Manila can support two competing toll roads?

Business Mirror Philippines has an interesting report that, with maps, shows the scale of potential in a developing market for new tolled routes with anticipated growing demand: 

METRO Pacific Tollways Corp. (MPTC), operator of North Luzon Expressway (NLEx), believes that Metro Manila is big enough to support two planned connector toll road projects linking the northern and southern toll gateways to help ease traffic conditions.

MPTC President Ramoncito Fernandez countered concerns that the P35-billion toll road project had become less feasible following the government’s unexpected decision to approve both its proposal and that of rival San Miguel Corp. (SMC) and partner Citra Metro Manila Tollways Corp. of Indonesia, which use a different alignment.

While Fernandez conceded that the original assumption was for only a single connector road to operate—in this case a 13.2-kilometer elevated road over the Philippine National Railway tracks —he said MPTC and SMC will be serving different markets.

“Since [our project] is connected to the harbor it serves more the logistics part of the business plus the people who travel from north and south and vice versa. [SMC’s] market, from what I understand, will be local travelers,” Fernandez told reporters at the sidelines of the Institute of Corporate Director’s 9th annual dinner in Makati City on Wednesday.

“We believe the country can afford two [Metro Manila] connector roads,” Fernandez said.

He said customers might overlap “but not enough to say that one will fail because of the other.”

MPTC’s connector road will effectively link South Luzon Expressway (SLEx), recently acquired by the San Miguel-Citra partnership, with NLEx as well as MPTC’s harbor link project.

The SMC-Citra connector road is a 14.2-km elevated tollway that will also connect SLEx with NLEx. The project, an extension of Citra’s Skyway project, which currently ends in Makati City, will reportedly run parallel to Metro Manila’ main highway, Epifanio de los Santos Avenue.

While tracing independent alignments for the most part, the two projects will share a common 3-km route, which would be jointly built by MPIC and San Miguel-Citra, Transportation Secretary Manuel Roxas said last week. 

MPTC's proposal in blue, SMC Citra's in red. Black is NLEx and SLEx

 Fernandez said he expects MPTC to be awarded the project by year-end following a competitive or “Swiss” challenge. Completion is expected by 2015, the company earlier said.

The proposal by San Miguel-Citra, meanwhile, will not be subject to any competitive challenge. Roxas explained earlier that MPTC’s project is considered an unsolicited bid while that of San Miguel and Citra already has an existing franchise to build as part of the Skyway extension.

As you can see above with my depiction, the overlap is in the south, which will be interesting (will there be parallel or stacked highways?).  The blue proposal essentially would be built on top of an existing rail corridor, the red proposal mostly above an existing wide boulevard.  These, combined with the Epifanio de los Santos Avenue ring road, will mean there are effectively three bypass routes across Manila.  Traffic volumes are probably likely to support the two new ones given scope for more after this construction binge will probably be zero without tunnelling. I don't doubt that given the state of traffic in Manila, that these roads will get well used, but the point at which Manila is "built out" in terms of it being too expensive to acquire land or corridors for more roads would appear to be getting closer.  These roads are being built on top of existing railways and roads.  Tolls will mean demand can be managed to hopefully ensure the roads remain free flowing.  However, the obvious question will come, perhaps in 10-15 years time, as to whether Manila will need some form of congestion charging , as a more efficient alternative to building a fourth new highway corridor around or across the city.  Meanwhile, tolls and private investment are enabling the city to build out highway infrastructure to try to cope with its growth.

Marxist position on tolling

For the weekend, I thought this article, apparently based on a Marxist view of economics (but I would not dare suggest it is a particularly authoritative one), would be a curiosity.

It is written by Irvin Jim, General Secretary of the National Union of Metalworkers of South Africa.  I wont bother rebutting the arguments made here, since they are well off my scale of having anything to do with economic efficiency, but are all about “from each according to his ability, from each according to his means”. 

 

He advocates highly progressive income tax as a way to pay for roads. Draw your own conclusions of the logical consequences of such an approach on demand for road use and cross subsidies from those who use roads the least to those who use them, wear them out, congest them and pollute from them the most.

News briefs - Canada, Italy, Namibia, Spain, Uganda, USA (3 states)

Connecticut

Tri-State Transportation Campaign reports that Connecticut is engaging a US$1.4 million study of congestion pricing along the I-95 corridor between Greenwich and New Haven. An additional US$800,000 study will examine road pricing along I-84 in Hartford. Both studies, funded by the federal government, will take approximately 18 months to complete and will look at congestion pricing in the two corridors, which is expected to focus specifically on the feasibility of high-occupancy tolling (HOT) lanes.

