UNIVERSIDAD POLITÉCNICA DE MADRIDTRANSPORT RESEARCH CENTEREXECUTIVE REPORT:ANALYSIS OF THE JAPANESE TOLL
EXPRESSWAY SYSTEM IN THE FRAMEWORKOF THE CURRENT TREND OF THE TOLLROAD BUSINESS IN THE WORLD

José Manuel Vassallo
November, 2008

129

INDEX1.

INTRODUCTION.............................................................................................................................169

2.

OBJECTIVES OF THE REPORT..................................................................................................169

3.

THE JAPANESE TOLL EXPRESSWAY SYSTEM....................................................................170
3.1 BRIEF HISTORY........................................................................................................................170
3.2 THE PRIVATIZATION PROCESS .................................................................................................171

4.

THE CURRENT TREND OF THE TOLL ROAD BUSINESS IN THE WORLD ...................172
4.1
4.2
4.3
4.4
4.5

5.

PRIVATIZATION OF NETWORKS IN FRANCE, ITALY AND JAPAN ...............................................170
THE CONCESSION APPROACH IN SPAIN AND LATIN AMERICA .................................................170
SHADOW TOLL AND VALUE FOR MONEY IN THE UNITED KINGDOM ........................................170
THE PRIVATIZATION OF PUBLIC ASSETS IN THE UNITED STATES ................................................ 9
FINAL REFLECTIONS ................................................................................................................. 11

STRATEGIC ANALYSIS OF THE JAPANESE TOLL EXPRESSWAY ORGANIZATION . 12
5.1 STRENGTHS AND WEAKNESSES ................................................................................................ 12
5.2 CHALLENGES FOR THE FUTURE ................................................................................................ 14

6.

FINAL CONCLUSION .................................................................................................................... 15130

1. INTRODUCTION
The Japanese Expressway Holding and Debt Repayment Agency of Japan(JEHDRA) invited Professor Jose M. Vassallo from the Transport ResearchCentre of the Universidad Politécnica de Madrid to visit Japan between
September 28th and October 5th 2008. The main goals of his visit were:
To give two lectures, one in Tokyo and the other in Osaka, to JEHDRA
officials and personnel from the Japanese Expressway Companies, about
the current trends of the toll road business in the world.
To discuss with executives of JEHDRA the current organization andmanagement of toll expressways in Japan.
To meet with the six private companies in charge of managing andoperating the toll highway network in Japan (East NEXCO, West NEXCO,
Metropolitan Expressway Company Ltd., Hanshin Expressway Company
Ltd., and Honshu-Shikoku Expressway Company Ltd.).
To write a final report including observations on the present situation of toll
expressway management and financing in Japan.
This report fulfils the last requirement required by JEHDRA from Professor
Vassallo.

2. OBJECTIVES OF THE REPORTThe objectives of this report are the following:
Analyze the toll expressway system in Japan, paying special attention to
the privatization process that took place a few years ago.
Provide an overview of the current trend of the toll road business in theworld, particularly regarding the participation of private companies indesigning, building, funding, maintaining, and operating toll highways.
Give some advice about the future challenges regarding the organizationof the toll expressway business in Japan.
The sections of this report follow the objectives outlined above. First, I start with adescription of the Japanese toll highway system. Second, I outline the current
trends in the toll road business in the world. Third, I report the results of ananalysis of some strengths and weaknesses of the Japanese system where I
identify recommendations for the future. Finally, I end with an overall conclusion.

1313. THE JAPANESE TOLL EXPRESSWAY SYSTEM
In this section I summarize the evolution of the toll expressway system in Japan.
First, I give a brief history of the road development in Japan. And second, I makean analysis of the privatization process.

