Tuesday 26 July 2011

New Zealand's toll road that probably shouldn't have been one

The Northern Gateway toll road north of Auckland is New Zealand’s first electronic free flow toll road, using only ANPR technology to detect vehicles. The road comprises an extension to Auckland’s Northern Motorway which is the main corridor between the city and its northern suburbs and the region of Northland. The extension is a bypass of seaside suburbs Orewa and Waiwera, saving time and relieving those suburbs of considerable congestion. So the economic (and environmental) benefits are considerable for those not even using it.  As with many toll roads, this is partly reflected in the fact the road is only 50% toll funded (and because if it was any more the road would be largely empty).

Northern Gateway is basically a bypass
The road is not a PPP.  The road and the tolling system is run entirely by the government agency responsible for the state highway network and the tolling system – the New Zealand Transport Agency (NZTA). The toll system has had a host of teething problems, largely related to human behaviour as people did not exactly act as was expected (in terms of how they pay or their willingness to establish accounts).   This is unsurprising, as NZTA has never had experience with free flow tolling so was hardly in a position to make such predictions.

Embarrassment over this have meant that the NZTA has taken a fairly relaxed attitude to non-compliance.

So it is not surprising that the NZ Herald reports that no violators have ever been referred to the courts, with unpaid tolls only being referred to debt collection agencies. The worst violator owes almost NZ$1050 in tolls (US$909). The reason for not forwarding to the courts is the cost of doing so, which does raise the wider issue around the incentives on NZTA to get this right.  Compliance and enforcement should be part of a comprehensive strategy, something that is commonplace on toll roads in other countries, but new to New Zealand.  A private concessionaire may have known better what to do, but the previous Labour government figured it could borrow money cheaper than any private concessionaire, and there were insufficient advantages in getting the private sector involved to offset the higher interest cost expected from private investors compared to the state.

For the road itself, non-compliance was at 3.7% in December 2010, which after two years of operation is a little high, but not catastrophically so. It has been on a downward path, but the level of non-compliance in part reflects the road being a rural intercity motorway, not an urban motorway, so the proportion of regular traffic is lower than in cities.

The Automobile Association claims one reason for non-compliance is that it is difficult to pay the toll, because roadside kiosks see “queues” as people stop to pay, and online and phone based options are not “user friendly”. Given that phone payment is only possible from 0830-1700 Monday to Friday, it’s hardly surprising. Likewise there is no easy SMS payment option like in some countries.

NZTA has since announced new “admin charges” for payment options, ranging from zero for account holders and online payment to NZ$3.80 (U$3.20) for phone payment. The latter suggests the system used for phone payment is remarkably labour intensive and well out of step with systems overseas (call centres should not cost that much and automation could reduce this).

The entire system is crying out for privatisation or to be opened up to competition from service providers who may do it more efficiently. The underlying problem is that the politics around toll roads clouded the finances.

The previous government passed legislation allowing for tolling of new roads, and the now-defunct highways authority (misleadingly called Transit New Zealand) was keen to be in charge of the first such road (beating any local authorities), so decided that the long delayed Northern Gateway project (or ALPURT B2 as it was then called) would be the first, because no other likely projects were in the pipeline. 

This was despite analysis showing it would not make much money if you took into account the costs of setting up the tolling system. So Transit convinced the then government that it was ok for NON-tolled road users to pay for the multi-million dollar tolling system through motoring taxes, to subsidise tolls. This was before there was any realistic chance of there being more than perhaps two other toll roads that could have been opened in the depreciated lifespan of the tolling system (which is about seven years).

In other words, the tolls were introduced in spite of the finances not really adding up, because the government wanted a toll road to show its legislation was not in vain. In truth, the Northern Gateway neither has the volumes of traffic nor the level of regular users to make tolling anything more than marginally useful to the finances of the project, even though its tolls are purportedly paying half of the cost of the project, the system to collect the tolls is 100% subsidised by other road users (and the road itself is only 50% toll funded).   

Of the possible policy reasons to introduce tolls, affirming a government policy is not a good one.  Neither is "making sure we are first and set the standards for toll roads" which was the reason for Transit New Zealand pushing tolls.  The proper reason is to accelerate a road project with new money paid for by users who value the benefits from using the road greater than what they pay through conventional motoring taxes.

Given that the likelihood is that there may only be two more such toll roads in the next ten years (only one has been funded), then some serious questions ought to be asked about reform, especially as the entire system will need replacing in around five or so years.  It needs to be investigated by those who have experience with such systems, and there are plenty in Australia.  It needs to not be shadowed by politics and concern by those in the NZTA who fear for their jobs, or fear the inevitable finger pointing about the project.   What is needed is some financial honesty and transparency about what went wrong, and how to proceed with the tolls (now that they are there) on this road and future ones.   The focus should be on maximising net revenue with significant improvements to customer service.

Dare I suggest this reform be done before the next toll road, the Tauranga Eastern Link, is completed?

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