Why does San Diego want to buy a bankrupt toll road?

The South Bay Expressway has been a financial disaster in the world of private concession toll roads. It opened in 2007 as a new 10 mile stretch of tolled highway, but has never generated enough demand to be profitable enough to service its debts.  TollRoadsNews has a long list of reports on the project.

Where is it?

Its website says:

Beginning at SR-905 in Otay Mesa, the Expressway provides fast and convenient access to and from Mexico and communities across San Diego County.

It filed for bankruptcy in March 2010 and since then has been owned by the banks and federal government, which supplied the debt for the road. However, the San Diego Association of Governments is seeking to buy it. This is rather strange.

Why? Because the road is there now, working and providing service to users. It isn’t going to close down. The concession agreement hands it back to state ownership in 2042 regardless. In addition, SANDAG would presumably have to borrow money or raise taxes to buy it back. Unless it believes reducing or eliminating tolls on the road would create net economic benefits that outweigh the purchase, it seems like a very strange move indeed for a public body.

Another report quotes Gary Gallegos, Executive Director, saying the road is strategic and demand will be increasing – implying that it would be money making. He also said money to buy it back could come from an existing sales tax.

Bankruptcy court apparently valued the road at US$287 million, but it is apparently now generating an operating surplus. SANDAG thinks that as a result it wont be a bad investment, although I’d have thought it would not be a good investment if the return on capital is less than the cost of debt to buy it (or the interest gained from a bank deposit).  However, it is likely that the consortia of 10 banks that own 68% of the road will want out of it quickly, as will the US Department of Transportation which holds the other 32% because of loans it made to the previous owners.

Note: This was one dud investment for the Macquarie Group, which was at one time a 50% shareholder in the road.  It wrote off the entire value of the investment in 2009 according to the Bond Buyer.

French Ecotax truck toll appeal successful

It appears that France's distance based truck toll system is going to roll, once more.

Italian toll road operator, Atlantia, has produced a press release announcing that the French Council of State (appeal court) has overturned the decision by the lower court that had annulled the tender for the proposed "Ecotax" distance based toll for trucks to apply to government owned untolled motorways.

I previously reported on the suspension of the tender, the conflict of interest issue raised in the case and the decision to appeal the original court decision.

The Ecotax is intended to apply to all trucks over 3.5 tonnes in weight, on 12,000 km of highways and 2,000 of secondary roads, and would mean around 600,000 French trucks and 200,000 foreign trucks expected to have accounts.  The system was meant to be operational from 2013, but obviously now faces a delay of around 6 months.  Estimated revenue was around 1.2 billion Euro per annum, with charges based on distance at rates of between 8-14 Euro cents per km (US$0.11-US$0.20).

As a result, the Autostrade led consortium is the winning tenderer, as had been originally the case and confirmed the tender process was valid after previous claims of a conflict of interest between advisors RAPP Trans who were working for the government, but who had also undertaken work for Autostrade.  The contract is expected to be for 13 years and Autostrade will now be negotiating the final terms before signing the contract.

No doubt the French Government will be relieved.  The Ecotax is a new charge, so will be new revenue and the sooner it is operational the better for the government.

Of note is that the Ecotax will be a distance charge, with distances measured using GPS technology.  This will make it the third system based on GPS to charge for distance (after Germany and Slovakia), and the fifth system using GPS either to supplement another form of distance measurement (Switzerland) or as a voluntary option (New Zealand).   The objective of the French government is, in part, to rebalance demand between tolled and untolled highways, as there has been an issue of trucks choosing not to use the private and state owned toll roads in favour of the untolled parallel routes.

UPDATE:  More details on France's Ecotax here.

A replacement for fuel tax?

Eric Jaffe in the Infrastructurist discusses two options raised for replacing "the gas tax", which are in fact just one option that varies by scale.  He says:

In a recent article (PDF) in BNA’s Daily Report for Executives, Jack Schenendorf (an occasional contributor to National Journal’s Transportation blog) and Elizabeth Bell of the Covington & Burling law firm propose two alternatives to the gasoline tax: a ”Federal Interstate User Fee” for all interstate drivers, and a “Federal Motor Carrier User Fee” limited to commercial trucks.

The fuel tax wouldn't be replaced, certainly not initially, but supplemented by these fees. The proposals as Jaffe presents them are curious for their lack of detail and lack of consideration of consequences.

