Indian toll road concession shows risks in getting PPP wrong

A modern multi-lane expressway should be built to ensure that motorised traffic can avoid all of the risks of surface roads. That means intersections, cyclists, pedestrians and roadside hazards. If a private concessionaire is to be building a road, you’d have thought it should be responsible for all of the infrastructure including lighting. No, not in Haryana State in India.  It's first PPP toll road appears to have involved a serious misjudgment around allocation of responsibilities.

The recently opened Gurgaon-Faridabad toll road has been facing declining traffic at night due to a spate of serious accidents. Why? Because of animals. The Times of India reports that:

cows, bulls, dogs, pigs, goats and even wild antelopes like nilgai wandering on the road. Especially at night, cows and bulls sitting in the middle of the road pose a safety threat to both the commuters and themselves. Even policemen say they can't do much about stray animals: "If you have a road in the middle of a jungle, you will always have the problem of animals wandering on it. But what is noteworthy is the fact that most the cows belong to villagers in the neighbourhood." said Brijwani, traffic policeman posted on the road.

The obvious point is that the road should have been fenced off properly and if there need to be ways for animals to pass over or under it, those routes should have been built, but they weren’t specified. Given how this is the norm in developed countries, it suggests the Indian tendency to not use overseas expertise results in making these sorts of mistakes.

However, even without the fencing, there is the matter of lighting and for some unknown reason the Public Works Department of Haryana retained responsibility for installing lighting and hasn’t got around to it. As a result, in the evenings a lot of traffic returns to the old route because it isn’t safe to travel at speed to encounter cattle. Meanwhile, there is also a problem with speeding due to a lack of enforcement by Police.

This project ought to be a simple lesson in concessioning and should also be a warning to governments that seek to concession to avoid leaving responsibility for any infrastructure matters with local officials.

It should be clear that any private highway concession should include responsibility for infrastructure related safety issues, and that includes lighting, signage and fencing. Concessions can never have responsibility for reckless driver behaviour, but they can have responsibility for ensuring that their infrastructure is reasonably safe for normal users. Haryana state needs to fix this issue swiftly, but I doubt it is well incentivised to act quickly. By contrast, the concessionaire would no doubt happily fix the issue because it is reducing business in the evenings.

Unfortunately, cases like this perpetuate a stereotype of Indian bureaucratic incompetency that is reflected in one comment on the news article:

Not surprised. This is how it happens in India. A malititude of state government agencies will be involved in one project. And for the above road, no difference; one agency will be responsible for constructing the road(reliance), then another for lighting, then another for beautification of the road, then another for flood control, and maybe another to fence the stretch and keep animals off the road(that needs to be done right away) and then another for.....and the story goes on. God bless India officialdom.

It should be obvious that it doesn’t have to be this way.   Note I wrote earlier about the problems this road has with congestion at manual toll booths.  Again, this could all have been avoided had the state civil servants called in expertise from elsewhere.  India has many toll roads.  Shouldn't this sector be organising itself, have regular conferences and be exchanging best practice?

Auckland Mayor keeps pushing road pricing, but Government opposed

As I reported previously, Mayor of Auckland (New Zealand) Len Brown (centre-left) has been looking for ways of raising revenue to pay for major transport infrastructure projects, most particularly the idea of an underground rail loop under the central city.   Auckland's passenger rail system, long neglected, has had well over NZ$1 billion spent on it for track and signal improvements, new stations, and soon to be installed electrification with new trains, but as routes terminate at a downtown underground terminal the idea is that there will be more patronage if over NZ$2 billion more is spent on extending lines underground to connect to the western line.

The problem Brown has is money.  Auckland Council's sole core source of revenue raising is rates -  a tax on the value of land and buildings.  He can't get political support to raise such taxes sufficiently to pay for it.  Nor is the central government transport funding agency - the New Zealand Transport Agency - keen to pay for all of it (it typically will fund up to 60% of the cost of economically efficient public transport improvements, with most of its revenue coming from hypothecated motoring taxes on fuel, distance/weight and vehicle ownership), so Brown is looking for new ways to raise revenue.

He has floated tolls on existing roads alongside a range of other options.

Transport Minister, Gerry Brownlee (of the Centre-right National Party) has said no.  The reasons given are that congestion pricing is typically done overseas to reduce congestion not raise revenue (which is true, but it is acknowledged that the latter is always a secondary effect), and that it is unreasonable for Auckland Council to collect revenue from tolling roads which it doesn't control - namely the State Highways (Auckland's motorways).

It does raise the issue as to whether congestion charging would be ok if it was to reduce other taxes (which it could do, by reducing or even eliminating ratepayer funding of local roads in Auckland), but nobody is arguing for that.

The obvious retort would be to design a congestion charging scheme for Auckland, targeted at congestion, on Auckland Council's roads (not charging the motorways).   The problem is, as I've written before, that congestion in Auckland is not nicely confined to the central business district (which would invite a cordon pricing scheme).  Indeed, traffic isn't that bad there at all.  Congestion is spread out, at a wide range of bottlenecks and corridors, and Auckland has a wide range of alternative routes that are used to "rat run" pass such bottlenecks.  To do effective congestion pricing on that scale would require some form of distance charging with GNSS technologies, such as that already used voluntarily as a option to pay New Zealand's nationwide weight /distance Road User Charge for heavy and diesel vehicles.

In other words, true congestion pricing for Auckland is complex and wont be achieved through a London/Stockholm style scheme.

For revenue raising of course, the issue of where congestion is becomes irrelevant.  A better consideration is equity, so that those who pay are those who benefit from the revenue spent or who could benefit.

This is where two options come to the fore.

One is a downtown central city cordon.

