Commentary - Urban congestion charging needs governance reform

One of the biggest problems facing any policy makers seeking to introduce any form of congestion pricing in a city is not a matter of technology, or designing an appropriate geographically based charge, or even the political difficulties in gaining support, but rather something more mundane, but arguably more important - governance.

No city that has introduced a substantive form of congestion charging has done so without addressing this issue, and it comes down to having one entity responsible for all of the charged roads.   London has 33 local authorities, which almost certainly could not have come together to set up the congestion charge unless there had been an overarching authority responsible for arterial roads (Transport for London).  Singapore similarly has one agency responsible for its charged roads.  Stockholm's congestion charge is the responsibility of two agencies.  Cities with many local authorities face limitations as to what can be done with road charging.   This was alluded to this week in Australia where it was reported in the Brisbane Times that Brisbane has an advantage in having a single local authority, compared to cities such as Sydney which have 43.

The solutions to this depend very much on what the policy objectives are.

Governance reform that merges local authorities or at least merges control of arterial roads is one option, as has been seen in London.   This is what is likely to be necessary if the intention is to introduce area or cordon charging.   The key reason being to have only one entity responsible for procurement, but also one entity responsible for all of the work related to congestion charging around signage, redesigning intersections, rephasing traffic signals and the like.   These are all activities often ignored in the discussion of congestion charging.   It is very important that one entity is responsible for ensuring good standards of service are offered to motorists with the congestion charge, but also ensuring smooth traffic flows (and good use is made of revenues).

Many investigations into congestion pricing consider the important financials and economics, with assessment of costs, revenues, demand impacts, impacts on congestion and emissions.  However, far fewer consider whether the existing governance of roads in the city concerned is appropriate.

The unspoken truth is that most cities run roads like bureaucratic centrally planned services, with very much an engineering focused approach.   These transport departments or streets units or whatever are not focused on delivering front office customer service to motorists.  The closest they get to this is parking fines, which are typically treated as offences.   Roads are not delivered as utilities to paying customers, and this is the problem.   Road pricing means motorists are customers, they have queries, they will hold accounts, they will change account details, have disputes and need to be told when prices, terms, conditions and offers change.   That level of communication, handling of money, need for service and need to be responsive is not built into government monopolies typically.

The model I advocate for getting motorists on side with congestion charging is to develop a more retail, more service oriented approach with a dedicated organisation that is about delivering roads as a service to those paying for them.  That means delivering what users want, not what engineers think they should have nor what politicians think.  However, that is another story.

Those interested in progressing road pricing should never assume that existing agencies or organisations are well placed to manage a road pricing programme or be sufficiently dynamic to unlock the full range of benefits available.   It is a critical area of work that is often neglected as most of those interested in road pricing have engineering or economics backgrounds, not backgrounds in public and private sector governance and institutional reform.

Puerto Rico seeking to privatise toll roads

Bloomberg reports that the US territory of Puerto Rico has shortlisted four bidders for the privatisation of two toll roads on the island.

All four consortia are led by either Spanish or Brazilian road/infrastructure investors:

- Spain’s Abertis Infraestructuras SA and Goldman Sachs’s Infrastructure Partners II unit; 

- Brazil’s Cia. de Concessoes Rodoviarias; 

- Spain’s Itinere Infraestructuras SA and Citigroup Inc.’s Infrastructure Investors unit; and 

- Spain’s Obrascon Huarte Lain SA and Morgan Stanley Infrastructure Inc.

Puerto Rico's Republican Governor is driven by a US$3.3 billion budget deficit that it is seeking to close by retiring debt to reduce net interest payments.   The privatisation will be a concession to own, operate and maintain the roads for 40-50 years.  

The roads to be sold are the Jose de Diego highway (Highway 22) and Highway 5 which generate around US$90 million p.a. in revenue, but the key will be making sure the concessionaire actually manages the roads to a high standard rather than simply regards the tolls as a way to make money.

Once these concessions have been sold, more are to come.  Privately owned roads?  Yes.   They exist all over the world, and finally more and more administrations are coming to appreciate the money that can be made from selling highways, but also the innovation that it can bring.

Australian Federal Government advocating road pricing

The Australian newspaper has reported that the Australian Federal Infrastructure and Transport Minister, Anthony Albanese, has launched a discussion paper called Our Cities.  The report claims that without forms of road pricing, such as congestion charges, the congestion reduction benefits of major highway projects will not be sustained.  It makes the long recognised observation that congestion cannot be relieved simply by building new road capacity.

The discussion paper is available here, and seeks feedback by 1 March 2011 on the report.   A brief look at this paper shows that it seeks a National Urban Policy and covers a wide range of infrastructure issues that I will not go into (this is Road Pricing blog after all).  