The technology proposed is essentially DSRC, as it it proposed that a tag and beacon system (EZPass being the one quoted) would be implemented, with charging at on and off ramps of all interstate highways.  It seems somewhat like the heavy vehicle charging systems already operational in Austria, the Czech Republic and Poland, which use overhead gantries to detect vehicles with tags (and also take number plate images).

Now just think about the scale involved in introducing such equipment on all of these across the United States.  It is technically feasible, but there are some major drawbacks:

1. Cost of installing gantries to do DSRC tolling on such a wide scale. Given the cost of a single gantry (which presumably has to have ANPR cameras to catch those with non functioning tags) could be anything from US$50,000 to US$150,000, the implementation costs on a nationwide scale are enormous, and could easily approach a billion dollars when communications and other infrastructure are included.

2. Diversion impacts of charging only on interstates. Obviously the answer to that is for states to be incentivised to charge their roads as well, to avoid diversion of traffic, but the negative short term impacts are considerable.  The obvious need is to charge across networks, and if states need to implement duplicate charging systems on their roads, it would easily be billions more.

3. If fuel tax remains, would the toll be high enough to make it worthwhile to collect?  Operating costs on a wide scale would inevitably decline, but a small increment of less than 2c/mile would almost be hardly worth it.

4. What of those not equipped for the toll?  The gantries would also need to include ANPR, so that number plates could be matched against those not paying through the tags.  As a result, there would be a huge exercise in chasing up unpaid bills across the country, and dealing with DMVs with poor quality vehicle ownership databases.

Certainly a transition from fuel tax is highly desirable, but a huge federal government run system would appear to be fraught with difficulties, particularly on such a scale.  It would be a nightmare to even do this for heavy vehicles alone.

Would it be better implemented by devolving power to collect revenue to the states, whether it be by fuel tax or a per mileage charge? Bear with me, because constitutionally what I am suggesting may not be possible, it’s just an idea.

At that point, states would be told that they would be responsible for collecting a set amount of revenue, based on statistics collected about actual traffic volumes on interstates. The states would be empowered to charge for distance, with a minimum amount to be paid to the federal government per mile (per type of vehicle even). If a state wanted to charge for its own roads then it could do as well, and of course it could contract out the collection and customer service aspects. If a state was uninterested in a distance tax, then it would still have to pay the money and collect it however it wished (e.g. fuel tax or annual registration fees). If the state refused to collect the money, then the federal government could contract another to implement it on federal highways.

In essence, I think the problem is that the network is too big and on too grand a scale to implement a single solution. I would strongly support a heavy vehicle only distance charge to be implemented nationwide, but initially as a voluntary option (with refunds of the fuel tax). With competitive service providers, it could be a way of managing risk (without being technology specific), but also provide a means to shift eventually to replacing fuel tax. Light vehicles would be the next, big step.

An alternative is for the states to pursue such charging and to piggyback off that, a reverse of what I described above.

In conclusion, what was suggested in the article is not ground breaking, but while barely thought out at all, it is in principle correct. A shift toward direct charging is desirable. Yet it is important for those who advocate that to not seek a silver bullet, for the transition away from fuel tax is going to be a long road.  The logical step would be to provide options for motorists to transition, to mandate an alternative for new vehicles, and to allow for diversity of options for payment and collection, as long as the right amount was collected.

Otherwise, it may be simpler to break up the Interstate highway network into a series of commercial companies, fund them with revenue from fuel tax now and empower them to introduce taxes or replacement means of paying for road use, then privatise them.   After all, isn't the USA meant to be the home of private enterprise, entrepreneurship and free markets?

UPDATE:  The article quoted at the top of this post is available here as a PDF.

AECOM faces lawsuit over Clem7 traffic modelling forecasts

The Sydney Morning Herald reports that engineering consultancy and traffic modeller, AECOM, is facing a large class action lawsuit over its forecasts for the Clem 7 toll tunnel in Brisbane. This tunnel will be familiar to regular readers of this blog as I have written twice on it before.

Previously, the Brisbane Courier Mail reported AECOM claimed it had indemnity against the inaccuracy of its forecasts to be a liability of no more than A$500,000 (US$553,000), and it was paid A$1.5 million for the work (US$1.66 million).  Clearly investors think that this does not apply.

