Thursday, 29 November 2012

Denmark presses ahead with Lorry Road Pricing

Whilst Copenhagen's latest attempt to progress congestion pricing appears to have stalled, Denmark is pressing ahead with heavy vehicle tolls in the form of a distance based road user charging system.

The project is led by the Ministry of Taxation and I have kindly been supplied information from the Project Manager Klaus Østergård Jensen available (only some in English) on its website.

Key facts

  • The policy objectives are to generate additional revenue, apply the "polluter-pays" principle and implement as soon as possible whilst minimising risk.
  • The charge will apply to all Heavy Goods Vehicles (HGVs) having a maximum permissible laden weight of 12 tonnes or over;
  • There are 34,000 trucks registered in Denmark that will be liable;
  • About another 80,000 trucks registered outside Denmark will be liable;
  • 3,800 km of road will be subject to the charge (covering motorways and trunk roads);
  • Estimated price per km will be €0.20 (D.Kr 1.49, US$0.26/km or US$0.42 per mile);
  • 1.6 billion vehicle kms are estimated to be moved by trucks 12 tonnes or over by 2015
  • The tariff will be set as a calculation of: infrastructure costs per km + administration costs per km + environmental costs per km.
  • The charge will replace Denmark's participation in the Eurovignette (which charges HGVs on the basis of pre-purchased time periods on the trunk roads network - prices here).  The Eurovignette is a trans-national road user charge applied in five EU Member States that covers usage of roads in all of those countries with one charge.  The Eurovignette will no longer apply in Denmark.
The infrastructure cost calculations will need to be carried out to satisfy the European Union Directive 1999/62 (disclaimer - I have advised the European Commission on the implementation of that Directive in several Member States) which provides a framework for calculating the appropriate allocation of costs to HGVs for tolling purposes.  There will be two broad vehicle categories:

- Vehicles with four or more axles;
- Vehicles with three or two axles.

Presumably, following the German approach, the higher tariff will apply to the vehicle with more axles on the fair presumption that it is most likely to be heavier.

Administration costs will presumably be a function of the contract with the provider and operator of the tolling system.

The environmental factor will be based on a three-tiered charge with the cheapest tariff applying to vehicles classified as having Euro VI engines, the middle tariff for those EEV, Euro V, Euro IV and "retrofitted" Euro III engined vehicles, and the highest tariff for all vehicles with a standard Euro III engine classification or lower.

65% of all truck traffic is carried on the network that is to be charged, which indicates a not insignificant amount of delivery activity.  Bear in mind that Denmark is a transit nation for traffic between the European mainland and the Scandinavian peninsula.   One of the issues remains is that there are a number of cases of local roads that run parallel to major highways that may see significant diversion of traffic when the toll is introduced.  It is understood that the Government is considering options as to how to address this (presumably either imposing the toll on those roads as well, or removing it from highways with such a risk).

Roads subject to Denmark's lorry road user charge

Procurement is to be through a Public-Private Partnership with the intention being that a Special Purpose Vehicle be set up to be responsible for the design, testing, implementation and operation of the charging system.  The expectation is that investors will finance the capital costs of the system, and be provided "periodic payments" for the performance of collecting the revenue for the Ministry of Taxation.  The proposal is for a minimum contract period of 10 years, which covers the initial implementation and is likely to easily exhaust the depreciated life of the charging equipment (which typically becomes obsolete within 5-7 years).   In the longer term it may be interesting to see if a more diversified, competitive service provider structure is adopted, to put pressure on costs and customer service standards.

What is to be put out to tender appears to be the charging service (from supplying and installing equipment, to establishing and managing accounts, and collecting revenue) and the revenue assurance service (verifying payment has been collected and identification of those who do not pay).   Enforcement and scheme ownership and management will remain with the state.   It appears that there will not be competing service providers.

A very simple depiction of the expected high level procurement relationship is seen here:

Denmark HGV Road User Charging basic contracting structure

Legislation is to put through Parliament in 2013, with the intention that the tendering and contracting process proceeding from Spring 2013 through till the end of that year.  The summary schedule is depicted below:

Denmark Truck tolling high level implementation schedule


The Danish programme has parallels to several of those already in place, such as Germany and Slovakia, and  whilst it is not technology specific, I would be surprised if it did not use a GNSS (i.e. GPS) based system.  Despite such systems becoming more commonplace, the keys to making it success will be around:

- High standards of customer service, particularly for the implementation phase and particularly for foreign lorries;
- Serious discipline on operating costs (it is no coincidence that the operators of some of these systems have done remarkably well out of them, so there should be plenty of competition from investors, but also pressure to get transaction costs down within three years of the inauguration);
- Serious, detailed work on the diversion risk, based on some surveys of local AND foreign lorries using high risk parts of the network, and so designing the scheme to minimise this risk.

I sincerely wish Denmark good luck in implementing the system, and will provide updates when they become available.   Once it is implemented, it will join Switzerland, Germany, Austria, Slovakia, Poland, New Zealand (and France and Belgium both forthcoming) in having nationwide distance based road charging systems for trucks.

Tuesday, 27 November 2012

Dartford Crossing tolling policy is a public relations disaster

I don't believe tolls at the Dartford Crossing should be abolished, quite simply because the Crossing does cost a lot of money to maintain and there is a crying need for more capacity, which the toll can help fund.  The toll also could manage damage at peak times, also funding the next crossing.

I believe that Dartford Crossing needs three key policy measures:
- The replacement of manual toll booths with fully electronic free flow tolls;
- Charging that varies according to demand, with peak, interpeak and offpeak rates, which vary by direction;
- Financing and funding of substantial new capacity.

Now the first and third of these is underway, but what has actually happened first is a series of toll increases, without any improvement in service.

This is a disaster that adds to the overall public hatred of tolls and lack of trust about how highways are managed and charged for.

Dartford Crossing toll booth bottleneck

On October 7 tolls on the Dartford Crossing increased, with news reports indicating that it was to pay for the conversion to electronic free flow tolls.  I have never encountered a toll road anywhere else in the world where a price increase was sold on the basis that users paying now were paying for a future benefit that hasn't happened yet.  

Surely the cost to convert to electronic tolls should have been borrowed and then recovered through the tolls collected, once motorists had the benefit of the elimination of toll booths.

The Dartford Crossing is congested on a regular basis, in part because there simply isn't enough capacity to handle the demand (because there are no other fixed road crossings of the Thames for another 14 miles), but also because the toll booths create queues.  Eliminating the toll booths will make a big difference to the congestion.

According to the Highways Agency:

Evidence from the Highways Agency Traffic Information System over the past 5 years consistently shows average delays of between 7-11 minutes for the slowest 10% of journeys on  the M25 J30-7 section which includes the Crossing

Revenue is around £74 million per annum, of which £36 million is spent on maintaining the bridge, tunnels and approach roads, the rest is surplus.

Of course the conversion to electronic free flow has a capital cost, but there should be, after an initial bedding in period, operating cost savings resulting from this (although they are likely to be small). The current system costs £15.18 million to operate per annum according to the DfT. Yet the economic cost savings from eliminating one of the bottlenecks on this route should be considerable.

It's not that the DfT hasn't applied its own economic appraisal criteria correctly, it is just that options are blinkered towards Pay As You Go spending, rather than taking a commercial approach and treating the users as customers who pay for a service.

The narrow financial benefit to the state of this increase is more than offset by the increased resistance towards any future tolling.  That's why a radically different approach should have been taken:

1.  Electronic free flow tolling should have been announced as coming, with no increase in tolls in advance of the new system, in recognition that such technology has been available for over a decade and that the users of the Dartford Crossing have been contributing "above and beyond" that of other motorists for years.

