Australian Federal Treasurer urged to investigate replacing fuel tax with road user charging

The Australian Financial Review reports that the Australian Automobile Association (which claims to represent seven million members across eight motoring associations) and Infrastructure Partnerships Australia (a think tank on infrastructure market reform opportunities which includes government and private sector members) have called upon Federal Treasurer, Scott Morrison, to hold an inquiry into replacing fuel tax with road user charging.

The report continues:

A joint-letter by the groups to Mr Morrison, obtained by The Australian Financial Review, describes the current transport funding model – based on a 39¢-per-litre excise that raises more than $15 billion a year – as "ad hoc, outdated, fragmented and lacking in transparency".

"It is clear that the current funding model cannot deliver the infrastructure required to address increasing congestion across major cities or meet the needs of Australia's regional communities and industries."

In short, the concerns are:

- Increased inequity of users of the most fuel efficient and electric vehicles not paying;

- Inability to charge for congestion;

- Inability to target charges for specific infrastructure improvements unless they are of a scale to justify dedicated tolls.

A spokesman for the Treasurer recognises the focus in Australia right now on heavy vehicle charging, but with an interest in looking at the merits of charging light vehicles, seeking to:

accelerate work with states and territories on heavy vehicle reform and investigate benefits, costs and potential next steps of options to introduce cost reflective road pricing for all vehicles.

M6 toll road up for sale: a good long term prospect?

According to the FT, the consortium of 27 banks and lenders which own the M6 Toll Road (including Crédit Agricole, Commerzbank and Banco Esparto Santo) have decided to sell the road to attempt to recover the £1.9 billion (US$2.76 billion) debt tied to the road.  The road is still managed by Macquarie Atlas Roads which holds 100% of the equity in it, although the beneficial interest is zero due to the underlying debt (which was subject to restructuring at the end of 2013). 

M6 toll road bypasses the M6 through Birmingham

The concession ends in 2054, so any investors will be looking at the long term.  They have to, since the road has yet to turn a profit, as the road average 48,000 vehicles per day, well below forecasts of 72,000 when the concession was let.  Yet growth has been significant as of late, with a 12.6% increase in traffic for 2015 over 2014.  This suggests it is not far from returning to its previous record demand of 55,000 per day in 2006 (although that still is insufficient to break even).  It cost £900 million (US$1.3 billion) to build in 2002 values and prices (around £1.3 billion (US$1.88 billion) in todays prices).

The road lost £28.6 million in 2014 (debts have simply been increased to absorb the losses on top of the capital cost for the construction).

As I wrote before, the project has been good for the taxpayer, as it is completely unsubsidised, debt is not backed by the Crown and Treasury still gets revenue from fuel tax paid through burning petrol and diesel on the road, without paying a penny for maintenance.  However, it is also likely that the 1p nominal drop in fuel duty since 2010, and the significant drop of wholesale fuel prices will contribute to some increase of demand and willingness to pay the toll increasing.

There is a modest campaign calling on government to nationalise the road and remove tolls to reduce congestion on the bypassed segment, but I doubt if the current Conservative government would be keen on bailing out private investors for a project for which there may be a buyer (given it is generally positive about tolls on roads that have a viable alternative route).

From an equity perspective, it would be justifiable for there to be some state contribution towards maintenance costs based on that revenue (and indeed revenue from vehicle excise duty and the HGV levy), but that would mean challenging Treasury's position that fuel tax is "just another tax on energy" rather than a tax that is generated primarily from using roads (unlike VAT).  There is little chance of any movement on that in the foreseeable future.

As an investment, it is definitely one for those willing to tolerate years of losses before seeing any success.  Tolls as they stand are around about at the yield maximising level.  Although it does not have electronic free flow tolls (but has a non-interoperate barrier based DSRC electronic toll system), there will be little appetite to address this while it continues to lose money.

