Malaysian government to take over highway concession heading for bankruptcy

According to IFR Asia the Malaysian federal government has decided to take over the Eastern Dispersal Link (EDL) road in Johor Bahru from concessionaire MRCB (Malaysian Resources Corporation Berhad).

Why?  Well this is the case of the concession granted to build and operate a toll road, followed by a law passed to prohibit tolls being charged on the road at all.

The EDL expressway is an 8.1km long road which opened on 1 April 2012.  Johor Bahru is effectively the border town between Malaysia and Singapore, and the highway provides an enhanced link within the border region.

Eastern Dispersal Link, Malaysia - official map

However, the Malaysian Government decided when the road opened that it would not permit tolls to be collected on it, so the concessionaire has faced the past few months negotiating with the government a compensation deal to make up the difference, and meanwhile has been servicing the debt for the road without any revenue.

The report notes as regards the concession there is :

only M$21m in the company’s cash reserves, hardly sufficient to meet a M$47m cumulative interest payment due December 21 on its M$1.04bn senior and junior sukuk, as well as on a M$220m syndicated bank loan. The shortfall is a reason Ram Ratings downgraded the long-term ratings on the M$845m senior bond to BB3 from A2 and the M$199m junior sukuk to C1 from BBB2.

(A sukuk is essentially an Islamic financial instrument with some parallels to bonds).

Curiously, the owner of the concession, MRCB, which is no small company, has indicated that it doesn't intend to contribute funds to meet the shortfall, threatening a default - a first for Malaysian toll (or rather highway) concessionaires, which is perceived as likely to embarrass and disrupt plans for ongoing private investment in infrastructure in the country.   However, the Malaysian Federal Government has previously supported concessionaires more widely in other sectors through extending concession periods or buying bonds to restructure their debt.  It is not shy about interfering in what it deems to be the public interest.

The result of negotiations appears to be a government takeover of the concession, although the article suggests that tolls may yet be imposed, but probably at a price lower than the M$6.20 (US$2.01) per trip suggested.   One controversy is apparently that all users of the new Customs/Immigration/Quarantine complex located near the end of the expressway will pay a toll to contribute towards the road's costs, whether or not they actually use the road.

Overall it implies a conflict between seeking private finance to build and manage roads with tolls, and then taking relatively ad-hoc decisions around abandoning or discounting tolls for political reasons. Elections are due in the coming months, whereby the ruling UMNO party is expected to win (as it always does), but is facing ever growing pressure from growth in support from opposition parties.  It would appear Malaysia is not immune from concerns over opposition to tolling in certain situations.

News briefs - Australia, China, Indonesia, Macquarie Atlas Roads, Texas, UK

Australia - New South Wales government denies interest in congestion pricing

AAP reports that NSW Roads Minister Duncan Gay has said that the State Government has ruled out a congestion tax, but is considering implementing distance-based tolling.   Certainly it is clear that NSW is considering reforming toll roads around Sydney so that pricing is more closely related to a proxy for distance, but it is less clear as to whether the state is interested in a wider roll out of distance based charging to replace ownership taxes.

China - Standard & Poors affirms BB- rating and negative outlook for toll road investor Road King

Reuters reports that property and toll road investment company Road King maintains its rating with with S&P.  Property is the dominant factor for the relatively low rating and negative outlook.  On toll roads it reports a more optimistic side to the firm:

Road King's stable operating performance and the sizable cash flows from its toll road business support the rating. The company currently derives more than 80% of its toll revenue from its expressway projects, including the Longcheng Expressway it acquired early in 2011 and which commenced operation in July 2012. We expect Road King's toll road business to continue to provide stable cash flows in the next one to two years, underpinned by its stable profit sharing ratios. 

Indonesia - Longer toll road concessions to be allowed

Tempo Interactive reports that the Indonesian Government is to change the law to extend the maximum toll road management permits for private companies from 40 to 50 years.

The Jakarta Post reports that a 73km toll road is to be built in North Bali from Kuta to Seririt at a price of US$872 million.  The project is intended to open up a wide area for tourism and development, and is linked to plans for a new airport at the north of the island.

Macquarie Atlas Roads posts half year loss and further asset devaluations

Business Spectator reports that Macquarie Atlas Roads has posted a loss of A$75.2 million (US$77.7 million) in the six month to June 30 2012.  This is an improvement on the A$106.4 million (US$110 million) loss for the same period last year.