3.1 BRIEF HISTORY
The first seven arterial roads in Japan (Shichidoekiro) were built in and after theend of the 7th century connecting the capital and the outlying regions. At the endof the 12th Century, a radial road network called Kamakura Kaido wasconstructed around Kamakura City, which was the first samurai fiefdom. In the
17th Century under the Edo regime of Tokugawa, some roads were improved andorganized into five arterial roads connecting Edo and other regions.
In the 19th Century modernization started in Japan when it opened its ports toforeign trade. During the Meji era (1868-1912) most of the budgetary funds wereallocated to finance the railways. In 1923, the Great Kanto Earthquake hit anddestroyed Tokyo. The restoration plan pushed by the government of the time left
little resources available for funding new roads. Thus, the road network condition
was still poor when the Second World War started. In 1945, right after the Second
World War, the road network condition in Japan was in an even worse state.
In the aftermath of the Second World War, Japan had to tackle the reconstruction
and improvement of its road network intending to foster industrialization mostly
around heavy industries. In 1953, a special fund for financing roads wasestablished. Since then, fuel taxes and other vehicle-related taxes have been
earmarked for road works. This fund was designed at the national and local level.
The national fund is financed by resources from gasoline tax, liquefied petroleum
gas tax, and motor vehicle tonnage tax. The local funds are financed from taxes
transferred from the central government (local road transfer tax, motor vehicle
tonnage transfer tax, and so on), and from other local taxes—mainly light oil
delivery tax, and automobile acquisition tax.
In 1956, the Law Concerning Special Measures for Highway Construction wasenacted. This Law marked the establishment of the Japanese toll road system
originally devised to accelerate the construction of expressways by borrowing
funds to be repaid with the tolls collected from the users of the completed roads.
Since then, several companies were established as public entities for theconstruction and management of toll roads; in 1956, the Japan Highway Public
Corporation; in 1959, the Metropolitan Expressway Public Corporation; in 1962,
the Hanshin Expressway Public Corporation; and, in 1970, the Honshu Shikoku
Bridge Authority. Those companies were allowed to obtain funding from thepublic sector through the Fiscal Investment Financing Plan to fund their new
undertakings.

132

The tolls were established by the government depending on the needs to repay
the debt issued. This debt was mainly allocated for the construction of new roads
and the maintenance and operation of the existing roads.

3.2 THE PRIVATIZATION PROCESSIn 2005, the four highway corporations in Japan were privatized. Six newcommercial companies were established as a consequence of the privatization:
East NEXCO, Central NEXCO, West NEXCO, Metropolitan Expressway
Company Ltd., Hanshin Expressway Company Ltd., and Honshu-Shikoku
Expressway Company Ltd. In addition, the Japanese Expressway Holding and
Debt Repayment Agency (JEHDRA) was established as an independentadministrative agency owned by the Japanese government.
JEHDRA was established to fulfil three goals:
To ensure that the repayment of the debt incurred for financing theJapanese expressways was done within 45 years from 2005. The debt
includes both the debt of the former public corporations and the debt
necessary to undertake new projects during this period.
To grant adequate levels of safety and quality of service on the highways.
To disclose the relevant information in order to enhance transparency inthe accountability of business.
JEHDRA became the owner of the toll expressways already constructed. The
new assets constructed by each company are to be transferred to JEHDRA after
the completion of the construction, and, at the same time, the debt borne by thecompanies shall be accepted by JEHDRA. At this time, JEHDRA, which holds theexpressway assets, leases them to the private companies. The companies pay
JEHDRA the lease fees according to the terms and conditions established in theagreement. These lease fees basically come from the tolls received minus theexpressway maintenance and management costs. Consequently, the lease feesthat the companies pay to JEHDRA are variable depending on the level of traffic.
The revenue risk is hence transferred from the companies to JEHDRA andultimately to the Japanese government which is JEHDRA’s owner. Apart from thetraffic risk, JEHDRA holds the interest rate risk when the interest rate of the loans
is variable.
JEHDRA sets up agreements with each of the private companies establishingbusiness plans, lease fees and a debt repayment plan. These agreements
require the approval of the Minister of Land Infrastructure and Transport. When
repayment of the debt is made in full, the expressway will be transferred to theroad administration, and the tolls are expected to be removed.

