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?


  1. Interesting read. This is a persistent problem in Australia and for toll road concessions worldwide. There was a study by Dr Robert Bain and a consultancy called Oxera that was published in Australia on this recently. It reflected some of your points and in particular questioned the incentives for both public and private sector participants starting with how projects get selected in the first place, and through into the bidding and evaluation processes. I recommend it if you haven't read it already.

  2. Yes agree, it is interesting and makes some valid points, I plan to blog about it shortly.