The Milford-Orange Bulletin reports on some interesting background to tolling this stretch of highway:

Connecticut abolished its tolls in the 1980s, in part as a result of a horrific 1983 crash on I-95, in which a truck plowed into a line of cars at the Stratford toll station, killing seven people. The federal government also threatened to withhold transit money if the state did not remove the tolls.

Commuters who pass through the Interstates 91 and 95 interchange in New Haven experience a total of 5.7 million hours of delay per year, while commuters who pass through the Bridgeport-Stamford corridor suffer 16 million hours of delay per year, (Bureau of Policy and Planning Bureau Chief Thomas J.)Maziarz said.

The average length of the southbound I-95 traffic congestion at 8:30 a.m. on a weekday, which the DOT has identified as the peak time for traffic, is 20.3 miles, he said. Congestion is defined as an area where traffic moves at 30 mph or less. 

 

Just another Interstate highway which might get tolls introduced to provide a congestion free option, with additional revenue.

Italy

Dow Jones reports that toll road operators Atlantia has said that highway traffic on its Italian toll-road network declined 8.7% in the first three months of the year from the same period in 2011.

Namibia

The Namibian Economist reports that the Namibian government now has the facilities to collect road user charges at its national border crossings.   Why is this interesting?  Because Namibia has a VMT (vehicle mileage tax) system, or rather a weight-distance road user charge for all vehicles over 3.5 tonnes.  The rates are here.   Starting at N$0.07 per km (US$0.009) it appears to work by prepaying in 100km increments, correlated to odometers.  All of the revenue is dedicated to a roads fund which is required to prioritise spending on maintenance and renewals above everything else.

Nevada


The Las Vegas Sun reports that the state is considering options to allow toll lanes and roads. This includes "added lanes in Clark County on Interstate 15 from Sahara Avenue to Rancho Drive at an estimated cost of $400-$500 million".  These would be toll lanes, with existing lanes remaining untolled. Bill Hoffman, assistant director of engineers for the Nevada State Transportation Department said "allowing a private firm to do this project could cut the cost by $100 million, create 4,100 construction jobs and get the project completed more quickly. He said firms that design, build and maintain projects due a better job since they know they are on the hook for the maintenance costs."

Orange County, California

The LA Times reports that operators of toll roads in Orange County are planning to convert to fully electronic free flow tolling in the next 16 months.  The plan is for all users to have accounts, either with tags or number plates, with occasional users having to pay within 48 hours of usage or face being fined.   The roads affected are route 73, 261, 241 and 133 toll roads.

Toll prices were increased on 1 July already, and the drive to eliminate manual tolls is intended to reduce operating costs, as well as improve flow by eliminating stopping at tolling points.

Spain

Spanish toll road operator Abertis is interested in new PPPs with the Spanish government as the latter seeks private sources of finance to kickstart new infrastructure projects due to a lack of public funding. An article from Reuters make a number of interesting points about the presence of Abertis in the tolling market:

- There appears to be low interest in refinancing debt stricken toll roads in Spain as “Chairman Salvador Alemany played down the possibility of extending its Spanish motorway concessions -- two of which expire in 2019 and 2021 -- in exchange for helping the government resolve highly indebted Spanish toll roads”;

- The US, Brazil and Mexico are key target markets for growth;

- Portuguese operator Brisa is no longer a strategic asset, but Abertis will “not sell at current market prices”.
It is undoubtedly a difficult time for any investor in toll roads in the south of Europe, but also an opportune time to diversify, as long as there are decent prospects for growth, a steady core business and a stable business environment.

Toronto

The Star reports that the Toronto City Council has voted to “develop a long-term funding strategy" that would outline “a diverse array of public and private revenue tools” to finance rapid transit expansion.” This includes the role of tolling including options to introduce road pricing on existing roads.

In parallel, “Metrolinx, the province’s regional transportation authority, is also working on a strategy to pay for a massive public transit expansion throughout the Greater Toronto Area and Hamilton… Metrolinx has until June next year to develop a funding framework. Options under study include road tolls and other forms of congestion pricing, a levy on commercial parking spaces, a regional fuel tax, express lane fees and a regional sales tax.”

Here is hoping that it takes a wide strategic view of how to proceed, because for people to accept any form of road pricing on existing roads, they tend to need to see that at least part of the money goes on roads or offsets other taxes.  However, it's clear that one big issue will be governance.  What happens if the city and Metrolinx want conflicting approaches?

