Tuesday 20 March 2012

UK road privatisation? The big issue is who pays

According to the BBC (and numerous other UK media outlets) the UK government wants the private sector to invest more in highways in the UK. A speech from the Prime Minister has said that while tolls are one option, there needs to also be consideration of how the private sector can finance roads over time.  In short, he is laying the foundations for potentially radical reform in how England's national highway network is funded and managed (given that Scotland, Wales and Northern Ireland all have devolved authority over their networks).

Of course the conventional idea is that the classic PPP model is adopted, whereby a private company finances, builds, operates and tolls a new road, enabling the entire project to be self-financed. The M6 toll road is a perfect example of this.

This is all very well for entirely new roads, but the business case for entirely new roads is tough. It requires land purchases and planning permission for a new corridor, which can be onerous as there are groups (such as Friends of the Earth, and the left-wing environmentalist Campaign for Better Transport) which dedicate resources to opposing any road improvements. The antipathy and lack of enthusiasm from many local authorities (including Transport for London) for any new road corridors effectively snuffs out interest in many cases.  Building new roads is difficult in the UK, which given the surfeit of bottlenecks is interesting.

Beyond new roads is the case of upgrading existing corridors, such as widening an existing highway, building a bypass or the like. In such a case, one option under consideration appears to be allowing the government to lease part of or the whole road to a private investor, which would pay a sizeable sum in return. The investor could then be paid by any combination of the following ways:

- Direct tolls: The investor could simply introduce tolls on the road, or even just new sections (or new lanes), to fund the improvements;
- Shadow tolls: The government pays the new owner on a per vehicle basis, with some variations based on type of vehicle, time of day, or other factors;
- Performance payment: The government pays the new owner on the basis of meeting targets in terms of network performance including maintenance, congestion and safety.

Bear in mind that the UK government already gets around £32 billion a year from fuel duty and vehicle excise duty from road transport now (that excludes VAT on top of tax). So there are sources of revenue to pay a future private owner.

The Prime Minister said that tolls would only be possible for new roads, although it does raise the curious issue of tolling for new lanes. What this does mean is that there is likely to be more options coming from the proposed feasibility study into “new ownership and financing models” being carried out by the Treasury and Department for Transport. 

It is with such a report and potential options that there is potential to truly unlock much more potential than simply new sources of capital. 

The big elephant in the room, and the issue which much of the media (and public) is speculating on, is what does it mean for how people pay for the roads and how much?

UK motorists currently pay for road use in up to four different ways, with a fifth one about to appear for large trucks:

1. Vehicle Excise Duty (often mislabelled "road tax"): This is essentially a tax on owning a vehicle in the UK, and is simply to vehicle registration or licensing fees in other countries. This tax raises around £6 billion per annum. This is broadly equivalent to the total budget of the Highways Agency, and trunk road spending in Wales, Scotland and Northern Ireland. However, this is treated as general government revenue, it is not hypothecated.

2. Hydrocarbon oil duty (fuel duty): A conventional fuel tax rated at just under £0.59 per litre for diesel and petrol. Most of this is paid by road users and generates around £26 billion a year from road users. None of this tax is hypothecated.

3. Tolls: A handful of crossings plus the M6 toll road have direct tolls. These generate revenue for the owners of each facility. The M6 toll road is the largest, whereas the smallest include very old private toll bridges in various parts of England.

4. Congestion charge: Strictly speaking, there are three “congestion charge” zones in the UK. London is the most well known, but there is also one in Durham and the Dartford Crossing toll is now officially a congestion charge. All of these generate revenue for the authority levying the charge (and is meant to be hypothecated for transport spending).

5. Heavy vehicle vignette: Announced recently, the UK government intends to levy a vignette for vehicles over 12 tonnes wishing to use the entire UK road network. It intends to reduce vehicle excise duty for such vehicles, so that almost all UK truck owners do not pay more. The vignette is based on buying access to the UK road network for anything from one day to one year.

As all vehicles are charged for use of all roads now, with a fuel tax that is high by global standards (although not quite the highest in Europe), the scope for tolls on top of that is more limited. Bear in mind that of those sources of revenue, the first two currently involve no relationship at all between what road users pay and what is spent on roads. However, consider the concerns of road users that government spends only a quarter of what it collects from those taxes on roads now.

The connection is even looser because fuel duty is not hypothecated to road or transport spending, like it is in the US, New Zealand and several other countries. The UK Treasury is ideologically opposed to hypothecation because it limits the government’s scope for using revenue from any taxes for any purpose. In essence, Treasury wants to advise directly on government spending in all areas, not to have one area of spending set aside based entirely on revenue collected from those who use it.  Yet if there is to be a shift from tax to user pays, there needs to be a way to transition it.