Any investor will be hoping that economic growth generates more demand so that eventually the road can reach break even (given the "hope for a government bailout" option is almost certainly not going to happen under this government and the next general election is 2020).  Given the greatest increases in traffic in the UK in recent years have come from light commercial vehicles (PDF) (partly because of the increase in deliveries due to online retail), it is unclear whether M6 Toll is able to take advantage of that traffic.   Nevertheless, as overall traffic demand in the UK is now at pre-recession levels, and oil prices look like staying relatively low for some time, the prospects may look brighter than they have been for ten years.

Still, after 13 years of losses, it would take a courageous and bullish investor to think that paying £1.9 billion for the road is worth it.

Jakarta ERP (congestion charging) update: GPS under consideration

I've written several times about the plans for Jakarta to have what it called ERP (Electronic Road Pricing) very much modelled on the Singaporean approach.  There is broad political agreement of the merit of introducing charging on existing roads to manage congestion, to replace the current high occupancy rule (a minimum 3 occupants) for certain main roads.  That system gets abused as people offer themselves "for hire" to make up the numbers on roads approaching the "HOV road" zones.   After trials it was intended that the first stage of an operational system would be in place this year, with the law having already been amended to allow for its implementation.

Jakarta embarked on a trial of two DSRC systems, one with Kapsch and another with Q-Free reported here.  One of the big issues was non-standard number plates being difficult for ANPR cameras and systems to recognise.  

The two trial DSRC charging gantries are in place at Jl Jenderal Sudirman and Jalan Rasuna Said (installed by Kapsch and Q-Free respectively).

Jakarta ERP trial corridors

In October 2015 it was reported in Tempo that the Jakarta Governor was considering moving beyond DSRC type technology and embracing GPS systems to trial for the proposed electronic road pricing scheme.    His chief concern is the cost of installing gantries vs. installing GPS based OBUs, saying that each gantry costs 1 billion rupiah (US$73,000), implying it would be cheaper to implement distance based charging.  

So now it appears the programme has been delayed not least because of the Governor's interest in investigating the viability of using GPS technologies, but also because of concerns over how enforceable the system would be with the current generation of number plates in Indonesia.  The Jakarta Post reported a month ago that implementation has been delayed until 2017 with a decision on supplier by the end of 2016 (a rather short implementation time which would tend to preclude a large scale implementation geographically.  

The minimum charge is expected to be 30,000 Rupiah (US$2.21) to use charged roads at peak times. 

Proposed Jakarta congestion charging / ERP routes

The Google Earth image above depicts the routes proposed for full implementation of congestion pricing, covering major inner city corridors.

I said it's about number plates!

The Governor was quoted as saying:  “The main obstacle is legal enforcement — how to catch vehicles with non-Jakarta STNK [vehicles registration fee documentation] that violate the ERP. However, I think it will be easy to monitor it through closed-circuit television [CCTV]".  

So the issue is having number plates that are non-Jakarta issued, which is really about access to databases for others.  Yet he is wrong to say it can be monitored through CCTV reliably or cheaply.  CCTV is not ANPR, and would be unlikely to deliver the clarity of resolution for effective enforcement.  

I had highlighted number plates and databases for number plates as an issue on this blog a few years ago.  Indonesia (like many other countries) needs to establish key enablers for such systems, which includes either mandating electronic vehicle ID or having a number plate system that can be detected and corresponds with a high level of accuracy to the names and addresses of vehicle owners to allow for enforcement.

Croatia considering introducing vignettes

Croatia is the newest EU Member State and as a result now has greater trade (and movement of people - notwithstanding the migrant/refugee crisis) with its neighbouring EU Member States Slovenia, Hungary and beyond.  Main highways in Croatia are managed commercially by a state owned enterprise called Croatian Motorways. 

Croatian Motorways charges tolls on its roads both through manual and electronic means, with both open (pay once) and closed (ticket collected at start and paid for at the end) systems in place. Electronic tag accounts get a discount of 21.74% on manual toll rates (rising to 33.48% between 1 November and 31 March).  Tolls vary by individual road and appear to reflect differing infrastructure costs.  An interactive map of the network is here.