Uganda

China Daily reports that the Chinese Government is providing a four year loan for a 37km highway (with a 13km spur) from Entebbe Airport to Kampala that is estimated to cost US$350 million to build. It is described as a “world class superhighway”, and will have manual tolling. One criticism has been the condition that construction contracts be granted exclusively to Chinese companies. The existing route is regularly congested.
Vancouver


According to North Shore Outlook North Vancouver District Mayor Richard Walton supports introducing road pricing as a sustainable source of future income to replace property taxes:

Tolling stations, Walton said, could be located every five kilometres — not just at bridges — or at highway onramps and offramps. And incentives can be built into such plan. For instance, trucks transporting goods over the Port Mann Bridge after 10 p.m. could be exempt from any charges, therefore making night travel more attractive and lessening traffic congestion during the day.

It would take, Walton admits, some time to implement a comprehensive road-pricing arrangement and motorists would need time to make any alternate plans.

But it could mean a move away from using property taxes as a way of funding transit shortfalls, a crutch mayors are clear they will not entertain any longer.

Of course it raises the wider political issue as to whether motorists are happy paying a charge which is used to subsidise alternatives. I would argue strongly that if it is about replacing existing taxes and also helping to fund at least maintenance of the roads concerned, then it will be far more acceptable.  

Fitch ratings compares viability of different types of toll roads

Reuters reports on the view of Fitch ratings of different types of tolling as an investment risk, in the UK context (but with some applicability more generally.  It gives a useful insight into how investors view toll road projects, in separating them between those that offer new routes (and so offer a consistent saving and become the long term preferred route) and those that bypass congestion (and are dependent upon conditions on untolled route):

We would expect toll roads built to relieve congestion to have a weaker credit profile than toll roads built to service a new route. As "peaker facilities," they benefit more from rises and suffer more from falls in traffic volumes. At times of economic growth, when overall traffic volumes in a particular transport corridor rise, growth on the free road is constrained by congestion. Most of the growth is therefore captured by the toll road. When the economy weakens and overall volumes fall, toll road traffic in turn experiences a greater contraction. Toll-free travel may also be more attractive in a downturn.

This volatility, which we call the "corridor leverage effect", has been seen for example in Spain, where a relatively large number of toll roads have competition.

In the managed lane system that has been developed in the U.S., drivers can choose between toll and free roads in the same transport corridor based on real-time estimated travel time information and dynamic pricing. Managed lanes feature higher revenue volatility. We therefore only see managed lanes as viable in heavily congested areas.

I am more bearish than that about managed lanes, as the congestion needs to not only be severe, but consistent over long periods of the day to help make such lanes viable.   It is notable that toll lanes have only been seen in the USA and Israel so far, and the former in most cases simply to get more utilisation out of poorly used HOV lanes.

More details on LA HOT lanes project

In October 2012, Los Angeles will see the opening of the I-110 HOT lanes which I wrote about some months ago (including a map). At the time I said it would offer choice, providing an option for those willing to pay to bypass congestion, but it wouldn't be a cure-all palliative.

A new report from the Inland Valley Daily Bulletin delivers some more details, but these inform for me some of my own key conclusions that are relevant across HOT lane projects:

- HOT lanes don't deliver much revenue, especially if they need significant capital investment to make them work;

- HOT lanes wont fix congestion, but they will provide another option;

- HOT lanes can deliver a reliable trip option, which some will value some of the time;

- HOT lanes can enhance utilisation of existing HOV/carpool lanes in probably the most efficient way possible;

- A road without HOV/carpool lanes is probably best not getting HOT lanes;

- Tolling new lanes is unlikely to be viable unless existing lanes are severely congested for very long periods of the day.

The new details include more information about pricing including a low income subsidy.

The report describes the HOT lane project as follows, including a description of current road conditions:

Carpool lanes on both the 10 and the 110 freeways will be converted into toll lanes, allowing solo drivers to ride them for between 25 cents to $1.40 a mile. A single commuter would pay up to $19 to travel the 10 carpool lane the entire way under the most trafficked conditions, said Stephanie Wiggins, executive officer in charge of the Congestion Reduction Initiative for the Metropolitan Transportation Authority.

In early November, MTA and Caltrans will open up the carpool lanes on an 11-mile north-south stretch of the 110 Freeway in Los Angeles from Adams Boulevard near USC to the 91 Freeway in Artesia. Then, early next year, they will launch the second phase on the 10 Freeway through the San Gabriel Valley, between Alameda Street near Union Station to the 605 Freeway, according to MTA and Caltrans.