The A$33.4 million fall in the value of investments comprised a loss of A$26 million on the Autoroutes Paris-Rhine-Rhone (APRR) toll road in France compared to a profit of A$11 million in 2011; a loss of A$7.4 million on the Dulles Greenway toll road in the US compared to a loss of A$10.8 million in 2011; and no loss on the Chicago Skyway toll road in the US compared to a loss of A$17.5 million in 2011.

There was no loss booked for the Chicago Skyway in the first half of 2012 because the carrying value of the road had been reduced to nil.

The Australian reports that the company expects to release a dividend next year.  It also noted:

Macquarie Atlas Roads said the increased losses partly reflected losses on interest rate swaps and higher debt-related amortisation.

Macquarie Atlas Roads said proportionate revenue from its roads rose by 1.4 per cent to $330.8 million in the first half of 2012 despite a 1.9 per cent fall in traffic volumes.

Revenue was boosted by toll increases.

"Macquarie Atlas Roads' portfolio of toll roads has continued to generate positive revenue and EBITDA growth during the period despite difficult economic conditions in Europe and the US," chief executive Peter Trent said.

Texas - new toll road to have highest speed limit in US

The Texas Weekly reports that Texas State Highway 130  (which will be a toll road) will have a speed limit of 85mph (about 137km/h), which will be the fastest in the USA.  Some advocates of private toll roads have promoted the idea that roads could be built to enable relatively safe driving at faster speeds, and motorists could be charged the price to allow it.  In Texas, it looks like it will happening, albeit with an increment of only 5mph.

Meanwhile, the Statesmen argues that the new speed limit is partly about enhancing the viability of the toll road, which includes lowering the speed limit on the existing highway from 65mph to 55mph, even though it will be safer (because the new road will be between the north and southbound lanes of the existing lanes).   Is it a conspiracy to make the new lanes more likely to be financially positive or just coincidence?

UK - Dartford Crossing manual tolling to be gone by 2014

The Brentwood Weekly News reports that the UK Government has announced that it is spending £25 million (US$40 million) to undertake a range of improvements to the tolled Dartford Crossing routes, including removal of manual toll booths as part of a programme to make the highway a fully electronic free flow tollway.  The route is notorious for being a bottleneck in both directions, in part due to the queues at toll booths.  The UK Highways Agency is hoping to have removed the manual toll booths by October 2014.

Review of toll roads in the US SouthEast

The Raleigh Public Record has published an interesting review summarising toll roads in several states from North Carolina down to Florida.

It reviews the following roads:

- Triangle Expressway (North Carolina's first toll road);

- Southern Connector (South Carolina, tolled part of I-185);

- GA 400 (Georgia);

- Veterans' Expressway Toll Road 589 (part of Florida Turnpike system);

- Foley Beach Express toll road (Alabama).

The key comparisons are about pricing per mile, which ranges from US$0.30 to US$3 for a car, reflecting different traffic volumes to spread the fixed costs of the road, availability of alternatives (making toll prices a function of the costs of diversion in time) and different business models (Foley Beach is fully private and quite expensive). 

So what about rental cars and tolls?

It's one of those neglected issues when road pricing comes along, which is to consider what happens when a hirer of a rental car uses an electronic free flow tolling facility and doesn't pay.  The obvious answer may be that the rental car firm should be liable, as it would be for any parking offences, but it wasn't obvious in Harris County, Texas.

The Houston Chronicle reports on a settlement between Enterprise Rent-A-Car and the Harris County Toll Road Authority of US$1.15 million in unpaid tolls and fines.  The problem being a combination of Texas law and the rental contract.  Rental companies could provide details of the hirer within 30 days to the Authority and make it the Authority's responsibility to pursue the hirer, which of course proved to be problematic.

You see elsewhere most rental car firms take credit card details that they retain to cover any such fines or fees.  However, this law encourages the rental car firm to pass on the responsibility, so that it doesn't face either the administrative cost of processing the payment or the bad customer relations in charging it.  Enterprise thought it could avoid responsibility, but eventually relented.

Enterprise now does exactly what I described above, which of course it should have done so in the first place had it bothered to see business practice elsewhere.

Enterprise now works with a vendor that ensures all of its roughly 1 million vehicles' license plates nationwide are listed in an account. The vendor pays the county when HCTRA's toll cameras pick up a plate on that list. The vendor then charges the tolls, with a fee, to the renter's credit card, said company spokeswoman Laura Bryant.