2.  Openness about the Dartford Crossing tolls, making it explicit that around half the toll is needed to pay to keep the existing crossings and approach roads in good condition, and the other half is to be put into a dedicated fund now paying for the investigation and design (and reserves for future construction) of the next crossing.  That, of course, contradicts the point I made before that toll increases shouldn't fund the conversion to free flow tolls, but the other choice is to halve the toll until the new crossing is financed and needs the revenue to pay for it.  Far better for the public sector costs of investigating the options to be recovered from the users now.

3. After the electronic tolling system has been put in place, introduce a performance based set of charges based on congestion.  Have bands for peak, interpeak and off-peak charges that get reviewed every six months, with increases or reductions based on maintaining a minimum level of service level on the crossings.  The toll free overnight period can remain.   This should mean future increases are based on maintaining free flow conditions instead of increases for the sake of inflation.  It should also allow decreases or changes in the peak periods, including directional based variations over time.   By introducing congestion pricing, it may even offset the need for inflation based increases.

What a policy change would do

For a start it would cost the exchequer a few million pounds of deferred toll increases, but it would also start to stop the overwhelming slide of cynicism and opposition to tolls at Dartford.  There will also be politicians and lobbyists who will call for the toll to be removed, but the biggest gripes about the toll are clear:
1.  It causes congestion to collect the toll;
2.  "We've already paid for the road" we're just used as a cashcow for the government; and
3.  We pay to use a congested bottleneck of a route (service quality is poor).

Free flow tolls will eliminate the first gripe and go some way to addressing the third, and be a showcase as the first free flow open road toll system in the UK (London Congestion Charging does not count).  With reductions in delays will come some greater tolerance for the toll.

The second gripe needs transparency that the toll does pay for these crossings to be maintained, but also needs the funds directed towards new capacity.  That will make some sense to motorists, especially if they believe progress on new capacity will come sooner rather than later, which itself will deal to the third gripe.

However, finally, the use of congestion pricing (with offsetting decreases in off peak pricing) will help ensure the service on the route is maintained at a minimum level.  Albeit that this probably needs to be matched with an enhanced bus service or local residents' discount, as they will be aggrieved at peak charging.

The Dartford Crossing example is a clear case of the difference between how a political/bureaucratic framework for managing roads delivers results (which are about state revenue and monetised benefits for users) compared to a commercial customer based framework. 

Monday, 26 November 2012

Reforming Britain's highways - my view and CBI's view

As announcements come closer as to how the UK government is going to reform the highway sector and allow for greater levels of private investment, the Confederation of British Industries, in association with Aggregate Industries has released a report calling for radical reform of the governance of Britain's highways network, and also proposed introducing road pricing to boost revenues, but also to somewhat replace existing charges.

Coincidentally, I made very similar proposals myself to a seminar here in London a couple of months ago

A new deal for British motorists

I suggest the following:
-  The Highways Agency be reformed into a state owned enterprise, required to make a return on capital, pay taxes and have the stated purpose of providing services to road users;
-  Reform the multitude of local authority road operations into similar road companies, incorporating at least all A and B roads;
-  Establish a highways regulator (OfRoads) to purchase highway services on behalf of motorists, prioritising what motorists prioritise based upon both economic return and quality of service (e.g. maintenance above major works, high value low cost improvements in capacity and safety);
- Hypothecate a proportion of motoring taxes (Vehicle Excise Duty and Fuel Excise Duty) to OfRoads to give it a guaranteed stream of funds, based at first on a minimum of 95% of the previous year's total central government funding towards roads, before becoming a set figure of tax;
- Require all highways companies to bid for funding from OfRoads every four years based on a programme of maintenance and upgrades, which will be appraised based on cost/benefit analysis and priorities for motorists established by OfRoads.  Funding will then flow based on the highest value expenditure identified in the programmes.  Programmes can be expanded if government chooses to increase the motoring tax revenue directed to OfRoads;
- Empower all highways companies to enter into PFI or privatisation deals with private companies to develop or manage infrastructure, realising the capital value of their assets to be reinvested in the network;
- Empower all highways companies to toll any new capacity or allow the private sector to acquire highways and toll any new capacity;
- Empower all highways companies to contract directly with road users on existing roads, to pay tolls directly in exchange for refunds of motoring taxation up to a set level, as approved by OfRoads.

Over the longer term, the private sector would look after more and more parts of the road network, where it can make a difference and where there are major capital works that it can finance.  Furthermore, the roads companies would be incentivised to contract directly with motorists and would offer toll packages that are attractive to major users, progressively eroding revenues to government used to pay for roads.  OfRoads would shift from being a purchasing agency to being regulatory.

Over time a tipping point might be reached, especially if the government freezes motoring taxes and real revenues decline, as highways companies would start to be more confident about pricing people directly.  At a certain point it may be that all newly registered vehicles are exempt from motoring taxes and pay highways companies (or third party highway service providers) directly.  Eventually, motoring taxation can be drastically reduced, with vehicle excise duty reduced to an administrative fee to cover the cost of maintaining the registration system, and fuel excise duty at the EU minimum level, which could be argued in part as being a carbon tax and part remaining a tax for government revenue (given that the current level of 59p/l is over five times what is spent on roads).   Meanwhile, tolls would be set at prices to recover the long run capital costs of roads, and include peak charging for congestion and off-peak charging to get better utilisation of the network.  If highways companies were also responsible for emissions from their property, they may also differentiate pricing on the basis of emissions ratings of vehicles (something existing taxation doesn't do well on the basis of usage or exposure to emissions).

What it does, is provide a transitional process whereby governance of highways is shifted onto a basis whereby the provision of roads is directly related to the usage and what people pay.   It provides a medium term path towards national road pricing, on a voluntary basis which will build trust with road users, and give road companies a chance to focus their spending on high quality maintenance and network management, rather than responding to political demands for high profile new capital works.  However, it also allows for high value major capital improvements to be developed on a commercial basis, while also ensuring pricing is used to manage demand.

CBI proposes regulated utility model

It proposes:

- A Regulated Asset Based (RAB) model of utility management for the highways sector whereby an "independent, price-setting regulator oversees investment from private operators for stable, capped returns";
- "It could provide a secure revenue stream through user charging – created initially by reclassifying vehicle excise duty but with the flexibility to explore other mechanisms, such as tolling, once established";
- "a roads regulator would champion standards for motorists and ensure value for money through its licences and capped charges".

The report emphasises the benefits that major road improvements have generated, although one may argue that Aggregate Industries has a vested interest in more road building, the primary case made in the report is sound.   Some of the key points include:

- Providing a long run sustainable revenue stream to provide confidence for investors;
- A clear pipeline of road projects would provide certainty on future requirements and allow investors to plan;
- System needs to be affordable with changes not having a disproportionate impact on frequent users;
- Any charging mechanisms need to be interoperable;
- A minimum service quality should be guaranteed;
-  A network audit should be carried out so that the quality and condition of the network is clearly understood on a common basis;
- The Strategic Road Network should be redefined and expanded;
- Current motoring taxes should be reviewed and a new charging mechanism adopted.

The most interesting recommendation on the latter front is the proposal to redefine Vehicle Excise Duty (VED) as a road user charge, and using its revenue as a dedicated source of funds for highways funding.  Given the total spending by central government on roads is more than the revenue generated by VED now, it would be an accounting exercise to do this.  Although I question exactly how a tax on owning a vehicle can be a sustainable source of revenue for roads, compared to that on using roads.  Yet I understand that Treasury will fight through thick and thin any claim on fuel excise duty for road funding.