However, according to Croatian news website Vecernji (Hat Tip: Ptolemus) the newly elected centre-right coalition government includes the Croatian Social Liberal Party which opposes more PPP concessions, so there is discussion about both increasing tolls and introducing vignettes (which presumably would apply to all other roads).   Croatia's problem comes down to growing debts for existing roads that need renegotiation and repayment.  

Neighbours Slovenia and Hungary both have vignettes for light vehicles on motorways/major highways, whereas Slovenia has tolls for heavy vehicles only and Hungary has a weight/distance heavy vehicle road charging system.  However, having both vignettes and tolls would add a level of complexity that would mean some foreign motorists would think that paying for a vignette would also cover tolls.

Total Croatia News reports that Goranko Fižulić, former minister of economy, published a letter to the transport minister Siniša Hajdaš Dončić with five reasons why Croatia should introduce vignettes:

- Revenue: "Slovenia has introduced vignettes and in 2013 collected revenues of 327 million euros. In the same year, Croatia had revenues of 185 million euros". This is a function of vignettes applying across a wider network than tolls, but also Slovenia geographically having proportionally higher transit traffic.

- Lower employee costs: "Slovenian motorway company DARS has 1,237 employees, and HAC (Croatian Motorways) has 2,503 employees, with one third of them working on the collection of tolls. HAC spends 32 percent of revenues on salaries and other employee costs while DARS spends just 10,39 percent." More electronic tolling may reduce this, but vignettes require staff for enforcement too.  It is not clear that a change would make much of a difference.

- Annual vignette (product most likely to be used by Croatian motorists) would only be 546 kuna (around $81): "just from domestic and foreign passenger cars, the total revenues would climb to 509 million euros".

- Successful use of vignettes in other countries:  "Vignettes were successfully introduced, along with Slovenia, in Austria, Switzerland, Slovakia, Hungary, Romania, and Bulgaria. Germany will also introduce them starting on 1 January 2016".  Germany has faced delays for car vignettes, but of the others four have embraced distance charging for heavy vehicles (along with Germany) with two others seriously considering it.

- Better use of motorways lowering costs of maintenance of other roads and improving safety: "Domestic vehicles would use motorways in far greater numbers, which would reduce the cost of maintenance of other roads, increase safety and reduce the number of traffic accidents. The cost of using motorways would be drastically reduced for regular users of highways and the economy as a whole"

Fuel tax in Croatia is around €0.42 per litre for petrol and €0.33 for diesel, this is 23rd in the EU for petrol and 26th for diesel, suggesting scope to increase diesel (particularly given its relative environmental impact), but none of this revenue is linked to road spending.   It is lower than fuel tax in Slovenia and Hungary (indicating Croatia may gain a little from trans-border users filling up in Croatia in preference to its EU neighbours. 

A better response may be to look at distance charging for heavy vehicles to replace or supplement  tolls on a few routes, as such a system should see revenue grow as freight traffic grows through the country (and can be used to charge on a wider network).  If tolls are abolished, a light vehicle vignette would make sense as an interim measure as well.  Croatia's E70 motorway is a key corridor linking Serbia (and Macedonia/Bulgaria) to Slovenia, Austria, Italy and Germany, the potential for revenue growth should be considerable. 

Croatia with the key E70 corridor highlighted

With the success of Hungary's distance based heavy vehicle charging system,  Croatia could do worse than look at that model (Slovenia has previously investigated and abandoned this option because of cost, but it was looking to use a different procurement approach to that which has been adopted in Hungary).  However, it needs to look at existing tolls and other charges, and decide whether it wants to add to what it already has, or be bold and make a shift towards distance based charging (that may have targeted rates for existing toll roads).  Hungary transitioned from manual tolls to vignettes to distance charging for heavy vehicles over the past 20 years (and from tolls to vignettes for light vehicles).  Croatia could do the same, but given the distances for much transit traffic through Croatia, I'd suggest it skip vignettes for heavy vehicles and just go for distance.   

Kampala: Progress towards distance charging?

Ugandan newspaper The Observer reports on what looks like a remarkable step forward in traffic management for Kampala.  However, what looks like it would leapfrog London, Singapore and Stockholm has little detail, and I think appears more complex than has been reported.

