Monday, 8 August 2011

Uneconomic New Zealand toll road might be nationalised

I’ve written before about the loss-making toll road in the provincial city of Tauranga, New Zealand called Route K. Essentially it was a publicly financed toll road that proved not to attract enough traffic to pay down the debt. Its prospects have slightly improved thanks to a new bypass highway to the south of it, which makes it a more convenient route from the south of the city towards, the centre, but it is unlikely it will make enough of a difference. Route K is a 5km, single carriageway highway, which tells you enough that it is low volume route which always made it questionable as a viable toll road in the first place.  It cost NZ$45 million (US$37 million) to build the road, including buying the land, but debt on the road is now NZ$55 million (US$45 million).  It is only because local government owns it that it stays "solvent".

The Bay of Plenty Times reports that the Crown Agency responsible for the national state highway network, the New Zealand Transport Agency (NZTA), is in talks with the Tauranga City Council to “take over” the road, which presumably would need to include the debt to make it worthwhile for the Council. I expect the Treasury would be opposed.  So this would be a form of nationalisation of an albeit local government owned "asset".  The road would probably be declared a State Highway entitling it to full funding for maintenance and upgrades, whilst the toll may be retained to help offset the debt.

One small step that could be good for the Council would be for the NZTA to pay the Council for maintenance of the route, given the users of the road pay fuel tax and road user charges like everyone else for it, and that this revenue is not being applied to the road. That means the Council could use all net toll revenue for servicing the loan. Unless central government is feeling generous, Tauranga City Council (and ratepayers) face the ongoing burden, helping the case that private investment might have avoided this risk (because it is unlikely any private investors would have bothered had they done their sums right).

I recall that one reason Route K was toll financed by the Council was that the project didn't have a good enough benefit/cost ratio (I believe it was barely over 1:1) to justify full central government funding from the National Land Transport Fund.  That fund is similarly to hypothecated highway accounts elsewhere in the world, in that all fuel tax and road user charges (New Zealand's distance/weight tax charged on all vehicles over 3.5 tonnes and all diesel vehicles) and motor vehicle registration/licensing fee revenue goes into that fund, which is then distributed according to bids for funding from local authorities and the state highway manager.   Given Route K was considered a "poor investment" by the then funding agency Transfund, and there was no expected private sector interest, it gives a good indication that the road probably shouldn't have been built in the first place.

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