The suit involves a claim of A$700 million (US$774 million). The claim comes from a wide range of investors who lost heavily when demand on the road was around a third of forecasts. One concern is that AECOM did work on the traffic demand study for both the Product Disclosure Statement (the document intended to outline the project as an investment) and the Environmental Impact Statement (the document intended to obtain planning approval).

AECOM is denying the claim is valid and is responding by asserting that conditions have changed since the work was done in 2006, that the projects and traffic modelling for the two statements are different.

The Sydney Morning Herald continues:

In the PDS, AECOM estimated the average daily number of vehicles using the Clem7 tunnel would be more than 100,000 by 2011…

In a study done 18 months earlier for Brisbane City Council's environmental impact study, AECOM estimated traffic volumes would hit 57,000 a day by 2011, assuming a $3.30 toll.

The key concern being that if there had been transparency about those latter figures, investors would have been far more cautious and reluctant to invest.

IMF believes investors may have rights to recover their losses in RiverCity under the Corporations Act 2001, because it alleges that AECOM's statements in the PDS were misleading and omitted to provide investors with critical information relevant to their decision.

I am sure AECOM will defend this vigorously, as it means that the work of traffic modellers is, in fact, far more valuable than may typically be thought if the reliance on the work is made into a liability for the companies involved in this activity (companies that tend to concentrate on civil engineering consultancy, not investment bank level analysis). If AECOM succeeds, it will likely raise the issue as to whether investors will want a serious audit and due diligence done of such forecasts for future toll road. If the investors succeed, the premium on traffic forecasting will rise accordingly, as firms decide how the likely increase in corporate liability insurance required for such work affects their pricing.

Australian Professor suggests comprehensive road pricing reform

My attention was drawn to an article in Australian website Business Spectator by John Stanley, Adjunct Professor, Institute of Transport and Logistics Studies, Faculty of Economics and Business at University of Sydney.

He calls for radical road pricing reform for Australia saying:

My strong preference is for a broadly based road pricing reform agenda, which includes pricing for congestion and also for other identifiable costs of road use, such as road damage, various emissions and accident costs that are not adequately covered by existing arrangements. This could be done by a GPS-based pricing system that includes a variable road use charge to cover costs such as air pollution and accident costs that are not met by current charging/insurance arrangements and base road damage costs, levied through a vehicle kilometre charge.

In addition such a scheme would include tonne-kilometre (mass-distance-location) charging for additional road damage costs of heavy vehicles and congestion pricing by time and place.

I don’t agree that accident costs should be charged for, because that implies all motorists, those who do not have accidents included, pay for the costs imposed by those who do have accidents.  This is a matter for insurance premiums to reflect.  I also question whether the right approach to air pollution is to charge for it, when other activities are not also charged for creating air pollution (and when regulatory measures may be more effective).

However, he wisely notes that pricing shouldn't be introduced in isolation of offsetting complementary policies (the type that are essential for public acceptability):

As an offset, the reform should include abolition of existing excise and registration charges. Revenue should be hypothecated to a transport trust fund, with transport (road and public transport) and related environmental improvements being eligible for funding from this trust fund.

Reforming road pricing would also provide the opportunity to review public transport fares, many of which are currently artificially low to compensate for inadequate road pricing.

In other words a shift from vehicle ownership and fuel taxes to road pricing. He also notably recommends that public transport fares are too low because road pricing is inadequate, and that this should be corrected.

Beyond the detail, this is a good summary of the economic policy points around road pricing. It can better recover costs imposed by road use, and should be considered as a replacement for the legion of “second best” policies that have been introduced to tax fuel and vehicle ownership, and subsidise public transport as an alternative. It is a view that deserves more discussion and debate, and more forward thinking than simply seeing road pricing as a revenue raiser or as a way of suppressing traffic.

More GNSS road pricing trials, but is much really learnt?

The European GNSS Agency (GSA) essentially exists to promote the EU’s competition for GPS, Galileo, by encouraging applications of GNSS (Global Navigation Satellite System) technology more generally. It funded a research project to identify how the road transport sector could use the technology, understandably it ended up with road pricing.

Inside GNSS reports on a project, called GINA (GNSS for Innovative road Applications – yes EU agencies aren’t great at acronyms, just Google GSA!) involved another (there have been many examples of this) set of field tests for the use of GNSS technology to charge for road use. Given the technology is used already in Switzerland, Germany, Slovakia and New Zealand to actually charge vehicles, you might wonder how much more is to be learned.