Kampala Capital City Authority (KCCA) is to investigate the introduction of road user charging on all vehicles entering the city.  The primary motive is to reduce congestion, but clearly a strong motive is to raise revenue to rehabilitate and upgrade its road network.  

Kampala roads and railways

On the face of it, it would sound like some sort of cordon or area charge would be the logical, easy answer, but what KCCA is talking about is much more radical.

KCCA is interested in weight/distance charging, although it was reported that confirmation on the details was to come in January, they have yet to emerge.  The simplest way of doing this would be to have a flat charge based on  the legal maximum gross laden weight of a vehicle measured by odometer, although the high risk comes from odometer fraud.  The use of on board units that measure distance more reliably using GNSS technologies would clearly be better, but that means having to ensure vehicles are equipped, which would be a considerable task for an urban only charge.

The report implies that it would target specific roads, but this adds a level of complexity that would seem to be undesirable.  

Moreover, the big issue comes from occasional visitors to the city, who need to have a way of paying for access that does not involve the inconvenience of acquiring and installing a piece of equipment.  Some sort of time based pass would make sense for occasional users.  Certainly a distance charge should be considered for most if not all roads in an urban environment to avoid "rat running". 

However, it is clear that Uganda more widely is interested in reforming how roads are charged.  In 2008 it replaced registration fees with fuel tax, and it runs a hypothecated roads fund paid for by that tax.  There is legal authority for weight/distance fees to be introduced.

It commissioned PWC in 2014 to develop its road user charging framework to become what it calls a "second generation" road fund.  New Vision reports that Michael Odongo, Uganda Road Fund executive director describes a second generation road fund as "a fee-for-service principle that road users pay for access and use of roads whose maintenance is funded directly from road users through road usage charging instruments".  

These instruments cover fuel taxation, tolls, transit fees, overweight vehicle fines and road licences.

Uganda is already embracing tolls for major new projects, implying interest in electronic free flow technology (which requires the ability to fine vehicle owners by tracing them by address).  

This presentation (PPT) from Mr Odongo is a summary of the challenges and plans for Uganda. 

Introduction of weight/distance charges for Kampala alone would appear to be a big challenge, it may be easier to introduce such charges for heavy vehicles across the country first, with higher charges at peak times in Kampala.  However, issues of compliance with such requirements would need to be addressed first.  In the meantime, if Kampala is looking to address congestion, then it may be better placed introducing a number plate based time permit system as a first stage.  In any case, it would need such technology for any visitor based products, and it would be an effective trial of introducing urban charging to the city.

Bergen implements congestion charging on its urban toll system

Martin Standley informed me that Bergen has introduced congestion charging on its urban toll ring as of the 1st of February.  This is not a new charge or tolling system, just the evolution of the Bergen toll ring into effectively an urban congestion charge.  The system has 11 charging points.

A map of the tolling points is here.  Road users either use the Norwegian DSRC toll tag account system AutoPASS, pay online up to 3 days after crossing a tolling point or subsequently receive a bill by post (after number plate recognition has detected your vehicle's chargeable activity).

The system has been fully electronic free flow since 2004, and congestion charging applies between 0630-0930 and 1430-1630 (yes you read correctly) weekdays.  The peak charge is 2.3-2.6x higher than the basic charge.  The fee for heavy vehicles (all above 3.5 tonnes) is double that for light vehicles.

The purpose of the congestion charge element is to, unsurprisingly, reduce congestion and lower emissions.

The Bergen "toll company" website explains how Bergen has had tolls since 1956 to fund various road projects, but the Bergen toll ring commenced operation in 1986 as the first toll ring in Norway. 

Belgium's heavy vehicle road user charge to start 1 April

Belgium looks set to be the 11th country in Europe to introduce a distance based road pricing system (legally a toll in EU Member States) on 1 April 2016 (counting Switzerland, Germany, Austria, Czech Republic, Slovakia, Poland, Russia, Belarus and Iceland).