Given that a private road owner can only levy tolls, the big question must be whether any change in ownership will provide scope to either:

1. Pay a new owner a share of the revenue generated from existing motoring taxes; or
2. Allow existing taxes to be reduced for anyone paying a toll on a privatised road.

In New Zealand, it was proposed in the late 1990s to transfer all roads, both central and local government owned ones, to a series of commercial companies (with central government and local authorities as shareholders), which would operate at complete arms-length from political interference. Initially, it was expected that these companies would bid for funding from a user funding agency which would receive the equivalent of fuel tax and vehicle excise duty and buy road services on behalf of motorists (e.g. maintenance, bridge replacement and upgrades).  It was thought that if existing taxes were frozen in perpetuity, then growth in revenue would have to come from road companies offering better service, and indeed over time, inflation would erode existing motoring taxes with a greater emphasis on user charges.

That meant there could be the option for a trucking company to pay to use the roads directly, and not pay taxes to government for using the roads. Products would be available for road users to pay for road use, and be refunded fuel taxes or other motoring taxes. 

In other words, it provided a mechanism for the road provider to contract directly with the road user and for the road user to get taxes back in return.  The proposed reforms floundered in New Zealand because of a change in government (which was friendly to local government concerns over losing powers).

The advantage of charge vehicles directly through tolling and other forms of direct road user charging is it can mean the amount that is charged is related to usage, and that it can reflect the infrastructure costs, and can also vary according to demand (to manage congestion). However, to realise this potential, the entity setting the tolls needs to have the flexibility to respond to demand.  Dynamic road pricing is more likely to come from the private sector than the public sector.

The greatest concern of road users is that they may pay more with a private road owner tolling a road. This can be ameliorated by the providing offsetting motoring tax reductions like I mentioned above, and by having an independent regulator to avoid price gouging (and indeed having any privatisation done in a way that may encourage competition where viable).

It is inevitable that debate over road privatization in the UK will be clouded by the anger by motorists that they “already pay too much”, which when you consider the 4:1 ratio of motoring specific taxes over road spending, is an understandable position to take. Some will fear foreign takeover (with the BBC already implicitly appearing to stir up such fear with this headline).

However, regardless of structures or sources of finance, the core to any reform in the UK will be the answer to the question “How will motorists pay for the roads?”.

Unless the answers involve better use of existing taxes or replacing existing taxes with direct charges, the likelihood is that there will be considerable public resistance, because the current system doesn’t deliver the standard of service users want at a price they see as fair.   Meanwhile, there are groups that happily oppose any new road capacity or road improvements, and see tolling as a way of punishing motorists (and higher fuel taxes the same way).  

Yet by far the biggest problem is one of trust.  Motorists in the UK do not trust politicians.  From 1993 to 1999, fuel tax was increased with an "escalator" that raised it by inflation plus 3-5%, so that the tax taken from road users increased far beyond road spending.  Meanwhile, local authorities claim there is a £10 billion backlog of potholes needing repair.

Any change needs to change that relationship, to be one where what is paid is seen as generating value for motorists.  Like with any road pricing, unless what is paid is related to what is used, it will be resisted.

Thursday 15 March 2012

News Briefs: Gothenburg, India, London, South Africa, Toronto


Further to an earlier report, a press release from the firm has confirmed that Q Free is supplier for delivery of road side equipment, infrastructure and service and maintenance for 2 years with an option for additional 6 years for the forthcoming Gothenburg congestion charging scheme.  The price is NOK 143 million (US$25 million).


Fitch ratings has released its latest report on Indian toll roads.  Highlights include:
- First-year actual traffic levels are a strong indicator of the accuracy of traffic forecasts and hence of a project's economic prospects;
- Traffic volume forecasts are systematically over estimated, because of sponsor bias, lack of data and lack of analytical rigour.  Some cases see traffic 45% below forecasts.
- High inflation has meant inflation-proof toll increases have mitigated low demand, but demand elasticity responses to ongoing increases are unclear;
- Most projects are highly leveraged so highly susceptible to failure to meet forecasts;
- Even given short term pressure, most projects retain long term capability to service debts;
- More recently some concessionaires have been allowed to toll completed segments once 75% of a project is completed, which mitigates some of the current challenges.