The New South Wales State Financial Audit claimed that the state's equivalent of vehicle excise duty imposed a deadweight economic cost on the state of US$492 million per annum, and indicated that a shift to distance based road user charging could eliminate that cost and generate significant economic benefits through reducing congestion.  It would be most interesting if a similar piece of analysis was undertaken for the UK.


Great minds think alike, although I think my approach is slightly bolder, yet perfectly achievable.  What both proposals require is a long run commitment to a guaranteed funding stream for highways and structural reform of the sector.

In a few weeks time it is expected there will be a major announcement on highways reform in the UK.  I will not be surprised if some of the ideas I have outlined above are a part of that, but I will be surprised if they are embraced to the extent I think is necessary to deliver reform across the sector (as I think government will only address the Strategic Road Network - the roads governed by the Highways Agency).  

The really big leap forward in my view, will be to develop a system that engenders trust, so that those paying motoring taxes see that value is derived from them.  The clearest and most economically valuable way to do that would be to encourage long run capital investment in maintenance and recovering the most potholed and crumbling roads in the UK, that includes not just tarmac, but signs, lines, traffic signals, lighting, overhanging greenery, litter and barriers.   I believe it will take a decade to do this properly, whilst also undertaking an extensive programme of targeted improvements on intersections and corridors.  Do that without raising motoring taxation (with a few new tolled routes), and there may be a chance that more can be done on pricing in due course.   

Tuesday, 20 November 2012

HOT lanes open in LA and Virginia

In the world of road pricing, HOT lanes are a peculiarly US answer to the problem of poor pricing of highways.  With the exception of Israel, you wont find HOT lanes anywhere else, largely because the case for HOT lanes is usually based on getting better utilisation of existing HOV lanes by tolling single occupancy vehicles.  Rare is the case that it is economically efficient or financially viable to charge for new lanes, because outside peak times few people will use them, and so the assets remain barely used and not generating much net revenue.  As a result, they tend to be cross-subsidised to reflect the fact that new HOT lanes benefit the users of untolled lanes, by merely shifting demand over to those lanes.  The LA pilot that has been launched is funded by a $210 million federal transportation grant and $80 million from LA Metropolitan Transportation Authority.  

HOT lanes are appealing to politicians because they retain a measure of choice, motorists can pay to bypass congestion or can remain in congestion.  The retention of the poorly targeted HOV component (whereby vehicle occupancy is somehow seen as a blunt measure of better use of road space) is a political sop that does little besides reward families, couples and the handful of people who may work together and live in sufficient proximity to make it worthwhile.  In all those cases I take the view that if 2 or more people value an uncongested trip, they can split the cost of the toll.

Los Angeles

I've written before about the Los Angeles project, with a description here as it comprises two sets of dedicated lanes on major corridors to the south and east of downtown LA.  It is essentially a piloting of HOT lanes for the city, launched whilst the city region is on the cusp of selecting a contractor to undertake a study for a far more extensive network of "express lanes" (Peter Samuel describes why the term Express Lanes is a misnomer).

The key dimensions are:
- Two lanes each way acting as express lanes with specified access and egress points;
- All users, whether HOV or single occupancy vehicles must have a DSRC transponder, and declare how many people are in the vehicle.  Transponders require a $40 deposit, which becomes a credit to toll accounts;
- Tolls are dynamic, with prices rising and falling according to real time conditions on the HOT lanes.  Users pay the price declared at variable messaging signs located at access points.
- Prices are based on per mile usage of the HOT lanes, with a cap of $1.40 per mile being the maximum charged.  If the toll is at that price and the lanes operate at below 45 mph average for longer than 10 minutes, the lanes will be closed to new single occupancy tolled customers.  HOV users will retain free access;
- A low income assistance programme is included, offering transponders for free for selected users, but offering no discount on the toll (as use of the lanes remains optional);
- It is a one year pilot only.  What happens after one year is unclear, but presumably if it generates surplus revenue after operating costs, it may continue.

There have been extensive reports about the LA HOT lanes, which claim it will be a "culture shock" in a city that has had no tolled routes at all until now.

According to NBC Los Angeles, the Los Angeles County Metropolitan Transportation Authority is hoping the HOT lanes encourage commuters to think about their trips:

"We hope it changes commuter behavior in terms of getting people to really plan their trip before they start out," said Rick Jager, a spokesman for the Los Angeles County Metropolitan Transportation Authority.

Jager said the agency is encouraged that more than 30,000 drivers have already ordered transponders needed to enter the lanes, but he acknowledged that some motorists are resistant to the project.

The NBC report describes how motorists can open an account, it's worth noting that even HOV users must have a transponder, even though they need not pay.  They must simply flick a switch in the unit to "declare" it is a high occupancy vehicle, this is one way to deter casual usage:

Solo drivers may use the lanes but will have to pay a toll – from 25 cents to $1.40 per mile, with motorists paying more when traffic is heavier.

Carpoolers and motorcyclists can use the lanes for free, but all drivers must get a new switchable FasTrak transponder, ..., to use the lanes.

When traffic speeds fall below 45 mph for more than 10 minutes in the ExpressLanes, overhead signs will state "HOV Only," alerting solo drivers not to enter the restricted lanes, according Metro's The Source blog.

To obtain a transponder, drivers have to pay a $40 deposit that will go toward future tolls. They'll be billed a $3 monthly fee plus the cost of their tolls. Lower-income drivers can qualify for an "equity plan" that requires a $15 deposit and waives monthly fees.

There are several ways to open an account:

  •  call 511 and say "ExpressLanes";
  • go online at Metro's ExpressLanes website;
  • go to Metro's storefront at 500 W. 190th Street in Gardena;
  • go to Metro's customer service center at the new El Monte Station, 3501 Santa Anita Ave. in El Monte.
Violators who are caught in lanes wihtout a transponder by the California Highway Patrol could be issued a $341 ticket, Jager said. Cameras will take pictures of vehicle license plates for cars that don't have transponders, and the owner will be sent a bill, which could result in fines if not paid.

The transponder can be switched to signify one, two, or three or more occupants in the vehicle. It transmits a signal to an antenna above lanes, and the car is then tracked. Accounts are billed for miles driven.

More details on how it works can be obtained at the Metro Express Lanes website

That means that the transponder effectively means that in the longer term, the occupancy level may be raised to three, as one means of managing demand instead of simply raising tolls or in extreme cases banning non-HOV users.   In addition to the lanes, bus services on the corridors have been improved and all net revenues are to be invested in the corridors themselves by state law - although one would have thought the priority ought to be returning the money spend on the lanes in the first place.

Stephanie Wiggins, Metro's executive in charge of the program, said gross revenue from the 10 and 110 freeway toll lanes should total $18 million to $20 million a year. Program costs are not expected to exceed $10 million, and any extra revenue will be reinvested in transit or carpool improvements in the 110 and 10 freeway corridors.

Yet the costs are actually $290 million, which is being treated as a sunk cost of capital.  If HOT lanes are going to be promoted as a way of paying for new road capacity, not just a test of congestion pricing, then there needs to be some honesty about such costs.  It is, in fact, the primary reason such ideas get little traction outside the US.

The LA Times quotes Donald Shoup,  a professor of urban planning at UCLA, as saying that it is "about time", given the severity of congestion in LA.  The rest of the report tends to focus on existing users of the lanes who are upset they need to pay $40 deposit for a transponder to keep using them.   Yet it also reports opposition to the lanes for being "undemocratic", presumably the world would be more democratic if you didn't need to pay for what you use.

A New York Times article quotes Robert Poole of the Reason Foundation, who doesn't think it is a big deal:

"I'm not too optimistic about major, big results for the Los Angeles project... I hope I'm wrong. But I suspect that most of the users will be freebies. They won't collect very much revenue. And if only a small percentage of people are paying the charge, the impact on congestion is going to be small."

