Brisconnections goes into receivership - another victim of toll road optimism bias?

It has now been reported by various Australian news outlets that Brisconnections, the company behind the AirportLink toll road in Brisbane, has gone into receivership following the withdrawal of support from the company's financial backers.  

Regular readers will remember my previous articles about the AirportLink toll road, which is now the second major toll road project in Brisbane to effectively go bankrupt.  They are below in chronological order, telling a sad tale of a road that faced construction cost overruns, but has been doomed by optimism bias in demand forecasting.

New Brisbane Airport Link toll road may include loyalty programme

Brisbane's latest toll road to open under clouds of scepticism

Brisbane's Airport Link toll road demand may give cause for caution

Brisbane Airport Link looking almost as bad as Clem 7

Brisbane Airport Link debacle down to incentives and value of time

It has looked increasingly doomed (at least financially) since it was opened. It is, of course, technically superb.  

Brisbane Airport Link's complex interchange at Bowen Hills

The road cost A$4.8 billion (US$5 billion) to build and has been open for seven months.  It was meant to have an average of 135,000 vehicles a day by now, but the Sydney Morning Herald said only 47,000 a day on average used it in December (a little unfair, given the Christmas season will mean numbers are down with a lack of business traffic).  Even if you take that into account, traffic numbers are around 40% of what was forecast.  ARUP, the demand modellers in this instance, will be getting legal advice and checking its insurance for fear that it may be in front of a court as AECOM now is over the Clem 7 toll road.  You can review ARUP's report to investors on its demand modelling here, on page 110.   That is worthy of a look, as you can see some of the assumptions used look now, in hindsight, to be worthy of questioning (i.e. comparing toll prices on a per km basis with other toll roads, which is not how people value time and trips, and treating historic traffic growth as reflecting future growth).

Bear in mind that the toll on the road right now is at a discount of around 45% on the full estimated price, and it still can't get the demand levels that were forecast (it is expected that the price would increase in April 2013 to about halve that discount, and increase again in October 2013, both increases testing the elasticity of demand).

The report said "a consortium of 10 banks, including ANZ and European heavyweights Deutsche Bank and BNP Paribas, finally appointed PPB Advisory as receivers on Tuesday. The banks lent about $3.3 billion to BrisConnections, and stand to lose a sizeable chunk of their money."

Of course, the road remains open.  The asset is fixed and there is nothing else that can be done with it, beyond some incremental cost trimming and some price incentives to encourage demand.  The road's true market value will be below its construction and financing costs, suggesting that it simply wasn't an economically viable project.   It would be interesting to see if there was a recent public sector comparator cost-benefit analysis to compare with the financial business case, which now looks dire.

The Courier Mail reports that Professor John Goldberg of the University of Sydney claims the modelling was used to "work backwards" from expected returns to what figures were needed, which is an outrageous assertion to make.   He has himself undertaken his own financial modelling (pdf) of toll road PPPs in Australia and is suspicious of the entire approach. However, his call for a Royal Commission to investigate this is ludicrous, as it is not a matter for the government to be specifically concerned about private companies making malinvestments and losing money.  It would be preferable for the state, if it wishes to promote specific projects as PPPs, to commission its own demand forecasts based on determining if a project is worth proceeding with.

The Product Disclosure Statement claims that debt servicing can withstand a 40% reduction in forecast traffic each year.   What happened is 60%.

What now for AirportLink?

Not much, it will continue to operate.  The receivers will commission a review of its performance to find a way to maximise revenue and minimise costs.  It will remain a prime piece of infrastructure for Brisbane.

The question is whether any legal action will occur, and what long term owner it will have.

What now for future toll road PPPs in Australia?

Transurban half year results positive, but what are the details?

Australian toll road investor Transurban has released its results for the six months ended 31 December 2012, which report an increase in the proportional EBITDA of 3.8%, compared to the prior corresponding period, but a reduction in the statutory net profit of 16%.  The difference between these is due to the exclusion of five assets in which Transurban has a partial shareholding in the statutory net profit.  Costs are up 10.5% overall, largely attributed to the launching of the I-495 express lanes.

It is a good result with "A distribution totalling 15.5 cents per stapled security will be paid on 14 February 2013 for the six months ended 31 December 2012. This will be made up of a 12.0 cent distribution from Transurban Holding Trust and a 3.5 cent fully franked dividend from Transurban Holdings Limited".  There is also a A$5 billion pipeline of investments for the group (being the Hills M2, I-95 Express Lanes and M5 widening projects

However, it's worth having a look at Transurban's portfolio of assets to see what they are looking like, and what it teaches future investors about the profile of such investments, compare to the full year results for 2012 which I reported on here.   Transurban's presentation is the source of much of the following conclusions.

Melbourne Citylink

Proving that a major urban motorway can be a profitable investment that delivers enormous benefits to a metropolis, Citylink continues to be the "jewel in the crown" of Transurban delivering nearly half of all of its toll revenue.  Traffic growth has been 2% in the past year and toll revenue growth 4% (EBITDA 3.9%) including an adjustment for the bedding down of a new billing system, which added short term costs.

The key prospects for this project are in a related proposal, the East-West Link, which would connect Melbourne's Eastern Freeway with the Western Ring Road interchanging with Citylink.  Transurban is targeting this as an obvious potential enhancement to its portfolio.  There are also plans to upgrade Citylink.  Bear in mind Melbourne Citylink is the corridor between the city and Melbourne's major airport (there is no rail link), and is the only decent east-west corridor at present.  It is strategically vital, but thrives as a privately owned toll road.  Concession ends in 2034.

Revenue of A$267.1m, costs of A$52m, depreciation/amortisation/financing costs of $A100.8m, leaving a profit before tax of A$114.3m

Sydney Hills M2

This motorway has suffered due to extensive roadworks to add new interchange capacity, which has deterred trips because of lower speed limits.  Traffic volumes are down 2%, with toll revenue down 1.7% (EBITDA 1.9%).  The works are expected to be completed mid 2013, with the hope that traffic volumes will recover.  The M2 is a core part of the Sydney orbital toll road network, connecting the northern suburbs to the west, and so has affected the results of two other Transurban assets.  It is more of a suburban motorway that needs orbital urban traffic to thrive, so will be dependent on how there is growth in suburb-suburb commuter and leisure traffic (which is not conducive to public transport usage, which is high in Sydney for trips to the downtown area).  It is expected to deliver significant growth in 2014, as temporary speed restrictions are removed.  Concession ends in 2046.

Revenue of A$73.4m, costs of A$15.9m, depreciation/amortisation/financing of A$52.9m, profit before tax of A$4.6m.