The Evening Standard reports that embassies in London have now accumulated unpaid charges and fines for London's congestion charge worth a total of £58 million (US$91 million).  Those that do not pay claim it is a tax, so diplomats are exempt from paying it.  However, some embassies do pay.  The biggest debtor is the United States, which owes £6.1 million, followed by Russia, Japan and Germany.   Curiously a website from the Liberal Democratic Party claims that the US embassies in Oslo and Singapore do pay the toll and road pricing charges in those cities, but then again Oslo is clearly a toll paying for specific roads, and Singapore road pricing is also a charge metered on usage.  Maybe the next major change to the London scheme should be to render it more similar to the others?  Of course in Stockholm, foreign registered vehicles are exempt, so making that comparison is not possible.   Around 50 embassies refuse to pay in London.  Of minor interest to me is that my country of birth, New Zealand, does pay, but Australia doesn't.  This link shows a list of those who have not.  Curiously as well, South Korea doesn't pay, but North Korea does (or doesn't drive into central London at charging times)!

South Africa

There continues to be extensive debate about tolling in South Africa, with two recent reports indicating strong political resistance to expanding tolls. One report from the Independent Online claims that the KwaZulu-Natal (a South African provincial government) Department of Transport will continue to oppose plans to introduce tolls on roads along the “Wild Coast”. Meanwhile the City of Cape Town is reported to still be interested in taking two cabinet ministers to court following plans for tolls to be introduced as part of improvement proposals for existing highways in the city (the Winelands project involving the N1 and N2) from the South African National Roads Agency Ltd (SANRAL).  The City is claiming that SANRAL did not adequately address its concerns through its disputes resolution process.  There is another political dimension here.  Cape Town is governed by the Democratic Alliance (DA), South Africa's leading opposition party (the national government is of course governed by the ANC).  This battle is, in part, about the DA challenging the dominance of South Africa's ruling party.

Meanwhile, the trade union federation COSATU has been driving protests against tolling, but this article from South Africa Report doubts the union will achieve its aims.  It says that COSATU's position is "rooted in its opposition to privatisation" and it presumably sees user pays as part of that (and reflecting that SANRAL is a commercial, although state owned, company).   It also highlights some debating points from Deputy Transport Minister, Jeremy Cronin, of the South African Communist Party, who makes some interesting points arguing why tolls can be justified.  One such point being that the alternative is general taxation, with everyone, including those who cannot afford a car, paying for what is a facility predominantly used by the relatively affluent.   Another being that if tolling is to promote mode shift, other modes must be available and be of good enough quality.

IT Web South Africa reports that the toll cap for the Gauteng Freeway Improvement Project only applies to vehicles paying with a tag and beacon account, not those paying through ANPR detection.  The articles also describe how the opposition Democratic Alliance is opposing tolls, and how SANRAL is dealing with misinformation about payment options.


The world's first fully electronic free flow toll road (ETR 407) is to be extended with the Highway 407 East project.  It will be extended in two phases, the first a 22 mile extension east to Oshawa, the second extension to Highways  35/115, according to the Montreal Gazette.  SNC-Lavalin has been named as the preferred consortium to design, build, finance and maintain the tolled extension.

Tuesday 13 March 2012

New York congestion pricing 2012 version

2008 version

It's fairly well known that New York Mayor, Michael Bloomberg, tried and failed to get approval to introduce a congestion charging system for the city in 2008.  The problem was not the city, but the state Assembly which declined to hold a vote on the issue, which would have been necessary to authorise the concept.  The proposal was to introduce a cordon on the southern half of Manhatten between 0600-1800 weekdays for all traffic except buses, taxis/for-hire vehicles, emergency vehicles and vehicles of disabled motorists.  Of course as the map below demonstrates, crossings from New Jersey are already tolled, as are two crossings of the East River.  The original proposal would have meant that those tolls would be deducted from the congestion charge, so that the effect would be that no motorist crossing the cordon would pay more than anyone else.

Bloomberg's original New York congestion pricing concept

The failure to get political traction for the proposal has been subject to much speculation and discussion, but one view is that it focused on penalising motorists within the state, without giving them anything in return.   With all of the proposed revenue focused on public transit improvements, and the congestion reduction benefits difficult to sell in advance of pricing, it became easy to rally opposition to the proposal.  In short, motorists needed to get something back.

2012 proposal

Now it would appear a new proposal is making the rounds, and it does take a step forward in doing just that.  The noise around it could be seen when I wrote a few weeks ago about a suggestion from Jeffrey Zupan, a senior fellow at the Regional Plan Association of New York, that tolling the East River Crossings to Manhatten could be offset by reducing tolls on some other tolled crossings in New York further to the east.  I believed this was a step forward, but not enough.  However, the real momentum has come from an article written by Bill Keller in the New York Times  in support of the wider congestion pricing concept.  He was flattering of the plan of Sam Schwartz, once senior official with the New York City DoT,  to restructure tolls and public transport fares to penalise motorists with public transport options, and to encourage bypassing of downtown Manhatten.