Frustrated solo drivers travel about 17 mph from 5 to 9 a.m. westbound and 4 to 7 p.m. eastbound on the 10, often watching near-empty carpool lanes in their side-view mirrors. By expanding use of the lanes, congestion on the general-purpose lanes will be less, and some who choose to pay will get to work or home faster, she said.

So the logic is getting better use out of existing capacity by pricing that spare capacity to enable there to be a reliable lane that people can pay to use. Given some will do that, this will improve the flow on the existing lanes. Nobody will be worse off.

The single lanes are to be converted to two lanes each way, by narrowing lanes overall. This means the HOT lanes will literally be new capacity and be more attractive to motorists, although safety margins on hard shoulders will be reduced.

All vehicles using the lanes will need to have a tag, even those with multiple occupants. A switch on the tag will be available to declare whether the vehicle has one, two or more occupants, determining whether or not a toll is liable. Those without a tag will be ticketed. Again, there will be an interesting issue with enforcement of vehicles that involves detecting if people lie about vehicle occupancy, although having to get a tag does make it easier to identify those without a tag and to focus on vehicles lying about occupancy with a tag. Add to that the current HOV threshold of three people per vehicles at peak times, dropping to two off peak, and confusion is easy to envisage.

The HOT lanes are part of a wider programme which is costing US$210 million in Federal funding and involved a great deal of work on lane conversions and complementary improvements to public transport. However, the tolls have got another twist, a low income subsidy.

It is described on the website as this:

Residents of Los Angeles County with an annual household income (family of 3) at or below $37,060 will qualify for a $25 credit when they set up their account. This credit can then be applied to either the transponder deposit or pre-paid toll deposit. The monthly $3 account maintenance fee will also be waived.
In essence, the effect is to subsidise the opening and maintenance of the account. Curious indeed when you consider that the toll isn’t paid if you have more than two people in the car at peak times. However, I've not seen such a subsidy/discount based on income elsewhere (and I was involved in trying to develop one for the defunct Manchester congestion pricing scheme), so it will be interesting to see how successful this is.

The tolls themselves will range from US$0.25 to US$1.40 per mile, depending on demand, with pricing altering dynamically to ensure a minimum speed of operation on the lanes of 45 mph.

Average toll (end to end) for I-10 ExpressLanes is $6 (average trip is 9 miles). Average Toll (end to end) for I-110 ExpressLanes is $4 (average trip is 5 miles).

Interestingly, if tolls are at their maximum and speeds remain below 45mph, the lanes will be closed to paying users, meaning HOVs will have continued priority.

I'd be thinking about an alternative approach, in that in the longer term, HOV thresholds should be lifted so that priority is given to those who value this precious road space. After all, a car with four occupants can better afford to pay a toll than a car with one (or two if the HOV threshold is three).

However, the politics about this make this too difficult for now.

Also interesting is the absence of any discounts or exemptions for hybrid or other “environmentally friendly” vehicles (something I discussed some months ago). This is about congestion, not emissions (and the likely impact of such a discount or exemption is not going to be to measurably increase usage or ownership of such vehicles).

A loyalty programme is also to be used, which of course is contrary to the oft-cited public policy objective of not encouraging people to drive. I haven't yet obtained details on this.

Gross revenues of around US$20 million per annum are expected from the lanes, which will help pay for their ongoing operations, with net revenues required to be reinvested in further improvements. However, when you consider the programme is costing ten times that, you can see that it isn’t exactly an enormous return. This isn’t a way for cities to make a lot of new revenue, but it is a way to get better use out of existing facilities, and it provides a new option for motorists which will deliver them value.

However, it does take an existing underutilised resource and get more out of it, it also provides utility for those willing to pay for it. Effectively a choice between publicly provided free lanes and premium lanes, so those who value time can pay for the scarcity of the road “resource”. Presenting that concept to motorists is valuable in itself.

Finally, there is one useful resource on the official website. A list of current and planned US HOT lanes.

Manual tolling causes severe congestion in India

The limitations of traditional manual toll collection have become only too apparent on one of India’s newest toll roads, the 25 km Gurgaon-Faridabad 4-lane highway in Huryana state (outside Delhi), according to the Times of India.