Auckland congestion charge inner city cordon concept

That's attractive if only because the underground rail link project is focused on this area and conceptually it can be argued that those still driving to the central city could instead use the railway.  Yet it is unlikely to raise enough revenue, and also seriously challenges the claims of the rail project advocates by creating a gamble over the attractiveness of downtown Auckland.  If the underground rail link is a good idea (and opinions on this are diverse), then a central city cordon pricing scheme will not be a problem, as the rail link will attract many motorists, along with improved buses (with less congestion) so that the city is a more pleasant place to do business with less traffic and a high standard of public transport accessibility.   Yet if the rail link does not deliver, introducing a cordon pricing scheme could make downtown Auckland significantly less attractive for some businesses, which could readily shift to one of Auckland three other urban centres, or out of New Zealand altogether, on the basis that the rail project isn't a good enough alternative for enough commuters (given the railway doesn't serve the North Shore or the central isthmus, this is a risk, although both of those areas are very well served by buses).

A Mayor willing to gamble on this would be brave indeed, although if he is convinced of the business case of the rail project, then he should support this on the basis that the businesses that will benefit the most from the rail project will be paying for it through road access to their premises.   Yet I doubt he will do this, for the same real underlying reason Central Government is opposed to it:

Politics.

The Mayor is advocating tolls on State Highways because they will generate more revenue (far more traffic than a cordon would charge), appear to have an alternative (other roads) and because he would have to get Central Government support.

However, it would appear that the centre-right National led coalition government regards tolling on existing roads to be politically too risky.  The Opposition Labour Party is against it (although it commissioned studies into it whilst in power) claiming it would hurt the poor, yet it advocates a regional fuel tax that would mean all motorists in Auckland, on all roads at all times would pay, instead of just peak commuters on motorways.  The equity concerns around raising fuel taxes seem to be more easily evaded than tolling.

Is public support being underplayed?

Construction sector lobby group the New Zealand Council for Infrastructure Development released a survey result claiming that a majority of Aucklanders would support road pricing (in the form of low tolls on existing motorways in Auckland) if it reduced congestion and funded major improvements.   Its poll said 46% would support a NZ$2 (US$1.64) charge on all access to Auckland's motorways, although 33.4% opposed it. 

The difficulty is that a previous study indicated that tolling just the motorways (which is, on the face of it,  attractive because it is technically easy to do, and Auckland's motorways comprise three major radial routes to the north, south and west which are significantly superior to parallel routes) would result in worsened congestion because of diversion of a lot of short trips onto local roads. 

Of course the biggest problem with any broad brush surveys or studies is that it doesn't have the level of granularity required (or feasible) to address such problems.  For example, it would be easy to reintroduce tolls on Auckland Harbour Bridge, as the alternative route is lengthy, but tolling a short stretch of motorway where the parallel local route is already congested is likely to be problematic.

The obvious solution would be to selectively toll on ramps where there is less likely to be diversion, but that will raise a whole host of concerns of discrimination against certain suburbs.

Conclusion

Auckland wont get road pricing on existing roads in the near future.  The current government is uninterested in taking such a step for fear of it costing it politically, particularly when it is not politically aligned to the Auckland Mayor, nor supportive of his totemic underground rail link project.   Conversely, it is embarking on a massive road building programme that includes completion of a major southwestern motorway route in Auckland, and other large motorway projects in or approaching major cities, funded from existing motoring taxes.  It is two years till the next General Election, and even if the government changed, the Labour Party's opposition to congestion charging doesn't bode well for its future in Auckland for now - a more likely outcome is that transport funding would shift towards public transport away from large motorway projects, but still be funded from existing motoring taxes.

Regardless of that, neither the new motorway nor rail improvements will make a significant difference to congestion in Auckland in the long run - that will require pricing.  The problem is that the level of debate and discourse about road pricing in this context remains basic.  As I said before, the lowest risk platform to advance road pricing in New Zealand is its existing weight/distance based road user charge that applies to heavy vehicles and diesel vehicles.  A long term strategy to replace fuel tax with that system for all vehicles would deliver a platform that could allow Auckland's roads to be priced effectively and efficiently.

News briefs: Australia, Florida, Mexico, UK, Virginia

Australian Federal Opposition suggests more tolls

Australia's Federal Shadow Treasurer (Opposition Finance spokesman) Joe Hockey (LIberal Party) has suggested to the Western Australian State Government that it should consider tolling, pointing out how successful it has been in New South Wales.  According to the Australian Broadcasting Corporation he said:

"From a federal government perspective there is limited money available for infrastructure"

implying that states that adopt tolling are more likely to be considered sympathetically for future funds compared to those that do not, presumably because tolling states have shown greater willingness to get motorists to pay directly for their infrastructure.

Both major parties in Western Australia continue to oppose tolls, but how long they can do so is questionable.  There are no toll roads in Western Australia, but there is a growing number of major highways around Sydney, Melbourne and Brisbane with tolls.  Given much of Australia's highway infrastructure is partially funded from the Federal Goverment paid for by fuel taxes, the inevitable question will be whether states which don't seek to recover whatever they can from tolls should be entitled to the same share of revenue from that tax.

Brisbane's new toll road impresses - but it's free for now

Finally, Brisbane's long awaited AirportLink toll road is opened and media reports indicate that motorists are impressed with the time savings it offers.  That bodes well, the more that try it out for free, the more who will think it is worth paying for, so the owners are hoping.  I profiled the road before, noting that the first month it will be completely toll free, and the subsequent two months it will also be free but users will need to have signed up for an account.  After that, tolls will increase sharply in 6 monthly intervals.   Time will tell if this strategy works.  I suspect it will at first, but such rapid inflation in pricing will put people off too soon, and it may be wiser to wait for a year before making such significant price hikes.   Curiously one report states people queued for "hours" to be the first on the new road.  Does the prospect of a new toll road generate that much excitement and patience elsewhere?

Meanwhile the HeraldSun reports that Brisconnections is trying to avoid the mistakes made around the nearby Clem7 toll tunnel, by being friendlier towards customers with better signage and clarity around speed limits (there was a higher than average level of speed fines on Clem7, with some violators claiming they didn't know the speed limit).

Florida to study shifting toll tariffs towards congestion based pricing

TV station WFTV9 reports that in Florida "Taxpayers are funding a study that could help set even higher toll prices during peak hours on the Florida Turnpike, State Road 528 and State Road 417". ..