KCET TV has a TV news article describing the LA HOT lanes.

My view is that it is positive to expose users to pricing, particularly dynamic pricing based on maintaining minimum standards of service, but there needs to be a more hard-headed approach to wider implementation of such lanes.  The chief concerns of transport policy regarding highways in the US are lack of revenue to maintain and develop networks, and congestion.  This tool will help with the latter, but will not help with the former if it cannot generate net revenue over the capital costs of implementation.   In other words, there needs to be some business case honesty.  Hopefully the wider Los Angeles Express Value Choices study will deliver this.


The I-495 express lanes have opened in Virginia, with the Washington Times describing how this large project is a major public-private partnership:

The 495 Express Lanes project cost $1.9 billion. Virginia paid $409 million, according to Mr. Titunik. The two companies in partnership with the state, Transurban — a company that develops toll roads with offices in Australia and New York — and Fluor — a Texas-based engineering and construction company with an office in Arlington — funded $349 million in private equity and also backed $1.2 billion in loans and bonds.The state paid $260 million for the replacement of aging infrastructure, including more than 50 bridges and overpasses, pedestrian walkways, arterial roads, soundwalls and ramps.

The two private companies will get the revenues from the tolls, but if the lanes are successful, the state will receive a cut. Mr. Titunik said that the money will be invested in maintenance.

So in short, the state has part paid for the project, and TransUrban is providing significantly equity.  A contrast to the government funded LA project, which is admittedly much smaller in scale and only a pilot.

I-495 express lanes have a HOV threshold of three occupants, and comprise 14 miles of dual carriageway express lanes along the corridor.   Tolls have no cap so can be raised as high as is necessary to maintain a minimum level of service of average speeds of 45mph, hardly surprising when you have to convince private investors to risk money.  Prices are expected to range between $1 and $6 depending on traffic volumes.

However, the introduction has been reported as being rather bumpy, as some people entered the lanes accidentally then tried to reverse to avoid paying the toll.   What's astonishing is clearly how little attention people pay to road signs.

TollRoadsNews has an excellent article (with a map) about the project including the teething troubles, with Peter Samuel saying:

The 495 Express Lanes are a first not in the dynamic pricing as such, but for using such pricing in a very ambitious and complicated format with so many entries and exits. Nowhere else is there a tollway-within-a-freeway like the 495 Express Lanes equipped entirely with dedicated on- and off-ramps, and a lot of them catering to shorter trips as well as longer. Most others force users to enter and exit via the free lanes, weaving across the traffic. Or else they are long 'pipes' catering only to long trips, so shorter distance travelers can't make use of them. Many others, also are not much more than conversion and upgrade of existing HOV lanes. 

Not so the NoVA Beltway Lanes. Nearly a billion dollars of investors' money has been put into a complete rebuild of this section of the Beltway expanding it from eight lanes to twelve. And it has new direct entries and exits completely separate from the free Beltway lanes around Tysons Corner. 

It's going to be a boon to commuters in northern Virginia but it remains to be seen if they can make enough money to justify the investors' investment.

I wholeheartedly agree.

Thursday, 15 November 2012

Brisbane Airport Link debacle down to incentives and valuation of time

Alan Davies in Crikey has written an excellent post on Brisbane's Airport Link toll road that specifies some of the details of the demand modelling and posits a couple of conclusions as to why it went wrong.

By now, 136,000 vehicles per day were forecast to use Airport Link at the end of the initial three month toll-free period. But on October 18 – the first day tolls were introduced – traffic was only 53,000 vehicles per day.

That's how far out estimates have been.  He notes that another set of modellers had a more sober view of demand:

Back in July, Brisbane transport modelling firm Veitch Lister Consulting released the results of (independent) modelling showing estimated traffic on Airport Link should rise to around 85,000 vehicles on a normal weekday (during school term) by April 2013. From that date the initial discounted toll will be replaced by a “medium toll”.

Veitch Lister estimates demand should drop to around 72,000 vehicles per day by October 2013 . However by November 2013 when the ramp-up to “full tolling” will be complete, the firm estimates the road might carry in the region of only 60,000 vehicles per day.

That compares with BrisConnection’s Product Disclosure Statement, which said 195,000 vehicles were expected to use the road 15 months after opening.

It's worth reminding readers that the toll in place, now, on the Airport Link is heavily discounted (49% the "full toll" level), and that for the road to be viable it needed to increase tolls to that level around a year after the road opened.  So such an independent assessment is still out, but is at least closer to reality.  Would investors have put their money into the road if those results had been in the prospectus?

That raises the first issue - which is the incentives around getting it right.  Davies suggests they are badly wrong, and one reason is that those who undertake the forecasts get paid regardless of how accurate they are.

There seems to be a systemic issue with forecasting demand for major transport projects. Maybe the incentives for over-optimism on the part of the promoters are too strong.

The way projects are put together appears to underestimate demand risk. As this press report from back in 2010 notes, “despite the failure of projects elsewhere, BrisConnections is sticking resolutely to the optimistic predictions for the Airport Link.”

Perhaps part of the problem is many of those involved in putting together major projects get most of their fees irrespective of what ultimately happens with patronage. The total underwriting and associated fees mentioned in the Airport Link Product Disclosure Statement were $89 million.

Of course, if investors demanded an independent set of forecasts, it might change things, but imagine if the whole business model for demand forecasting became incentivised around accuracy, within a range.  In other words, what if the modellers got a proportion of fees withheld for a set period, which would be paid if the forecasts were within a confidence range of say +/- 15%? This would inflate fees charged to undertake such forecasts, but wouldn't that be preferable to pouring billions of dollars into projects that are simply not viable?

The other conclusion Davies draws is that the value of time placed in transport models does not reflect what people are prepared to pay to save that time.  In other words, $3 worth of delay does not mean a motorist is willing to pay $2.50 to save that.  It just doesn't work like that.

This phenomenon isn’t new. There’s a long history of motorists, including commercial vehicle operators, going to extraordinary lengths to avoid using toll roads.

BrisConnections estimates Airport Link provides a 12 minute journey time from Bowen Hills to Toombul, compared to 25-29 minutes on alternative routes. The toll is much lower than conventional estimates of the value of the time drivers could save by using Airport Link.

On the face of it, drivers who don’t use the toll road are behaving “irrationally”. Perhaps many aren’t as good at estimating the value of their time as theory assumes. Or maybe there’s a quirk of human psychology at play – possibly many simply don’t see money and time as being readily interchangeable.

In a motoring environment where almost all trips are absent any direct pricing, the presence of a toll magnifies the cost of the toll to the driver, at least in the short term, but possibly in the medium term as well.  This boils down to the tens of thousands of motorists every day making that time/value tradeoff, suggesting the value of time of congestion isn't as high as modellers suggest.

In conclusion, this all calls for some fundamental steps that may be taken in modelling future toll roads:

1.  Get a completely independent demand/revenue modeller on top of the assigned one.  Treat it as peer review if you must, but a second opinion is looking increasingly critical.  
2.   Get both demand/revenue modellers to give confidence assessments of their forecasts.
3.  Seek demand/revenue modellers on the basis of payment for success, so that a portion of fees are retained if the forecasts prove to be accurate within a specific range.  Be careful not to incentivise overly conservative forecasts (the obvious response of modellers will be to forecast very low figures), or otherwise no project will be worth pursuing. 
4.   Use stated preference surveys to verify the value of time estimates used for forecasts. Do this every time for every new project in different locations, because it is clear that value of time is far more fluid and individual than government agencies often think they are required to assume.

Tuesday, 13 November 2012

Brisbane's Airport Link looking almost as bad as Clem 7

I've written a fair bit about both the Clem 7 toll road and Airport Link, both in Brisbane, Australia, both of which now look like the victims of over-exuberant demand forecasting.