It is the first PPP project in the State, and has resulted in traffic jams of up to a kilometre in length since opening a few days ago due to delays in collecting revenue at toll booths (which range from 6 to 14 lanes in width). The operator is called Reliance Infra, a large Indian electricity utility company which also has another 10 toll roads either in operation or under construction. The toll for a car is Rp 15 (US$0.27) per trip. The report claims the road gets about 30,000 vehicles a day, hardly an astonishingly high number, and there is no provision for accounts or tag based users to swiftly move through toll booths. A more detailed description of the road is at Indian Express here.

The operators claim everything will be sorted out soon, but at first glance it appears toll collection is vastly below capacity in terms of efficiency or that pricing is too low (prices are listed at the bottom of this report from Times of India).  Of course another report (Hindustan Times) indicates traffic has been held up by protestors objecting to paying to use the road for relatively short trips, especially for villages adjacent to the toll plaza. 

It is astonishing that regular users cannot as yet set up accounts for DSRC access to at least automatically controlled barriers, which would help reduce delays.   None of this is new, as there is plenty of experience globally in addressing this sort of thing (and I would have thought a company, albeit local, experienced in establishing toll roads would know this too).

Is it the tradeoff between spending more on getting consultancy advice to make sure things work smoothly and everything starts off prepared to be as efficient as can be, or doing to cheaply and just muddling through?

Of course these delays are also matched by the report in the Daily Mail about the Delhi-Gurgaon toll road delays.   That toll road is managed by D.S Construction, and part of the problem is that tolls are paid for a relatively short journey by many users.  Yet shifting the toll plaza could halve revenues, indicating the fundamental problem with using manual tolls in a congested environment.

All of these problems could be solved longer term if India had the infrastructure, systems and laws in place to allow electronic free flow tolling to be implemented, collected and enforced effectively.  However, that would require an enormous project to be undertaken involving tens of millions of vehicles.

Is Budapest congestion pricing heading for disaster?

That’s a question raised by Erik D’Amato in an article on the English language Hungarian website “Pestiside”. He also includes a good map of the proposed cordons.

He fears the following:

- Corruption means that the money set aside to implement the system gets siphoned off before it is completed, leaving it half finished;

- Technical failures;

- Mass evasion due to poor design;

- It is too successful.

Interesting perspective, and given I’ve been to Budapest a few times I thought I’d respond.

1. I can’t comment on possible corruption around funds for the system. I have heard plenty of anecdotes over the years about suppliers and operators of toll systems bribing their way into contracts, but none of it is hard evidence to report (of course if anyone actually has any, I’ll publish it). I wouldn’t have thought Hungary was necessarily worse than its neighbours though.

2. The risk of technical failure is real, and that’s because the timeline to get it designed, installed, tested and for publicity to users to be presented is ridiculously short. London’s scheme was designed to be deliverable in less than three years and be foolproof. Budapest cannot do it in one year without throwing serious money at it and using expensive expertise from other countries. I haven’t seen evidence that either is going to happen. HUF 15 billion (US$66 million) is a tight budget in that timeframe. My view is that one needs at least two years from a decision to operation to get a reasonable chance at reliable operation, assuming there are no legal or planning restraints in the way.

3. The risk of mass evasion due to poor design is for the same reason as technical failure. The timeline is too short. The article cites risks of people falsely registering as residents inside the cordon and of vandalism of equipment. Both are real, and need to be addressed by design. These are not the only risks of evasion and fraud, but you need a good six months of intensive design work on the ground and at desktops, with consultation of traffic and parking enforcement bodies (and staff) to identify and address these issues. Answers could include changes to policy, boundaries or may not be easily addressed with changes to the law.

4. The “too successful” risk is easier to address, as it is a function of price and design. That should be dealt with by modelling demand, which takes into account the likely higher value people put on paying to drive on what were free roads, compared to the parallel use of the same money for discretionary purposes. Again, this needs some work and should result in the design of the cordons, and pricing of cordons in a way that optimises traffic flow rather than bluntly just charges all that crosses. In Budapest, I would have thought that charging in evenings and most of the weekends would be undesirable, and that charges during the middle of the day should be much less than at peaks. However, that requires some work, which I doubt can be completed in a year in time for a system inauguration.

I would like Budapest to succeed with congestion charging, because the city does have a congestion problem and it is a positive step to shift towards such charges as a way of supporting transport infrastructure. It also would be a good demonstration of how it can succeed in a major post-communist era city. However, I share concerns that there are big risks that this can go badly wrong, not least because the timeframe for its introduction is short, I’ve seen little evidence of sufficient work having been carried out to allow it to proceed or for major issues to be confronted.