The Turnpike Authority received a $400,000 grant from the federal government to study the concept in Florida's three metropolitan areas including, Orlando, South Florida and Tampa. 

The reason for the study is to manage demand on sections that are too expensive to widen, but there is local concern about traffic diversion.  Presumably the study should also consider lowering tolls at off peak times to counteract peak tolls, that is assuming toll revenue is adequate to cover infrastructure costs.  No information about the proposed study is on the Florida Turnpike Authority website.

Mexico - Libramiento de Matehuala highway has steady growth in demand

Standard and Poors affirms the BBB debt rating on the Libramiento de Matehuala toll road in Mexico according to Reuters.  The road is a 14.2 km long toll highway between Mexico City and Monterrey which bypasses Matehuala, on the San Luis Potosi-Saltillo highway.

The report continues:

For the 12 months ended June 30, 2012, traffic increased 4.1% due to the stable economic conditions in the country. Also, revenues grew 9.6% because of higher traffic and tariffs in line with inflation, and a favorable traffic mix, with trucks making up almost 60% of the vehicles on the road. We expect traffic to grow at an average rate of 3% throughout the term of the debt, which reflects the road's vital trade link between Mexico and the U.S. as part of the NAFTA corridor.

The report claims it requires minimal maintenance given its construction is in hydraulic concrete.  Demand is highly dependent on commercial activity and it faces toll-free alternatives.  It has been open since 2004 and carries around 8,579 vehicles per day (low for a toll road).  Tariffs are listed here (in Spanish) ranging from US$1.45 for a car to US$7.24 for the largest trucks.  The concession allows tariffs to be increased in line with inflation.

UK - Lukewarm reception for A14 toll idea

I wrote before about the UK Government's plans to help fund one of its largest highway projects with help from tolling.  It would be fair to say that enthusiasm for tolling is weak at best.  Local newspaper Peterborough Today reports that local businesses are concerned about tolling increasing their costs or that motorists will avoid the tolled route increasing traffic on local roads.   The local Chamber of Commerce head says it might be a "necessary evil".  Clearly there is a lot of work to do to convince people that accelerating a long delayed road project is better than not doing anything at all, but more importantly that the tolling plan envisaged wont make traffic worse.  The key will be to demonstrate that people can either choose to drive the existing route (in one form or another) untolled or have an improved route that is tolled.   Meanwhile, anti-road lobbyists the "Campaign for Better Transport" and "Sustrans" are opposed, because they don't believe in major highway improvements at all - suggesting rail freight improvements would be preferable and that building a toll road will induce additional demand.  It would seem that using pricing to manage demand is considered unacceptable if it means new capacity is funded by it.

Virginia - Dulles Greenway credit rating maintained

Owner of the Dulles Greenway, Toll Road Investors Partnership II, has had its credit rating of BBB- confirmed by Fitch according to Reuters.  TRIP II is 50% owned by Macquarie Atlas Roads.


Key points reported about the toll road (which is just over 20km long from the end of the Dulles Toll Road to the Leesburg Bypass in Virginia):
- From 2013 through to 2020 tolls can escalate annually at the highest of (i) CPI + 1% (ii) Real GDP, or (iii) 2.8% per annum;
- Year on year traffic increased 1.8% by May 2012, but tolls had increased by 6.7% in January 2012 resulting in a 10% increase in revenue year on year;
- This is only starting to offset a year on year decline in traffic since 2005, due to a combination of the economic situation and improvements to parallel routes.

News briefs - Florida, Pakistan, Virginia, Chile, Indonesia

Florida talks about tolling a flyover

Tolling a bridge, tunnel, new highway or new lanes is considered to be feasible and worth considering. What about a simple flyover over a junction? Well Florida DoT is considering just that between the I-95 and SR 202 according to WOKV. The idea is that it could be tolled with free flow electronic tolling, but this certainly would test willingness to pay for a relatively small time saving. Certainly outside peak periods I’d be surprised if many paid at all. However, it is consistent with Florida’s policy of resisting increases in fuel taxation in favour of tolling to the extent practically possible. The bigger question is the extent to which tolls could recover capital costs for such a project when the alternative is so readily available (and the price would have to be very low to attract users).

Pakistan isn't ready for congestion pricing yet

Ahmad Rafay Alam in The Tribune of Pakistan, writes about the chronic condition of traffic congestion in major cities in the country.  He notes how the surfeit of road building has not sustained reductions in congestion as vehicle numbers grow and more people drive.  He also notes the lack of support for pedestrians, cyclists and public transport.  Whilst slightly off topic for this blog, I'll particularly note that pedestrians are typically the poorest relation in urban transport policy in developing countries.  It can be a dominant "mode", but it is seen as a mode of the poor and a way of commuting that shouldn't be encouraged.  Wrong.  Since most trips in cities are short trips, it is a perfectly good way of getting around for distances of less than 1km.  It is a key to avoiding traffic congestion and tying up public transport networks with such trips.  It means ensuring footpaths are adequate and clear of too much obstruction. It means having crossing places on roads, including traffic signal crossings for pedestrians, that are enforced and clear.  Building roads or metro lines or bus rapid transit without recognising that everyone is a pedestrian, is going to start a trend that is harder to reverse.  A trend that major modern cities are now trying to reverse. 

The article notes that congestion charging could be a possible solution.  Indeed it could, but without good reliable means to enforce against vehicles that refuse to pay, it is impossible.  Pakistan is still some way away from having the basic information systems and regulatory requirements across vehicle (and vehicle owner) identification, before it can implement congestion pricing.  The first step should be a national vehicle ID programme., with reliable updates of ownership details and means to enforce failures to register or update details.

Virginia announces Transurban to extend I-95 toll lanes

The Washington Post reports that the state of Virginia "has made a formal agreement with private partners to build 29 miles of high-occupancy toll lanes along Interstate 95. Construction is scheduled to begin very soon and should be done by the end of 2014."

"the agreement with 95 Express Lanes LLC, a joint venture between Transurban DRIVe and Fluor Enterprises Inc., covers construction and operation of 29 miles of express lanes on I-95 from Garrisonville Road in Stafford County to Edsall Road in Fairfax County."