Clem 7 is well documented and now subject to a court case.  It had forecasts undertaken by AECOM.

I reported a month ago that Airport Link was not looking good, I've sadly been proven right.  At that point figures of use of the newly opened toll road were less than forecast, even with the road being toll free.  The demand modellers in this instance were ARUP.

A range of reports in the past few days have shown how bad things appear to be:

THE operators of Brisbane Airport Link have suspended all trade indefinitely, after advising the Australian Stock Exchange the value of the enterprise may be less than the outstanding debt. In a statement posted a short time ago, BrisConnections said the Board had "determined to enter into formal negotiations with lenders and other key stakeholders regarding potential reconstruction options".

Macquarie Group owns 45 per cent of the units in BrisConnections, Deutsche Bank 33 per cent and the state government's Queensland Investment Corporation 8.28 per cent. The units closed at 40¢ on Friday, down from 65.5¢ at the start of the month.

I doubt they are worth 4c now.

Traffic volumes are 39% of that forecast.  An average of 53,172 daily since the introduction of tolls, when it was forecast to be 136,000.

It quotes Griffith University Planning lecturer Dr Matthew Burke who said:

It's unfortunate but the most optimistic traffic model will tend to win the tender and the right to build the road and ask the public to invest. What the public and investors don't hear is that three or four other bidders presumably thought there'd be much less traffic.He also claims it would be difficult reaching the forecast because of the capacity of the road, which he claims is 1700 an hour, whereas civil engineering professor Benjamin Coifman says it is 2000 an hour. I don't think that is the issue, as it is plausible for any 6 lane highway to carry that number of vehicles with high volumes at peak times.

The real issue is the optimism bias in forecasting driven by those seeking investors.

Who is retaining this persistent failure to reflect reality?

Is it the engineers - do they have a bias towards wanting the road built?
Is it the modellers - are they under pressure to over value time savings, claim induced demand and fail to see how discretionary motorists see a toll over other expenditure?
Is it the developers - do they simply want to win the concession and attract new investors?
Is it the banks - are they dazzled by financial models at too high a level, and demand modelling at too low a level to not understand the fundamentals of the business?
Is it the authorities - do they simply want the road built, no matter what, because once it is built, whatever happens to concessionaires is irrelevant?

I don't know, but I am astonished at the apparent failure by those involved to have anyone give a strategic transport view of the project.

Simple questions such as - how many vehicles travel now on trips that could use the road? What effect has the Airtrain rail service had on growth in demand?  What has been the demand response to other toll roads in Brisbane given the perceived improvement in travel time vs price?  Were they asked?

More fundamentally, where is the incentive for private investors to simply say it isn't worth it to pursue a concession?  Are they excessively dependent upon the predictions of government about the value of a concession?   What does this do to the prospects for future concession toll roads in Australia?

It is difficult to see how this road can recover in the medium term, but the bigger issue is what can be done to avoid this happening again, both for investors and for governments wanting to ensure major projects get built?  Or is it more a case that the private sector ought to be selecting the projects, rather than the government?

Friday, 9 November 2012

News briefs - Australia, Florida, Indiana, Ireland, New Zealand, Philippines, South Africa, Virginia

Australia - Sydney to pursue three new toll funded highways

The Australian Daily Telegraph (via the Herald Sun) reports that the New South Wales State Government’s 20 year infrastructure strategy includes three new major highways in Sydney which are proposed to be funded through tolls, including reforms of existing tolls toward distance based pricing.  Let’s be clear this does not mean a change in technology or full network based charging, but by setting the tolls on toll roads at rates to reflect the distance between tolled points on the network.  The price is estimated to be A$10 billion, although it is thought the price could be lowered by private sector innovation and cut and cover construction techniques. 

The New South Wales Government has been studying options for reforming tolls in the Sydney metropolitan area, to normalise what vehicles pay across the tolled network to reflect distance.  The logic seems simple, but the difficulties are around addressing the costs of different concessionaires, as the motorways that have been built had different construction costs (e.g. tunnels are far more expensive than more rural highways).

Florida - Customers paying in high denomination banknotes can be detained at booth

According to the, in the case of Chandler vs. Florida Department of Transportation, the US Court of Appeals has found that "Motorists can be held indefinitely at toll booths if they pay with large denomination bills".

The report says: "Under FDOT policies in place at the time, motorists who paid with $50 bills, and occasionally even $5 bills, were not given permission to proceed until the toll collector filled out a "Bill Detection Report" with data about the motorist's vehicle and details from his driver's license".

The court decision, responding to a claim that it was a constitutional violation to stop the vehicle from proceeding is as follows:

"In Florida, a person's right and liberty to use a highway is not absolute; it may be regulated in the public interest through reasonable and reasonably executed regulations."

The judges found it was reasonable for Fanueil to set regulations for use of the road -- including the types of acceptable payment. The court decided that drivers implicitly agreed to those conditions by choosing to use the toll road.

Florida - State Road 408 collects 43% of all toll revenue of the Orlando Orange County Expressway Authority.

The Orlando Sentinel reports that the 22 mile long SR408 toll road generated $108 million in 2011, or 41% of the Orlando Orange County Expressway Authority's total revenue.  It carried over 126 million toll transactions in that year and its revenue effectively cross subsidises the rest of the Expressway Authority's network.

Indiana - toll road privatisation touted as success

According to the Newark Advocate, Michael Cline, Indiana Department of Transportation commissioner, has been touting the successes of the privatisation of the Indiana toll road.

He said that the lease paid off old debt and provided "millions" of dollars to counties the road passes through to complete major projects including the extension of Interstate 69 from Evansville to Bloomington and Indianapolis and the reconstruction of U.S. 24 between Fort Wayne and Toledo "dubbed the highway of death for its high number of fatal crashes".

He claimed it "made sense for Ohio to study a similar plan for its section of the toll road".

The report said:  

The Ohio Department of Transportation is conducting a $3.4 million study with Texas-based KPMG Corporate Finance LLC to examine the ways to maximize the financial benefit of the toll road for the state. Jerry Wray, ODOT director, said the study will be completed by mid-November and he hopes to have a recommendation to the state legislature by Jan. 1.

During Cline’s presentation, he tried to eliminate some myths about the Indiana Toll Road lease, including that toll rates have doubled since 2006. Although the cost to drive the entire stretch across Indiana has risen from $4.65 in 2006 to $9.40 this year for drivers paying cash, tolls have remained frozen for drivers using electronic toll pass technology. Those rates can’t increase until 2016.

Tolls for many Ohio drivers have risen at higher than the cost of inflation during the past two decades. The turnpike operates entirely on its own revenue. It had $11 million in profits last year, and turnpike officials previously stated that more can be found through savings.

It is helpful to have this sort of information, because it is easy for privatisation advocates and opponents to both use slogans and cliches to justify their positions.  The best thing for Ohio will be to weigh up the evidence of what went right and wrong in Indiana, but it seems like a balanced approach has been taken that suits the needs of that state.

Ireland - Sacyr looking to offload debt ridden toll roads

The Independent (Ireland) reports that Spanish owned toll road concessionaire Sacyr is looking to sell its toll road concessions in Ireland.  Infrastructure fund Globalvia is said to be interested in these assets.  The concessions in Ireland are:
- N6 (56km motorway/dual carriageway between Galway and Ballinasloe, with a 7km connection to the Loughrea bypass);
- M50 Dublin (operation and maintenance contract for the 41km of Dublin's part-ring motorway);

New Zealand - unprofitable toll road gets revenue boost but still not enough

According to the Bay of Plenty Times, the Route K toll road has seen a 37% increase in revenues following a 50% increase in the toll for cars.  However, it still remains insufficient to cover the interest costs on the debt of the local authority financed road.

