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

Florida talks about tolling a flyover

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

Pakistan isn't ready for congestion pricing yet

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

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

Virginia announces Transurban to extend I-95 toll lanes

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

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

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

The key components of construction include:

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

Financial and tolling highlights:

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

 Maps are available here.

Brookfield Infrastructure buys part of Chilean toll road

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

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

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

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

Bakrie wants out of toll road business in Indonesia.

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

The report states the firm:

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

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

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

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

Jasa Marga's corporate profile describes it as follows:

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

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

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

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

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

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

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

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

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

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

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

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

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

Size of London Congestion Charging zone relative to greater London

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

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

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

Conclusion

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

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

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

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

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

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

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

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

Comment

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

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

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

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

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

LBJ Express Lanes - Texas

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

Key comments are:

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

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

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

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

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

AP-41 Madrid-Toledo, Spain

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

The road's profile is summarised below:

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

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

SANRAL, South Africa

BusinessTech reports:

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

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

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

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

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

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

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

North Carolina Turnpike Authority

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

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

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

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

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

Manila Cavite Toll Road Finance Co

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

Key points:

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

Australian positions on road pricing are polar between east and west

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

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

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

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

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

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

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

Western Australia:  "How dare anyone even suggest it"

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

The reasons are:

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

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

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

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

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

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

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

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

Some of the more interesting points around revenue are:

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

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

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

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


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

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

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

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

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

What about the impacts on externalities?

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

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

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

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

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

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

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

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

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

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

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

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

Macquarie Atlas Roads revenue up in June 2012 quarter

The Herald Sun of Melbourne reports that toll road concessionaire Macquarie Atlas Roads has stated that toll revenue across its investments increased 1% in the latest quarter, despite a weighted average toll volume reduction by 1.7%.  The headline results are reported by MAR as follows:

• In 6 months to 30 June 2012, weighted average toll revenue is up 0.9% compared to the same period the previous year.
• Autoroutes Paris-Rhin-Rhone (France) has seen a 0.5% reduction in revenue in the past 6 months compared to the previous, reflecting a 5.2% reduction in heavy vehicle traffic and 2% reduction in light traffic.  This was put down to the weak economy, reduction in workdays (negative for trucks, but the positive effect on cars was offset by poor weather) and high fuel prices.
• Dulles Greenway (DC) has seen a 8.3% increase in revenue in the past 6 months compared to the previous, with a 0.3% increase in total trips.  Revenue increased due to an average 8% increase in pricing on 1 January 2012 approved by the Virginia State Corporation Commission, indicating very low demand elasticity relative to pricing.
• M6 Toll (UK) has seen a 3.1% increase in revenue in the past 6 months compared to the previous, with a 0.6% increase in trips (although this involves a 1.8% increase in workday trips, but 3% reduction on weekends and public holidays).  The proportion of cash transactions (indicating more occasional users) increased by 1.7% of all transactions.  Revenue increased due to changes in pricing on 1 March 2012 and increased demand.
• Chicago Skyway (IL) has seen a 4.9% increase in revenue in the past 6 months compared to the previous, with a 1.1% increase in trips (comprising a 2.6% increase on workdays but a 1.6% decrease on weekends/public holidays).   Revenue and trip increases were driven by a 18.9% increase in heavy vehicle volumes, offsetting the 0.9% decrease in light traffic.
• Indiana Toll Road has seen a 7.7% increase in revenue in the past 6 months compared to the previous.  Traffic was up 2.6%.  Most notable is an 18.7% increase in heavy vehicle traffic paying using manual collection rather than account based transactions, this compares with only a 2.2% increase in traffic for all light vehicles, and heavy vehicles with accounts.  Toll rates were revised in 1 July 2011 which also contributed to higher revenues.
• Warnow Tunnel (Germany) saw a 7.1% decrease in revenue in the past 6 months compared to the previous.  This followed a 12.2% decrease in total trips.  The primary reason is that roadworks on the “competing” untolled route ceased in October 2011, resulting in a diversion back to the no longer disrupted untolled option.  Toll rate increases on 1 November 2011 and 1 May 2012 partly offset this reduction in demand, although it would not be surprising if the November 2011 increase induced a greater shift in demand as the tolled route was seen as even less competitive on price and travel time.

Policy challenges of VMT in the USA

Dr. Travis Dunn of D’Artagnan Consulting* has prepared an interesting presentation (that he gave at the recent IBTTA Symposium on Mileage-Based  User Fees and Transportation Finance) on some of the challenges US policy makers when considering a shift from fuel excise taxes to distance based charging for road use (commonly referred to as VMT or Vehicle Mileage Tax**) .

He makes some fascinating points (sources in his presentation): 

- From 1994 to 2010, the real value of the Federal gas tax has declined by over 40% compared to the Highway Purchasing Price Index (the cost of paying to maintain and build roads). It has not increased in nominal terms since 1994. It is US$0.04/litre (US$0.184/gallon);

- At the state level, 18 states have also not increased their State gas taxes in nominal terms since 1994, 2 have reduced them (Connecticut and New Mexico) others have increased them. The average across all states is an increase of 2.8c/gallon since 1994. This roughly equates to a decline of around 25% in real terms, but obviously some states have seen far higher declines, and a few (notably North Carolina and Washington) have kept up pace with inflation and some. 8 states index their own gas taxes to inflation;

- Vehicle fuel efficiency has improved by around 15% in terms of gallons per mile since 1994, although it had declined between 1994 and 2004 by around 7%, this has been more than reversed from 2004 onwards. 