I hope I am wrong or that the city takes at least 12-18 months longer to get some help to address those issues.   Although it is important that the city address its looming funding shortfall for public transport, it would be worse if its main attempt to do so becomes a disaster, embarrassing the Mayor, city officials and those charged to get it right. 

Toll prices cut on San Diego toll road

I’ve written extensively about the “renationalisation” of a private toll road in San Diego, the South Bay Expressway as follows, which gives you background about this poorly performing investment:

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

- San Diego "nationalises" a private toll road

- San Diego debates how to pay for the South Bay Expressway

The new owner, the San Diego Association of Governments decided to cut tolls in order to spread demand between the toll road and the existing parallel untolled I-805.

CBS8 reports that tolls have dropped by between 21% and 41% from a range of US$0.85 to US$3.50 to US$0.50 to US$2.75 per trip for account holders with tags. Cash or credit card payment at toll booths will drop US$0.50 (a new range of US$2-US$3.50 compared with US$2.50 to US$4).

What will be of interest to some in the industry will be the extent to which the lowered tolls induce a shift in demand patterns, and whether this will more than offset the reduced yield per trip.  There being two relevant goals.

The primary goal is likely to still be to maximise revenue, with the hope that lower prices are more than offset by increased demand.   

Yet the secondary goal will be to enable enough shift in demand from the congested parallel highways to mean overall time savings for traffic on those highways are valued sufficiently highly enough to offset any reduction in toll revenue.

I doubt that the revenue maximising toll is the utility maximising toll (or indeed that cutting rates will be more than offset by increased demand, as the elasticities of demand on single roads are not that great).

SANDAG will be hoping for both of course, because even though there can be a net benefit of reduced congestion which, in overall economic good terms, could be much higher in theory than the loss of revenue, it will be embarrassing for SANDAG to have turned a toll road that was not a financial success into being even less financially successful.

More details on tolls on the road's recently updated website here.

Brisbane's latest toll road about to open under clouds of scepticism

In a few weeks, Brisbane's newest toll road will be opening.  It is called Airportlink M7 and as the name suggests, it will be a new motorway connection between the Brisbane International Airport and the outskirts of the Brisbane CBD, the Brisbane Inner City Bypass (which connects the west to the north) and the existing CleM7 toll tunnel bypass route to the south.  I wrote previously about the Airportlink M7 road here, including how a loyalty programme has been planned for it.

The total project cost is A$5.6 billion and is owned by a consortium called BrisConnections which is listed on the Australian Stock Exchange with a 45 year concession to finance, build and operate the road (and also related projects such as the Brisbane Northern Busway and Airport Roundabout Upgrade Projects).  BrisConnections is underwritten by  Macquarie Capital Advisers and Deutsche Bank.

The road is a 6.7km long final connection for a high speed highway link from Brisbane Airport to downtown Brisbane, as well as feeding into the Clem 7 bypass tunnel towards the southern suburbs. 

Tolls will be collected using fully electronic free flow technology, with tags for account holders and automatic number plate recognition for occasional users and enforcement.

Yet there will be a great deal of nervousness by investors, given the appalling performance of the Clem 7 toll tunnel in Brisbane, which has gone bankrupt amidst traffic levels that are well below half of that forecast in the investment prospectus.

However, excitement and anticipation of success are heavily muted, largely because of the commercial failure of the CleM7 toll road.

I wrote extensively about it here, here and here in essence that road went bankrupt and is now in administration, in part because actual traffic volumes are significantly below forecasts.  Consultancy firm AECOM now faces legal action over the forecasts.

One of the claims about the CleM7's failure was that the Airportlink M7 needed to be completed to feed traffic at the northern end, we'll soon see, although there is some logic to this.  My map of the AirportLink is below:

AirportLinkM7 connects to CleM7 at the bottom of this map

However, AirportLink M7 has had its own problems.  The extensive flooding in Brisbane over a year ago delayed construction completion and adding to the costs. More recently, The Australian reported that construction consortium Leightons is to be fined at least A$26.3 million (US$26.9 million) for delays in opening, at a rate of A$973,973 per day (US$997,000).  It has already had to write down the project by about A$1 billion (US$1.02 billion).

With opening planned in July, there is already a very elaborate website to promote it and nervousness abounds about whether demand will meet the forecasts.

Forecasts for this road have been undertaken by Arup which has estimated 135,000 vehicles a day one month after opening (presuming there are tolls) rising to 291,000 by 2026.  BrisConnections estimates it will get to about 165,000 a day after the ramp up period of the first few months.  