133

The companies have scarce room to make profits since basically all the revenues
obtained from tolls are set first to cover the maintenance and operation costs andsecond to pay JEHDRA the lease fee. The only room the companies have to
make profits is by running other businesses related to the expressway operation(service areas, restaurants and so on) but in fact this is just a small part of thewhole activity of the expressway companies.
JEHDRA is able to obtain funding at low cost — annual interest rates between
1.4% and 2.7%. Two reasons explain this fact. The first one is the stability of thetoll revenues since most of them come from expressways with a long track recordof operation. The second reason is that JEHDRA is a public entity owned by theJapanese government. In fact, part of the debt issued is guaranteed by theJapanese government itself: the so called government guaranteed bonds.
JEHDRA has to repay also bonds which are not guaranteed by the government,
called FILP bonds, which have a slightly higher cost than the government
guarantee bonds.
Furthermore, with the approval of the Japanese government, JEHDRA can also
provide companies interest-free loans, which are funded with subsidies grantedby the national government. In addition, JEHDRA can provide subsidies for theconstruction, maintenance and operation costs of the expressways.

4. THE CURRENT TREND OF THE TOLL ROAD
BUSINESS IN THE WORLD
Tolls or other kinds of user charges to fund roads have been implemented all
around the world throughout the ages. In ancient Rome, for instance, some types
of user charges were introduced to fund the construction and maintenance of theroads. They included gate tolls for entering cities, crossing bridges, getting
through mountain passes, and so on. Along with those tolls, some earmarked
taxes were also implemented in Rome to the vehicles in compensation for thedust raised by carts or the affected pastureland.
In the last few years, the construction, maintenance and operation of roads havebeen mostly funded through three different means: general budgetary resources,
earmarked taxes allocated for special infrastructure funds, and in some cases,
tolls collected from road users.
Most of the tolls implemented in many countries were not initially associated withthe private operation of roads through concession contracts. Rather, tolls wereused by the governments either as a means of funding the maintenance andoperation of the highway network, or as a means of repaying the debt issued by
the government itself to fund the road construction investments.

134However, some countries—France, Italy and especially Spain—linked theimplementation of tolls to the private management of the whole project cycle,
from the conception of the project up to the funding and operation of the road by
applying the concession approach. This trend has been progressively adopted byother countries such as the United Kingdom, some Latin American countries(especially Mexico, Chile and Colombia), and more recently the United States
and the Eastern European countries. In the next section, I address the different
trends in the implementation of concessions and PPPs in the world.

4.1 PRIVATIZATION OF NETWORKS IN FRANCE, ITALY AND JAPANFrance, Italy and Japan have in common that they have traditionally implemented
tolls as a means of funding large scale highway networks in their countries, whichhave been mostly managed until recent times by large public-private orcompletely public companies (government-owned companies). These companies
have been traditionally subject to strict government control in decisions related tothe ownership of the companies, the toll levels to be set, the possibility of crosssubsidizing different projects and so on. However, in the last decade, thesecountries have started a privatization process intended to gain efficiency.
Toll highways in France began to be developed in 1955. Between 1955 and 1963
several public-private companies were created. The shareholders of thosecompanies were mostly local governments, chambers of commerce and main
cities. Unlike concession contracts in Spain, the concessions in France were notawarded competitively, which brought about less efficiency than in Spain.
In 1969 France established four new companies completely private, but three ofthem ultimately became public companies because of financial problems. The
only private company that survived was COFIROUTE. The French Government
created the public agency called Autoroutes de France, whose main objective
was to balance the financial accounts of the different companies through crossfunding.
The lack of efficiency in the management of the highways along with the pressure
imposed by the European Union to introduce competition in the provision of
infrastructure led France to initiate a process intended to privatize the threecompanies that previously belonged to Autoroutes de France: (ASF, APRR and
SANEF). These companies were already owned by purely private operators.
Italy was the first country to implement toll highways in Europe. The first one, theMilan – Los Lagos highway was launched in 1924. Like France, most of the toll
highways in Italy were managed by public companies. Since 1961, the Italian
government entrusted the public company Autostrade to manage a large part of
the toll highway network in Italy. The fact that Autostrade was a big company,

135

with both profitable and less profitable highway sections, enabled Autostrade to
implicitly cross subsidize different sections.
Like France, Italy has recently conducted an in-depth reform to achieve efficiency
through a greater participation of the private companies in managing toll
highways. Some shares of Autostrade were first publicly sold in 1987, and then in1999 the company was fully privatized. Moreover, ANAS, which used to be agovernmental entity, became a public company—managed on the basis ofcommercial rules—in charge of granting highway concessions. The tolls were set
up in the contracts of ANAS with the concessionaires although a formula wasintroduced to update the tolls over the years.
As already mentioned, Japan recently carried out a privatization programme of its
expressway network that were managed by four public companies since 1950. In
2005 six private expressway companies were established, which would leaseassets from the newly created Japan Expressway Holding and Debt Repayment
Agency (JEHDRA), an incorporated administrative agency of the Japanese
government. This privatization process seems to be only a first step since most of
the shares of the new companies are still owned by the government and public
sector companies.