Sydney Lane Cove Tunnel

This part of the main route north from Sydney has seen static traffic with a small increase in toll revenue (0.3% - EBITDA 4%).  Bear in mind the history of this project in that Transurban bought it from the receivers for around 60% of the cost of constructing it, after traffic and revenue numbers did not meet forecast expectations.  A key project is to consolidate and reduce costs in maintaining Transurban's Sydney highway assets, which may partly reflect the better EBITDA figures.  Lane Cove Tunnel does have an untolled alternative, so is sensitive to pricing, congestion levels on the surface streets and limited competition from rail.  Concession ends in 2037.

Revenue of A$31.7m, costs of A$13.4m, depreciation/amortisation/financing of A$22.1m, meaning a loss before tax of A$3.8m

Sydney M1 Eastern Distributor

This is the highway that connects Sydney Airport to the city and the harbour crossings.  It has seen a small decrease in traffic (0.4%), but a 8.2% increase in toll revenue (EBITDA 8%) due to 9% toll increases ($A 0.50), indicating low elasticity of demand on this key corridor (which also has intensive rail competition, and parallel inferior surface streets).   Transurban has a 75.11% shareholding in this road.  Given the time sensitivity and the constraints in corridor expansion along this route, it can be expected that this investment can deliver more over the long term.  Concession ends in 2048.

Revenue of A$51.3m, costs of A$13.7m, depreciation/amortisation/financing of A$48.3m, meaning a loss before tax of A$10.7m. 

Sydney Westlink M7

The M7 runs north-south along the western end of the Sydney orbital ring road, and so is a core part of Sydney's bypass, but also connects the northwest and northern suburbs with the south, avoiding the need to use the harbour crossings.   It has seen a 2.4% increase in traffic, and 3.2% increase in toll revenue (EBITDA 3%).  A stable route, growth being dependent on growth in housing and employment at Sydney's periphery promoted by the location of growth nodes at either end of the motorway.  50% owned by Transurban.  Concession ends in 2037.

Revenue of A$106.6m, costs of A$23.8m, depreciation/amortisation/financing of A$177.2m, meaning a loss of A$94.4m before tax.

Sydney M5 SouthWest

The M5 is Sydney's main motorway south-west towards Canberra and Melbourne.  It has seen a small (0.4%) decrease in traffic, but 10.1% increase in toll revenue (EBITDA 11.4%) due to toll price increases.   This road is 50% owned by Transurban, and has its own widening project underway, which means an additional lane each way (from 2 to 3 lanes in each direction).  It also has the eccentricity of a taxpayer funded rebate scheme for regular users, which was a 1995 electoral bribe by the then Labor state government.  It means that vehicles that are owned by a New South Wales resident, registered in the state for private, pensioner or charitable use, and are equipped with an electronic tag, are eligible for toll refunds.  "Business vehicles" are not included.  As such, there is obvious long run potential if the state finances get to the point where this is to removed.  Concession ends in 2026.

Also in Sydney, Transurban is pursuing a potential project to connect its M3 to the F2 freeway (which leads to Newcastle).

Revenue of A$103.1m, costs of A$14.2m, depreciation/amortisation/financing of A$51m, meaning a profit of A$37.9m before tax.

USA I-495 express lanes

These lanes opened in November, as reported here.  However, Transurban is reporting that traffic is below expectations, but systems are working well.  Obviously two months are too early for any assessment of trends.  It will require both marketing and patience to see if motorists become more willing to pay to bypass congestion on this route, which is the key south-west quadrant of Washington DC's orbital freeway network.  Concession ends in 2087!

So far revenue of A$1m, costs of A$3.2m, depreciation/amortisation/financing of A$9.1m, so a loss of A$11.3m before tax.

USA Pocahontas 895

If Citylink is the Jewel, Pocahontas is the fools gold.  It is 100% owned by Transurban and has been 65% below traffic forecasts.  The results have seen a 5.1% increase in traffic and similar (5.3%) increase in toll revenue (6% EBITDA), but it remains a seriously underperforming asset (which Transurban wrote down last year by A$138 million).  Problems with this asset have included the cancellation of a major property development that would have been served by the road, which was expected to generate up to 35,000 additional trips a day (the timing of the project coincided with the financial crisis and the US property market crash).  It has been suggested that the loss of Interstate status didn't help, but this point is insignificant.  The likelihood is that Transurban will hope that property development will be reignited so that the road will come into its own in due course.  Concession ends in 2105.

Revenue of A$7.4m, costs of A$3.1m, depreciation/amortisation/financing of A$16.7m, so a loss of A$12.4m before tax.

USA I-95 Express lanes to come

As Transurban's US investments are all in Virginia, it is logical that it has also put money into this HOT lane project.  It is under construction and will be completed in late 2014, and involves a 49km of new reversible 2-3 lane set of lanes south of Washington DC within the existing corridor.

Toll rate variations

The full report (PDF) includes some interesting data on the caps (if any) on toll rates for Transurban assets, as follows:

M5 South West Motorway - Escalated quarterly by quarterly CPI. The toll cannot be lowered as a result of deflation, however, until inflation counteracts the deflation the toll cannot be increased. 

Hills M2 - Escalated quarterly by the greater of quarterly CPI or 1%. 

M1 Eastern Distributor - Escalated quarterly by the greater of a weighted sum of quarterly Average Weekly Earnings and quarterly CPI or 1%. 

Westlink M7 - Escalated or deescalated quarterly by quarterly CPI. 

Lane Cove Tunnel - Escalated quarterly by quarterly CPI. The toll cannot be lowered as a result of deflation, however, until inflation counteracts the deflation the toll cannot be increased. 

CityLink - Escalated quarterly by the greater of quarterly CPI or 1.1065% (being 4.5% p.a. as a quarterly compound rate) for the first 15 years, then quarterly by CPI. This is subject to a cap of annual CPI plus 2.5%, which cannot be exceeded. 

Pocahontas 895 -  Fixed rates until 2017 and then escalated by the greater of CPI, real GDP or 2.8% p.a.

495 Express Lanes - Dynamic, no cap. 

Finally, an interesting interview with Transurban CEO Scott Charlton, reported in Business Spectator has him talking about the extension of concessions, and the payment of cashflow in dividends before reducing debts.   He talks of combining into one back office for all Australian operations.   He mentions the interest in applying dynamic (demand) driven pricing into Australia (which isn't possible under current concession conditions).  Transurban seems supportive of a shift towards more distance based tolling and shifting from fuel tax towards tolls more generally.   He confirms that Transurban isn't enthusiastic on the AirportLink or Clem7 tollways in Brisbane, but more interested in the Queensland Motorways assets.