The plan is well described from Mr. Schwartz's own presentation from his website.  He believes the original proposal failed in part because there was little in it for "car-centric outer communities", that it was viewed as just another tax, that politicians wouldn't be trusted to spend revenues on transport, that people in the Boroughs pay (but not those in Manhatten) and that "inter-borough travel" is sacrosanct.

He illustrates the fundamental problem of tolling for metropolitan New York in this image, which shows how some trips over key crossings face relatively high tolls at peak times, whereas others are free.

New York tolls, results of adhoc policies
The principles he used to reform these tolls were to:
- Apply market based pricing where congestion is severe and there are public transit alternatives;
- Lower tolls where alternatives are poor and congestion is low.

His plan would see tolls for cars in New York looking like this:

Sam Schwartz plan for New York congestion pricing
The change from today is patently clear from his next image here, which shows the change from current tolls:

Sam Schwartz plan for congestion pricing - toll price changes
The effect is then to:
-  Introduce tolls on all East River crossings that do not have tolls, in both directions;
-  Slightly increase tolls on East River crossings to match that level;
-  No change to tolls on crossings from New Jersey;
-  Reduce tolls on six other New York metropolitan toll crossings.

He also wants to abolish the parking tax for people in Manhatten south of 86th Street, introduce a $1 surcharge on taxi trips south of 86th Street and cut bus fares by $1 in areas with poor subway access.

He reckons that it would generate gross revenues of $1.69 billion all up, would cost $250 million per annum to operate (including covering East River bridge maintenance costs) leaving the rest for transport funding.  He plans $200 million a year to be spent on highway projects and bus rapid transit, $50 million on pedestrian/cycle facilities including three substantial bridges for those modes from Hoboken, Brooklyn and Long Island City to Manhatten.  The rest is for public transit subsidies and capital works.

The calculated benefits are time savings worth $3.5 billion per annum from reduced congestion arising from a 22% reduction in travel time on average in the CBD.  There are no doubt other benefits from reduced emissions affecting public health.

Good idea?

Yes.  This is a step forward.  It would mean New York would have a more sophisticated concept than London, and it offers motorists something in return.

In part because the rebalancing of toll rates makes some sense in targeting congestion, and offsetting the impact the congestion pricing proposal has on outer boroughs.  It treats all tolls are part of a pool of funds, which in a city where there isn't currently scope to introduce proper full network pricing, it isn't efficient to just target some crossings with tolls and not others, and indeed to have users of some crossings bear their full infrastructure costs, but not other roads.  The tolls should as a priority be seen as sufficient revenue to ensure the capital and maintenance costs of all of the tolled crossings are recovered from users, but beyond that pricing to reflect congestion is economically efficient.

A second useful point is to have tolls in both

Thirdly, I am pleased money is being proposed for highway improvements, but dare I suggest another option on top of that.  Although it raises the risk of budgets being replaced by this revenue, using some of the revenue to deal with the some of the shockingly poor standards of pavement maintenance (and indeed traffic signals, lighting and signage) would produce significant noticeable benefits in terms of travel time, vehicle wear and tear, safety and emissions.

It is out of the scope of this blog to talk about long term performance specified approaches to highway maintenance, but a new approach is needed to deal to the potholing, rutting and poor state of many Manhatten roads.  There are clever ways to treat maintenance as capital when it is about replacing fully depreciated assets, an extra $50 million a year on a rolling programme of pavement reconstruction and replacement would do wonders for cars, trucks, buses, bikes and pedestrians.  I'd strongly urge that some of the revenue be dedicated to a special fund for capital investment in upgrading existing rights of way.   It's simply poor quality of service to pay a toll to access a network that is potholed and crumbling.

Speaking of which, the proposed cycle/pedestrian bridges are an excellent way of promoting what are, in the long run, rather low cost alternatives to the car.  More cycling and walking can relieve both the roads and public transit, and taking a pro-active approach to those modes is good for the city.


How should changes in tolls be assessed? A transparent basis for future changes should be accepted as being necessary.  That can mean something akin to Singapore's approach of having target speeds for charged routes.  If traffic regularly operates at lower speeds, it can justify an increase, if it operates at higher speeds, the opposite.