Key references to road pricing include this statement (p.22):

The option of more effective pricing gives clearer and more consistent signals to commuters and carriers of freight about the real cost of road use or other mode such as air or rail. Road congestion charging has already been introduced in cities like London, Singapore and Stockholm. The experiences and lessons from these international examples are worthy of further consideration. There are also ongoing debates about whether road pricing is warranted, or even cost effective, in Australia’s biggest cities. However, the widespread adoption of affordable Global Positioning System technologies may provide more options in future. The social implications of such approaches will also need careful consideration.

In other words, pricing can take transport closer to user pays and Australia should look at the benefits that have come from the three major international implementations of congestion charging.  The mention of GPS shows interest in moving beyond the limitations of the technologies used in those cities.

Part of the motive is maintaining mobility, but also ensuring environmental impacts are managed as is said here (p.24):

Without the use of complementary demand-side measures, such as road pricing and congestion charging, some proposals for additional road capacity are unlikely to lead to sustained reductions in congestion and may further impact the environment and reduce urban amenity.

On page 25 it mentions that Australia already has electronic toll collection (now with fully electronic free flow toll roads in Melbourne and Sydney) and is developing "cordon zones with congestion pricing", which is perhaps an exaggeration, although it is certainly being investigated.

Page 58 has the consultation questions, although submissions need not be limited to those.  Question 8 is:

What is the role for pricing reform (such as water, roads or carbon pricing) in meeting the challenges of Australian cities?

Clearly the potential is enormous to help manage congestion, and improve the allocation of resources for roads and in the demand for other modes.

The key point is that road pricing is now in the mainstream policy agenda for transport in Australia, at the Federal level.  There is much in this discussion paper, outside the scope of this blog, which I might criticise and much to agree with.   However, it will be interesting to see the response this paper gets from submitters, and if pricing reform is not simply dismissed and put into the too hard basket.  Given the current Australian Federal Government is now a coalition between Labor and a number of independent MPs (after Labor lost its overall majority), it is somewhat bold to be advancing an agenda often perceived as being politically risky.

Australia has seen extensive highway networks built in the past 20 years using private finance and tolling, including many new urban corridors in Sydney, Melbourne and Brisbane in particular.  This has exposed large numbers of Australian motorists to tolls, including most recently peak time congestion based tolls on Sydney Harbour Crossings.   Road pricing in the form of tolls has helped build these roads, and indirectly helped manage the demand generated from these roads reducing transport costs.  The bigger question is whether pricing existing roads to manage congestion can be implemented in Australia.

The main disappointment I have from the discussion paper, from a road pricing perspective, is how it did not raise the option of replacing some existing road charges (e.g. fuel tax and annual registration fees) with road pricing as a way forward.  The National Transport Commission (which advises on these issues) already has alluded to this.

However, it may simply be premature to make that jump, and for now the interest will be whether road pricing moves more clearly onto the agenda for urban transport policy in Australia.

UK investigates more tolling and private finance

Cambridge News reports on how the UK Department for Transport is to investigate whether tolling can be used to help pay for a proposed new A14 highway.  The £1.3 billion (US$2 billion) A14 widening and realignment project was deferred by the recently elected Conservative/Liberal Democratic coalition government as it cut spending to reduce the UK's burgeoning budget deficit.  Alternative ways of funding the project are being investigated, which if tolling was to be included, would mean building an entirely new route (so that the tolled route would be entirely separate).  This is likely to be part of a wider investigation into whether tolling can be used to fund new routes in the UK.

Odds are it wont make much difference, because the biggest problem the UK has with tolling is the very high price motorists already pay for as a part of road use.  £0.5819 per litre on unleaded petrol (plus VAT) is one of the highest levels of fuel tax in the world, none of which is hypothecated to road spending (and if new road projects were calculated on the basis of revenue generated from their use it would be interesting).  Still there is scope for more toll routes in the UK, the bigger issue is whether the UK can get over the planning barriers, NIMBYism and disbelief in road building that has hindered much highway development over the last 20 years.

World Bank advocates toll roads for Africa

Bloomberg reports that the International Finance Corp (IFC), the finance wing of the World Bank, is promoting the development of toll roads to help build highway infrastructure in Africa.  This follows from its financing of a Senegalese toll road.  It sees the role of toll roads being particularly on approaches to major urban areas with high volumes of traffic.

Clearly this makes sense, although the key issues with toll roads are:

-  Manual tolling delays.  While cheap and easy, manual tolls do cost in terms of delays on high volume roads;

-  Enforcement.  Free flow tolling is impossible without good infrastructure to detect and fine non-payment.   Similarly manual tolls need careful monitoring to avoid corruption.