Conclusion

Looking beyond Transurban, which has a range of assets from the remarkable to the unfortunate, one can see statistics which demonstrate some of the real opportunity costs of building major new motorways.  These being costs not conventionally seen in government procured projects.  That is seen in the financing costs, as these (and the capital asset value of the road) are largely hidden or written off, as they are seen in budgetary deficits as roads may be financed either by specific or non-specific public debt, or through "pay as you go" annual budgeting.

Large highways are expensive, they involve a lot of capital.  They depreciate, and it is through the accounts of companies like Transurban that we can see, transparently, what they cost.  The revenue they generate is clear (and it would be interesting to consider fuel taxes on top of that), and the operating costs (including maintenance) is also clear, but the big portion of costs is servicing that capital over the depreciated life of these assets.  A road isn't "paid for" until those costs are paid for, and then the long run capital cost of the road is the capital renewal cycle for it, which is a very long time.

Intelligent debate about the costs of highways, relative to other modes, cannot be had until there is more data on the relative costs of highways, compared to other private investments, and other parts of the economy.   Of the seven highway assets owned or part owned by Transurban in full operation, three make a profit and four have been making a loss (before tax), the losses are due to financing costs not been recovered from revenue from users.  One of those had a major refinancing in the past year, others have localised issues, but Pocahontas is a road that shouldn't have been built when it was, and I suspect had the project been entirely led by investors - not a government promoting the road on its own, it would have been quite different.

Some projects would thrive, Melbourne Citylink saves a fortune in time and fuel for those who use it, and has unlocked significant benefits for Melbourne in relieving congestion to and from the airport and across town.  Others would not be built.  That is how it should be.  Tolling, of course, provides a good proxy for whether a road should be built, notwithstanding the two distortions not reflected in this - the presence of fuel tax (which doesn't pay for the road) and the existence of parallel untolled routes (which get more demand than they should).  

News briefs - Indiana, New Zealand, SANEF, Texas

Indiana

As it spends down the proceeds from the privatisation of the Indiana toll road, the state is now contemplating how to maintain funding for its highway network.  NWI Politics reports that approaches being considered include more toll road projects, using PPPs and a vehicle mileage tax (VMT) to supplement or replace the gasoline tax.  Both major candidates for Governor are promising tax reductions, which will not make it easier to increase gasoline tax to pay for roads.  One can only hope that the state can pull together a plan that it can sell to voters.  Considering a mix of tolls where viable, and a longer term transition to VMT is likely to be following the steps of many others.

Meanwhile, a report from NWI Times notes that 65% of users of the Indiana toll road are out of state, indicating how important the toll really is to ensuring that users of the road pay for it.  Motor registration taxes and gas taxes for such vehicles are more likely to be predominantly paid out of state.

New Zealand

Having recently restructured its national distance-weight based road user charging system so that it charges by maximum allowable vehicle weight, not average vehicle loading, New Zealand is finding a few feeling unfairly hit by the changes.

The change made some policy sense in that it meant that there were no longer issues of enforcing vehicles according to actual weight (when this would vary from trip to trip) and vehicle owners would no longer need to buy supplementary road user charges licences for blocks of 1000km for heavier weights.  Keeping it at the maximum allowable also incentivises more efficient vehicle usage, but it does mean some lose out - mainly those with larger vehicles which permanently carry much smaller weights.   The Timaru Herald reports on Mervyn Tyree, who owns a customised bus converted into a motor home that has a maximum permissible weight of 21 tonnes, even though it only ever weighs 14.7 tonnes.  He is facing an increase in road user charges of nearly 100%, even though he isn't actually carrying any more or creating any more damage to the roads.

I did road user charging policy in NZ when it was actual weights, and whilst it was inherently attractive to simplify the system by moving to maximum weights, it was expected to create these sorts of problems and in particular, problems for trucks that would never carry the full load for much of their trips (milk tankers).

The only way this could be avoided is by having a special vehicle category for those which are no longer capable of carrying the full load in ordinary usage.  Converting a bus to a motor home effectively does that, because Mervyn probably can't fit enough people in to reach the 21 tonne limit.

SANEF's Standard & Poors credit rating reconfirmed

SANEF's Standard & Poors credit rating dropped to BBB in July, and this rating has been reconfirmed by S & P on 10 September according to Reuters.  The outlook remains negative.

The statement included this:

Sanef operates the third-largest interconnected toll road network in France.  Although the company is exposed to variations in traffic volumes, it benefits  from a strong competitive position; favorable concession agreements, including  yearly inflation-linked tariff increases; high profitability; and positive  free cash flows. We consider the risk of acquisitions and diversification to  be low. These strengths are partly offset by Sanef's high indebtedness, and its relatively rigid dividend policy.

The rating is directly related to the rating given to its primary shareholder, Abertis, which is also BBB.

Texas

The Examiner writes a fairly critical article about the forthcoming SH130 toll road in Texas, which is to be the first foreign privately owned toll road in the state.  It's not particularly flattering, which is unfortunate, as Texas does sometimes have the image of being a state that believes in a free market approach, but this article gives the impression of an underlying xenophobia around the road being foreign owned, and a belief that fuel taxation is inherently fairer.   The article descends into little more than rhetorical polemics with this:

So there can be no doubt that the state is cozying up with big business to incentivize truckers and motorists to use Cintra’s tollway, and effectively grant Cintra a monopoly for the next 50 years through various revenue sharing schemes and other incentives, like slowing free alternatives and ensuring any expansion of I-35 will also be tolled, not free. God help Texas with such sinister agents in charge of transportation. Eventually, you won’t have a choice but to pay.

Lippincott was sure to dodge the glaring hypocrisy of Governor Rick Perry, who is so obviously starving the gas tax in order to hand Texas roads to his corporate buddies. Perry claims to be all about state sovereignty, the primary subject of his latest book, Fed-Up, while selling off Texas to the highest bidder.

Terri Hall, the writer "is the founder of the San Antonio Toll Party and Texans Uniting for Reform and Freedom. She started a taxpayer revolt upon learning of plans to convert Highway 281 into a tollway and charge taxpayers again for what they already built and paid for."

I am curious as to whether Ms Hall actually believes that when you build anything that you don't ever have to pay anything more to ensure that it retains its value.  A common mistake in economics that is used too often in arguing against tolls.

Meanwhile, the Wall Street Journal notes that the State of Texas receives $100 million for approving the 85mph speed limit for the toll road, $33 million more than had the concession been for an 80mph speed limit road.   Quite simply the concessionaire believes it will get more users at a higher speed, but safety advocates and opponents to privately owned roads believe it is "reckless".