How will a dedicated fund be set up to comfort those paying the tolls?  The establishment of a hypothecated/earmarked transportation fund needs to be done in a way to avoid fears of political hijacking of what will be an enormous source of net revenue.  I'd suggest an independent arms length board be appointed, separate from the MTA, which will assess proposals for the use of revenues from relevant public transportation bodies.  The idea being that there is accountability for performance, so that those responsible for large projects don't think they can get away with inflating costs, delaying delivery and not providing robust cost-benefit assessments of their proposals.  Whilst money can be dedicated proportionately to certain broad activities (e.g. highways, public transit, active modes), it shouldn't be dedicated to projects from the start.  Quite frankly designing this will take as long as rolling out the system.

When will existing toll systems be transitioned to fully electronic free flow tolling?  New York should start to work with the Port Authority to shift all tolled routes to fully electronic free flow systems.  That does mean abolishing cash, it means investing in technology for prepayment of trips by different means (e.g. mobile phones), and it means having an effective enforcement system that crosses states for toll violations.  It shouldn't be rocket science, and it should be a priority.  The savings made in abolishing toll plazas and the congestion they create will be worthwhile.

How can discounts/exemptions be contained?  Every discount or exemption can cost a lot in terms of complexity and reduced benefits.  These should be tightly contained and calls for them assessed against some key principles around economic benefit, social equity, practicality, effect on enforcement and cost.

What future proofing should any system have?  So any such system should be flexible enough to cope with pricing that may vary at different times of day and different directions of travel.  That flexibility should be in both directions.  Proposals to increase tolls at certain times and routes should be considered for potential to reduce them at other times.  Longer term, moving to mileage based user fees could be considered to replace tolls and fuel taxes, but for now let's keep it practical and move forward.

Other coverage

Ben Fried in Streetsblog writes in more detail about the plan, but also Charlie Komanoff's variation which includes:
  • Fees to drive into the Manhattan CBD that range between $3 during the least congested times of day and $9 during the most congested times. There is no outbound fee.
  • A 15 percent toll reduction on the seven non-CBD MTA bridges.
  • CBD fees are waived for the first trip a vehicle makes each month.
  • Surcharges on yellow taxi trips — 12 percent for miles, 20 percent for waiting, and a 25-cent drop fee.
  • Truck tolls averaging 1.6 times private auto tolls.
  • Express bus fares reduced by 10 percent.
  • Commuter rail trips that begin and end inside NYC would cost the same as a subway fare.  
I think this also has considerable merit as another variation, with variable charges being particularly promising (although perhaps they should be phased in over time), along with surcharges on yellow taxi trips (which should also parallel some more fundamental reform of the sector).  I'd argue truck tolls should reflect road space occupancy (so would be higher than 1.6x a car) though.


It is good to once again have a debate about congestion charging in New York.  It has the potential to reduce congestion and pollution downtown, and to provide revenue to uplift all modes of transport in the city if done well.  It also has the potential to divide, frighten and to promote all sorts of disinformation and scaremongering, if the debate is focused on details that can be adjusted or on concerns based on past political behaviour.   It should be able to unite environmentally and public transit oriented Democrats, with market-oriented Republicans, but on the other side may unite some union-oriented Democrats with anti-tax Republicans as well.  Schwartz's proposal is not perfect, but it is a change from the Bloomberg proposal, and does provide some answers to offset concerns previously expressed.  It should form the basis for a higher debate about addressing the tolling inequities that currently exist in a way that makes sense for transport users, the economy, the environment, residents and businesses.  It will mean winners and losers, but there are winners and losers today.  It's about time the debate focused on who they are, and why debates about equity need to look at the how inequitable things are now!

Now, any chance a New York politician will have the courage to really push this?

Friday 9 March 2012

News briefs: France, Philippines, Romania


A press release from Kapsch reports that the company has won a contract to supply on board units for French heavy vehicle "ecotaxe" system for more than 25 million Euros.  Kapsch is known for its experience with DSRC (tag and beacon) tolls in Austria, the Czech Republic and elsewhere.  Now it has moved into the GNSS (GPS) domain of tolls involving distance measurement.  I remember a few years ago a rather inane debate at a conference between a Kapsch representative (arguing against GNSS tolling) and a Toll Collect representative arguing about the "best technology", when the real answer is "depends on what you are doing and where you are doing it".  It is good to see that Kapsch is no longer beholden to DSRC alone.

This puts the Austrian Kapsch in the centre of French heavy vehicle tolls, and provides a platform to build a wider business in satellite enabled tolling, without roadside gantries to measure distance.