Philippines - Two new toll roads to be pursued in 2013 and Metro Pacific to expand Northern Luzon Expressway

The CALAX project, which will connect the Manila-Cavite Expressway (CAVITEx) and South Luzon Expressway (SLEx), will be among the two projects under the Public Private Partnership (PPP) scheme the Department of Public Works and Highways (DPWH) will pursue in 2013. The PPP section is the 36.01 km length of the expressway from Kawit, Cavite to Sta. Rosa, Laguna. The ODA section is the remaining 11.01 km part of the road from Sta. Rosa, Laguna to SLEx at Mamplasan Exit in Laguna.

"The private proponent shall be responsible for the financing, designing and constructing of the PPP section, and the subsequent operations and maintenance (O&M) of the entire CALAX," the PPP Center explained.

The project is estimated to cost US$1.01 billion.

Meanwhile, Rappler also reports that Metro Pacific Investments Corp  is allocating P2.5 billion (US$61 million) in 2013 to expand and repave parts of the Northern Luzon Expressway.  This includes a P1.6 billion-worth (US$39 million) toll road that will link NLEx Cloverleaf and McArthur Highway near the Valenzuela City Hall with a 2.1-kilometer, 4-lane highway. Depending on how fast the government is in securing right-of-way, construction for Segment 9 will likely start by November or December and will be completed in 2013

South Africa - Gauteng e-tolling allowed, Moody's approves

According to Business Day Live (South Africa), the decision by the Constitutional Court of South Africa to allow the implementation of electronic free flow tolling as part of the Gauteng Freeway Improvement Project, will make a substantial difference to SANRAL's financial position.  Tolling on the project was due to be implemented in April 2012, but was stopped due to a court injunction.  The tolling has been opposed in South Africa on various grounds, but which largely appear to be about the injustice seen in tolling existing as well as new roads, because the existing roads have been upgraded, and because of fears of corruption in the contracts with the foreign suppliers of equipment and tolling services (which have not been substantiated).  The delay has cost SANRAL US$309 million since April.

The report outlines how taxpayers have been providing bridging finance to SANRAL to cover the gap:

Government responded by providing the roads agency with R5.8bn in funds to compensate for the lack of e-toll revenue and to defray operating costs, including debt service payments on the GFIP debt, a large proportion of which government guarantees.

Moody’s said the GFIP was mainly responsible for the rapid surge in Sanral’s debt, which rose to R37.5bn or five times its 2012 annual revenue as of August this year, from R6.2bn in March 2007.

Moody’s downgraded Sanral’s rating to Baa2 from Baa1 in May due to negative pressure on the roads agency’s liquidity.

The rating agency noted that at the end of June, Sanral’s cash reserves and government’s funds totalling R7.1bn were sufficient to cover operating expenditures and short-term obligations, including debt service, over the next 16 months.

Moneyweb reports further on SANRAL's financial position.

Virginia - I-95 HOT lane contract criticised, but doesn't tell the full story and I-495 express lanes about to open

The Newspaper has published an article critical of the PPP contract between the State of Virginia and TransUrban for the I-95 HOT lane project.

The reasons it cites are:

- It is a 73 year contract offering revenue to the concessionaire with no new lanes being added; 

- Casual carpooling will be dissuaded, as all carpoolers (only HOV 3 – meaning at least three people must be in the vehicle to be eligible) must use an EZ Pass tag to “declare” their presence. Those without will be fined; 

- If more than 35% of lane users are HOV (i.e. not paying tolls), the state must pay for each additional HOV vehicle an equivalent to 70% of the tolls that would have applied The state must pay an amount equal to 70% of the toll that would apply TransUrban if more than 35% of lane users are HOV (i.e. not toll paying); 

- If the State wants additional lanes, it must first negotiate an addition with Transurban. If it decides not to adopt an approach including Transurban, it must compensate the firm. The same applies to additional capacity on specific parallel routes. 

- Two-thirds of the project's financing is backed by taxpayers. Virginia is providing US$71 million in grants and US$242 million in revenue bonds. US$300 million comes from the Federal Government with a TIFIA loan.

Certainly it appears like Transurban has a good deal, although it doesn't look that good if traffic levels are flat, and there is a low volume of users with less than 35% of road users being HOV not toll payers.  That's the risk Transurban carries.  If car pooling takes off (which the article suggests is less likely because of the inconvenience of getting an EZ Pass tag), then it will be positive for the state (and users of the existing lanes), and will be because Transurban has encouraged it.   However, it is also understandable that Transurban gets first right of refusal to build new capacity, and that if taxpayers pay for new capacity elsewhere, Transurban gets compensated.  Such is the environment of privately owned lanes vs. government owned lanes. 

Furthermore, the article is plain wrong in asserting no new lanes are being provided.  In fact there will be some new lanes, and some extensions to existing lanes.  The press release announcing Transurban has won the extension specified these, and after all, it does not cost $940 million to do a HOV-HOT lane conversion.  There is a lot of new construction to make these lanes a more complete corridor congestion bypass system.   If you were paying for such improvements, you wouldn't want the state to be suddenly paying for parallel ones to enable motorists to bypass your improvements (and the tolls you need to recoup the costs).

Meanwhile, WAMU reports that the I-495 express lanes are due to open on November 17th.  The report says:

The two new lanes in each direction spanning 14 miles between the Springfield interchange and the Dulles Toll Road will be E-ZPass only.

Everybody needs an E-ZPass to use the express lanes. Carpools need the E-ZFlex for the toll-free trip. So far the Virginia Department of Transportation says signups for E-Z Pass are going well in the local area.

Stewart Schwartz, the executive director of the Coalition for Smarter Growth, criticises the project claiming that it will result in induced demand, filling up the space from vehicles shifting to the express lanes.  This has long been a criticism of any projects involving building new highway capacity, but in an environment where traffic growth has stabilised and there may be a long term trend of flat traffic, does this hypothesis still apply?  If so, does it matter if the new capacity is being charged to ensure it remains efficiently used?

Thursday, 8 November 2012

Delhi-Gurgaon Expressway woes

I've written before about the Delhi-Gurgaon expressway, which has one major problem - its toll plaza is chronically congested.

The reasons for this are clear.  The plaza is too small, throughput is inefficient and there is insufficient use of modern tolling technology.  So how is it going to be fixed?  Well the government thought it could be solved by going to court, so operator DS Construction was facing a court case brought by the National Highway Authority of India.  An out of court settlement sees the operator return about US$70 million to five public sector banks that provided loans for the road.  

DS Construction has since been asked by the Punjab-Haryana High Court to prepare a report on how to improve traffic flow according to Hindu Business.

Ideas include the following:
- Waiving the US$29 fee for tag users, and cutting the monthly account charge by a third;
- Adding four reversible lanes at the congested toll plaza;
- Introducing toll collectors walking with hand held devices along queues to accelerate payment;
- Penalising non-tag users who enter tag lanes.

The Hindu Business Line says that an out of court settlement has been reached about the road.   Charges for prepaid users are to be cut by a third, which will encourage a shift from cash to account payment.  Smart cards will also be available for faster payment in cash lanes.

Meanwhile, Rohit Baluja,  President, Institute of Road Traffic Education in an article in the Times of India claims the problem is because of a lack of indigenous Indian traffic engineering capability  There has been a total lack in the application of traffic engineering. Most developed countries have traffic engineering centres in cities as well as for the highways. But India hardly has any functional or scientifically operated traffic engineering centres, as most of such services are outsourced to consultants.

Of course this isn't a clear explanation, what is more important is being able to procure concessionaires and specify service standards that require them to get consultants to deliver outcomes that are sought.  