Bryant said the process is working, not only for tolls, but for red-light camera fines and parking tickets, too.

"That doesn't mean the process is perfect, but we're doing everything we can to make it as good as it can be," she said. "This has been a huge learning curve for everybody."

For a twentieth of the cost of this settlement, Enterprise could have got some consultants in (!) to develop the business solution to this problem based on best practice elsewhere.

Avis apparently settled for US$190,000 four years ago, and Hertz has toll tags installed in its Texas based vehicles effectively enabling it to be an easy part of the toll payment transaction at the end of the hire.  

Conclusion

If the law makes it clear that vehicle owners are responsible for tolls, then it is up to rental car firms to ensure that their contractual and payment solutions enable them to pass on these costs.  Toll tags in areas with extensive toll networks should enable toll transactions to be looked up and added to accounts, and the use of credit cards can ensure any residual transactions can be paid for.  With electronic free flow tolling increasing in reach and scope, it will become increasingly important for rental vehicle and vehicle leasing firms to find ways to ensure that liabilities for such charges can be recovered from those who initiate them.

Pennsylvania Turnpike's burgeoning debt

The Trucker.com published a report from Associated Press claiming that the Pennsylvania Turnpike looks like it is on a path towards financial difficulties, not because of a lack of traffic, but because it is being expected to cross-subsidise a lot of transportation spending across the state.

Background

The Pennsylvania Turnpike is 856km (532 miles) long connecting Ohio to New Jersey, and is one of the states most strategically vital corridors, with its various segments comprising parts of six Interstate Highways.  It is managed by a state quango called the Pennsylvania Turnpike Commission and the prevailing tolling technology is a combination of closed road tolling (ticket based) manual tolls with EZ Pass tags as optional.

Pennsylvania Turnpike network map

Story

Prices on the Turnpike have doubled in the last ten years, but it is now generating less revenue than what it spends.  Its current debt is US$7 billion.  

The article states:

Highway and bridge projects around Pennsylvania have grown dependent on the money from turnpike toll-payers, and so have transit agencies such as the Southeastern Pennsylvania Transportation Authority.

If the turnpike stopped making its $450 million-a-year payment to PennDOT, the already strapped state transportation budget would lose about 12 percent of its financing.

Its liabilities exceed assets by US$1.3 billion, because it keeps being required to fund activities outside its core, so that it is, in effect, a borrowing instrument of the state.

The problem comes from an ill thought out law which was originally envisaged to raise revenue by expanding tolls.  

The root of the turnpike's financial woes is Act 44, the 2007 state law that required the turnpike to contribute $900 million a year for statewide roads, bridges and transit.

To come up with the money, state lawmakers authorized the Turnpike Commission to convert Interstate 80, which parallels the turnpike across northern Pennsylvania, to a toll road. But the federal Department of Transportation in 2010 denied the state's application to require tolls for I-80 travel.

So the turnpike's obligation to fund other roads and transit dropped in half in 2011, to $450 million a year, under terms of Act 44.

In other words, with the Federal Government opposing an application for tolls on an existing highway, the legislation didn't remove the obligation, just halved it.

Revenue at the turnpike is currently US$800 million a year, and US$300 million is spent on operating and maintaining the road (yes, there should be an issue with this and this is allegedly being addressed).  US$300 million is also spent on servicing existing debt, yet instead of US$200 million being spent on other projects, the Turnpike Commission is expected to spend US$450 million.

Prospects

Moodys is bullish in the short term, but forecasts of continued traffic growth look over-optimistic.

Moody's, like other ratings agencies, continues to rate the turnpike's financial health fairly high: Aa3 on its debt for turnpike operations, and three notches lower, A3, on the debt for Act 44 payments.

Moody's has assigned a "negative" outlook for the future of the turnpike's debt because of "dependence on regular toll increases and modest traffic growth to support projected debt-service coverage ratios."

Turnpike officials are assuming that traffic will increase by 3 percent to 5 percent every year, according to their most recent traffic study.

So the path is laid out for the state to either cut spending, raise other taxes or expand the tolling remit of the Turnpike Authority.

The article concludes with a useful review of other states which use tolling authorities to cross-subsidise other activities:

Pennsylvania is one of several state and local governments that require toll-payers to pay for projects not directly related to the road or bridge that is tolled.