Manila Bulletin reports that private infrastructure investment firm, Citra Metro Manila Tollways Corp, has proposed a 14 km elevated toll road from Buendia in Makati City to Balintawak in Quezon City in metropolitan Manila. It would be six lanes and is called the SMC-Citra alignment.

Predicted travel time savings are over an hour at peak time, as the current journey time on surface streets can be up to 1.5 hours. The cost is estimated at US$594 million, and is expected to be a fully commercial toll road (entirely funded from tolls).


Romania Business Insider reports that Romania's 2011-2020 National Road Safety Strategy happens to mention inclusion of a "congestion tax", reflecting the Energy Strategy for the Bucharest Municipality.  The report also notes that Romania had an 86.4% increase in newly registered cars in the month of January 2012 compared to the same month in 2011, meaning Romanians are buying new cars in increasing numbers.  Now this report doesn't say when or how congestion charging might be introduced in Bucharest, yet it is notable that growth in car ownership and traffic in this former totalitarian state is giving rise to consideration of the need for demand management measures to address congestion and pollution.

Wednesday 7 March 2012

News briefs this week: Hong Kong, North Carolina, Missouri

Hong Kong

The South China Morning Post report on candidates indicates that Albert Ho Chun-Yan, candidate for the Chief Executive position of the Hong Kong Special Administrative Region (for the Democratic Party), is the only candidate expressly supporting road pricing.  He is not ahead in the polls, but it will be interesting to see if the election on 25 March will result in whoever wins reinvigorating interest in road pricing in Hong Kong, as this was subject to a major study in the late 1990s including trials of GPS distance based charging using a site at the closed Kai Tak Airport.   Hong Kong has plenty of scope to introduce road pricing to manage congestion and is such an obvious place to introduce either distance or zone based congestion pricing (having already got tolls on the cross harbour tunnels).

North Carolina

In the Fay Observer, Jimmy Keefe - a member of the Cumberland County Board of Commissioners, serving District 2 - writes criticising the plan to toll I-95 in the state. He opposes it. His view is that the money from tolls will eventually go to other purposes, that the toll will be a burden and that it will drive traffic onto parallel roads. He seems not to approve of the upgrade, and he certainly doesn't offer an alternative for funding.


The plan in Missouri to allow tolls on the I-70 Interstate highway includes the option for a PPP to rebuild the highway according to the website of TV station KOMU.  The intention is the upgraded highway be leased for some years.

It reports: MoDOT chief engineer Dave Nichols said. "We're looking for an opportunity to rebuild the corridor, relieve the congestion and keep the toll roads as low as possible."

Missouri DOT has a website about the proposal, which involves reconstruction of 200 miles of east-west highway.  Adding one lane each way would cost US$2 billion, adding dedicated truck lanes ( given a third of the traffic is truck) would cost US$4 billion.  US$2 billion would require a US$0.07 per gallon increase in fuel tax or US$0.003 increase in sales tax.

Banner for the proposal

Route of the proposed upgraded highway

Belarus to introduce national highway toll system

The Republic of Belarus is rarely in the news. Often referred to as the last dictatorship in Europe, it is closely aligned with Russia, having once been a republic of the USSR and has been led, since independence, by a strongman Alexander Lukashenko. The state and the economy is largely run on a version of the Soviet model, with most industries government owned and political debate in the media subject to constraints. So to read the news that it is looking to impose a user pays toll system across its highway network is curious at least.

The news originally came from a news report about Austrian toll equipment supplier Kapsch, which reported that it had won a contract worth €267m to install and operate tolls on 2,743km of roads using DSRC technology (commonly referred to as “tag and beacon”). It includes operation of the system for 20 years. The system will be fully electronic free flow, which of course can present issues in some countries regarding pursuit of violators. However, Belarus has tight border control so can easily enforce against foreigners, and presumably the rather strong state addresses that issue for its own nationals.   Curiously, opponents of GPS enabled distance tolls sometimes cite the system as "eye in the sky" or "big brother". One would have thought had this been useful, a state like Belarus would have implemented such a system to keep track of its citizens.  The DSRC system being implemented will only record vehicles passing certain points, and only on the national highways.   It will be useless in keeping track of vehicles in cities or rural areas.

The first phase of implementation is to come into effect by 1 July 2013 and will see Kapsch investing in the entire system and recovering the costs from the toll revenue. The toll will apply to all vehicles, except for “Customs Union” cars (which may be a reference to the Customs Union with Russia). It is not clear whether this means private cars of citizens in Belarus and Russia are exempt. If so, it will mean a significant number of vehicles will not be paying tolls.

Belarussian website, Telegraf reports that Belarus has one toll road now - M-1/E30 - Brest (Kozlavichy) - Minsk - Russian border (Radki).