Luring them in and progressively raising prices

Of course, the interesting dynamic will be the innovative "teaser" being offered over the first few months and indeed the first 16 months.  It goes like this:

1.   The first month will be absolutely free for anyone who drives on the road.  If demand doesn't exceed the 165,000 a day forecasts when free, investors will be particularly worried.

2.   The following two months will continue to be free, but only to account holders.  This includes existing account holders for Brisbane's other electronic free flow toll roads.  It is reasonable to assume those who would never pay would mostly drop out at this time, but those who may see some occasional use of the road remain, but still volumes shouldn't drop much.   I would question quite how enforcement will be pursued for those who don't have accounts, but examples will have to be made (or letters sent warning people if they repeat, they will be fined).

3.  After that first three months, tolls will apply with a maximum of A$2.50 for use of the whole road by a car (US$2.56).  This charge cap will last for six months.  Which means until around March 2013.

4.  Toll tariffs will rise to a maximum of A$3.75 (US$3.84) (yes a 50% hike), for another six months.  That means until October 2013.

5.  Finally tolls will reach their intended level of a maximum of A$4.90 (US$5.02).

Light Commercial Vehicles will pay double the price of cars and HGVs more than triple.

Those without tags/accounts will pay a A$0.86 surcharge (US$0.88) per trip.

A$2.94 (US$3.01) surcharge applies to purchase of passes (single or multiple trip) by phone or in person.  Account holders or online purchasers do not have this charge.

The entire toll schedule is here.

If demand can hold up to be anywhere near the forecast levels by then, I'll be surprised, given that it effectively doubles the price in one year.  Intellectually it will be an interesting exercise in demand elasticities of tolling, and no doubt someone will do his or her transport economics thesis using this example.

Chief Executive, Ray Wilson asserts these are achievable because he considers the fact the road connects the airport to the city to effectively mean a greater value of time and so greater potential to get a higher yield per motorist for this sort of highway.  He sees Melbourne Citylink and Sydney’s Eastern Distributor as useful comparisons, even though the population bases of both cities are 3 times that of Brisbane, and Melbourne (unlike Brisbane) has no rail link to the airport.  In addition, the previous routes in both Melbourne and Sydney were regularly subjected to severe congestion.  Brisbane doesn't have quite as bad a problem. 

He has a point, but I'd still be cautious, and I'd be surprised if the toll ramp up in price happens as rapidly as has been disclosed.  I can see a longer term rise from A$2.50 to A$3.75 (perhaps over 1-2 years) with the same to A$4.90.  

Also in the Sydney Morning Herald, Andrew Chambers, a research analyst at Legg Mason, expects traffic levels to be well below forecasts.

I share that view, especially as some motorists may be attracted back to the existing route once enough have shifted to the toll road to make the existing route much less congested.

Time savings forecast are to reduce travel times by between 60 and 88% depending on the trip and time of day, with claims of actual savings ranging between nearly 5 minutes and over 20 minutes per trip depending on the actual route.  These are noticeable, but will obviously vary by time of day according to congestion levels.

Of course whatever happens, the road will be built, it will be a great asset for the city (will probably reduce patronage of the Brisbane airport rail link which opened in 2001) and hopefully the strategy of staggered toll increases will work.   In addition, the creditors of CleM7 will be hoping that Airportlink M7 will feed enough extra traffic down their road that they can start to break even.

US House of Representatives rejects funding Vehicle Mileage Tax studies

The US Congress is currently in the process of seeking agreement for a new Bill to authorise transportation funding for the next six years.  It has been a fraught process, and not one I will discuss in detail here.  

The big news from a road pricing perspective is that the House of Representatives, which is Republican dominated, has agreed to an amendment that effectively ceases Federal funding into studies into Vehicle Mileage Tax (VMT) according to The Hill.

Now the issue isn't completely closed as a Bill needs to pass the Senate as well, but the likelihood is that the Democrats wont push it that much.  So what does it mean and what was the reason for the amendment?

What it means, if it passes like this, is that there will be no Federal funding from programmes to investigate new sources of revenue such as the Value Pricing Pilot Program from the Office of Innovative Program Delivery, in respect of VMT itself.  Presumably studies can continue on tolling, including HOT lanes, congestion pricing and even network wide tolling that isn't about VMT strictly speaking.   This will no doubt hinder progress in some states, but would mean a few years of investigating options to raise revenue that can't be efficiently implemented across entire road networks.   Information about some of the studies carried out so far is on the Federal DoT website here.

It may mean that states themselves take the initiative (much like Oregon has for some time) to do the hard work themselves to consider how to shift to alternatives to the "gas tax".  