The New Jersey Turnpike Authority, the Triborough Bridge and Tunnel Authority in New York City, and the Harris County Toll Road Authority in the Houston area are among those that tap tolls for other projects.

In New Jersey, about 30 percent of toll revenue is transferred to the state Transportation Trust Fund Authority for use on statewide highway projects and transit operations.

Locally, the Delaware River Port Authority spent nearly $500 million over the last 15 years for "economic development" projects — such as stadiums and museums — to be repaid by revenue from its four toll bridges linking Philadelphia and South Jersey.

It warns that Moodys considers toll authorities with wider funding remits to be "riskier" than those without, which is logical, given that without such commitments, tolling authorities (especially for large high volume networks) should be quite profitable.  For now, it appears that some states are using there toll networks to offset declining real revenues in fuel taxation.  The problem they have, and Pennsylvania certainly will have, is that this is only sustainable if the proportion of the tolled network increases as well.

-

Penn Live has also published an editorial expressing concern about the sustainability of the existing cross-subsidies from the Turnpike.  It supports ideas from the Transportation Funding Advisory Commission such as increasing vehicle ownership fees, driver licensing fees and a tax on oil company franchises.  Of course, none of these ideas have anything to do with usage of the network, and most seem likely to exacerbate existing deadweight costs of taxation and so will impose an economic burden likely to be worse than raising turnpike tolls.  The choices need to be around getting better value for money for what is spent, treating asset management on a cost accounting basis, not some Soviet style public good, and then once some reasonable costs have been estimated for the long term lifecycle renewal of these assets, determining how to allocate those costs among users and charge them appropriately.   

UK government confirms introduction of truck road user charging

UK media has been reporting that the Government has confirmed that it is proceeding with a truck road charging system, which is essentially a vignette system for vehicles over 12 tonnes.  Various reports indicate that legislation is to be introduced to allow the system to be operational in 2015 and raise slightly more than £20 million a year in net new revenue (after operation costs and refunding vehicle excise duty for UK lorries).

Whilst there are, as yet, no details on the Department for Transport website, it is expected that the details will broadly correspond with that previously released, which I wrote about here:

- Last day for submission on UK heavy goods vehicle road user charging;

- UK road freight sector support vignettes and calls for fuel duty cuts;

- UK truck road user charging: Consultation document released.

There isn't too much else to say, but it is worthwhile making a few points which are not clear from the media coverage (BBC report, Daily Telegraph report,  The Independent report,  The Sun report) and indeed completely incorrect from the Express.

Distance or time charging?

This is time based charging, by day.  Owners of lorries of 12 tonnes or greater will need to pre-purchase access to the UK road network for at least 1 day, with intervals likely of 1 week, 1 month or 1 year.  UK lorry owners will only be able to buy 1 year in association with their purchase of vehicle excise duty.

There will be no need for measuring distance travelled, so the report in the Express claiming there is a need for "a box which could be tracked by satellite" (a technology which doesn't exist) is nonsense.

Done elsewhere?

Yes, a very similar system exists now in the Netherlands, Belgium, Luxembourg, Denmark, Lithuania, Hungary, Romania and Bulgaria.  It's very simple.  It is still a big step from distance based charging.

Complex technology?

No, it only needs to be like Hungary or Romania, with vignettes purchased in advance, online, by phone or in person, for a vehicle identified by number plate.  Automatic Number Plate Recognition technology is needed only for enforcement.

Thin edge of the wedge?

You could argue it could allow for car vignettes to be introduced in the UK, but why would it bother?  There are relatively few foreign light vehicles entering the UK to make it worthwhile, as it would almost certainly only be introduced with an offset to vehicle excise duty.

You could also argue it could allow for distance charging next, which is supported by the Freight Transport Association.  However, it is a far bigger step to measure distance, transmit measurements of distance, and more importantly, offset existing taxation (which would have to be fuel duty).   There are sound reasons for considering heavy vehicle charging by distance to improve resource allocation, reduce cross subsidies between road users and better reflect the growth and reduction of demand over time.   Yet there is little evidence that any major UK political party wants to confront that.

Conclusion

This isn't a big deal.  It is the UK effectively introducing the system that exists in Hungary and Romania, except it will apply to all roads.  My key interest is how enforcement will be managed with the now open Irish border, as suddenly Irish lorries will find doing business in the UK will be more expensive.