The full press release is here.   Key facts from the press release are:

The key components of construction include:

• Extending nine miles of existing HOV lanes from Dumfries to Garrisonville Road in Stafford County, which alleviate one of the region's worst traffic back ups
• Expanding existing HOV lanes from two to three lanes for 14 miles between Prince William Parkway to vicinity of Edsall Road on I-395
• Making operational improvements to the existing two HOV lanes for six miles from Route 234 to Prince William Parkway
• Adding eight new or improved access points to and from HOV/HOT network at key interchanges
• Expanding and adding commuter parking lots

Financial and tolling highlights:

• Project will cost $925 million with 95 Express providing $854 million in funding. This includes an anticipated TIFIA loan of $300 million, which is expected to be available in November 2012
• VDOT will provide $71 million in public funds, a lower amount than the original estimate of $97 million, due to lower-than-expected financing costs at closing.
• Tolls will be collected electronically using E-ZPass, including the new E-ZPass Flex, eliminating the need for toll booths
• HOV-3+, vanpools, motorcycles and buses travel free. Vehicles with one or two people will pay a toll to use the express lanes or ride the general purpose lanes for free. Tolls will vary based on real-time traffic conditions to manage the number of toll-paying customers who choose to enter the express lanes. Most customers are expected to pay to use express lanes only a couple of times a week when they need a faster trip, with a typical trip during rush hour costing between $5 and $6.
• Project will fund a safety and enforcement program including crews to assist disabled vehicles, incident detection technology and more Virginia State Police. The program is expected to significantly reduce HOV violators. 

 Maps are available here.

Brookfield Infrastructure buys part of Chilean toll road

Canadian Business reports that Canadian firm Brookfield Infrastructure  "and its institutional partners have signed a deal to pay C$590 million (US$589 million) for the 45 per cent stake in the Autopista Vespucio Norte toll road in Chile that they do not already own."  It raises the shareholding to 51%.

Commenting on the road, the firm said   "This Chilean toll road is a key artery in the ring road network surrounding Santiago, and it benefits from an attractive revenue framework whereby tolls escalate annually at inflation plus 3.5 per cent".  In addition it has had compounded annual growth in traffic of around 8% for each of the past three years.

The highway is essentially Santiago's primary northern ring route and is considered by tolling specialists to be very efficiently run, with electronic free flow tolling, and maintained to a very high standard.

RTT News claims that Brookfield is in discussions with Abertis to "create a joint venture to acquire a 60% interest in Obrascon Huarte Lain Brasil S.A. for approximately $1.7 billion, comprised of $1.1 billion of equity and $600 million of assumed liabilities."  Obrascon being a major Spanish toll road concession holder, with roads in Spain, Brazil, Mexico, Chile, Peru and Argentina.   Abertis and Brookfield are already bidding for Obrascon's Brazilian toll road assets. 

Bakrie wants out of toll road business in Indonesia.

Long standing Indonesian business consortium Bakrie Group has announced it is seeking to sell its toll roads business according to the Jakarta Post.

The report states the firm:

"wanted to sell its PT Bakrie Toll Road subsidiary for at least Rp 1.3 trillion (US$137.8 million), an amount equal to the subsidiary’s equity, to settle debts"

Its prime assets include the 35-km Kanci-Pejagan toll road between Cirebon, West Java, and Brebes, Central Java which has been criticised by the Public Works Minister Djoko Kirmanto for being of "poor quality".  Revenues are not particularly good, but the report concludes that this is largely an effort by the large investment firm, that has ties going well back into the Suharto era, to realise assets to pay down its debt burden and refocus the company (which is predominantly a property development firm) on its core business.

Indonesian state toll road company Jasa Marga has start to the year

The Jakarta Globe reports that state owned toll road operator Jasa Marga had a 30% increase in revenues in the 6 months to July 2012.   Part of this is due to an increase in traffic, with an over 11% increase compared to same period last year attributable to rising car ownership in Indonesia.  It also increased toll rates in Jakarta and Surabaya in response to inflation of around 5% per annum.  However, the result is distorted by Jasa Marga's sale of its shareholding in private toll road operator Citra Marga.  Jasa Marga is responsible for 13 toll roads listed here, plus another eight of which it has a partial shareholding.

Jasa Marga's corporate profile describes it as follows:

Founded on 01 March 1978, Jasa Marga is the pioneer in the development of toll road in Indonesia. With 32 years of experience, the Company remains the market leader in the country's toll road industry. Jagorawi (Jakarta-Bogor-Ciawi) Toll Road is the Company's toll road that marks the milestone in the historical development of Indonesian toll road industry. To date, the Company has operated 531 km toll road representing 72% of the total operating toll roads in the country.

London's congestion charge is a success, but has not solved congestion

I’ve spent a couple of months considering the article on Streetsblog which has a stark visual representation of car, bus and cycle traffic in London in the past decade. The hypothesis arising from this is that a lot of the change was due to the congestion charge suppressing car traffic, whilst encouraging use of other modes.

The article alludes to it being a bit more complex than that, but I don't believe that its overall message has the right emphasis.  It would be quite wrong to presume that this relatively small congestion charge has transformed transport across London, because it hasn't. 

It claims that “peak car” is part of the phenomenon, which has an element of truth, but only in relation to trips into central London. If you map the congestion charge zone to the entire London metropolitan area (which for convenience sake I’ll say is the land within the M25 orbital motorway) then it is small indeed. On top of that, the actual amount of car travel into that zone was small anyway. Most commuting to central London is on public transport. Let’s not forget London has inherited over a century of development based around no less than 6 major and 7 lesser railway stations with lines radiating out from the centre, plus another 10 underground lines (most of which feed traffic from 2 directions) and most recently the Docklands Light Railway (more a light metro than a tramway). The capacity and usage of all of those outdoes all roads into central London, which includes only one grade separated highway from the West.

London simply never had a road network that could come close to competing with the rail and underground network in terms of travel times let alone capacity.