The project started in March 2009 and ended this year, with full details available on its website. The prime driver behind the project is listed as:

GINA proposes to address the existing obstacles preventing a large scale take-off of road pricing and other services (VAS) based on the use of EGNOS/Galileo by:
• Proving the technical feasibility and economical viability of a large scale, GNSS-only road pricing scheme (alternatives to GNSS are being considered by authorities)
• Fully identifying the potential benefits related to congestion and pollution management
• Demonstrating the possibility of VAS running on a road pricing operating platform, as well as the use of the same on board equipment shared by different applications
• Understanding the added value of the EU technology in terms of performance or cost improvement compared to GPS-only.

There are extensive newsletters and the like on the website, so I wont go into detail. However, it appears not to have been driven so much by policy makers, but by GNSS technicians. Take this point:

A particular focus is on protecting users against the incorrect charging that can sometimes arise from large position errors and service interruptions resulting from the use of a single unaugmented GNSS system, such as the current GPS or GLONASS civil services, which lack a built-in integrity capability.

It implies that anyone implementing road pricing would simply use GPS without any other form of measurement of distance or correlation to location (such as map matching). It is simply designed to prove how augmenting GPS will improve accuracy, which is a fait accompli. 

The summary result is that it came up with what it claims is an inexpensive on board unit that doesn’t need an on board map to measure distance. By response to that is “so what”? There already is one operating in New Zealand manufactured by a company called ERoad that does just that, with GPS.

The REAL benefit that comes from any form of GNSS based distance charging is being able to distinguish location and time of day anywhere in a network, that includes not charging for being off road. It means that roads can be priced accurately, everywhere.

The report here suggests that the trials would allow this, only by creating “geofences” as wide cordons, so that vehicles crossing certain co-ordinate defined points, could be charged differently.

My bigger question is whether there really is anything new learnt from any of this? The study was commissioned by a body with a vested interest in promoting Galileo and EGNOS, all very well. Certainly the greater accuracy Galileo and EGNOS can bring will be welcomed, but the issues with rolling out GNSS road pricing are not mainly around accuracy of signals. They are around:

- Logistics and costs of installing OBUs on large fleets;

- Public acceptability of OBUs, especially around privacy;

- Managing the unequipped user efficiently and effectively.

However, GSA doesn’t exist to deal with those issues, it only wants to prove GPS isn’t good enough – when, in fact, it has proven that it is.

China to use tolls to do more than raise revenue

China's international radio service, China Radio International, reports a Chinese Ministry of Transport spokesman saying that China is considering building two road networks: the tolled expressways and untolled “common roads”. The expectation is that the government will pay for the latter, but tolls for the expressways. It is interesting that it noted tolls would not just be to pay for the roads, but to “regulate traffic flow” and “optimise modes”.

This implies some form of peak charging when congestion appear on the expressways, which is sensible. However with the statement “It's not reasonable to move large volumes of goods for long distances on roads” suggests the intention is to dis-incentivise heavy freight movement by long distance on roads. As much as China is using market mechanisms and private enterprise to build and manage expressways, it is still interested in central planning, presumably to maintain usage of railways for high volumes of freight.

Short items on the Philippines, El Paso and York

Philippines to build more toll roads

Agence-France Presse reports that Filipino President, Benigno Aquino wants the private sector to build three new major toll highways in the country. He listed them as:

- A link between North Luzon and South Luzon highways in Manila;

- Manila airport highway; and

- New access route to South Luzon tollway.

Of course the key problem faced by the Philippines is with congestion at toll booths near Manila.  Longer term it may want to relieve the congestion on parallel routes, but for now tolls are an effective way to help fund a major expansion of infrastructure.

El Paso to build new lanes as HOT lanes

The El Paso Times reports that El Paso County, Texas is intending to build HOT lanes parallel to the Border Highway.  It involves the construction of two new toll lanes, one in each direction, and an upgrade of the highway's four existing lanes, about 8.7 miles from U.S. 54 to Zaragoza Road.  The cost is estimated at US$80.2 million, with state bonds paying US$74 million and federal funds another US$6.2 million with the project expected to be completed in 2013.  No new land will be needed to build the extra lanes. What isn't clear is whether the revenue will be used to pay back the bonds, or be "free revenue" for the County, as it is claimed the "revenues raised here will stay in the region".   Nice deal for the County it would appear. The intention is that the lanes be fully electronic free flow and have peak and off peak charges.