African countries will be able to meet these challenges, and if toll roads ensure motorists pay for the costs of infrastructure they use, it can only be good as these economies grow and to help ensure growth in road transport demand can be managed through price, and for price signals to be sent to help guide future investment decisions.

Brisa seeking new toll road investments

Bloomberg reports that Portuguese toll road company Brisa is deliberately seeking new opportunities to diversify its toll road portfolio as it bids for concessions in Turkey and India.   Part of the motivation is to compensate for the expected poor performance in Portuguese toll roads as the economy is hit by recession, government austerity programme and risk of a sovereign debt crisis.  Brisa is cash positive, but sees growth opportunities elsewhere after it sold out from its investment in Brazilian toll road company Cia. de Concessoes Rodoviarias SA.

Consult Australia promotes Brisbane congestion charge to subsidise rail

The Brisbane Times reports that Consult Australia (formerly the Association of Consulting Engineers) is proposing a congestion charge for central Brisbane, in the form of a cordon, with the surplus revenue used to subsidise the proposed Cross River Rail project.   The A$8.2 billion (US$7.9 billion) project involves an 18km underground railway tunnel to shift suburban rail services from existing lines, but is itself financially nonviable. 

The principle is not wrong, and certainly there are strong merits in using pricing to manage congestion and provide a new source of revenue.  The wider report itself is strong on economic efficiency and is a valuable contribution to promoting debate on financing transport improvements and achieving better outcomes for mobility, environmental and financial sustainability.  The principles and idea are worthy.  So should form guidance for future policy.

However, from the point of view of detail it is far from clear to me that such a charge could ever remotely cover more than even a tenth of the cost of the rail project over the long term, given the likely price range viable for Brisbane and the sort of revenue that could be expected.  My estimate is that it would be lucky to get more than A$50 million - A$80 million per annum after costs, depending on location, timing and pricing of a central Brisbane cordon.

More importantly, could it be politically saleable to motorists to be forced to pay an additional charge for driving to downtown Brisbane and for the money to go into an extraordinarily expensive rail scheme.  Once motorists are paying more efficient prices for road use, the case for subsidising parallel rail corridors deteriorates significantly.   It would be far more reasonable to use such charges to fund other road improvements, or offset other charges.   Indeed, the impacts on land use patterns should be assessed, as such a charge will reduce the attractiveness of the Brisbane CBD for some businesses, a point which the rail project is unlikely to fully offset (but which changes in taxes could).

Naturally, any congestion charge will actually benefit any rail operations because the relative price difference will increase patronage by rail.  Yet, the principle of congestion pricing, which is to match peak demand with pricing to ensure efficient utilisation of resources, should also be applied to rail. 

It is also worth noting the mistakes in the Brisbane Times article which said:

"Similar schemes have been trialled in London, Singapore, The Netherlands and tried and rejected in Manchester, Stockholm and New York."

London and Singapore schemes are hardly trialled, being in place since 2003 and 1998 (or 1975 if you take the original Singapore area pricing scheme).  The Netherlands has no scheme and no trial (but a series of attempts thwarted at the last moment due to political imperatives).  Manchester rejected it.  Stockholm DID trial and now has a congestion charge.  New York had proposals, but they too have not withstood political pressure.

How hard is it for journalists to accurately research congestion charging?

Reduce oil dependency by introducing congestion pricing?

The Mobility Choice Coalition has released a report (PDF) that focuses on improving choice and competition in transport, but which also claims that congestion pricing and HOT Lanes could have a dramatic impact on oil consumption.   By 2020 a combination of HOT lanes and congestion pricing in the US is claimed to save 80 million barrels of oil p.a., and nearly double that by 2030 if pricing is even more comprehensive.  The options outlined in the report are basic (cordons, HOT lanes, distance charging and truck toll lanes), but the point is raising the idea in the first place.    It is ranked as the second best option in reducing oil consumption in transport (after a punitive fuel tax) and this neglects the wider economic and environmental benefits of pricing roads more efficiently.

The organisation itself appears to be a blend of free-market advocates, environmentalists and those interested in reducing the US transport sector's dependence on oil.

However, it is notable that more efficient pricing of roads is finally being acknowledged as a way of reducing oil consumption, with the reduction coming both from reduced demand, but also - critically - from more efficient and steady flows of traffic.

