restraining total usage, these taxes will not affect where and when vehicles are used. In particular, they do not differentiate between usage during peak and off-peak periods or in congested or noncongested areas. However, although lacking in finesse, user taxes, if
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pitched sufficiently high, provide an overall dampening effect on the growth of vehicle use and, in turn, on the level of congestion. While a variety of user taxes may be available, some have side effects which mitigate against their use. For example, although a tax on tires may provide a restraint directly related to the amount of vehicle use, it can give rise to the use of unsafe tires. Similarly, a tax on spare parts may lead to poor maintenance, breakdowns and accidents, and hence tend to increase rather than reduce congestion. To be effective, these particular taxes would need to be associated with comprehensive vehicle inspection programs which may prove to be difficult and costly to introduce. On the other hand, a fuel tax usually is comparatively simple to administer and also has a direct relationship with the amount of vehicle use. It is therefore attractive as a means of restraint. However, some form of exemp tion needs to be provided for fuel to be used for buses and trucks, if these forms of transport are not to be restrained. To avoid distorting the benefits of different types of fuel, there is a need to vary the tax rate with regard to the performance of each. Only a few countries apply fuel tax for the specific objective of restraining vehicle use to control congestion. In fact, in a number of countries fuel charges are set below world market prices, which may unintentionally encourage vehicle use. Such a situation exists in Egypt. Rapid growth in private cars in recent years ( 17% per annum) has created very serious congestion throughout the central area of Cairo with prospects of much worse to come. However, there is little or no restraint applied to the use of private cars. Although the domestic price of gasoline has been increased in recent years, it is still only about 60% of world prices, while diesel fuel is as low as 20% of world prices. Such underpricing must add considerable impetus to the growth in private cars both with regard to use and ownership. By far, the greater part of vehicle use in Egypt is concentrated in the urban areas. Hence an overall increase in fuel prices could have a significant impact on excessive private car use in the urban areas; in particular, in Cairo. Also pressure for heavy investment in transport infrastructure would be relieved. An added advantage would be the reduction in domestic fuel consumption, thus releasing more oil for export and assisting badly needed foreign exchange earnings. The proper pricing of fuel in other countries is likely to lead to similar benefits. VEHICLE OWNERSHIP RESTRAINTS
An even more general restraint device is to inhibit vehicle ownership through high import duties, purchase taxes or registration and annual licensing fees. These can be effective in reducing the severity of transport problems by raising ownership costs and making cars systematically less available. Like user taxes, vehicle ownership restraints are insensitive to location and times of use. In practice, ownership restraints are likely to do little more than slow down the growth in vehicles; as income levels rise, moreover, ownership taxes will have to be periodically adjusted upward to remain effective. Of the various ownership restraints available, high an-
nual licensing fees, by providing periodic charges that are not recovered on the resale of vehicles, are probably the most effective. Purchase taxes and other acquisition taxes on new cars are inclined to be reflected in resale values and may be seen by a few purchasers as an investment. But for the majority, high purchase taxes will have a considerable effect on their ability to buy new cars. A side effect of this is that the retention and use of older cars may be encouraged; these are likely to be less safe and break down more frequently, thereby adding to congestion levels. In order to offset these tendencies, special incentives to replace older cars or inspection procedures can be implemented. Similarly, high penalties for traffic infringements and obstructions may suppress journeys in congested areas by older, less reliable vehicles and thus lower any adverse impact on safety and traffic flows. While many countries apply various forms of taxes on vehicles and fuel, the primary objective usually is to raise revenue or to reduce foreign exchange expenditure. Nevertheless, such taxes undoubtedly help to restrain vehicle use and reduce congestion, even though this may rarely be the declared intention. A country which effectively applies both user taxes and vehicle-ownership restraints is Korea. Here the use of private cars is discouraged through heavy ownership and user taxes and is complemented by the provision of a very comprehensive public transport network. While total acquisition taxes at about 60% of cost are not particularly high on world standards, annual vehicle tax is over US$400, and the price of gasoline is extremely high at US.‘M4.50/gal(1985). By contrast, commercial vehicles (in particular, buses) are encouraged by very low taxes (purchase taxes 15% of cost; annual tax US$SO). At the level of per capita income, currently Korea has one of the lowest automobile ownership rates in the world (6 cars per 1000 population in 1983). However, this situation may not last since there is pressure to reduce taxes on private cars in order to encourage the national auto industry. If this takes place, the use of private cars could be greatly stimulated, and city authorities will have to introduce some other means of demand management or face worsening congestion and heavy investment in infrastructure. While it has to be accepted that user and ownership taxes may fall well short of providing the optimum or equitable solution to congestion, they can usually be applied relatively quickly within the framework of existing legislation and thus can provide an urgent stop-gap while more effective measures are being devised and implemented. This approach has been adopted by Hong Kong to deal urgently with serious congestion; very heavy financial restraints have been introduced pending the results of experiments with more sophisticated methods of demand management (Hong Kong Government, 1985b). REFERENCES
Hong Kong Government (198Sa) Electronic Road-f ricing Pilaf Scheme. Hong Kong Government Publications, Hong Kong. Hong Kong Government (1985b) A Fair Way to Go. Hong Kong Government Publications, Hong Kong. Churchill, A. with Huber K., Meldau E., and Walters A. (1972)
Road pricing and user restraint in developing countries Road User Charges in Central America. World Bank Staff Occasional Paper No. 15, Washington, DC. United Nations (1980) Patterns of Urban and Rural Population Growth. United Nations, New York. Walters A. A. (1968) The Economics of Road User Charges. World Bank Staff Occasional Paper No. 5, Washington, DC.
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World Bank (1975) Urban Transport. Sector Policy Paper, World Bank, Washington, DC. World Bank (1986) Urban Transport. World Bank Policy Study. Washington, DC. Yee J. (n.d.) Area-Liccnring Scheme in Singapore. Singapore Public Works Department Publications, Singapore.