Wednesday, 14 September 2011

Indiana toll road privatisation success?

There has been a fair bit of controversy about the temporary privatisation of the Indiana Toll Road, largely because it is seen by some as an example to follow for the Ohio Turnpike. A couple of recent article have published some details that present a more positive story about the privatisation.

- The US$3.85 billion the state was paid was well beyond its expectations
- The Indiana Toll Road lost money in five of the seven years before it was sold
- It was politically impossible for tolls to be raised to enable the road to be viable when it was under state ownership and control.

In other words, whilst some politicians complain that the privatisation means the private owners are now raising tolls so they can make a profit, the truth is that politicians themselves were unwilling to raise tolls so that the state could sustain the maintenance and operations of the road (let alone generate a return on capital. In other words, the private sector did what the state could not do.

TV station WSBT did some research on comparative toll rates across the US, looking at the price per mile to travel the full distance of some major roads. It found the following:
  • Pennsylvania Turnpike 8c/m with EZ Pass, 9c/mile without
  • Ohio Turnpike 4c/m with EZ pass, 6c/mile without
  • Indiana Toll Road 2c/m with iZoom, 5c/mile without
Ohio and Pennsylvania toll roads are State owned. The revenue from the Ohio one is apparently all used to pay for the road. The Pennsylvania one does that and generates a surplus to be spent elsewhere. It’s not difficult to see why the Pennsylvania Turnpike is so successful, it is demand.

  • 45 million vehicles a year use the Indiana Toll Road
  • 49 million use the Ohio Turnpike
  • 190 million use the Pennsylvania Turnpike.

So it would seem that Indiana is NOT being ripped off by the private sector, but indeed has been subsidised by it for the past five years, and the road is progressively getting to a point of breaking even. Opponents of privatisation may get upset when the road becomes profitable and the new owners get back the money they paid the state for the lease of the road, but they should hardly be complaining now. Indiana toll road needed increases in tolls, but the privatisation deal, besides handing the state a windfall it would never have otherwise got, means the road is not losing the state money and there are positive incentives on the owners to extract efficiencies out of its operation, and make it profitable. Which it presumably will be when it gets handed over to the state after the lease.

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