Texas free flow tolling violations

A report in KeraNews indicates that the proportion of users of North Texas Tollway Authority toll roads that violate by not having a toll tag and not paying invoices sent in the post is 1%, and Texas is about to crack down on them.  The approach appears to be to treat it as a civil debt, and seek recovery like other debts, but also to treat violators as trespassers by allowing such vehicles to be impounded on the toll roads if stopped.  The violator with the highest debt owes $182,000.

Malaysian government to take over highway concession heading for bankruptcy

According to IFR Asia the Malaysian federal government has decided to take over the Eastern Dispersal Link (EDL) road in Johor Bahru from concessionaire MRCB (Malaysian Resources Corporation Berhad).

Why?  Well this is the case of the concession granted to build and operate a toll road, followed by a law passed to prohibit tolls being charged on the road at all.

The EDL expressway is an 8.1km long road which opened on 1 April 2012.  Johor Bahru is effectively the border town between Malaysia and Singapore, and the highway provides an enhanced link within the border region.

Eastern Dispersal Link, Malaysia - official map

However, the Malaysian Government decided when the road opened that it would not permit tolls to be collected on it, so the concessionaire has faced the past few months negotiating with the government a compensation deal to make up the difference, and meanwhile has been servicing the debt for the road without any revenue.

The report notes as regards the concession there is :

only M$21m in the company’s cash reserves, hardly sufficient to meet a M$47m cumulative interest payment due December 21 on its M$1.04bn senior and junior sukuk, as well as on a M$220m syndicated bank loan. The shortfall is a reason Ram Ratings downgraded the long-term ratings on the M$845m senior bond to BB3 from A2 and the M$199m junior sukuk to C1 from BBB2.

(A sukuk is essentially an Islamic financial instrument with some parallels to bonds).

Curiously, the owner of the concession, MRCB, which is no small company, has indicated that it doesn't intend to contribute funds to meet the shortfall, threatening a default - a first for Malaysian toll (or rather highway) concessionaires, which is perceived as likely to embarrass and disrupt plans for ongoing private investment in infrastructure in the country.   However, the Malaysian Federal Government has previously supported concessionaires more widely in other sectors through extending concession periods or buying bonds to restructure their debt.  It is not shy about interfering in what it deems to be the public interest.

The result of negotiations appears to be a government takeover of the concession, although the article suggests that tolls may yet be imposed, but probably at a price lower than the M$6.20 (US$2.01) per trip suggested.   One controversy is apparently that all users of the new Customs/Immigration/Quarantine complex located near the end of the expressway will pay a toll to contribute towards the road's costs, whether or not they actually use the road.

Overall it implies a conflict between seeking private finance to build and manage roads with tolls, and then taking relatively ad-hoc decisions around abandoning or discounting tolls for political reasons. Elections are due in the coming months, whereby the ruling UMNO party is expected to win (as it always does), but is facing ever growing pressure from growth in support from opposition parties.  It would appear Malaysia is not immune from concerns over opposition to tolling in certain situations.

News briefs - Australia, China, Indonesia, Macquarie Atlas Roads, Texas, UK

Australia - New South Wales government denies interest in congestion pricing

AAP reports that NSW Roads Minister Duncan Gay has said that the State Government has ruled out a congestion tax, but is considering implementing distance-based tolling.   Certainly it is clear that NSW is considering reforming toll roads around Sydney so that pricing is more closely related to a proxy for distance, but it is less clear as to whether the state is interested in a wider roll out of distance based charging to replace ownership taxes.

China - Standard & Poors affirms BB- rating and negative outlook for toll road investor Road King

Reuters reports that property and toll road investment company Road King maintains its rating with with S&P.  Property is the dominant factor for the relatively low rating and negative outlook.  On toll roads it reports a more optimistic side to the firm:

Road King's stable operating performance and the sizable cash flows from its toll road business support the rating. The company currently derives more than 80% of its toll revenue from its expressway projects, including the Longcheng Expressway it acquired early in 2011 and which commenced operation in July 2012. We expect Road King's toll road business to continue to provide stable cash flows in the next one to two years, underpinned by its stable profit sharing ratios. 

Indonesia - Longer toll road concessions to be allowed

Tempo Interactive reports that the Indonesian Government is to change the law to extend the maximum toll road management permits for private companies from 40 to 50 years.

The Jakarta Post reports that a 73km toll road is to be built in North Bali from Kuta to Seririt at a price of US$872 million.  The project is intended to open up a wide area for tourism and development, and is linked to plans for a new airport at the north of the island.

Macquarie Atlas Roads posts half year loss and further asset devaluations

Business Spectator reports that Macquarie Atlas Roads has posted a loss of A$75.2 million (US$77.7 million) in the six month to June 30 2012.  This is an improvement on the A$106.4 million (US$110 million) loss for the same period last year.

The A$33.4 million fall in the value of investments comprised a loss of A$26 million on the Autoroutes Paris-Rhine-Rhone (APRR) toll road in France compared to a profit of A$11 million in 2011; a loss of A$7.4 million on the Dulles Greenway toll road in the US compared to a loss of A$10.8 million in 2011; and no loss on the Chicago Skyway toll road in the US compared to a loss of A$17.5 million in 2011.

There was no loss booked for the Chicago Skyway in the first half of 2012 because the carrying value of the road had been reduced to nil.

The Australian reports that the company expects to release a dividend next year.  It also noted:

Macquarie Atlas Roads said the increased losses partly reflected losses on interest rate swaps and higher debt-related amortisation.

Macquarie Atlas Roads said proportionate revenue from its roads rose by 1.4 per cent to $330.8 million in the first half of 2012 despite a 1.9 per cent fall in traffic volumes.

Revenue was boosted by toll increases.

"Macquarie Atlas Roads' portfolio of toll roads has continued to generate positive revenue and EBITDA growth during the period despite difficult economic conditions in Europe and the US," chief executive Peter Trent said.

Texas - new toll road to have highest speed limit in US

The Texas Weekly reports that Texas State Highway 130  (which will be a toll road) will have a speed limit of 85mph (about 137km/h), which will be the fastest in the USA.  Some advocates of private toll roads have promoted the idea that roads could be built to enable relatively safe driving at faster speeds, and motorists could be charged the price to allow it.  In Texas, it looks like it will happening, albeit with an increment of only 5mph.

Meanwhile, the Statesmen argues that the new speed limit is partly about enhancing the viability of the toll road, which includes lowering the speed limit on the existing highway from 65mph to 55mph, even though it will be safer (because the new road will be between the north and southbound lanes of the existing lanes).   Is it a conspiracy to make the new lanes more likely to be financially positive or just coincidence?