UK lorry owners will face little difference.  Foreign lorry owners operating in the UK will face some increase in costs which will deter a few, but will mainly mean they are paying a share of the costs of maintaining UK roads (whereas before those that did not refill diesel in the UK did not pay any UK taxation).   The impact on foreign lorry presence on UK roads is likely to be minor, perhaps a reduction of less than 5%.   Revenue is minor, at just over £20 million a year more after costs.  It wont mean revenue will grow with growth in freight traffic, except a small increment of the presence of foreign lorries.  

In short, it helps cover a discrepancy in fairness between foreign and domestic UK lorries, but not by much.   Most European countries charge lorries for using their major networks, the UK does not.  The high UK fuel tax deters some from filling up in the UK, but fuel tax is also high in the Netherlands.  However, it isn't a radical form of road pricing, it will have little impact on demand and is not a reason for concern.  It's a small positive step forward for those wanting better pricing on UK roads.  That's it.

Toll traffic and revenue studies fraught with difficulties

It's an issue that has most recently been highlighted by the court case in Australia around the bankrupt Clem 7 toll road.  It has also been highlighted by the poor performance of the Pocahontas Parkway in Virginia.  It is the accuracy and reliability of traffic and revenue forecasts for toll roads that are public-private partnerships.

The Bond Buyer has a good article summarising some of the history behind the Pocahontas Parkway and several other unfortunate projects, including comments from a range of consultants on some of the key issues and concerns.  

The Pocahontas Parkway is only meeting 60% of its predicted traffic levels, resulting in concessionaire - TransUrban - substantially writing down its value in the investment as it struggles to raise enough revenue to service the debt on the road.  

Of interest is the:

National Cooperative Highway Research Program report examining the practice of toll road revenue projections. It examined how projections of toll road revenue compared to the actual revenue obtained for 26 toll road projects between 1986 and 2004.

The report showed that only one project generated between 90% and 110% of the revenues projected within the first two years of operation. But none of the projects were on target with their projected revenues in each of the first five years of operation.

A few roads in the review, such as the GA 400 in Atlanta, were actually chronic overperformers.

What is suggests is less that there is chronic inaccuracies in forecasting, but more a systematic optimism bias in the forecasts, perhaps driven by a desire to please those touting for investment to present a positive case for the projects.   It's not about the recession either, as this study predates that.

Whilst it suggests a market failure, it is important to remember that most of the projects that get advanced are not initiated by entrepreneurs, but by governments wanting a specific project to proceed.  Of course if the project will not generate enough traffic to pay for itself, then investors need to make it clear that without government subsidies a project wont proceed.  If roads really were developed in a free market setting, then it is likely that investors would be significantly more conservative, as they would not be advancing projects for political, but rather financial reasons.

Ratings agencies are becoming sensitive to the failings of such forecasts as well:

A Standard & Poor's analyst who scored the BBB-plus Dulles Toll Road in Northern Virginia said his agency is inclined to just analyze existing historical debt without relying on a third-party revenue estimate.

Fitch analysts announced earlier this year that because of the evidence of high volatility in the earnings of managed lanes — an increasingly popular type of toll project allowing cars to pay a toll to use traditional "carpool lanes" — it will use "conservative growth estimates" for such projects in the future.

Fundamentally, new toll road projects are usually about attracting people who are using existing roads to pay more for a better trip, or to attract new trips onto a road.  If the growth in development in an area does not proceed, or motorists do not perceive enough benefit to pay for the new route it will fail.  Unless a new route offers substantial time savings for significant numbers of users, it wont generate enough revenue to pay for it.

My personal view is that Traffic and Revenue forecasts should always be peer reviewed, with the key assumptions and risks around forecasts clearly highlighted by that review and considered critically.  Investors who rarely give such forecasts much scrutiny must ask for this in the future, and take a bearish view of traffic growth in mature markets where traffic growth has tailed off in recent years.  People's willingness to pay a toll on a road has a different perceived value to their willingness to pay for other things they buy.  In addition, it should never be forgotten that trips on a road are utilitarian, they are driven by a desire to travel to a place, not to use the road per se.  Understanding the prospects for growth in those trips is critical to knowing the veracity of claims that there will be an ongoing trend of more road vehicle trips.   Is it vehicle ownership? Population growth?  Increased incomes (so increasing scope for discretionary trips)?  Tourism?  Freight?