He is right in saying that technology and engineering could help solve the issues on the expressway, but  this is a governance matter.  He is also right that traffic management needs to be integrated and development of new highways must also be reflected in works on the roads that they connect with.

India's rapid growth in traffic will mean both the new tolled routes and the routes they bypass will need to be upgraded, which means having an approach to highway funding and governance that radically changes the relationship between government, concessionaires and road users.  There is a path forward, it is not ad hoc changes to meet individual cases, but a strategic approach to the long term maintenance, construction and operation of national strategic highways.

Meanwhile, The Times of India has published a rather odd review of electronic tolling technologies that briefly considers Singapore, Dubai, France and Toronto.  It is largely correct as far as it goes, but it should have considered technologies rather than locations.  For example, there are a wide range of electronically operated barrier systems, fully free flow DSRC based electronic systems (with variations between passive and battery powered systems), automatic number plate recognition based systems and (completely ignored in this case) GNSS based tolling.   What will happen in the future is likely to see vehicles equipped with communications and vehicle ID technology at source, and for smartphones and vehicles to be connected to better enable automated options for toll collection.

Wednesday, 7 November 2012

Debate continues in Australia about congestion pricing

Road pricing has shot up the agenda in Australian politics, with two politicians recently expressing opposing views on the issue.

The ABC reports that Independent Federal MP Rob Oakeshott has come out in favour of congestion pricing, saying that it is politically unpopular and "Both sides know that this is something that at some point has to happen”. He opposes increasing taxes on fuel and vehicle ownership, saying these unfairly impose costs on country motorists and truck operators to pay for new transport investment in cities.

By contrast, Liberal Party Federal MP Scott Ryan is opposed (The Liberal Party is in Opposition at present). In the Australian Financial Review he writes a contorted argument that pricing in an artificially constrained market isn’t reasonable. In short, he says while the market arguments about congestion pricing sound good, they don’t add up when the state decides on road and public transport systems, and the state benefits from the revenue. He says unless alternatives can be developed to respond to the price, then it is not a real market. Indeed, he goes so far as to question whether government should ever assess the “value of time” for road users, by determining if the value for those willing to pay is higher than those unwilling (even though it is, by definition). He says it ends up being a tax increase or state imposed rationing system.

I accept Oakeshott’s view that congestion pricing is inevitable to manage congestion in Australian cities, and that general motoring taxes across the board create significant distortions by raising prices for all, not just those benefiting from any new capital investment. However, Ryan’s view simply neglects the fundamental point that not charging road users directly results in demand exceeding supply in a way that he would consider unacceptable in most other sectors of the economy. He wouldn’t tolerate waiting to put a phone call through at peak times, or awaiting a ration of electricity at peak times, so why tolerate it for roads? His key points have validity, in that it is important to decide who sets the charges, on what basis and what the money is used for. I wonder if he’d share the same view if other motoring taxes were reduced in parallel, such as fuel tax.

Still it is good for there to be debate, and positive for one MP at least to be honest about the issue. However, there is still a long way to go before the debate becomes a matter of how, rather than if. 

Tuesday, 6 November 2012

Debate continues in Vancouver about road pricing

I wrote a few weeks ago about how Vancouver is now having an active debate about the future role of tolling and road pricing in raising revenue and managing traffic in the city.  Unlike some other cities, where discussions appears to involve a large vocal and dismissive opposition to any form of tolls, it appears the debate here is more measured.  Those raising concerns are doing so whilst making some useful points, around equity and what money should be spent on.

Most recently , Frank Bucholtz editor of the Langley Times but writing for Peace Arch News says that
Surrey Mayor Dianne Watts advocates a distance based charge. Apparently, she anticipates that such a system would allow for a reduction in gas taxes, and if drivers see that those who drive the most actually pay the most, many of then will likely support such a system. 

This is the key point.  Talking openly about reducing other taxes changes the terms of the debate, which all too often will face opposition for simply charging more.  Bucholtz also notes proposals for distance based charging in Washington State (USA), which could provide a model on the doorstep of British Columbia.  Key to his article is noting that whilst many know of the London congestion charge, it is very important for the public and officials to be aware of many other options.

In the Vancouver Sun, Gordon Price, director of the City Program at Simon Fraser University, argues for a more comprehensive road pricing strategy than tolling the bridges (the obvious easy option). He says the reasons are: 

- The need for revenue to maintain the transport network the city needs. 

- Tolling bridges alone is inequitable. 

He advocates that Vancouver should look at the pilot trial to distance based charging being considered in Oregon. He says it allows charging by place, time and distance, although that misconstrues what is happening there – as it is just about a distance based tax for electric, hybrid and plug-in hybrid vehicles to supplement the fuel tax. However, in the context of Vancouver, having distance based charging would and should allow for differentiation by route and time of day.  This is exactly what is being considered in Singapore at present, and I have long held the view that this is the path towards the least distorting, and most economically efficient form of pricing.   Charging individual routes or cordons alone are very much second best options for many cities.

The big question is how to get to that point, as I believe it will need to involve a pilot, and incentivising people from paying fuel tax to paying by distance.  

Meanwhile, Vancouver does need to think about how it spends any money collected.  A letter to the editor of Tri-city News suggests that road pricing is about propping up the subsidised SkyTrain.  This suggests how important it is for those advocating road pricing to get support for what they are going to spend the revenue on.  It is, after all, the inevitable and inescapable question that gets asked of those advocating road pricing.

Calgary considers road pricing or a fuel tax rise

The Calgary Sun reports that the City of Calgary is having to consider how it bridges a funding shortfall due to declining real revenues from provincial government.  The options being floated include either raising fuel taxes or what it describes as "tolling", which apparently is more a case of more widespread road pricing.

Mac Logan, the city’s general manager of Transportation says there is a C$200 million (US$200.6 million) shortfall between 2013 and 2022.

The report continues to say that Logan would prefer an increase in the federal fuel tax, which is C$0.10/l.  Alberta also has a C$0.09/l provincial fuel tax.  However, there is a concern that such an increase would not see Calgary getting the revenue it seeks.  Tolling becomes more attractive, although he makes it clear this is not about funding discreet highway projects, but about raising revenue for the entire transportation budget.

What that implies is everything from congestion charging to a full network pricing initiative.

The newspaper report includes the predictable kneejerk reactions from politicians:

- Alderman Shane Keating said "A toll road system would be impractical for Calgary’s roadways — there’s just not enough room for such a system and the tolling booths could be easily circumvented her" and "All in all, toll systems are very inefficient in design".  What's a bet he thinks of manual toll booths as being tolling, and he thinks of tolling being individual points rather than a distance based charging system?

- Alderman Ray Jones said "people could simply drive through other neighbourhoods to get around it". Again, an area charge, zonal charge or distance based charge would avoid all of this.

It would be good for Calgary to at least explore options, and consider that the long term sustainability of fuel tax is questionable given vehicle efficiency and alternative fuels.  However, I'd suggest that if this is about revenue, the solution needs to be at the provincial level.  If Calgary wants to manage congestion, it could certainly consider options that deliver such benefits and generate revenue.


To determine the right solution, the problem needs to be well defined.  In short, Calgary should present, in a transparent way, exactly what will happen if it has a growing funding gap.  It needs to consider options for greater efficiencies, fare increases for public transport, fuel tax increases, parking and road pricing alternatives.  Then it can start to see how to match revenues to more efficient pricing overall.  Considering a source of revenue independent from its impact on behaviour and the distributive impact of that source of revenue is not likely to provide the best solution.