UK - Dartford Crossing manual tolling to be gone by 2014

The Brentwood Weekly News reports that the UK Government has announced that it is spending £25 million (US$40 million) to undertake a range of improvements to the tolled Dartford Crossing routes, including removal of manual toll booths as part of a programme to make the highway a fully electronic free flow tollway.  The route is notorious for being a bottleneck in both directions, in part due to the queues at toll booths.  The UK Highways Agency is hoping to have removed the manual toll booths by October 2014.

Pennsylvania Turnpike's burgeoning debt

The Trucker.com published a report from Associated Press claiming that the Pennsylvania Turnpike looks like it is on a path towards financial difficulties, not because of a lack of traffic, but because it is being expected to cross-subsidise a lot of transportation spending across the state.

Background

The Pennsylvania Turnpike is 856km (532 miles) long connecting Ohio to New Jersey, and is one of the states most strategically vital corridors, with its various segments comprising parts of six Interstate Highways.  It is managed by a state quango called the Pennsylvania Turnpike Commission and the prevailing tolling technology is a combination of closed road tolling (ticket based) manual tolls with EZ Pass tags as optional.

Pennsylvania Turnpike network map

Story

Prices on the Turnpike have doubled in the last ten years, but it is now generating less revenue than what it spends.  Its current debt is US$7 billion.  

The article states:

Highway and bridge projects around Pennsylvania have grown dependent on the money from turnpike toll-payers, and so have transit agencies such as the Southeastern Pennsylvania Transportation Authority.

If the turnpike stopped making its $450 million-a-year payment to PennDOT, the already strapped state transportation budget would lose about 12 percent of its financing.

Its liabilities exceed assets by US$1.3 billion, because it keeps being required to fund activities outside its core, so that it is, in effect, a borrowing instrument of the state.

The problem comes from an ill thought out law which was originally envisaged to raise revenue by expanding tolls.  

The root of the turnpike's financial woes is Act 44, the 2007 state law that required the turnpike to contribute $900 million a year for statewide roads, bridges and transit.

To come up with the money, state lawmakers authorized the Turnpike Commission to convert Interstate 80, which parallels the turnpike across northern Pennsylvania, to a toll road. But the federal Department of Transportation in 2010 denied the state's application to require tolls for I-80 travel.

So the turnpike's obligation to fund other roads and transit dropped in half in 2011, to $450 million a year, under terms of Act 44.

In other words, with the Federal Government opposing an application for tolls on an existing highway, the legislation didn't remove the obligation, just halved it.

Revenue at the turnpike is currently US$800 million a year, and US$300 million is spent on operating and maintaining the road (yes, there should be an issue with this and this is allegedly being addressed).  US$300 million is also spent on servicing existing debt, yet instead of US$200 million being spent on other projects, the Turnpike Commission is expected to spend US$450 million.

Prospects

Moodys is bullish in the short term, but forecasts of continued traffic growth look over-optimistic.

Moody's, like other ratings agencies, continues to rate the turnpike's financial health fairly high: Aa3 on its debt for turnpike operations, and three notches lower, A3, on the debt for Act 44 payments.

Moody's has assigned a "negative" outlook for the future of the turnpike's debt because of "dependence on regular toll increases and modest traffic growth to support projected debt-service coverage ratios."

Turnpike officials are assuming that traffic will increase by 3 percent to 5 percent every year, according to their most recent traffic study.

So the path is laid out for the state to either cut spending, raise other taxes or expand the tolling remit of the Turnpike Authority.

The article concludes with a useful review of other states which use tolling authorities to cross-subsidise other activities:

Pennsylvania is one of several state and local governments that require toll-payers to pay for projects not directly related to the road or bridge that is tolled.

The New Jersey Turnpike Authority, the Triborough Bridge and Tunnel Authority in New York City, and the Harris County Toll Road Authority in the Houston area are among those that tap tolls for other projects.

In New Jersey, about 30 percent of toll revenue is transferred to the state Transportation Trust Fund Authority for use on statewide highway projects and transit operations.

Locally, the Delaware River Port Authority spent nearly $500 million over the last 15 years for "economic development" projects — such as stadiums and museums — to be repaid by revenue from its four toll bridges linking Philadelphia and South Jersey.

It warns that Moodys considers toll authorities with wider funding remits to be "riskier" than those without, which is logical, given that without such commitments, tolling authorities (especially for large high volume networks) should be quite profitable.  For now, it appears that some states are using there toll networks to offset declining real revenues in fuel taxation.  The problem they have, and Pennsylvania certainly will have, is that this is only sustainable if the proportion of the tolled network increases as well.

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Penn Live has also published an editorial expressing concern about the sustainability of the existing cross-subsidies from the Turnpike.  It supports ideas from the Transportation Funding Advisory Commission such as increasing vehicle ownership fees, driver licensing fees and a tax on oil company franchises.  Of course, none of these ideas have anything to do with usage of the network, and most seem likely to exacerbate existing deadweight costs of taxation and so will impose an economic burden likely to be worse than raising turnpike tolls.  The choices need to be around getting better value for money for what is spent, treating asset management on a cost accounting basis, not some Soviet style public good, and then once some reasonable costs have been estimated for the long term lifecycle renewal of these assets, determining how to allocate those costs among users and charge them appropriately.   

Infrastructure Australia recommends road pricing and privatised toll roads

An article by Tim Colebatch, economics editor of Melbourne newspaper The Age, comments on a proposal by Infrastructure Australia (a federal agency to plan and co-ordinate major infrastructure projects, particularly those with interstate dimensions or effects) that toll roads be privatised and the sales proceeds used to finance further new road and rail projects.

It isn't state or federal policy yet, but the essence of it is almost a reversal of the traditional public-private partnership model (PPP) of letting the private sector finance, build, own and operate a toll road then let it transfer to public ownership, by selling existing roads and using that money to finance future ones, with the "sale" being a long term lease, so that the road can be "sold" time and time again.

Colebatch is open about the political problems and limitations involved, but dismisses most of the reactions as kneejerk prejudices, and if people want major new infrastructure there needs to be innovative approaches to paying for it.  He doesn't express a clear view in favour of it, although he has a vague concern about issues arising from multiple private owners.

Infrastructure Australia's report

Given discussions in the UK about highway privatisation and great concerns in the US about the means to pay for highway renewal, the report from Infrastructure Australia is timely and shouldn't simply be read in the context of Australian problems.  