From this, he concludes that the timing for VMT to replace gas tax has been since that rise in efficiency, as it is a combination of inertia in indexing gas tax to inflation and the increased fuel efficiency of the fleet that is putting pressure on state and federal budgets dependent on these hypothecated taxes. 

He concludes there are a few more fundamental policy points: 

- Whilst VMT protects revenue from erosion due to reductions in fuel consumption per vehicle mile, it does not protect it from inflation. VMT will still need to be increased to offset that;

- Federal gas tax already means a complex set of cross subsidies between states. Four states get less than 90% of what they contribute in Federal gas tax (Texas, South Carolina, Utah and New Jersey), whilst 17 states get more than 110% of what they contribute (DC gets nearly five times what it pays, Alaska gets nearly four times). VMT may mean states are likely to want to keep the revenue they generate, and perhaps it means rates might vary from state to state;

Yet if VMT was introduced to replace gas tax, the picture would change, assuming funding stayed the same. Texas would gain by paying $411 million less than it does now (reflecting its fuel consumption is high relative to distance travelled). Florida would lose by paying $510 million more than it does now (reflecting the opposite). 

Obviously there are other dimensions that Travis doesn’t take into account, which could help mitigate this, primarily because discussion of VMT has been as a straight replacement for gas tax.   However, as a tool it can be used to significantly improve pricing, after all vehicles already pay differently according to fuel consumption, which reflects weight, topography, road network and demand conditions.

I'd argue some of the minimum components of VMT should be:

-    VMT shouldn’t be a flat rate for all vehicles, because gas tax isn’t. It would be highly preferable to match VMT to also reflect weight, so that whilst cars pay a common rate, trucks and buses would pay more to reflect the greater wear and tear they impose on roads, and the capital requirements for highway structures to be built to cope with such weights.   Other taxes (such as tyre taxes and registration fees) that may be proxies to reflect this would need to be taken into account, and adjusted downwards if desirable;

-   VMT should reflect geographic variations in cost.  Even if there is a federal VMT, it seems reasonable to be cost oriented by having VMT rates that could vary from state to state because costs vary.  As long as this is oriented towards cost recovery, it should be less controversial, but it ought to also mean revenue raised in one state is spent in that state (or on routes approaching it). 

-  VMT at the interstate level can be varied to reflect recovery of the costs of major new capital works, replacing conventional tolls.

His whole presentation is here (PDF), it's worth a look through.  If you have any questions, his contact details are at the end.

Obviously it is a long way to go before VMT will be rolled out on a wide scale replacing existing taxes, but the challenges driving the concept are here now and unless some of the key dimensions of the current system and what VMT will bring are understood, it will difficult to move forward and the current problems will simply get worse.   Travis's presentation raises just some of those issues, which highlight the obvious but often ignored point that the existing system produces "winners and losers", another system will change who they are - the bigger challenge is making sure whatever comes ahead, that VMT can be seen as being fair.

Budapest congestion charge suspended by Hungarian Parliament

Budapest's plans for congestion pricing look set to be delayed, as the Hungarian National Assembly voted against changing the law for it to be implemented, according to the Budapest Times.

14 members of the Hungarian National Assembly voted in favour of the law change, but 305 opposed it. Of those voting for it, most were from the LMP, a leftwing environmentalist party.  It is likely this move was driven by populism, as congestion charging was unlikely to be widely supported in advance of its introduction.

 

The implications are potentially serious, as congestion charges were a precondition of EU funding already provided for the new metro line (M4) currently under construction.  Given that the Government had previously supported abolishing all central government subsidies for public transport in the city, it leaves the Mayor of Budapest, István Tarlós, in a difficult position.   He faces having to drastically increase public transport fares to maintain services, which will no doubt exacerbate traffic congestion as some users will switch to driving.  Other options include increasing parking charges, or drastically cutting services.   You see congestion charges for Budapest were, in effect, replacing central government funding to subsidise public transport. 

He is unlikely to directly face the wrath of the European Commission, as central government will have to deal with that, but it is likely to be highly embarrassing, and Hungary may face a cut in any future funding if it doesn't match its promises with actions.

I've previously commented on how I thought Budapest faced an uphill struggle to implement congestion pricing in such a short time frame.  Yet I believe it should be implemented, albeit on a more considered timetable, with time taken to develop it in an integrated way, that prices rationally and deals with changes in traffic patterns appropriately.

This now all looks like a potential mess.   An earlier report indicated that tolls on the Danube river crossing bridges might be implemented instead.   This would be simple, although obviously create concerns about being unfair on those from Buda entering Pest.   Yet it is unclear whether this is allowed under current laws.

What is certain is that the issue wont be going away because:

-  The politics of raising public transport fares and cutting services rival those of introducing congestion pricing;

-    Budapest will remain congested, regardless of what is done with public transport funding;

-    The EC will not look kindly upon Hungary breaching one of its conditions for funding for its new metro line.

UPDATE:  Hungary Around the Clock reports that Budapest Mayor István Tarlós says that the subsidy contract with the European Commission for the Metro 4 line, which included the condition that congestion charging be introduced, should now be renegotiated.  The report noted that it was the previous Socialist-Free Democrat leadership and former mayor Gábor Demszky that pledged to introduce the charge by late 2013.

Budapest Business Journal notes that the Mayor has said final decisions on funding for BKV (the Budapest Public Transport Company) will be made in September, including "alternative options". 

Another article noted that while the Metro 4 project is going well, the congestion charge needed a series of park and ride stations on the periphery, and nothing has been done about it.  It has also been noted that it will be virtually impossible to procure and install a system within the planned time.