Belgium will withdraw from the Eurovignette system after that date, as all vehicles with a gross vehicle weight of over 3.5 tonnes will be required to have an On Board Unit (OBU) to pay the new "kilometer charge" which has been branded as Viapass.  Although not all roads in Belgium are subject to the charge, it will be a legal requirement to have an OBU for any heavy vehicles using any roads in the country.  Uncharged roads are technically tolled subject to a zero Euro tariff.  Around 3,000 km of roads will be charged.

Viapass logo

It is not being implemented by the Belgian Government, but by the three regional governments of Belgium of Wallonia, Flanders and Brussels.

Purpose of the charge

The primary reason given for the charge is that it will better reflect the costs imposed by heavy vehicles on Belgium's road infrastructure, particularly the costs imposed by foreign vehicles (as Belgium has considerable transit traffic passing between countries and to and from its ports).  Distance based charging (compared to the Eurovignette) more directly reflects volumes of traffic and can also better incentivise more environmentally friendly vehicles (as experience in Germany indicates). 

All revenues are treated as revenue attributable to each regional government (based on distance travelled in each region). 

Basis for the charge

All vehicles with a Gross vehicle weight of over 3.5 tonnes will pay by distance based on:

- Weight;

- Euro emission rating;

- Road classification.

The tariff schedule is below in Euros per kilometre.  The weight refers to the full configuration of the vehicle (powered and trailer unit).  As you can see, charges vary by weight band and Euro rating on a logical basis (heavier costs more, as does the more polluting engine rating).  

Slightly more interesting is the higher set of charges for distance travelled in the Brussels urban area not on major highways, this appears to clearly reflect an interest to disincentivise the use of local arterial roads and streets by heavy vehicles (to reduce congestion contributed by heavy vehicles and the exposure of pedestrians and residential areas to pollution from such vehicles).

Curiously, in Flanders and Brussels the charge is legally a tax, and not subject to VAT, but in Walloon where roads are managed by a private company it is legally a fee, so is subject to VAT (as it is a fee for a service provided).

Belgium heavy vehicle road user charge tariff table

Walloon region charged road network

Flanders region charged road network

Brussels metropolitan charged network (all roads, different rate for peripheral highways

What's significant about the Belgian Viapass system

Viapass will be the 11th distance based heavy vehicle road charging system in Europe (counting Belarus, although it includes foreign cars in its system).

Viapass will be the 5th GNSS assisted (Switzerland being assisted), and 4th GNSS based heavy vehicle road charging system in Europe (and the 6th in the world - counting the GPS options for New Zealand and Oregon systems).

Viapass will be the first Benelux country to introduce distance based road charging (after multiple attempts by the Netherlands.

Viapass is the first distance based heavy vehicle charging system in Europe to charge for use of all roads in a city (Brussels - Oregon and New Zealand charge all public roads in both jurisdictions).

Viapass means Belgium withdraws from the multi-country Eurovignette system for heavy vehicles.  The remaining members of Eurovignette are Denmark, Luxembourg, the Netherlands and Sweden.

Belgium was original intending to introduce a vignette (time based charge) for light vehicles across the country, but suspended that element pending the successful introduction of the heavy vehicle charge and a pilot undertaken on distance based charging for light vehicles.

D'Artagnan Consulting

I'm pleased to announce that I am now a Principal Consultant at D'Artagnan Consulting LLP.

I joined D'Artagnan Consulting because it is at the leading edge of advice and development of road user charging systems in the United States and increasingly in Australia, with a focus on end to end development from policy development through to support in pilot development and implementation.

I have supported D'Artagnan on its work in Oregon and Western Australia, and am currently doing so in its work with CALTRANS on the California Road Charge pilot program. 

As I have previously, I will continue to be transparent about projects that I have been personally involved in (or which D'Artagnan is advising on).  The purpose of this blog will continue to be to inform and provide commentary on road pricing matters around the world.  I have a backlog of pieces I am pulling together about various locations, with an emphasis on those with the most innovative charging - involving distance based charging in most cases.

In coming days, weeks and months the look and feel of the blog will be evolving to make the links to D'Artagnan Consulting clearer and to make it easier for you to use.

I hope you keep reading and keep informed.