The congestion charge reduced car travel into central London by 20% from the start, but car travel represented only 30% of vehicle traffic in downtown London as it was. Buses and taxis command half of all vehicle traffic, and were exempt from the charge. When you count freight/delivery vehicles as around another 15% and then motorcycles, then cars have not been that significant for trips to central London. So to claim “many” Londoners have changed commuting habits is quite wrong.   

This figure below shows the small proportion of commuter trips to central London undertaken by car regardless, a figure that wont be easily replicated in almost any new world city.   It did drop from 11% to 7% (including private hire vehicles), but is completely dwarfed by the dominance of public transport modes.

Central London mode shares over 30 years showing decline in car trips

The story the further out you go is different. The car dominates outer suburb commuting and there is little sign that this will change. The reason is simple. Like any city, London’s public transport network is focused on radial trips and it’s very efficient at moving lots of people along those routes. However, for orbital trips it is slow. With the exception of those living and working along the single orbital rail route, or able to use the underground for a through trip (e.g. live at Cockfosters work at Heathrow) recently upgraded, those who live in the outer suburbs and work in the outer suburbs are unlikely to find suitable public transport options. Such jobs are also likely to have lower incomes than those in central London, so these car commuters are people of more modest means. This is the ignored group in transport policy in London. 

The report "Travel in London: Key Trends and Developments" states that whilst traffic to central London has declined, it has increased elsewhere, which is as much because pricing does not affect elsewhere (and alternatives are poor) as anything else.  

Traffic to central London has declined but outer London traffic has not

However, it is not as if congestion has been solved in London, far from it. For a start, it is such a small area that the positive impacts on congestion are mostly related to that area and some approach routes. Secondly, the Mayor who introduced the charge, Ken Livingstone, deliberately used the charge as a means to reduce traffic so he could reallocate road space for other purposes. This meant that, by and large, road capacity was reduced so that the net effect on congestion was minimal. New bus lanes, cycle lanes, footpath widenings and blocking some streets reduced capacity for other vehicles. That’s not to say that some of those moves were not wise, but it did mean congestion itself was still regarded as acceptable. 

Size of London Congestion Charging zone relative to greater London

Of course, you don’t need to go too far from the city centre to find chronic congestion to this day. Some of this is due to the surfeit of random bottlenecks on a road network largely unchanged for over a century, but overall it is because volumes have not significantly declined. Unless the congestion charge is drastically expanded in geographical scale, and with more disaggregated pricing by location and time of day, this wont change. In fact in some locations the problem is as much due to a lack of capital spending on fixing neglected bottlenecks as anything else.

So what about bus travel? That’s easy, the reason for this is a massive increase in subsidies and the resulting increase in routes and frequency of service (average wait time for a bus is just under six minutes for major routes during weekdays). Part of this was funded by the congestion charge, but most of it came from central government grants. A bus system that by and large broke even was by 2008 taking £750 million a year in subsidies. Since then, Mayor Boris Johnson has faced cutbacks in government spending so has increased fares to cut those subsidies by a third, with only a small reduction in patronage. In short, bus services were drastically expanded in frequency. Yet again, it would be a mistake to presume increased patronage came from car users, when in many cases it came from people who would have walked (as concession/free travel was expanded) or would have used the Underground (because buses are cheaper).  Passengers per bus average at 16.5.

Cycling has been a bigger success story, in part due to cycling lanes, in part due to it growing in popularity as a way to avoid crowding on public transport.   Average cycling flow are up 91%, admittedly from a low base, although demand is seasonal (winter usage is about 25% lower than summer).  Mode share increase is equal to a 13% drop in the proportion of car trips although nobody can be sure if there is a direct relationship.   A third of cycle trips are commutes, a quarter are leisure, shopping and personal business.

Conclusion

London's congestion charge has curtailed growth in traffic in central London and has resulted in capacity being relieved to then be reallocated to other modes.  However, by no means could anyone claim that congestion has been solved, or that central London has a good standard of service for road traffic.  It hasn't and it doesn't.  

London is a peculiar city regarding transport.  The car appears unimportant for most visiting central London and they'd be right, but for commuting in outer London, most likely undertaken by those on relatively lower incomes than those commuting into central London, the car is important, with a 56% mode share for such trips.   

The congestion charge would need to be drastically expanded to have an impact on such trips and to seriously address the chronic congestion in central and inner London.  That is not to mean what is there isn't useful.  It is.   However, let's not pretend that a small CBD cordon/area charge is the panacea for a city's traffic congestion problems.  It isn't, but it is a start.

Russian truck tolls: World's largest distance based road user charging system?

Whilst European countries continue to roll out new distance based truck toll systems (with 3 under development and 6 in operation), and US states progressing at various paces VMT, the announcement that Russia will be introducing a distance based toll system on federal highways changes the entire scale of heavy vehicle road pricing.

According to ITS International, the Russian Ministry of Transport has prepared a draft law to require all commercial vehicles over 12 tons to pay for the use of Federal Highways on a per km basis.  The report indicates that a single operator will be set up, it will ensure all vehicles are equipped with the necessary On Board Unit (OBU) and will use the Russian GLONASS GNSS system (originally the Soviet response to GPS, but now getting substantial investment as an alternative by the Russian Government).   The report suggests that the price per km would be at least US$0.11.   This is cheap compared to the minimum rate charged in Germany of around US$0.17 per km and New Zealand of US$0.20.  Still, there is plenty of scope to have a wider range of charges.

Another report suggests that net income (after capital and operating costs) will be about US$12.77 billion per annum.  The assumption appears to be that the charge is additional, and wont replace any existing taxes.   This is substantial, but without immediate access to figures of annual vehicle kms, the picture is not entirely clear as of yet.

It appears Siemens is in partnership with NIS GLONASS to progress the project (although this report misconstrues it completely).  The long term goal is for all main roads to be charged and all vehicles to be subject to the charge.   When you consider the scale of this, it is seriously ambitious.   There are over 5 million trucks registered in Russia, but only a fraction of those are over 12 tons.  Around 200 billion ton/km of freight are moved by road in Russia every year.   About 72% of trucks sold in Russia are Russian made.