Belarus's sole existing toll road
It is intended that all “first category” roads will become tollways, except the Minsk ring road. This makes sense as the purpose of urban ringways is to take traffic off of urban streets, and tolling will be more likely to divert traffic in that context.

Undoubtedly, this move is driven by Belarus’s geography as a transit point between Russia and the EU (and less so between “mainland” Russia and its enclave of Kaliningrad). Increasing truck and car traffic offers Belarus the chance to make some money from tolls. Nothing in the reports indicates what will be done with the revenue, beyond cost recovery, with no announcements of directing funding into highways or the like. However, the proposed network of tollways is very extensive indeed, so it will be interesting to watch developments.

For Kapsch to do business in Belarus is obviously a feat of effort, which I need not really explain further to those who know how Belarus works.  Having access to revenues for so many years will be worth a lot, but the warning for Kapsch is of course whether Belarus remains the state that it is.  If/when the current President is no longer in power, it may be contracts with the current regime are not worth much, indicating that Kapsch better get the capital value of its investment out of the system sooner rather than later.   With such a fast implementation programme for Kapsch, it will be out to demonstrate that it can do this efficiently and effectively, and hope that it proves to be an entree into the far larger market to the east of Belarus.   I look forward to reading further about proposed pricing, payment systems and enforcement approaches.

Monday 5 March 2012

India tolling - bright future, but where's the technology?

The Financial Chronicle in India has a good review of the development of roads in India and future goals, with tolling playing a significant part of that.

Some of the key points are:

- National Highway Development Programme target is for 20km of new roads to be built every day;

-"The Golden Quadrilateral that connected the four metros — Mumbai, New Delhi, Kolkata and Chennai — is 99.81 per cent complete, with 5,835 km out of 5,846 km already laid. As on January 31, in the North-South-East-West (NSEW) corridor, 5,945 km of the total 7,300 km is complete while the rest is under implementation and around 420 km as balance is yet to come up for awarding of contracts."

- Target is over US$2 billion in toll revenue per annum;

- India has the world's second largest road network of over 4.24 million km;

- Land issues for concessions are one set of problems that cost delays in concessionaires of over 1-1.5 years;

- Bids for construction are becoming more competitively priced, but some small participants lack capability or financial capacity to finish some of their contracts, slowing progress;

-  Some aggressive bids for concessions are aiming to win by having overly optimistic traffic forecasts;

-  The National Highway Authority of India tries always to award to the lowest bidder, creating perverse incentives for bidders to compromise quality and forecasting;

-  The big growth sector is with light commercial vehicles, which are growing faster in numbers than any other vehicle group, followed by HGVs.  Together all commercial vehicles generate 70% of revenue on Indian toll roads.


There are around 300 toll booths across India. However, almost all of these are manual, meaning users handle cash and it is slow.

The Financial Chronicle in India reports that there is no system nationwide to calculate toll revenue collected. That means there is no idea whether some toll booths are performing badly or well, or more importantly if revenue collected matches revenue that SHOULD have been collected.  

The issue has been raised by the President of the All India Motor Transport Congress, Bal Malkit Singh. However, he isn't that interested in the revenue, but in replacing tolls with a permit system that would allow commercial vehicles to pass through toll booths unhindered - much like the Eurovignette that operates in five EU Member States.

Yet it would be a mistake to embrace that idea. Replacing tolls with effectively a flat rate annual charge would not take into account usage and so in a country with reasonable economic growth, it would be mean revenue would not match growth in network usage.

A better solution would be electronic tolls, as this would save time and enable vehicles to be linked by accounts (and would reflect usage). The first step being to use a DSRC system to open barriers automatically (fully free flow tolls requires an enforcement system).

This would reduce compliance costs to users, would mean greater security of revenue collection and provide an opportunity to update a toll plaza to avoid the risk of revenue leakage.

It suggests there should be a national toll strategy that sees tolling progressing towards greater use of technology, more intelligent pricing and allowing it to be a more holistic form of revenue raising from road transport.   The foundations are there for tolling to achieve multiple policy goals in India, if it can just be more strategic with it.

Thursday 1 March 2012

Singapore not moving to distance based road pricing yet

Asia One reports that the Singapore Minister for State for Transport, Josephine Yeo, has said that it will be some years before a satellite (GPS) based distance charging system to replace the current tag and beacon system will be ready.  The issue is reportedly whether accuracy can be maintained in the built up environment of Singapore.