Scott Wilson

Auckland motorway tolls re-emerge as revenue raising option

With news that the New Zealand Government has decided to fund its 50% share of the capital costs of the NZ$2.5 billion (US$1.6 billion) proposed underground rail loop in central Auckland, the issue has emerged as to how the Auckland Council can raise the revenue to pay for its share.  A previously floated proposal of tolling all of the motorways has re-emerged, as it would appear to offer both a source of revenue and introduce a mild form of congestion charging.

Auckland's motorway network

However, it faces some major challenges:

1.  It has been assessed before and been found wanting.  The option of charging motorways only in Auckland was appraised in the Auckland Road Pricing Evaluation Study in 2006.  It concluded that the main problem with this option was that it would divert sufficient traffic onto parallel local roads (a 6% increase in traffic on those roads) to worsen congestion on those roads, exposing local residents to increased pollution.   It also concluded that there would be barely any modal shift (0.1%) (Source: Table 4.5, Appendix 15, Economic Impact Assessment) and that it was the worst performing of any of the options considered in terms of net economic impact (with a BCR of around 0.7) (Source: p6. Appendix 19, BCR analysis).  Indeed it showed that the revenue raised was barely over half of the benefits to users, indicating a net loss - as congestion savings on the motorways are significantly offset by delays on local roads.  Overall speed changes would be less than 1 km/h.

An illustration is seen in the map below, showing how easy it is to use parallel routes between two of the most heavily used points on Auckland's motorway network.  In red is the Southern Motorway with between seven and ten lanes, in blue are the local streets that could be used to bypass part of it.

Southern motorway at Newmarket, with some parallel routes

The conclusion of that study is rather damning (comparing it to cordon charging options and parking levies):

This scheme is relatively simple in concept and targeted in terms of tackling particular congestion problems.  It also provides fewer social mitigation challenges as free alternatives are provided (the uncharged network).

This is, however, a significant weakness of the scheme.  Essentially it reduces the incentives to motorists to change behaviour through switching modes or travel patterns. Instead they simply change their route.  This has the effect of diverting traffic from the strategic network onto local roads and while congestion is reduced on the charged strategic network it tends to increase on the local roads which are the only alternatives to the charged routes.  The higher the charge is set, the more pronounced this effect becomes.  As a consequence the charge which can be realistically imposed is relatively low and the cost of collection represents a high proportion of the charge... Furthermore the cost of increasing capacity on the local uncharged road network is high and more than consumes the net scheme revenues.

In short, it will jam up Auckland's local roads and if the money raise is diverted into the rail scheme, it will leave nothing to fix the local road bottlenecks. 

2.  Motorways are State Highways.  Auckland Council has no authority over them as they are owned by central government.  Without central government authority (which shows no sign of being granted), it cannot happen.  Bear in mind government already effectively charges for using these motorways (and local roads) through New Zealand's weight/distance road user charges for heavy and light diesel vehicles, and fuel tax.

The issue has emerged this year as it is the year of local body elections including Mayoral elections.  Incumbent Mayor, the left of centre Len Brown, is in favour of the proposal, despite there being clear opposition to it expressed by the Government.  Other announced candidates are either opposed or lukewarm towards it, and Len Brown is not contesting the next election (candidacy is still open). 

Clearly the idea is technically fairly easy, as either DSRC technology with ANPR, or ANPR alone could deliver a system with gantries located either at on and off ramps or a series of strategic points along the motorway network, but Auckland's well established motorway network has one major problem - its interchanges are very closely spaced by global standards.  This means it is quite feasible to use motorways for short trips and to avoid motorways for such trips.

My view is that with a few exceptions (e.g. Auckland Harbour Bridge, Mangere Bridge, SH16 west of Waterview) the benefits are likely to be not worth the cost, but then it is not being driven by the objective of congestion management, but revenue raising. 

Auckland Council's primary revenue raising instrument is taxation on property prices (rates).  Given reports of the significant gains that CBD property owners and investors would get from the underground rail loop, it probably is more appropriate to look at rates on the "winners" from the rail project than to adopt a road pricing scheme that may have net negative economic impact.