A previous El Paso Times poll showed that most people did not plan to use the toll lanes, but motorists will have the option of using the express toll road or the non-toll part of the road.

It was also recommended that the toll lanes revert to non-toll lanes if the project does not pay for itself by 2028.  The proposed toll would be a base of US$0.10 per miles off peak US$0.13 per mile peak.

York rejects congestion charge

The Yorkshire Post reports that York Council has expressly rejected congestion charging for its Local Transport Plan. Executive Member for City Strategy, Steve Galloway said:

“The present council is very much opposed to congestion charging. It would impact on the city’s key economic drivers in the tourism and retail sectors. “If the Government does introduce a road pricing system across the country, then things could change. But as things stand, we do not want to be in competition with other cities with people perceiving York as somewhere that is more expensive to visit".

However, I don't think that the small congestion charge in Durham has had a negative effect. After all, York could well have a system that is targeted for its needs on a scale not much different from Durham. However, given the debacle of the last government’s mishandling of the issue of road pricing, it is hardly surprising it is seen as a poison pill by British councils outside London.

India's burgeoning toll road sector

Indian site Business Today has an excellent article summarising many of the ins and outs of the toll road sector in India.  Some of the key points being:

- The National Highway Authority of India (NHAI) estimates around 15% of revenue (US$68 million) per annum is lost due to pilferage at manual toll booths;

- The Ministry of Roads and Transport has proposed RFID (let's call it a form of DSRC) to resolve this, with rollout to START by May 2012 (why so slow? Is there an intention to have a nationwide interoperable network of clearing houses?)

- The rate of return for BOT PPP projects is estimated at around 14%;

- 80 PPPs have been commissioned in the past decade, with around 47,000km of additional road to be built under this model in the next few years;

- 170 toll plazas across India, of which 100 are government run by NHAI;

- An emerging market is the operation of tolling systems for BOT concessionaires (Egis being a partner in the first joint venture doing just that).

Clearly India is building new highways at a pace perhaps only rivalled by China, but the spread of tolling suggests that intercity road transport at least, is subject to the vagaries of pricing to recover infrastructure costs.  The biggest issue is, as it is in many countries, the issue of fraud and theft around manual toll booths.

 

Sri Lanka's first toll road about to open, but already criticised

The first stage of Sri Lanka's Southern Expressway is due to open in the next week and will be the country's first toll road.

It runs from Pinnaduwa in Galle to Kottawa in Colombo district, with details on the Sri Lanka Road Development Authority (RDA) website here.  It is essentially the main highway south from outer Colombo to the southern tip of the country.  

Slow vehicles (tractor and rickshaws) will be banned on the 126 km expressway, which will include strict enforcement of speeds (100km/h) and overloading to ensure it is a safe route. 

The latest report (from Lanka Business Online) is that the tolls are to be collected manually, using tickets so that there is a ticket given at the start of the trip and used at the end to pay the toll.  It is noted that electronic tolling will be introduced later, which may reflect the low cost of manual tolls in the country, although the other point made by the article is that in India up to 20% of revenue is reportedly lost due to "leakage" (people not paying) with manual tolls.

Lanka Business Online suggests that the decision to introduce manual tolls was foolish, because it feeds the black economy.  It also notes the inevitable congestion with manual tolls saying:

A traditional staffed toll lane typically processes 300- 350 vehicles per hour whereas an electronic toll lane can handle from 1,000 vehicles per hour in a dedicated toll lane within a conventional toll plaza and even as high as 1,800 vehicles per hour in an open highway configuration.

The ticket system is damned as being slow and inefficient, when it would be preferable to have electronic tolls, or at least a flat rate charge to pay to speed up throughput.  

I wouldn't be surprised if the thought of electronic tolls, and the cost of equipment, and systems to detect offenders caused fear at the RDA.  However, there is little reason to not introduce barrier based electronic tolls as a starter, to accelerate throughput and provide a mechanism to detect and count throughput efficiently (to reduce leakage).   There are plenty of international experts who could have helped with this, and saved much money in the longer term.

Electronic free flow would require the number plate and vehicle databases to be fit for purpose, and I have no idea if they are or not.   However, that would be a future step.  For now, it would be nice if Sri Lanka did the basics right.  Maybe an audit of the manual toll system and business rules would be a start?