However, it is worth considering why this amendment was put forward.

The blocking of further funding for this was proposed by Rep. Chip Cravaack (R-Minn.). He argued that it would “would hurt rural drivers, cost a lot to implement, since it would require devices in each car to track how many miles have been driven, and could impinge on privacy rights.”

Now I’m not one to argue whether or not the Federal Government ought to be responsible for funding such studies, as it really depends on whether it wants to supplement or replace its own Federal gas tax. However, I can question the view of Rep. Cravaack, which contains a range of misconceptions. 

I'll go through them point by point:

“Hurts rural drivers”: This is a question of equity, and whilst the issue of equity raises claims of winners and losers, the only sure way to ensure equity is to charge according to a fair allocation of costs. Charging by distance on the face of it, means you use the road network more so you pay more. However, does that mean rural users are likely to be overcharged? There is a paucity of accessible research on the revenue generated by different roads by location. However, what I have seen over the years indicates that rural roads get heavily cross subsidised simply because the fixed costs of those roads can’t be recovered easily from the very low volumes of traffic on them. So the question comes as to who should subsidise them or if there is a better way to take this into account. One way is to ask whether the access value of a road to a property might better be recovered from charging the property itself as well as the motorist. That could mean not charging rural trips as much, because property owners value others being able to get to their properties. My counter-argument to this one, is that vehicles visiting rural areas should also pay.  Besides, fuel taxes hurt people who can’t afford new fuel efficient vehicles.  There is a concern that is worthy of debate, but rural roads will equally benefit if heavy trucks pay for the long mileage they undertake on them.  My point is that what is charged (and how it is charged) should reflect cost.

“Cost a lot to implement”: Well I am sure if the US Federal Government was to implement it, it would do so. However, that argument is being eroded by the successful implementation of such systems in other countries and the work underway today in Oregon. Fuel taxes are always cheaper, but then it would probably be argued as being cheaper to collect money for food through an income tax and to have the government buy everyone rations, rather than have thousands of shops and businesses do it. It doesn’t mean it is better or results in more economically efficient outcomes.  Costs are relative to the benefits that are generated for them.  For now one of the big issues is how to efficiently minimise costs to unlock the benefits of VMT, especially over the longer term.   More studies could help better inform this debate.

“it would require devices in each car to track how many miles have been driven”: Maybe, maybe not. Many people carry devices that aren’t too far removed from that now. Cars are capable of having such equipment pre-installed anyway. The word “track” can be replaced with “record”, since there is no need to know every road everyone has gone down to charge distance.  Indeed, you can use more conventional tolling technology involving tags and beacons (DSRC) to do VMT on major highways, as is done today in Austria, the Czech Republic and Poland.  However, the presence of equipment to do more shouldn't be seen as necessarily an insurmountable or expensive problem.  In New Zealand, which has a nationwide VMT system for all heavy vehicles on all roads, commercial vehicle owners are choosing to pay for devices that measure distance more reliably than their hubodometers and provide other services. 

“Could impinge on privacy rights”: well yes it could, but it need not do so. Oregon is specifically including an option that is designed to do that. However, there are plenty of ways to protect privacy. The bogey that the government is tracking every movement is often cited, and it is encumbent upon those of us advocating VMT systems to explain why these fears can be easily addressed, plus pointing out that mobile phone companies can already effectively track people’s movements now. If road utility service providers offered the charging service, the effect on privacy would be no different.  After all, what matters is that people pay for what they use, and it is possible to separate the calculation of what to pay from the collection of payment (and the data needed to determine what to pay - e.g. roads could be classified by tariff categories A, B, C in a system, not with the names of the roads).

The Federal Government has a problem, its budget for expenditure on surface transportation is higher than the revenue it gets from road users. It can either cut the budget to match this or raise the existing taxes, or find a new source of revenue.

If it wishes to cut the budget, either because it wants to leave it to the states or there are sound reasons to presume there are significant efficiencies that can be extracted from current activities, then fine.

However, if it does want to address the issue of subsidising the Interstate highway network, it has to confront the declining yields of the “gas tax” either by raising it or replacing it.

By deciding explicitly to not investigate replacing it with the most economically efficient alternative, then it looks like the future involves more subsidies of highways or increases in gas tax. In an age when many people want better value for money, and there is a trend towards more user pays and more business-like ways of managing infrastructure, it seems strange to ignore one way forward in delivering that.

Meanwhile, I am sure the states will push forward, just more slowly this time.