4.2 THE CONCESSION APPROACH IN SPAIN AND LATIN AMERICA
The concession approach in Spain is very important for several reasons. First, itis the first purely private approach to fund and operate highways in the world.
Second, it has had a great influence in the concession mechanisms that havebeen implemented in Latin-America and more recently in North America. And
third, Spain has developed the most active industry of transport concession
companies in the world.
Below, I point out the main distinctive features that characterize the Spanish
concessions system:
A strict separation between the role of the government and the role of theprivate concessionaire is established. The government has the role ofprocuring the concession, establishing the contract terms and conditions toregulate the concession, and monitoring the fulfilment of the terms of thecontract. Concessionaires, on the other hand, have total freedom to design,build, fund and operate the concession within the framework defined by
the government in the concession contract.
A fierce competition is promoted in the procurement process in order toaward the concession. The Spanish model establishes competition in thetender as the key to force companies to be more innovative and efficient.
This is maybe the reason why Spanish companies are currently so strong
in the infrastructure market around the world.

136

Unlike many countries in the world, the tender is not based on negotiations
between the government and few preferred bidders selected in aprequalification process, but rather on the technical and economic offers
submitted by the bidders. This process is cheaper, shorter, and moreobjective than the negotiated procedure though the contracts are not ascomplete as they are when a negotiated procedure is used.
The bidders have to submit a financial plan in the tender, but they are notobliged to submit a definitive financial contract before the concession isawarded so the ultimate winner of the tender is allowed to close thefinancial contract after the concession is awarded. This fact substantiallyreduces the transaction costs for the bidders.
Traffic risk is often fully transferred to the private sector. However, in
recent years, concession contracts include mechanisms to share trafficrisk between the government and the concessionaire.
The role of the financial institutions, especially banks, is crucial in theconcession contracts in Spain since they participate not only as lenders
but also as shareholders of the concessions.
The Spanish approach has been successful in three ways. First, the strong
competition has brought about important efficiency gains. Second, the simplicityof the tender has enabled the government to speed up the time necessary tohave the highway available for the users. And third, a strong concession industry
has been promoted. However, Spanish concessions have also experienced
several problems. The main problem is perhaps the great number ofrenegotiations that eventually occurred because the aggressive forecasts of thewining bidder were not ultimately met. These renegotiations have createdimportant extensions to concession contracts. This means that in the end thefuture users of the roads will hold the risks of these renegotiations.
Some of the features of the Spanish concession approach have been adopted bymany countries, particularly Latin American countries such as Mexico, Argentina,
Chile and Colombia. Broadly speaking, highway concessions in these countries
fulfil almost all the distinctive features previously pointed out. However, each oneof these countries has developed their particular characteristics, which in somecases have even been adopted by Spain afterwards.

4.3 SHADOW TOLL AND VALUE FOR MONEY IN THE UNITED KINGDOMThe United Kingdom has been a very influential country in the last two decades inthe development of Public Private Partnerships in the World. Like the Spanish
concessions, the UK approach is based on a strict separation between the role of
the government and the role of the private sector. However, unlike Spain andmany other countries, the United Kingdom has not based its PPP approach on