The court case over Clem 7 is being closely watched by toll revenue forecasting consultants in many countries, and will be a key test case to see where liability lies for reliance on such forecasts and the assumptions underlying them.   Whatever the outcome, it should result in consultancies involved in this activity taking additional care to be transparent on the basis of their forecasts, but should also mean that those who commission them understand that these studies are likely to need to be longer and more intensive, if the risks and variables that affect demand are to be thoroughly evaluated.

FOOTNOTE:  The Australian Federal Government Department of Infrastructure and Transport has just released a new report called Disincentivising Overbidding for Toll Road Concessions, undertaken by Dr Robert Bain and Oxera Consulting.  I have not read it in detail, but will review it shortly.  To my knowledge it is the first substantive piece of work on this issue released by a government body (but I am happy to be corrected on it).  

Atlantic Cities considers VMT, but doesn't look beyond the Atlantic

Eric Jaffe at Atlantic Cities concludes that Vehicle Mileage Tax (distance based road user charging or mileage based usage fees depending on your preferred choice of terminology) is a good idea which is technically viable, which surprises me, although he got there after making a bunch of mistakes and also did the usual “if it didn’t happen here it doesn’t count” narrow-mindedness of thinking no one else in the world has thought of it before Americans have. Yes, even ignoring the truck weight/distance taxes already in four states, the Swiss has been doing this electronically since 2000. At some point American journalists might notice.

So what was his train of thought?

The article says that a field study by the University of Iowa showed it could work. Perhaps fair enough (although the distance measurement is arguably not the biggest issue), but there are real operational systems in the world today in several countries, which is probably a better indicator that something works than a university field study. 

He also claims that “Mileage data can be captured via GPS”, which would be a surprise to any engineer who worked on GPS. GPS is a system that purely takes signals from satellites to measure the co-ordinates of a specific device. No GPS satellite captures anything, at all. However, GPS devices can be adapted to record and measure distance, but let’s not keep making the tired mistake of thinking GPS satellites pick up anything from people’s handsets on the ground. The “Spy in the Sky” myth keeps needing to be swatted. 

He rightly points out that a system can be integrated with fuel purchases so that payment of VMT can offset payments of gas tax (Oregon’s trials proved that), although the accounting involved is a little more complex than that. 

The article then highlights how VMT is likely to reduce driving, largely because motorists become acutely aware of the cost of each trip as it is taken. This is intensified if pricing varies by time of day and location. Fairly basic acceptance of the pricing principle of course, but it also should recognise that at some times and places it could be cheaper than paying a gas tax.  I suspect that it isn't what he has in mind, but it's important to give both sides of this.

However, he concludes with some concerns, such as how VMT “does nothing to encourage green cars”. Yet again, the Atlantic Ocean remains a psychological barrier to understanding reality. In Germany, its “VMT” type truck tolling system does just that, by having differential pricing according to the emissions rating of vehicles. It is entirely possible to do that for cars, and in Germany it has incentivised changes in the truck fleet towards lower emission vehicles. 

Another concern raised is VMT “creates a rate-equity debate with rural and possibly even suburban drivers who lack reliable transit options”. A debate yes, but who argues that fuel taxation is unfair to those in rural areas or without other modal choices? Shouldn’t the argument be about paying for what you use, not relating to extraneous factors? How prices are set needs to be based on economics. 

Finally he says “any mileage system would also need to consider how much of its intake should go toward public transportation”. Yes, what is done with revenue is critically important, but that is a wider debate. Better road pricing could conceivably abolish the need to subsidise public transport altogether, but this article wasn’t really about economics.

In conclusion, the article is positive as it throws into the mix of public discourse support for an idea that is highly controversial and seen by many as “just another tax” due to the high level of distrust of government in the US. However, it would be helpful if it had been able to address some key myths around privacy and promoted a shift towards more equitable and efficient pricing of roads – linking what is charged to what is used and spent on them. For now, I fear it will polarise those who argue for less tax against those who simply want to restrain car use for environmental reasons – with little or nothing about economics.

The only way there will be public support for such a major change in how people pay for roads is if they can be convinced that they will be better off with a change, and it will be fairer overall.  This article didn't make that case, it made the case that it can be done, not enough for the case that it should be done.

Shanghai not pursuing congestion charges, but continues to regulate and ration car ownership

Website Eastday reports that Shanghai city officials have said that they are not considering or investigating introducing a "road congestion fee" to address traffic congestion, despite Beijing having already announced the concept has been included in its traffic management plan.