Four consortia were selected last year by the Land Transport Authority to develop system options to evaluate how such charging could be introduced.  The firms are:

  • Kapsch TrafficCom;
  • MHI Engine System Asia & NCS;
  • ST Electronics (Info-Comm Systems) & IBM Singapore; and
  • Watchdata Technologies & Beijing Watchdata System.

I wonder if Singapore is being a little too conservative with this.  Distance based charging, even that which varies by route and time of day is a very different concept to Singapore's existing sophisticated congestion charging system, so it need not have the accuracy often regarded as essential - as long as distance is reliable and any location based variations are not too tightly specified.  In any case, it looks like it may be a few years yet before Singapore moves on from the system installed in 1998.

Meanwhile,  Channel News Asia reports Singapore's prices will continue to be reviewed every three months.  The Singaporean Electronic Road Pricing system has its prices, and times of operation, varied at each charging point and each direction according to congestion levels.  Prices go up if congestion worsens beyond a specific threshold, and go down if traffic speeds up (lower congestion).  Revenue is not the purpose.

These reviews used to be six monthly, they are now three monthly.  Two gantries have seen prices drop to zero in the past two years, as Singapore has not been immune to slowing demand, in part due to higher fuel prices.   One politician wants more frequent reviews, but the Singaporean government is preferring certainty.  Note that the prices in Singapore vary by the following factors:
- Type of vehicle;
- Gantry location;
- Direction of travel;
- Time of day and day.

The time variations can be down to the 5 minutes, so that prices vary by small increments.  

It really is a model of sophisticated urban road pricing, with distance (and the ability to vary prices by individual roads with more flexibility and without having to build gantries) the logical next step.

Those considering urban road pricing could do worse than look at Singapore for a pricing model, it is by far the most efficient and well targeted of any such systems in the world today.  There is a lot about Singapore's culture, society and attitude to the law that makes some comparisons less applicable to Western cultures, but it is unbeatable in terms of applying transport economics to congestion in a city.

Bloomberg editorial supports tolls and road pricing to fix US federal highway funding crisis

Bloomberg has published an editorial suggesting various approaches to address the looming bankruptcy of the US Federal Highway Trust Fund.  The Fund is facing a crisis because most of its revenue comes from a US$0.184 per gallon tax on fuel (for those of us in the metric world it is only U$0.04 per litre).  As that tax has not increased since 1993, a combination of inflation and improving fuel efficiency has eroded revenues to the point where additional funding is claimed from other sources to try to bridge the difference.

The three main political proposals to address it are all fundamentally flawed. The President wants to use savings from reduced defence spending to transfer to expenditure on highways.  Not exactly sustainable and in effect a subsidy from all taxpayers (and future taxpayers whilst the US remains in budget deficit) to highways.  It is unlikely this could buy more than a few years in any case.

The Senate has proposed a tax on imported vehicles and to raid another trust fund set up to fix leaking underground storage tanks.  This is even more esoteric and unsustainable. 

The House of Representatives bill proposes ending the funding the Highway Trust Fund provides to urban mass transit (to make the Fund last a bit longer) and to get funds from royalties for future oil drilling projects.   It also proposes abolishing "earmarks" (dedication of specific funds for specific projects in Federal legislation, effectively bypassing any processes of appraisal and comparison for such projects).  Again, whilst the first part might buy some time (and raise another issue), the second seems an odd cross subsidy.   However, opposing earmarks is gaining increasing support.

Neither of the main political parties advocates an increase in fuel tax, so the obvious answer is blocked.   The Bloomberg editorial proposes some alternatives which appear to be off the radar at the Federal level, but strongly advocated by some states and think tanks:

- The long term solution proposed is distance charging (vehicle mileage tax or VMT in US parlance), which is widely considered to provide the platform for optimal forms of road pricing.  However, although the article wrongly thinks the technology doesn't exist to do it (it does and it is being used today), the big issue is rolling it out for all vehicles.

- In the shorter term, the article proposes greater use of tolls and congestion pricing, as is already being seen.  

- It also advocates more PPPs for new capital works and governance reform to reduce bureaucracy.

It is good to see more media coverage of the need to develop long term solutions to highways funding in the US.  VMT is an obvious option to replace fuel taxation, but it may be that more private investment could be the way to facilitate that as well.   What's important is that a rational debate proceed on this issue, but it is telling that the level of political debate on this issue remains extremely short-term focused, indicating that neither major party is willing to really move substantively on doing something to make highways financing in the US at the Federal level truly sustainable (and yes, one way to do for the medium term would be to inflation adjust fuel tax every year, although that would not address the issue of improving fuel efficiency and alternatively fueled vehicles).