Friday, 10 December 2010

Tauranga: New Zealand's toll road capital got one wrong

There have been very few toll roads in New Zealand's recent history, but for some reason the city that seems to have had the greatest interest in tolling is not a major one, but a relatively fast growing provincial town called Tauranga (population today of around 120,000).   Outside Tauranga, only one other city (Auckland) has had a toll road in the past 25 years.

Its first project was a very successful harbour bridge, which dramatically shortened (halving) the driving time between Tauranga City Centre and the neighbouring upmarket suburban district of Mt. Maunganui (which is also the locality of the Port of Tauranga, one of New Zealand's most dynamic port companies).   Between 1988 and 2001 it was tolled, after which the tolls had fully paid down the debt and interest (and some) of the bridge and tolls were removed.  The result of removing the toll was an 18% increase in traffic across the bridge (with only a 7% reduction in traffic count on the alternative route) which is hardly surprising.  In fact the continued increase in traffic was such that the bridge and its approaches were increasingly congested.  A proposal to toll the bridge again to fund a duplication of capacity and some grade separated approaches was cancelled, because the government of the day needed support from a minor political party, whose leader was then the MP for Tauranga (and who opposed tolls).  (The duplicated bridge has recently opened).

The third project is the forthcoming Tauranga Eastern Link, being led by central government, it is a motorway bypass 23km long which is to include electronic free flow tolling, entirely ANPR based.  It is a four lane motorway that bypasses one town and a rather tortuous stretch of single carriageway.  

Tolling is specifically to help finance the road, which is also being funded from conventional road taxes (fuel tax and road user charges (weight/distance charge on heavy and diesel vehicles)).

The second project is the one that has gone wrong.  Known as Route K, it was commissioned by the Tauranga City Council as a 5 km single carriageway (1 lane each way) highway bypass of its southern suburbs.  It is located on Google Maps as Takitimu Drive between Route J and State Highway 29 only (the northern half of Takitimu Drive is the untolled approach to the Harbour Bridge).

Tauranga City Council commissioned it as a fully toll funded road, but the problems with it were rather apparent from the start.  It cost NZ$45 million (US$33.7 million) to build, but has lost money every year it has been in operation since 2002.  Tauranga City Council now owes NZ$55 million on the road, and it can neither sell it nor will central government take over this liability.  Why has it failed?

First the route it bypassed wasn't particularly congested (or rather the routes, as there are two parallel suburban main roads).  It was primarily expected to be used by residents of growing southern suburbs, which haven't grown, and the time advantage frankly wasn't good enough for a journey this short.  

Route K is between the Pye Pa Bypass and the SH2 Northern Corridor.
Secondly, the route itself was forecast to need 10,000 vehicles a day to break even.  The fact the road is a single carriageway highway, that is not a crossing should be a clue as to whether enough revenue can be generated from tolls to pay for it.  Furthermore, the road went through analysis according to the Economic Evaluation Manual of the then funding body - Transfund New Zealand - and came out with a benefit cost ratio barely over 1.  That was why it was not funded with other road projects because it was poor value for money.   That tells you that no only could it not be justified from a national economic appraisal point of view, but users also perceived it was not worth paying for to use.

Actual traffic volumes are only 4840 daily,  even that is a 28% increase on a year ago.   Assuming all of those vehicles paid fuel tax (not true but just for argument's sake) and were relatively inefficient, they would only generate another NZ$295,000 p.a. if it was shadow tolled.

So Tauranga has a problem.   It borrowed money and built a road that doesn't have enough traffic and is tolling users and has less than half the demand necessary to break even.   The tolls are not high at NZ$1 (US$0.74) for cars and up to NZ$ 4 (US$3) for trucks, and the Council struggles to raise the tolls by 50%.   It is a manual tolling system with a cheap bespoke tag system that appears to have low takeup (and with a NZ$2 monthly rental for a tag and no discount the incentives to use them are low).

What it shows is the mistake of modelling demand based on assumptions about value of time that do not take into account the cost to users of engaging the toll transaction.  Quite simply put, motorists are far less likely to part with money for a toll than money for another discretionary purchase, particularly if they do not part with tolls regularly elsewhere (After all Route K opened a year after the Harbour Bridge toll was abolished).  In particular, if the new road doesn't bypass particularly congested routes, its appeal will be limited.

Demand has increased recently for two reasons, first the duplicated and improve Harbour Bridge corridor which leads to Route K has meant that it is now part of a far less congested major corridor to the Port, secondly the southern end of Route K is connected to the recently opened Pyes Pa Bypass, which itself comprises a recently improved secondary highway to the major town of Rotorua.  In other words, the road itself was built before its time.

As Tauranga grows and the attractiveness of the route given the roads either end of it, becomes more apparent, then the road will become viable.  Meanwhile a Council is stuck with a gamble, based on poor forecasting and assumptions about revenue! Here is a newspaper article explaining the council's troubles.

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