Shanghai has a considerable ring road network

It is focusing on expanding public transport and managing its car number plate auction to ration ownership of cars in the city.  The number plate auction system effectively slows the growth of vehicle ownership and has been in place since 1994.

The number plate auction works by requiring any purchaser of a new car in the city to obtain a number plate through a monthly auction.  The monthly auction limits new vehicles to around 8,000 each month, with the latest price being equivalent to US$9,770 which is higher than China's annual per capita GDP (US$8382 on a Purchasing Power Parity basis), but not Shanghai's (over US$12,000). 

The report notes that there will be around 1.4 million cars with local number plates in the city by the end of 2012.  There is still ample scope for growth in car ownership, given the municipal population of Shanghai is over 23 million people.

Of course it isn't compulsory to have Shanghai registered plates, and over 500,000 vehicles on Shanghai roads are registered out of the city, but such vehicles are banned from "elevated roads" during peak times.  This effectively is a form of traffic rationing based on regulation, by banning non-Shanghai cars from expressways during peaks.  Anyone owning such a vehicle wanting to be registered in Shanghai would need to participate in the auction.

The city is already proposing extending this ban to longer time periods.

Of course, the other effect is to keep the vehicle fleet relatively old, as once one gets a number plate for the car, it stays with the car, so there is every incentive to keep the car as long as possible.  In a city with considerable pollution problems, discouraging fleet turnover will have a negative impact upon this issue.

The number plate auction, as a result, effectively rations car ownership and road space by restricting access to only locally registered vehicles.  However, it also raises revenue that helps subsidise public transport.  The same report indicated that over 2009 and 2010 the number plate auction raised US$1.06 billion for the city, which spent US$860 million on improving the public transport network and offering fare discounts to incentivise mode shift.

The big question will be for how long Shanghai can avoid pricing roads to manage congestion.  I'd wager that if Beijing can successfully introducing congestion charging, and given Shanghai already uses number plate enforcement to regulate usage of major highways at peak times, it would not be difficult for the city to introduce pricing - which after ownership has grown to a certain point, will be inevitable if it really wants to get to grips with traffic congestion. 

News shorts - Florida, India, New York, North Carolina, Ohio and Texas

Florida pursuing tolled upgrade of existing highway

The Florida Times-Union/Jacksonville.com reports that the Florida Department of Transportation is to commission an upgrade of the First Coast Outer Beltway that will see it widened to a grade separated four lanes highway with tolls.  Tolling will be done on a segmented basis, with rates of US$0.20-US$0.60 for cars per segment, effectively creating a distance based toll along the highway.  Florida Turnpike Enterprise (a business unit of Florida DoT) will finance the project estimated to cost US$230 million which will be recovered from tolls which will be entirely electronic free flow using the established SunPass system.

Despite criticism from some quarters, based on a vote in 1988 that saw Jacksonville abolish tolls in favour of a small sales tax (an economically regressive and irrational measure) "Florida Transportation Secretary Ananth Prasad said the current sales taxes and gas taxes that fund transportation are not sufficient to build something like the Outer Beltway"

Potholes on Indian toll road highlights poor incentives

The Times of India reports that "The Ghoti-Padhga toll-way stretch on the Mumbai-Agra national highway has been ridden with potholes, for nearly the past one month, making it difficult for motorists to drive through the affected sections".

Apparently, the company responsible is simply uninterested in maintenance with the report continuing:  "maintenance was looked upon as a part of expenses rather than looking towards it as re-investment for earnings and hence the proposal had not received a response till date".

Such scant regard for some basic standards on a toll highway indicates an appalling failure on behalf of the procurement and contracting regime for the road.  However, a market led approach would suggest that motorists will increasingly abandon this toll road on the basis that it isn't worth the money.  On the other hand, if the development of PPPs for toll roads in India is on the basis that the private sector will maintain minimum standards of service, then there need to be constraints on such behaviour built into concessions.

New York - Governor "considering" Sam Schwartz's tolling plan

The New York Observer reports that Governor Andrew Cuomo is apparently "reviewing the proposal" of former New York City Department of Transportation Commissioner Sam Schwartz to reform tolling on crossing adjacent to the city in the state.  I wrote extensively about the proposal, which is adamantly NOT called congestion pricing, because it effectively delivers an integrated approach to tolling of major crossings in New York, reducing the prices for trips more distant from Manhatten and introducing tolls on untolled East River crossings.