Some key findings from the report, relevant to this blog:

- "Avoidable" congestion is estimated to cost the Australian economy A$20 billion (U$21.1 billion) per annum by 2020.  (pg.2)

- "The traditional model of government grants conceals the real cost of infrastructure to the community in the form of taxes. Here, users do not directly see the contribution they make, resulting in the tendency for infrastructure assets to be overused. The costs of such perceived ‘free’ access to roads are already being felt particularly though congestion in our cities. Just expanding the current supply of roads is rarely a final solution." (pg. 4)

- "The concept of road user charging is not new to Australian drivers as many of the major thoroughfares in Brisbane, Sydney and Melbourne are already tolled. If the community wants better infrastructure of this kind it needs to reconsider its willingness to pay for such projects."(pg. 5)

- "A network charging regime could also provide consistency and equity for users, as well as appropriate price signals for users to facilitate more efficient outcomes. Currently, user charges are levied on an ad hoc basis, which can result in a network with little apparent rationale for user charges, and contradictory signals for transport choices. A distance based toll may also have greater acceptance rather than a flat fee charged regardless of distance travelled." (pg.12)

- "Another form of user charges is a model that focuses on the application of tolls on freight vehicles in order to fund freight-specific road upgrades and bypasses that improve freight efficiency.  An example might be a part link or bypass project that is funded exclusively through a toll on freight vehicles." (p. 12)

This leads to conclusions that there could be more tolling, but that tolling could be applied more widely so that it is seen to be fairer.  There is also support for tolling trucks, but the idea that it could be used to fund specific road freight projects is curious.  The main reasons road user charging for trucks are introduced are to do with efficiently recovering maintenance costs from the vehicles that generate the greatest marginal costs on the network.  However, it may well be that if this is to be considered in Australia, a link needs to be made to projects that benefit freight.

The notable first recommendation is:

Recommendation 1: Governments should implement targeted measures such as user charges to enhance price signals to better balance supply and demand, and to increase the funding available for infrastructure investment.

Of course, it is tricky when some charges are at the Federal level (fuel tax), but others at the state level (taxes on vehicle ownership).

Also relevant is:

Recommendation 2: State and Territory governments should identify and monetise suitable public assets, allowing the freed up capital and avoided debt repayments to be recycled/invested into infrastructure projects.

This means privatisation of some roads.

In Appendix 5 the report has some valuable points on road pricing, in essence it comes down to the point that users need to see value in what they are paying and that they are not being double charged:

Applying user charges to other fixed infrastructure assets can be investigated – in particular for roads. Road charging options include: tolls, network charging, congestion pricing, distance driven, High Occupancy Toll lanes.

Work on user charges for heavy vehicles is already underway through the COAG Road Reform Plan.

However, the idea of user charging can be unpalatable where consumers perceive they are paying twice – that is, already paying for roads through income taxes, fuel surcharges, car registrations etc, but then expected to pay again through a toll (or are redirected onto toll roads).

Road users are more accepting of a toll if they perceive a utility benefit such as a time saving, a better asset or the delivery of a new asset much sooner than otherwise would be the case without funding through a charge.

User charging may also be more acceptable if applied in conjunction with a range of other reforms such as transparency in pricing, rebates or discounts in taxes/surcharges, and the availability of alternatives or improved services (such as better public transport).

Given that the Australian Government owns very few infrastructure assets, the support of State and Territory governments to implement this option will be needed. There is unlikely to be a uniform approach to user charging across the country given the different attitudes towards user charging from State and Territory governments.

The report tries to point states in the sorts of directions needed to successfully expand road pricing.

In Appendix 1 the report cites a successful PPP toll road in Australia as a good example of what is done now:

The Westlink M7 motorway project in Sydney is widely regarded as a successful example of a Public Private Partnership. The estimated cost was approximately $1.54 billion, with the Australian Government contributing $360 million. The Westlink Motorway consortium selected to operate and maintain the M7 was provided with a 34-year concession term after which the asset will revert to the NSW Government. Construction started in July 2003 and the road was opened to traffic in December 2005.

The M7 demonstrates what can happen when governments effectively plan for the long term, efficiently share risks and incorporate appropriate price signals into infrastructure projects through user charging. For the M7 this is implemented by electronic tolling with the price of the toll capped in real terms. There may be scope to extend the tolling operation at the end of the concession. Another important feature of the project is that the NSW Government also shares in upside demand risk where actual revenue exceeds forecast revenue. This project has led to the building of a substantial piece of well-utilised infrastructure largely financed by the private sector.

It also cites the US TIFIA programme as having useful elements in an Australian context.

 The full report is here, in pdf form.

Conclusion

Australia's public sector continues to be capable of producing high quality pieces of policy analysis with largely sensible conclusions.  Although this report has a scope wider than roads, many of its recommendations are broadly relevant and in the right direction.  The big issue is what role the Federal Government can have.   Given it levies fuel taxes now, it ought to look at what to do about that and a transition from that as a step forward, and so the issue of heavy vehicle charging becomes an obvious possible first step (shifting from vehicle ownership and fuel taxation to user charges).  However, given states have different levels of enthusiasm for tolling, the powers at those levels are more difficult to direct. 

Public acceptability is the key, and Australians are, by and large, not used to being charged to use roads that were previously free.  To widen the scope of tolling in any form will require some quid pro quo around both existing tolls and existing taxes.  

That is the issue the report did not address.
 

Whilst there remains taxes on owning vehicles and fuel, having additional ways to pay for road use on roads which are not currently tolled (and so are not perceived as having a free alternative), will be controversial.

It can't be just about new revenue, it has to be about a transition from existing revenue sources.

Auckland Mayor keeps pushing road pricing, but Government opposed

As I reported previously, Mayor of Auckland (New Zealand) Len Brown (centre-left) has been looking for ways of raising revenue to pay for major transport infrastructure projects, most particularly the idea of an underground rail loop under the central city.   Auckland's passenger rail system, long neglected, has had well over NZ$1 billion spent on it for track and signal improvements, new stations, and soon to be installed electrification with new trains, but as routes terminate at a downtown underground terminal the idea is that there will be more patronage if over NZ$2 billion more is spent on extending lines underground to connect to the western line.

The problem Brown has is money.  Auckland Council's sole core source of revenue raising is rates -  a tax on the value of land and buildings.  He can't get political support to raise such taxes sufficiently to pay for it.  Nor is the central government transport funding agency - the New Zealand Transport Agency - keen to pay for all of it (it typically will fund up to 60% of the cost of economically efficient public transport improvements, with most of its revenue coming from hypothecated motoring taxes on fuel, distance/weight and vehicle ownership), so Brown is looking for new ways to raise revenue.

He has floated tolls on existing roads alongside a range of other options.

Transport Minister, Gerry Brownlee (of the Centre-right National Party) has said no.  The reasons given are that congestion pricing is typically done overseas to reduce congestion not raise revenue (which is true, but it is acknowledged that the latter is always a secondary effect), and that it is unreasonable for Auckland Council to collect revenue from tolling roads which it doesn't control - namely the State Highways (Auckland's motorways).