137

charging a toll to the users but rather on paying to the private contractor from thebudget either in terms of the usage of the road (shadow toll) or in terms of thequality of operation of the road (availability payment).
The main distinctive features of the British approach are:
The revenues of the contractor do not come from the users but from thegovernment’s budget, and are paid on the basis of traffic (shadow toll) or
performance-based standards (availability payment).
The contracts are tendered competitively like in Spain, but they areawarded following a very different process. First a prequalification takes
place intending to choose two preferred bidders, which subsequently havea long negotiation with the government about the characteristics of thepotential contract. Once the negotiation with the preferred bidders has
finished, the government decides the most convenient offer: best and final
offer. This bidding process is longer and more expensive than the open
bidding process used in Spain. The main advantage though is that thecontracts resulting from this process are much more complete.
Unlike Spain, traffic risk is not fully transferred to the contractor. When the
shadow toll approach is used, a set of bands with shadow tolls varying withthe annual traffic volume are established in order to smooth the profile of
the revenue risk. When availability payment is used, the payment to thecontactor does not depend on traffic but on some performance indicators
fixed in the contract.
Unlike the Spanish concession approach, the preferred bidders are obliged
to present a financial plan before the contract is finally awarded. This
becomes very expensive for the bidders.
The British approach has worked quite well. Compared to Spain, fewer
renegotiations took place since the contracts were better defined and the financial
close was reached before the contract was awarded. However, unlike Spain,transaction costs were much higher and the time from the conception of the
project up to the definite award of the contract was much longer. Moreover, theprocurement mechanism adopted is less objective and probably less competitive
than the open procedure implemented in Spain. Another problem of the British
mechanism is that, at the end of the day, the revenues still come from the budget.

4.4 THE PRIVATIZATION OF PUBLIC ASSETS IN THE UNITED STATESThe United States has a short tradition of implementing public-privatepartnerships or concessions in the road sector. The reason that explains this fact
is that, in 1956, a Federal Highway Trust Fund was created to fund roads in the
United States. The revenues of the Federal Highway Trust Fund come from fueltaxes and other charges linked to the road sector that are earmarked to the Fund.

138

The Federal Highway Trust Fund is mostly aimed at funding roads, but it also
funds public transport projects in the main metropolitan areas.
In spite of this, in the last few years, the Federal Highway Trust Fund is becoming
unable to provide the necessary resources to maintain the network and build
additional roads. The main reason for the lack of resources is threefold. First, theefficiency gains of the vehicles have reduced the oil consumption and hence therevenues coming from fuel taxes. Second, in recent years the Federal Highway
Trust Fund has had a higher percentage of resources aimed at non-road activities.
And third, the costs of construction, rehabilitation, and maintenance haveincreased faster than the rate of inflation.
This is why concession contracts have boomed in the last few years in the UnitedStates. Most of the concessions or PPP initiatives have been launched by theState Governments. Whereas the Federal Government is responsible for the
global policy and providing funding for the roads, the State Governments aremostly responsible for the building of new highway projects.
The concession system in the United Sates and Canada has acquired some ofthe distinctive features of the Spanish concession system. However, unlike Spainand the United Kingdom, the main role of the government (in the case of theUnited States mostly local and State governments) has been to obtain as muchmoney as possible upfront by leasing already constructed assets (brownfieldprojects) rather than seeking alternative means to circumvent budgetary
constraints and increase efficiency.
The idea in the United States is hence to lease an already existing project to theprivate consortium that ultimately pays the largest amount of money upfront to be
granted the concession. This way, the government obtains as much money as
possible upfront to cover the government needs. Two examples of this kind ofprivatization are the Chicago Skyway Highway and the Indiana Toll Road
Highway, which were leased to the private sector for a long period of time close
to 100 years. The private consortiums made up of CINTRA and Macquarie paid
the governments US$1.839 billion and US$3.850 billion respectively. This trend
has been followed by many other States such as Colorado, Pennsylvania, Florida,
Virginia and Oregon.
The way in which concession contracts have been awarded in the United States
was strongly criticized by the Government Accountability Office of the Federal
Government of the United States. They argued that the States and local
governments, by wanting to obtain the largest amount of money upfront, did notlook after the public interest in the concession contracts, which can end up
harming the users.