The article rightly says it is far too early to say whether it will get support, but it is encouraging that the Governor at least appears to be open minded on the issue.  It has the potential to raise more revenue and help reduce traffic congestion, but it also will balance support from those who will pay less on some crossings and those who will pay more or start to pay on others.

North Carolina story shows importance of quality control in enforcement

TV station WRAL, Raleigh North Carolina reports on the case of Jerry Hester, a man who was pursued for enforcement of an unpaid toll bill for the Triangle Expressway, because of human error that mistook the letter N for the letter M.   It appears it took the intervention of a consumer advocacy TV programme (5 On Your Side) to get it resolved with "NC Quick Pass" - the operational arm of the North Carolina Turnpike Authority.

Electronic free flow tolling is being rolled out across the US, although it is some years behind the likes of Australia which has had it now for well over a decade.  Unfortunately, some key lessons learned from free flow systems elsewhere don't always seem to have been embraced.  In this case, it should have been easy for enforcement appeal staff to double check the number plate image and eliminate the penalty altogether, rather than it remaining in the escalating bureaucracy of enforcement.

It certainly shouldn't take a TV programme to highlight such a problem.  This is standard best practice in the tolling industry.

Ohio Turnpike Director advocating wider use of revenues

Columbus Morning Call reports that the Ohio Turnpike Director Richard Hodges is advocating a law change to allow surplus revenues from the toll road to be spent on transportation projects in the state further than 1 mile away from the road.   It appears to be driven by concerns about the growing reserve in the accounts of the Turnpike, which could reflect a lack of useful projects that can be funded from surplus revenues.  Of course, if the turnpike is privatised, this will effectively be the return on the capital asset value that could be distributed to shareholders.

The report also summarises the financial position of the road:

The turnpike, which has $50 million in its reserve, expects to generate $270 million in revenue this year, the newspaper reports. Its operating expenses stand at about $122 million and the turnpike will spend about $90 million on capital projects this year.

Ohio Turnpike thwarts trucking scam

The Trucker reports on how the Ohio Turnpike has stopped a scam whereby truckers avoided paying the full toll price by lying about "lost" toll tickets.  Being a closed toll system (whereby toll tickets are issued at the start, and used to calculate the total toll price depending what exit the vehicle departs from), there was scope to cheat, as described on the website below:

The scam worked this way: A trucker taking a ticket at the turnpike's entry near Indiana would travel across Ohio and claim the ticket was lost when he hit the last interchange before Pennsylvania.

The trucker would pay $44 for the "lost" ticket, the same he'd pay if he had turned in the ticket. After delivering his load to the east, the trucker would head back on the turnpike.

Instead of crossing the state and paying another $44, the trucker would leave the turnpike several exits before the Indiana border and feed the "lost" ticket to an automated fare machine. Toll tickets don't designate east or west travel.

To the machine, the trucker had traveled only a short distance from the Indiana border and would pay, depending on the exit, a toll less than $10, turnpike officials said.

Of course the state is contemplating privatising this toll road, which would raise the incentive to plug any potential holes in revenue, most likely by better incentivising electronic tolling accounts.

Texas concerns about enforcement of free flow tolls against Mexican vehicles

The Texas Tribune reports that officials in El Paso, Texas and some other Texas authorities are increasingly concerned about the inability to enforce violations of tolls on electronic free flow toll facilities on vehicles registered in Mexico.

In short, this is an issue that has been an emerging concern in Europe which faces much of the same issues around cross-border enforcement of such offences.

At the moment Mexican vehicles appear to be a very small proportion of vehicles on Texan roads, but the fear is that more free flow tolling offers opportunities for free-loading.  One idea proposed by El Paso Mayor  John Cook would be the ability to impound vehicles with such fines - effectively the London approach to those who persistently evade the congestion charge.

The report notes:

The situation that some El Paso officials fear is already emerging in a border community more than 800 miles away. The first portion of State Highway 550 opened in Cameron County last year. When completed, the toll road will connect the Port of Brownsville to U.S. Highway 77.

Cars from Mexico on the road, minimal so far but expected to increase, are not being billed, said David Garcia, the assistant coordinator for the Cameron County Regional Mobility Authority. 

One option would be to enable the border crossing to also be a check for such liabilities, but enabling that is likely to be far from easy.