UPDATE: RBS bails out of Brisbane toll road (originally Brisbane's M7 Clem Jones toll tunnel fails to meet forecasts)

The M7 Clem Jones tunnel is Brisbane's (Australia) newest toll road being a A$3.2 billion project to connect (maps here) the near southern suburbs of Brisbane (from the Pacific Motorway) to the northern suburbs on the inner city bypass, bypassing the congested Story Bridge.  In essence it is a 4.8km north-south inner city bypass tunnel (with 2km of approach roads) for Brisbane, bypassing 24 sets of traffic lights and providing an additional river crossing with 2 lanes in each direction.

It is the first privately owned toll road in Brisbane with a 45 year concession owned by Rivercity Motorway Group (a publicly listed Queensland company with no single shareholder holding more than 11% of shares).

It has a fully electronic free flow tolling system using DSRC tags and ANPR (Automatic Number Plate Recognition).   Tolls range from A$1.50 for motorcycles to A$3 for cars and up to A$9.90 for HGVs and buses.   However, since the tunnel opened in February 2010 traffic forecasts have failed to eventuate.  Bear in mind that the global recession has barely hit Australia at all, so the real issue is the optimism around forecasts.    The forecast was around 60,000 vehicles a day, but actual usage only reached 34,705 at best in August. 

The effect of this is that the owner has asked its lenders to give it a two year break, as the Airport Link toll road is expected to increase demand when it opens in 2012. 

A Sydney Morning Herald report gives five reasons for the failure as:

- Flat traffic growth in Brisbane since 2005;

- Significant roadworks on approach roads reducing the attractiveness of the route which will not be finished until 2012;

- Lower value of time in Brisbane compared to Sydney and Melbourne, in short Brisbane motorists tolerate delays more than motorists elsewhere in Australia;

- Other road improvements completed far sooner than predicted (Gateway Motorway duplication, which is the main outer Brisbane north-south bypass, and the Go Between toll bridge which eases congestion in the inner city); and

- Tolls seen to be too high (a 6 month discount period was introduced that recently ended).

Assuming the banks agree (and what choice is there), this tunnel will limp on and the Airport Link project will likely improve its viability.

More widely this road shows the wisdom of letting private investors carry this risk.  The tunnel exists, regardless of what happens to the investors, it will be kept open and operated by any creditors, and so creates a major benefit for Brisbane over the long run.  It removes traffic from busy at-grade corridors, improving environmental conditions and allowing more road space to be free for buses and other traffic approaching the city.  Moreover, the toll ensures not only are the costs recovered from road users but that traffic will remain free flowing over time.  These toll roads are not only financing new capacity and saving taxpayers (and other road users) money (as well as benefiting residents and users of bypassed roads), but also ensuring the new capacity is priced efficiently (too high and the road would be used, too low and revenues will be inadequate and the road gets congested).

UPDATE: One of the largest shareholders in River City Motorway Group, the 78% UK Crown owned Royal Bank of Scotland Group (RBS), has bailed out according to the Courier Mail.  RBS's original stake was worth about A$120 million (US$118 million).   However, by the time of the divestment its value had dropped to $A581,000 based on the sharemarket value.   The divestment has been by donation to a charity for A$1, because a sale would have raised a conflict of interest as RBS was a leading banker to the company. 

UPDATE: Sale of Queensland Motorways postponed (originally Brisbane City Council keen to buy Queensland Motorways)

In a peculiar move, the Brisbane Times reports that Brisbane City Council appears set to bid to purchase the company Queensland Motorways when the Queensland State Government seeks to privatise it in 2011.  Of course this wouldn't be a "privatisation" at all, but rather one group of taxpayers buying a commercial company from another (and the group of buyers are also sellers)!

The intention is to establish municipal control of toll motorways owned by Queensland Motorways in Brisbane, so that tolls can be co-ordinated and the profits of Queensland Motorways channeled into Brisbane municipal projects.   The intention would be to transfer Brisbane City Council owned toll roads to a new company to incorporate Queensland Motorways.

The sale price is estimated to be around A$3 billion.  Queensland Motorways has been a success as a commercial company operating toll roads for the state government.  

Curiously, the council bid is led by Lord Mayor Campbell Newman, from the centre-right Liberal Party and being questioned by Labour Party councillors (who one might think would prefer council ownership to the private sector), showing politics in Australia is not always as partisan as it is elsewhere!

UPDATE:  The Australian newspaper is reporting that the Queensland state Government has decided to delay the privatisation of Queensland Motorway Ltd because the market for toll roads is "soft".  Ownership will be transferred to the state government investment company Queensland Investment Corporation.   This is not entirely surprising given the state of infrastructure investment funds, although I personally have noticed ongoing interest that is largely driven by bargain hunting.  The Queensland Government is not needy enough for money to have to engage in a fire sale, so it isn't an unreasonable decision.