Comment

It is fairly obvious that distances in Russia are on a scale and extent that beats any other country, but also that highway maintenance can be extremely expensive, particularly when traffic densities are low and so fixed costs are a high proportion of all costs.  

The logistics of getting vehicles installed will be enormous, and I would suggest that requiring it of newly registered vehicles first would be a good start, with existing registrations required to be installed as registration dates come due.

Undoubtedly if Siemens is responsible for this, it will be one of the grandest projects of its kind in the world.   If this is extended to all main roads, as is the intention (and will be necessary in cities to avoid traffic diversion) then it will be a grand scale operation.  The payment systems and the communications systems needed (given the dearth of mobile phone coverage in parts of the country) will be interesting.  It will be evene more interesting if the talk of it being extended to ALL vehicles happens, although I suspect issues of privacy will come to the fore for fairly obvious reasons.

Ratings news: LBJ Express, Madrid-Toledo, SANRAL, North Carolina Turnpike Authority, Manila

Note:  Apologies some of these have been delayed a couple of months as it was a draft article I forgot to post.

LBJ Express Lanes - Texas

Fitch Ratings affirms LBJ Infrastructure Group’s infrastructure bonds issued in 2010 at 'BBB- The bonds were issued to finance the LBJ Express lanes project in Texas.

Key comments are:

- Strategic location of the project “located in a highly congested area north of Dallas and near the Dallas-Fort Worth International Airport. The solid economics of the service area have benefited from considerable population and employment growth over the last decade” 

- Pricing flexibility will be retained to competitively price tolls against the demonstrated congestion which exists at peaks, interpeak and in weekends in both directions. 

- However, managed lanes do bring considerable uncertainty around revenue, given free parallel lanes and the sensitivity of demand with economic conditions. 

The LBJ freeway (IH-635) project is currently in the second year of a five-year construction period. The construction project upon completion will include an eight-lane general purpose freeway, a four- to six-lane managed lane facility, and a continuous two- to three-lane frontage road system with access ramps. As of March 2012, the total value of work completed for design and construction is $494.9 million, approximately 23.9% of the $2,074 million total project cost. Construction activities in the first quarter of 2012 included roadway demolition, utilities, earthwork, structures, and noise walls.

New express lanes will always carry considerable risk, based on demand for existing untolled capacity.

AP-41 Madrid-Toledo, Spain

Bloomberg reports that the highway between Madrid and Toledo, which is managed by companies including Grupo Isolux Corsan SA, Comsa SA, Azvi and Banco Espiritu Santo SA, has declared itself bankrupt at the Albacete court. The AP-41 toll road has over 500 million euros (US$646 million) of debt. It has faced financial ruin due to the collapse of the Spanish economy, as demand has dropped well below forecasts.

The road's profile is summarised below:

The new Madrid-Toledo (AP-41) toll road makes it possible to travel comfortably and safely from the Spanish capital to the imperial City, declared a World Heritage Site by UNESCO, in approximately 30 minutes. The 71.5 kilometre-long motorway, which passes by some of the most interesting and historical towns in the Community of Madrid and Province of Toledo, has new interchanges and a service area. This is a modern, fast alternative to the current A42 motorway, providing a trip without traffic back-ups and at a low cost. 

It's certainly without congestion, as it is following the news last year about the Alicante ring road's lack of demand.  Of course, the bankrupt road will continue to operate with tolls, with the creditors receiving the revenue.  However, given Spain's overall banking crisis, it would appear that this road will simply be another bad asset for some time, until its value is substantively written down.

SANRAL, South Africa

BusinessTech reports:

Moody's reduced the credit rating of the South African National Roads Authority Ltd following the North Gauteng High Court’s decision on 28 April 2012 to block the implementation of electronic tolling on the country’s largest toll road, the Gauteng Freeway Improvement Project (GFIP), pending a final court resolution on the matter.

The road agency’s global scale, local and foreign currency issuer ratings have been downgraded to Baa2/P-3 from Baa1/P-2, and the South African national scale issuer ratings has been downgraded to A2.za/P-2.za from Aa3.za/P-1.za.

More recently, the government agreed on a significant reduction in e-toll rates, in return for which the authorities extended a R5.8 billion budget allocation. Thus far, the delayed implementation of e-tolls has resulted in revenue losses of approximately R2.7 billion for SANRAL, which is a sizable 40% of its estimated 2012 annual budget.

These losses will grow by an estimated R100 million each month that the delay continues and will gradually erode the company’s cash buffer.

It has since reported that Sanral will experience significant financial pressure post October 2013 in the event that e-toll revenues are still not earned by the entity

Tolling the Gauteng project is now subject to court proceedings which are underway based on challenging the legality of using fully electronic free flow tolling.

For SANRAL's sake, it can only hope that the case is dismissed and it can get on with introducing tolls on the upgraded highways, but if it fails then South Africa may well need to look at a new approach to tolling and taxation of motor vehicles.

North Carolina Turnpike Authority

Marketwatch reports that "Fitch Ratings affirms the 'BBB-' rating on the North Carolina Turnpike Authority's (NCTA) approximately $294.5 million Triangle Expressway System senior lien revenue bond"

The Triangle Expressway will serve as a major alternative to congested free roads and as a key route to the main employment center in the region, the Research Triangle Park (RTP). Solid historical county and corridor population and employment growth is expected to continue and should support assumed traffic growth rates. 

Low Initial Toll Rates and NCDOT Planned Annual Increases: There exists the potential for lower traffic and revenue given uncertainty with perceived value of time savings and potential sensitivity to toll rates given the limited number of toll roads in the area. In Fitch's opinion the road has moderate economic ratemaking flexibility given higher-than-average wealth levels and a 2013 toll of approximately $0.15/mile. 

Significant state support for the project will be in the form of a $25 million annual payment from the state of North Carolina, which will support debt-service payments, after paying debt service on state appropriation bonds (rated 'AA?' by Fitch) (largely on the back-end of the toll revenue /TIFIA loan debt amortization), a construction assurance agreement, an operations and maintenance guaranty agreement, and a guarantee on the renewal and replacement reserve.