It does raise the issue as to whether congestion charging would be ok if it was to reduce other taxes (which it could do, by reducing or even eliminating ratepayer funding of local roads in Auckland), but nobody is arguing for that.

The obvious retort would be to design a congestion charging scheme for Auckland, targeted at congestion, on Auckland Council's roads (not charging the motorways).   The problem is, as I've written before, that congestion in Auckland is not nicely confined to the central business district (which would invite a cordon pricing scheme).  Indeed, traffic isn't that bad there at all.  Congestion is spread out, at a wide range of bottlenecks and corridors, and Auckland has a wide range of alternative routes that are used to "rat run" pass such bottlenecks.  To do effective congestion pricing on that scale would require some form of distance charging with GNSS technologies, such as that already used voluntarily as a option to pay New Zealand's nationwide weight /distance Road User Charge for heavy and diesel vehicles.

In other words, true congestion pricing for Auckland is complex and wont be achieved through a London/Stockholm style scheme.

For revenue raising of course, the issue of where congestion is becomes irrelevant.  A better consideration is equity, so that those who pay are those who benefit from the revenue spent or who could benefit.

This is where two options come to the fore.

One is a downtown central city cordon.

Auckland congestion charge inner city cordon concept

That's attractive if only because the underground rail link project is focused on this area and conceptually it can be argued that those still driving to the central city could instead use the railway.  Yet it is unlikely to raise enough revenue, and also seriously challenges the claims of the rail project advocates by creating a gamble over the attractiveness of downtown Auckland.  If the underground rail link is a good idea (and opinions on this are diverse), then a central city cordon pricing scheme will not be a problem, as the rail link will attract many motorists, along with improved buses (with less congestion) so that the city is a more pleasant place to do business with less traffic and a high standard of public transport accessibility.   Yet if the rail link does not deliver, introducing a cordon pricing scheme could make downtown Auckland significantly less attractive for some businesses, which could readily shift to one of Auckland three other urban centres, or out of New Zealand altogether, on the basis that the rail project isn't a good enough alternative for enough commuters (given the railway doesn't serve the North Shore or the central isthmus, this is a risk, although both of those areas are very well served by buses).

A Mayor willing to gamble on this would be brave indeed, although if he is convinced of the business case of the rail project, then he should support this on the basis that the businesses that will benefit the most from the rail project will be paying for it through road access to their premises.   Yet I doubt he will do this, for the same real underlying reason Central Government is opposed to it:

Politics.

The Mayor is advocating tolls on State Highways because they will generate more revenue (far more traffic than a cordon would charge), appear to have an alternative (other roads) and because he would have to get Central Government support.

However, it would appear that the centre-right National led coalition government regards tolling on existing roads to be politically too risky.  The Opposition Labour Party is against it (although it commissioned studies into it whilst in power) claiming it would hurt the poor, yet it advocates a regional fuel tax that would mean all motorists in Auckland, on all roads at all times would pay, instead of just peak commuters on motorways.  The equity concerns around raising fuel taxes seem to be more easily evaded than tolling.

Is public support being underplayed?

Construction sector lobby group the New Zealand Council for Infrastructure Development released a survey result claiming that a majority of Aucklanders would support road pricing (in the form of low tolls on existing motorways in Auckland) if it reduced congestion and funded major improvements.   Its poll said 46% would support a NZ$2 (US$1.64) charge on all access to Auckland's motorways, although 33.4% opposed it. 

The difficulty is that a previous study indicated that tolling just the motorways (which is, on the face of it,  attractive because it is technically easy to do, and Auckland's motorways comprise three major radial routes to the north, south and west which are significantly superior to parallel routes) would result in worsened congestion because of diversion of a lot of short trips onto local roads. 

Of course the biggest problem with any broad brush surveys or studies is that it doesn't have the level of granularity required (or feasible) to address such problems.  For example, it would be easy to reintroduce tolls on Auckland Harbour Bridge, as the alternative route is lengthy, but tolling a short stretch of motorway where the parallel local route is already congested is likely to be problematic.

The obvious solution would be to selectively toll on ramps where there is less likely to be diversion, but that will raise a whole host of concerns of discrimination against certain suburbs.

Conclusion

Auckland wont get road pricing on existing roads in the near future.  The current government is uninterested in taking such a step for fear of it costing it politically, particularly when it is not politically aligned to the Auckland Mayor, nor supportive of his totemic underground rail link project.   Conversely, it is embarking on a massive road building programme that includes completion of a major southwestern motorway route in Auckland, and other large motorway projects in or approaching major cities, funded from existing motoring taxes.  It is two years till the next General Election, and even if the government changed, the Labour Party's opposition to congestion charging doesn't bode well for its future in Auckland for now - a more likely outcome is that transport funding would shift towards public transport away from large motorway projects, but still be funded from existing motoring taxes.

Regardless of that, neither the new motorway nor rail improvements will make a significant difference to congestion in Auckland in the long run - that will require pricing.  The problem is that the level of debate and discourse about road pricing in this context remains basic.  As I said before, the lowest risk platform to advance road pricing in New Zealand is its existing weight/distance based road user charge that applies to heavy vehicles and diesel vehicles.  A long term strategy to replace fuel tax with that system for all vehicles would deliver a platform that could allow Auckland's roads to be priced effectively and efficiently.

News briefs: Australia, Florida, Mexico, UK, Virginia

Australian Federal Opposition suggests more tolls

Australia's Federal Shadow Treasurer (Opposition Finance spokesman) Joe Hockey (LIberal Party) has suggested to the Western Australian State Government that it should consider tolling, pointing out how successful it has been in New South Wales.  According to the Australian Broadcasting Corporation he said:

"From a federal government perspective there is limited money available for infrastructure"

implying that states that adopt tolling are more likely to be considered sympathetically for future funds compared to those that do not, presumably because tolling states have shown greater willingness to get motorists to pay directly for their infrastructure.

Both major parties in Western Australia continue to oppose tolls, but how long they can do so is questionable.  There are no toll roads in Western Australia, but there is a growing number of major highways around Sydney, Melbourne and Brisbane with tolls.  Given much of Australia's highway infrastructure is partially funded from the Federal Goverment paid for by fuel taxes, the inevitable question will be whether states which don't seek to recover whatever they can from tolls should be entitled to the same share of revenue from that tax.

Brisbane's new toll road impresses - but it's free for now

Finally, Brisbane's long awaited AirportLink toll road is opened and media reports indicate that motorists are impressed with the time savings it offers.  That bodes well, the more that try it out for free, the more who will think it is worth paying for, so the owners are hoping.  I profiled the road before, noting that the first month it will be completely toll free, and the subsequent two months it will also be free but users will need to have signed up for an account.  After that, tolls will increase sharply in 6 monthly intervals.   Time will tell if this strategy works.  I suspect it will at first, but such rapid inflation in pricing will put people off too soon, and it may be wiser to wait for a year before making such significant price hikes.   Curiously one report states people queued for "hours" to be the first on the new road.  Does the prospect of a new toll road generate that much excitement and patience elsewhere?