139

4.5 FINAL REFLECTIONSThe ultimate objective of Public Private Partnerships in providing highways is toreach the highest efficiency for society. This efficiency means on the one hand toreach the best combination of cost and quality for the users, and on the other
hand, to charge the users according to the social cost they produce. At the sametime some issues such as regional and social equity should also be taken into
consideration.
To reach this efficiency, it is crucial that the role of the pubic and private sector
will be adequately defined from a twofold perspective: allocation of risk andincentives. However, reaching the optimum equilibrium is a difficult issue. If thegovernment intends to control everything to safeguard the public interest, theprivate sector will have little room to develop its skills to optimize the process.
However, if the government gives too much flexibility to the private sector in someissues, the public interest can be compromised in the end. The most effective
approach is therefore the one that enables the government or the regulator tolook after the public interest whilst at the same time gives enough flexibility to theprivate sector.
Along with efficiency, the government should also guarantee equity among users
and regions. Users of the most congested expressways situated aroundmetropolitan areas, who are wealthier than those in rural areas, should pay more.
Moreover, the government should also allow cross subsidies among expressways
situated in wealthy and poor areas. Contrary to what many people believe, it is
not necessary to have a single company in order to implement cross subsidies.
Some countries, such as is the case of Chile, establish the same toll levels in all
the highway concessions no matter what the profitability of the projects is. Then,the different concession projects are individually tendered. The concession
projects in wealthy areas are willing to pay a certain amount to the government tobe awarded the concessions, whilst the projects in poor areas need to request asubsidy to make the concession financially viable. Under this framework, thegovernment designs the toll levels in order that the payments made by someprojects offset the subsidies requested by other projects. Consequently, theconcession system ends up becoming financially neutral for the government.
Regarding the right allocation of risks and incentives among the different
stakeholders, there are some general rules. First, the risks should be managed
by the stakeholder who is best able to control them in order to align risk allocation
patterns and incentives. Second, the government should take on the risks that,being substantial for the economics of the concession, are unmanageable by theprivate sector. Third, the traffic risk should be shared between the government
and the concessionaire since no stakeholder can actually control this risk. In thisrespect, an interesting approach, which has been recently implemented in some140

concession projects, is the implementation of flexible-term contracts. Under thisapproach, if traffic is ultimately higher than expected the concession contract
duration will be reduced whereas if traffic is lower than expected the concession
duration will be extended.
In spite of the general rules described before, there is not a universal recipe sinceeach country should carry out this allocation according to its tradition, legal
system, characteristics of the industry, and so on. Until recently someapproaches, such as those implemented in France, Italy and Japan involved
excessive government participation in the sector. This has resulted in very little
efficiency due to a lack of competition at the tender stage and absence of any
incentives for companies to manage the infrastructure in such a way as to givethe best service to the end users. On the other hand, some approaches, such asconcession contracts in the United States, seem to have given too much flexibility
to the private sector which can end up causing problems for the government tosafeguard the public interest.
Two experiences that apparently are quite balanced are the concession contracts
in Spain, and the DBFO contracts in the UK. However, these experiences still had
some serious problems. In Spain there were many renegotiations caused by too
aggressive offers at the bidding stage. And in the United Kingdom users are still
not charged for using the roads, besides the negotiation procedure for tenders isslow and costly.
It is difficult, therefore, to design a perfect mechanism since all the measures
adopted have had both advantages and drawbacks. Moreover, if one tries toreproduce the experience of one country in another country this may fail badly
because institutions, legal systems and characteristics of the private sector are
not necessarily the same everywhere. In spite of this, it is always useful to learn
from the positive and negative experiences of other countries to improve theinstitutional framework in order to bring about the highest social efficiency.

5. STRATEGIC ANALYSIS OF THE JAPANESE TOLL
EXPRESSWAY ORGANIZATIONOn the basis of the previous sections, this section includes an analysis of theJapanese toll expressway system followed by some challenges and reform
proposals for the future.

5.1 STRENGTHS AND WEAKNESSESThe Japanese toll road system has important strengths:
The establishment of large toll expressway companies enables the crosssubsidization of different sections of the network, which promotes social141