The Triangle Expressway will be an all-electronic road payable by either a transponder or video toll. A video will take a picture of a license plate and a bill is mailed to the driver. The NCTA currently has a tolling policy associated with the road. Two toll rates will be set: one for transponders and one for video tolling. The rates will differ across vehicle type. Initial toll rates are estimated to be around $0.15 per mile (2013 dollars). Given wealth levels of the greater Raleigh-Durham MSA and potential time savings, Fitch views the rates as reasonable. Should traffic levels not materialize as expected, Fitch believes there is some, albeit limited, flexibility to increase rates.

Manila Cavite Toll Road Finance Co

According to Reuters:  On May 22, 2012, Standard & Poor's Rating Services lowered its rating on the outstanding US$15.06 million Series 2010-1 notes (due 2022) issued by Manila Cavite Toll Road Finance Co. (MCTFC) to 'CCC' from 'CCC+'

Key points:

- the traffic of 11,000-11,500 vehicles a day on the extension road continued to be below the expectation of closer to 20,000 vehicles a day by the end of first quarter 2012.
- We believe traffic on the existing road is already reaching historical steady levels of 76,000-77,000 vehicles per day, and that traffic on the extension road is not likely to drop below its existing level of about 11,000 vehicles per day. However, it is the delay in the traffic ramp-up on the extension road that continues to hurt the project's performance. We believe traffic growth on the extension road has been affected by factors such as its relatively high toll rate, higher fuel prices, lack of awareness among potential road users, and road users getting comfortable with alternate routes.
 

Australian positions on road pricing are polar between east and west

New South Wales:  "Let's look into it"

On the one hand, in Sydney, New South Wales, on the east coast, Roads Minister Duncan Gay has said, according to the Australian, that one of the options being looked at by the government is the introduction of distance based tolling.

State agency Infrastructure NSW is investigating a range of options to secure revenue sources for future land transport projects. Congestion charging has specifically been ruled out by the Minister.

 However, it remains distinctly unclear about what is meant by all of this. Distance based tolls could simply be a conversion of existing tolling (which is extensive across most of Sydney’s major highways) into a pricing framework that reflect distance between charging points and with more charging points. This is hardly revolutionary. The alternative is to consider distance based charging across the state, this could apply to just heavy vehicles or all vehicles, but this would need to involve some form of certified on board distance measurement. 

At its most basic level it could parallel the electronic Road User Charges system in New Zealand, with variations based on weight.

However, the greatest opportunities for productivity gains would come by having variations based on location (to reflect some differentiations in infrastructure costs) and of course, congestion. If all vehicles in New South Wales had a distance based charging unit on board, which could vary by time and location, why not charge motorists in Sydney at peak times more on the busiest routes? 

Given that economic analysis on the merits of road pricing compared to motor vehicle ownership taxes in New South Wales is light years ahead of that in other countries, I have some modest hope that there might be some progress here.

Western Australia:  "How dare anyone even suggest it"

However, don't suggest anything of the sort to the Lord Mayor of Perth, Lisa Scaffidi.  She was downright rude about economists from outside the city "from the east" suggesting the idea of congestion pricing for Perth.  A report on Yahoo from the West Australian said:

Yesterday, Ms Scaffidi criticised CEDA economists responsible for the paper, arguing they had an "out-of-town" perspective and "little understanding" of Perth's traffic issues. "I am actually quite shocked. This kind of commentary shows no thinking and I feel they have tanked with this one," she said.. "Perth no longer needs wise men from the east suggesting they know what is best for our city.

Yes, because Perth, WA, has a very different economy, different society from other parts of the world.  The laws of economics do not apply.  Applying the price principle to road use "shows no thinking".

Nothing quite playing the parochial almost xenophobic "you don't understand us, we're different" card rather than having a single constructive argument to rebut road pricing.   Particularly ironic when the chief economist of the firm that conducted the study spent five years of his life living in the city.   Of course Perth itself is far closer to the birthplace of modern urban road pricing - Singapore - than Sydney is.

Road User Charges evasion in New Zealand - some changes come into force

For all of the talk of distance based road user charging or VMT as it is called in the US, New Zealand has been quietly charging all vehicles over 3.5 tonnes and all diesel cars on a weight/distance basis on all roads since 1978.

One of the perpetual issues with any form of road pricing is evasion.   In New Zealand, the Road User Charge (RUC) collects about NZ$900 million  (US$728 million) a year, and Radio New Zealand now reports that around NZ$51 million (US$41million)  on top of that is lost through evasion, about a factor of 5%.

The report also indicates the cost of operating the system at up to NZ$17 million (US$13.7 million) a year, a factor of only about 2% of total gross revenue.  These are costs of administration, collection and enforcement.  It's worth noting that the only minimum requirement in New Zealand for heavy vehicles is to have a working certified hubodometer that measures distance travelled, and for distance to be bought in advance, although GPS based electronic options are available.  This relative simplicity (with vehicles buying licences according to their maximum permitted weight, now) has resulted in such low operating costs.

However, enforcement itself as of yet only recovered NZ$2.2 million (US$1.8 million) in unpaid charges (fines go to the government and are not counted as revenue to the National Land Transport Fund). 

A series of reforms of the system come into effect as of today to help reduce evasion:

-  All heavy vehicles will have a permanent "RUC weight" instead of being charged according to the maximum carried on any single particular trip;

-  As a result, no longer will supplementary licences to carry additional weight be necessary;

-  Time licences for a small category of vehicles that primarily work offroad are abolished;

-  Administrative charges for purchases of RUC licences are to be reduced by 39% (from NZ$3 (US$2.42) to NZ$1.83 (US$1.48)).

More details on the Ministry of Transport and NZ Transport Agency websites.

Meanwhile, it's worth noting that RUC also applies to diesel cars, but some journalists don't understand why.

The reasons are:

-  There is no fuel excise duty on diesel as a significant proportion of diesel is not consumed on public roads (and in New Zealand as fuel excise duty revenue is hypothecated to the National Land Transport Fund, such tax would need to be refunded adding an administrative burden to those users);

-  The correlation between fuel consumption and the infrastructure costs of roads used is poor.