Friday, 2 November 2012

Transport for London proposes tolling existing tunnel to pay for new one

East of the city of London there is a distinct dearth of road crossings of the Thames, which shows in the severe congestion experienced on them all.  Between Tower Bridge and the North Sea, there are only three road crossings.  The Rotherhithe Tunnel is a 104 year old route only suitable for light vehicles.  At the other end is the Dartford Crossing, which has tolls and is soon to have that toll system converted to electronic free flow technology to reduce the bottleneck at this spot.  Options to expand capacity at the Dartford Crossing are currently being investigated, but closer to London it is a matter for the Mayor of London and Transport for London.  The previous Mayor, Ken Livingstone advocated a now defunct bridge called the Thames Gateway Bridge, which would have been tolled.  This was stopped by the current Mayor Boris Johnson, who is now pursuing an alternative option - called the Silvertown Tunnel.

Transport for London has released its latest round of consultation on new east London river crossings this week, and has now included more details on the preferred options.  I'll largely ignore the proposal for a new vehicular ferry service, as it is laughably absurd to think that with the chronic demand for cross-river road capacity between Tower Bridge and the Thames Estuary that a small vehicle ferry could ever deliver more than a minor increase in capacity.

The more seriously useful proposal is called the Silvertown Tunnel, which is proposed to be built as a toll road, providing a new local link across the river.  

Location of proposed Silvertown local toll tunnel under the Thames
This would be intended to take more local traffic flows from the Blackwall Tunnel, relieving congestion in those tunnels and improving connectivity.  The tolls would help pay for the tunnel, but also enable congestion to be managed at peak times.

However, a more controversial part to the proposal is to toll the nearby pair of tunnels known as the Blackwall Tunnel (singular – though there are two two-lane one way tunnels) on the grounds that:

if the Silvertown Tunnel is built and subject to tolling, the Blackwall Tunnel would also need to be tolled – otherwise there would be serious delays at the Blackwall Tunnel as so much traffic would wish to use it

This curious statement appears to claim that the Blackwall Tunnel will be subject to delays in the future, if a new crossing with tolls is built.  Yet, whilst there is a point to be made about having a tolled crossing near an untolled one (as it means demand for the new crossing is suppressed whilst the untolled option remains), this statement is nonsense as it stands.

The Blackwall Tunnel today is heavily used and frequently severely congested.  This situation is likely to continue.  A new tolled Silvertown Tunnel would provide an alternative for some trips using the Blackwall Tunnel, so will help relieve congestion.  However, usage of it will be less than it would be if the Blackwall Tunnel was not tolled, as some motorists will pay to use the new tunnel only at times when the Blackwall Tunnel is congested.

Yet congestion at the Blackwall Tunnel will not get worse if the Silvertown Tunnel is built and tolled on its own.  Why would it?  This argument simply wont wash.

There are three reasons to toll the Blackwall Tunnel at the same time as the Silvertown Tunnel:

1.  Those who use the Blackwall Tunnel benefit from the shift of some traffic to the Silvertown Tunnel, so should contribute towards the capital costs of the new parallel route.  Otherwise, they will gain the benefit of the tunnel without directly paying for it.
2.   Tolling the Silvertown Tunnel alone will not raise sufficient revenue to pay for it if the Blackwall Tunnel is not tolled.
3.   The regular congestion in the Blackwall Tunnel suggests that pricing could moderate demand and reduce congestion, as well as helping finance new capacity.

However, TfL is strangely not arguing that it is unfair to relieve the Blackwall Tunnel with a new tunnel, but only make those using the new tunnel pay for it.  That's unfortunate.

Tolling the Blackwall Tunnel will be opposed because little is being offered in return

Tolling the Blackwall Tunnel will inevitably be opposed by many, largely because the standard of service offered by this link is not good enough to justify it.  Six lanes of highway traffic to the north and south squeeze in and out of the four lanes of tunnel capacity, with the northbound tunnel having restrictions on vehicle size and speed (it was designed for horse drawn traffic having opened in 1897).  The northern end of the tunnels has traffic signals on what is one of London's few (partial) major orbital arterial highways.

The likelihood is that opposition to tolling the Blackwall Tunnel will be significant, because nobody will believe anything will get better, and because so many believe they pay enough now through fuel tax.  Yet TfL could package this more cleverly and it could be linked to the government’s desire to get more private investment in roads.

Private sector option with tolls could transform this corridor

It could offer to lease (or sell) the Blackwall Tunnels to the private sector allowing the new owner to introduce tolls on a new Silvertown Tunnel and the Blackwall Tunnels on conditions that the concessionaire built the new tunnel, and (if it were an outright sale or a lease of 50 years or more) build a third Blackwall Tunnel to replace the Victorian era northbound tunnel.  TfL believes building the third tunnel is high risk, expensive and difficult, so let the private sector decide how and when this can be delivered within a specific envelope.  The owners or lessees could manage, maintain and improve the major approach roads (the A102 through to the A2 in the south, and the A102 including the A12 through to the A406).  In short, the entire East Cross Route, Blackwall Tunnel, and the southern approaches, with the Silvertown Tunnel, could be owned and operated by a private concessionaire for 50-100 years (or for good if one wanted to be very brave).  The image below depicts the two Blackwall Tunnels in red and green, the East Cross Route and Blackwall Tunnel approach roads in blue, and the proposed Silvertown Tunnel in yellow. 

Blackwall Tunnels, proposed Silvertown Tunnel and approach roads

This is likely to be controversial, as it will mean tolls on the tunnels (it could even allow for tolls on the approach roads, but the new owners would need to meet minimum standards for maintenance and route availability.  If there are fears about excessive tolls (which environmentalists should not oppose), then there could be an initial range of tariffs set in advance, indexed to inflation, with a 100% surcharge permissible for times of heavy congestion. 

All of that ought to please those seeking to manage traffic demand, but the catch would be that tolls couldn't be introduced until the Silvertown Tunnel is built. I'd suggest a timeframe for a 3rd Blackwall Tunnel  (the existing Victorian era northbound one could be relegated to a local link or one way bus tunnel) of say fifteen years after the Silvertown one.  Doing that would enable this corridor to be sustainably and professionally managed, keep the roads maintained, manage demand to capacity.  Beyond that, there would also be the expectation that pricing would manage congestion, so that any new owner would be required to ensure free flow conditions are maintained in the absence of any incidents.

In other words, let this be a showpiece example of how the private sector and tolling might own, operate, improve a piece of strategic arterial highway in London.  This would go further than the management and construction concessions for the M25 and M40, but rather involves new owners having a customer relationship with the users of the facility.

Blackwall and Silvertown Tunnels with East Cross Route in greater London

Yes, there will be opposition from Friends of the Earth and the Green Party, all of whom think road capacity should be frozen permanently, but are suspicious of using pricing to manage demand if it is also used to fund improved highway capacity.  Yet, they ought to reconsider.  A private Blackwall Tunnel, even with new capacity, would be priced, so congestion should be avoided, reducing emissions.  Public transport would be more attractive compared to the priced corridor.  In other words, there are environmental benefits in having a major piece of highway infrastructure priced to ensure traffic flows freely through it, and to not divert taxpayer funds to expand it.   On top of that, if this would demonstrate the value of tolling as a way of managing corridors in London, it may set a precedent for the long term management of highway capacity in the city in a way that the congestion charge could not.

The congestion charge, after all, has worked in central London, but having been tried in west London, is simply not capable, in its current form, of being readily expanded in a way that is acceptable to the public.  Further road pricing in London should be about giving something back to those paying.  Allowing a new Thames Crossing and the existing Blackwall Tunnels to be tolled, both to recover infrastructure costs of new capacity and to manage demand, would show that selective enhancements to the highway network can be sustainably funded and managed, but also that a more commercially oriented approach is capable of delivering a better highway experience for all users.