and regional equity. The busiest sections, which are often situated in thewealthiest regions, subsidize the less busy sections, often situated in lessdeveloped regions.
The establishment of large companies may also prompt economies ofscale in the maintenance and operation of the whole network. The
companies can deploy their employees more efficiently; better use
maintenance machinery; more effectively run traffic control centres, and soon.
The creation of JEHDRA as an agency responsible for repaying the debt
issued to fund the construction of a network of expressways reduces thecost of funding new expressways in two ways. First, the creation of a poolin which both new expressways with risky traffic and existing highways
with consolidated traffic are put together contributes to reduce the cost offunding new greenfield projects since it is the pool of revenues rather than
the revenues of the project itself that in the end pays back the debt.
Second, JEHDRA is regarded by the lenders as a public authority who, inthe case of a revenue shortfall, will be supported by the government. Thisadvantage has the problem though that the revenue risk is transferred in acertain way to the government and ultimately to the taxpayers.
However, the Japanese system has also some weaknesses:
The shares of the private companies are mostly controlled by the public
sector. Consequently, the government is at the same time on both sides of
the contractual relationship. This situation may cause certain decisions,such as the level of the tolls or the maintenance standards of the network,
to be considered from a political perspective rather than efficiency or
quality of service. Moreover, when the principal and the agent of therelationship are broadly speaking the same institution, there is scarce
incentive for the government to be demanding with the companies.
The lack of competition in the tender does not encourage the companies tosearch for innovative measures to be more efficient neither does this push
the companies to reduce costs.
The fact that the expressway companies do not make profits by having
more traffic does not encourage them to implement commercial campaigns
or to undertake investments in order to motivate the users to use theexpressways.
The current relationship between JEHDRA and the companies does notinclude economic incentives in order to promote a better quality of service
in terms of improvement of safety ratios, reduction of congestion, and so
on.

142

The tolls are set up by the government as part of the transport policy
measures. This may cause tolls to fluctuate because of political or socialpressures. When tolls are established in a contract between a publicagency and a private company, the government has little room to change
the tolls because of political or social pressure.

5.2 CHALLENGES FOR THE FUTURE
In spite of the long economic crises experienced by Japan in the last decade;Japan is the second largest economy of the world right behind the United States.
However, Japan is striving to accelerate its economic development again so theexpressway network is still crucial to reach this goal.
Japan has already started a process towards a higher participation of the private
sector in the provision and operation of toll expressways in the country. However,there is still plenty of scope to go forward. The future of the management of thetoll expressway system in Japan should be conscious of and take into
consideration the advantages of the current system, but at the same time should
try to move forward towards greater efficiency. In this trend, the Japanese
government should, on the one hand, analyze the successes and failures of othercountries around the world. And on the other hand, try to respect the special
characteristics of Japan.
Below I point out some reforms that could be assessed jointly by the Japanese
government and JEHDRA regarding the organization and management of the toll
expressways in Japan in the future:
The expressway companies should try to move towards ownership byprivate companies instead of by government-owned companies in order toclearly separate public and private interests, responsibilities, and risk
allocation patterns.
The participation of private companies should be carried out throughcompetitive tendering in order for companies to have enough incentives tobe innovative and efficient.
The competitive tender should be based on the framework of a contract
between the public sector and the private companies that has to be ascomplete as possible. This contract should be careful in preserving the
public interest whilst at the same time gives enough flexibility to the privatecompanies to include their skills in being efficient when providing an
optimal quality of service.
The contracts should incorporate bonuses and penalties to reward or
penalize the quality of service provided by the private companies. This143

should necessarily include incentives to improve safety and reduce
congestion.
The contract should regulate the maximum tolls to be applicable, eventhough mark-ups can be introduced in case of congestion. The privatecompany however should be free to implement discounts to theexpressway users always below the maximum toll regulated in the contract.
The contract should allow expressway companies to enjoy certain profits
related to the level of traffic in order to incentivize them to attract more
traffic by commercial campaigns or new investment.

6. FINAL CONCLUSION
The main conclusion of this report is that even though Japan has already got an
outstanding toll expressway network, the government has still to step forward
towards a greater involvement of the private sector in the management andfinancing of the toll expressways.
The key for the success of public private partnerships is the right allocation ofrisks of responsibilities between the private and the public sector. This allocation
can not be the same in each country since each country should allow for its
specific characteristics, such as: culture, legislation, labour market, construction
market, and so on. However, this allocation should try to promote enoughflexibility to the private companies, and at the same time should safeguard the
public interest.
Japan has made a great advance in the last few years, but it seems that it tends
to lean towards the public sector side. In other words, the regulation and the
public interest may constrain the flexibility of the private sector to incorporate theirskills and abilities towards a more innovative and efficient toll expressway
management. In this respect, Japan should think to move in the near future
towards a greater involvement of the private sector in the toll expressway
business.

144