Alastair Sloane of the New Zealand Herald says that it makes the fuel efficiency of new diesel cars not so relevant against petrol cars, but then RUC isn't intended to be a tool to promote fuel efficiency, it is to pay for roads.  In fact, the issue with tax on petrol is that it isn't keeping pace with fuel efficiency to reflect the growing costs of highway capital.

David Linklater in the same newspaper make a similar mistake.  He's upset that the RUC paid offsets the fuel efficiency savings, which again indicates that tax on petroleum is relatively cheap and not reflective of highway costs as much as RUC is.  However, I don't expect writers of car reviews to have a grasp on the economics or policy ramifications of different forms of charging for road use.

"Inevitable" UK will shift to road pricing says Institute for Fiscal Studies report

Motoring lobby group the RAC Foundation commissioned research organisation the Institute for Fiscal Studies to consider the future of motoring taxation in the UK.  What came out of its work is this report which was published in May.

The headline stories from it are not unfamiliar to those following debates about taxes and charges for road use in the United States.  Quite simply, the UK faces a long term crisis of revenues from conventional motoring taxes falling behind over time because of increased fuel efficiency.

However, it is important to note the stark difference between the UK and the US.  Until recently, it has proven relatively easy for UK governments to inflation adjust both fuel and vehicle ownership taxes.   Furthermore, not one penny of UK motoring taxes is hypothecated into a specific fund to spend on roads or transport.  They truly are simply taxes, and what government spends on roads has no relationship at all to those taxes (in fact the government receives in revenue four times what it spends on roads - meaning a healthy "profit" from the roads).

Some of the more interesting points around revenue are:

In 2011/2012, motoring taxation is expected to raise £38 billion (US$59.7 billion) in general revenue for central government, or around 7% of all taxation in the UK

Motoring taxes are already shrinking as a proportion of total receipts, and are expected to amount to just 6% of revenues by 2016/17. This would be the lowest share since 1954.

By 2030 “The total decline in motoring taxes is equivalent to £13.2 billion a year in today’s terms.  To make up this difference from other taxes would mean increasing the basic rate of income tax from 20p to 23.4p, increasing VAT from 20% to 22.7%, or increasing fuel duty by more than 50%. 

Given the UK's Chancellor of the Exchequer recently delayed a planned increase in fuel duty expected August until next year, it would appear the political capacity for increasing fuel duty is drying up, similar to that in the US.


So there will be declining revenues due to increased fuel efficiency, which affects both fuel taxation and revenue from vehicle excise duty, as more and more fuel efficient vehicles mean declining revenues (as such vehicles get relatively low VED rates).

The obvious policy response is to keep increasing fuel taxes, because it continues to promote fuel efficiency and more environmentally friendly vehicles.  However, the greatest criticism of that is the distributional impact.

The study looked into that and found that the distributional impact of current motoring taxes is slightly progressive, in that only 41% of the poorest 10% of the population own a car, but 96% of the richest 10% do, and richer households tend to own larger more fuel thirsty vehicles.  Whilst I don't disagree with that, this level of detail isn't helpful and shouldn't be used to justify higher fuel tax on its own.  The bigger question is usage.

Obviously those without cars don't pay, but UK car ownership figures are significantly distorted by London, where only about 60% of the population have access to a car (a wide range of stats around London transport use are here) compared to 77% elsewhere.  There are a range of factors for that, such as the intensity of public transport, severity of traffic congestion and paucity of good highway routes.  10% of London residents earning more than £100,000 (US$157,000) a year do not have access to a car, rising to 25% of those on average incomes, to 85% of those on the lowest incomes.

For the rest of the UK, car commuting is the dominant mode across most income categories. In other words, the distributional impacts of motoring taxation are unlikely to be particularly progressive.   Over time

What about the impacts on externalities?

The report is scathing about the value of fuel taxation as a way of addressing such costs.

On climate change it concludes that "At current carbon values, burning a litre of fuel generates a marginal externality of around 14p". In other words, of the 59p of current fuel excise duty, only 14p could be attributed to CO2.
What about the rest?

On the infrastructure cost side it's relatively easy to see that with £9 billion a year spent on roads either directly or through grants to local authorities and devolved administrations, there is a considerable amount of overcharging on the face of it. 

Yet when congestion in included it looks more stark.  Indeed it appears that rural areas are being comprehensively over charged at the moment, but congested cities undercharged (and poor pricing means excess demand over supply).

Furthermore “Department for Transport (DfT) estimates suggest that the marginal external costs associated with around half of the kilometres driven in the UK are very low – less than 5p per kilometre. However, driving in the most congested areas of the country is associated with extremely high marginal external costs of almost £2.50 per kilometre.” In other words, much motoring could have its costs recovered by a tax of only 5p per km, but congested charging would justify charging much more than that (although not the £2.50 as higher prices will reduce those costs).

So in other words, having a very high fuel tax is far too blunt an instrument to effectively charge for infrastructure or environmental costs, and it is inadequate in dealing with congestion.

The latter is obvious, otherwise congestion wouldn't be so severe.

It's conclusion is not unexpected - the recommendation is that the UK shift to a form of road pricing.

While motoring taxes can be justified by the costs road use imposes upon government “the current tax system does a poor job at targeting these external costs. In particular, fuel taxes are completely unable to capture variation in external costs by time and location – most notably the costs of congestion. A system of road pricing or congestion charging which is able to take such variation into account more accurately would be preferable”.

The report isn't going to change the political landscape around road pricing in Britain, but it is the first serious flagging of a long term issue - fuel tax isn't sustainable in the long run as a source of revenue, unless it is constantly escalated at levels that are increasingly seen as unfair (and rightfully so, especially by people in rural areas who are required to pay more despite not imposing increasing demands on infrastructure).

Certainly the current policy of looking for new opportunities to toll to pay for new infrastructure is not going to be enough, but is the obvious first step to follow.

The hardest question remains:  How to sell road pricing to a public that is completely sceptical and untrusting of politicians around taxation in any form?