Meanwhile the HeraldSun reports that Brisconnections is trying to avoid the mistakes made around the nearby Clem7 toll tunnel, by being friendlier towards customers with better signage and clarity around speed limits (there was a higher than average level of speed fines on Clem7, with some violators claiming they didn't know the speed limit).

Florida to study shifting toll tariffs towards congestion based pricing

TV station WFTV9 reports that in Florida "Taxpayers are funding a study that could help set even higher toll prices during peak hours on the Florida Turnpike, State Road 528 and State Road 417". ..

The Turnpike Authority received a $400,000 grant from the federal government to study the concept in Florida's three metropolitan areas including, Orlando, South Florida and Tampa. 

The reason for the study is to manage demand on sections that are too expensive to widen, but there is local concern about traffic diversion.  Presumably the study should also consider lowering tolls at off peak times to counteract peak tolls, that is assuming toll revenue is adequate to cover infrastructure costs.  No information about the proposed study is on the Florida Turnpike Authority website.

Mexico - Libramiento de Matehuala highway has steady growth in demand

Standard and Poors affirms the BBB debt rating on the Libramiento de Matehuala toll road in Mexico according to Reuters.  The road is a 14.2 km long toll highway between Mexico City and Monterrey which bypasses Matehuala, on the San Luis Potosi-Saltillo highway.

The report continues:

For the 12 months ended June 30, 2012, traffic increased 4.1% due to the stable economic conditions in the country. Also, revenues grew 9.6% because of higher traffic and tariffs in line with inflation, and a favorable traffic mix, with trucks making up almost 60% of the vehicles on the road. We expect traffic to grow at an average rate of 3% throughout the term of the debt, which reflects the road's vital trade link between Mexico and the U.S. as part of the NAFTA corridor.

The report claims it requires minimal maintenance given its construction is in hydraulic concrete.  Demand is highly dependent on commercial activity and it faces toll-free alternatives.  It has been open since 2004 and carries around 8,579 vehicles per day (low for a toll road).  Tariffs are listed here (in Spanish) ranging from US$1.45 for a car to US$7.24 for the largest trucks.  The concession allows tariffs to be increased in line with inflation.

UK - Lukewarm reception for A14 toll idea

I wrote before about the UK Government's plans to help fund one of its largest highway projects with help from tolling.  It would be fair to say that enthusiasm for tolling is weak at best.  Local newspaper Peterborough Today reports that local businesses are concerned about tolling increasing their costs or that motorists will avoid the tolled route increasing traffic on local roads.   The local Chamber of Commerce head says it might be a "necessary evil".  Clearly there is a lot of work to do to convince people that accelerating a long delayed road project is better than not doing anything at all, but more importantly that the tolling plan envisaged wont make traffic worse.  The key will be to demonstrate that people can either choose to drive the existing route (in one form or another) untolled or have an improved route that is tolled.   Meanwhile, anti-road lobbyists the "Campaign for Better Transport" and "Sustrans" are opposed, because they don't believe in major highway improvements at all - suggesting rail freight improvements would be preferable and that building a toll road will induce additional demand.  It would seem that using pricing to manage demand is considered unacceptable if it means new capacity is funded by it.

Virginia - Dulles Greenway credit rating maintained

Owner of the Dulles Greenway, Toll Road Investors Partnership II, has had its credit rating of BBB- confirmed by Fitch according to Reuters.  TRIP II is 50% owned by Macquarie Atlas Roads.


Key points reported about the toll road (which is just over 20km long from the end of the Dulles Toll Road to the Leesburg Bypass in Virginia):
- From 2013 through to 2020 tolls can escalate annually at the highest of (i) CPI + 1% (ii) Real GDP, or (iii) 2.8% per annum;
- Year on year traffic increased 1.8% by May 2012, but tolls had increased by 6.7% in January 2012 resulting in a 10% increase in revenue year on year;
- This is only starting to offset a year on year decline in traffic since 2005, due to a combination of the economic situation and improvements to parallel routes.

Road User Charges evasion in New Zealand - some changes come into force

For all of the talk of distance based road user charging or VMT as it is called in the US, New Zealand has been quietly charging all vehicles over 3.5 tonnes and all diesel cars on a weight/distance basis on all roads since 1978.

One of the perpetual issues with any form of road pricing is evasion.   In New Zealand, the Road User Charge (RUC) collects about NZ$900 million  (US$728 million) a year, and Radio New Zealand now reports that around NZ$51 million (US$41million)  on top of that is lost through evasion, about a factor of 5%.

The report also indicates the cost of operating the system at up to NZ$17 million (US$13.7 million) a year, a factor of only about 2% of total gross revenue.  These are costs of administration, collection and enforcement.  It's worth noting that the only minimum requirement in New Zealand for heavy vehicles is to have a working certified hubodometer that measures distance travelled, and for distance to be bought in advance, although GPS based electronic options are available.  This relative simplicity (with vehicles buying licences according to their maximum permitted weight, now) has resulted in such low operating costs.

However, enforcement itself as of yet only recovered NZ$2.2 million (US$1.8 million) in unpaid charges (fines go to the government and are not counted as revenue to the National Land Transport Fund). 

A series of reforms of the system come into effect as of today to help reduce evasion:

-  All heavy vehicles will have a permanent "RUC weight" instead of being charged according to the maximum carried on any single particular trip;

-  As a result, no longer will supplementary licences to carry additional weight be necessary;

-  Time licences for a small category of vehicles that primarily work offroad are abolished;

-  Administrative charges for purchases of RUC licences are to be reduced by 39% (from NZ$3 (US$2.42) to NZ$1.83 (US$1.48)).

More details on the Ministry of Transport and NZ Transport Agency websites.

Meanwhile, it's worth noting that RUC also applies to diesel cars, but some journalists don't understand why.

The reasons are:

-  There is no fuel excise duty on diesel as a significant proportion of diesel is not consumed on public roads (and in New Zealand as fuel excise duty revenue is hypothecated to the National Land Transport Fund, such tax would need to be refunded adding an administrative burden to those users);

-  The correlation between fuel consumption and the infrastructure costs of roads used is poor.

Alastair Sloane of the New Zealand Herald says that it makes the fuel efficiency of new diesel cars not so relevant against petrol cars, but then RUC isn't intended to be a tool to promote fuel efficiency, it is to pay for roads.  In fact, the issue with tax on petrol is that it isn't keeping pace with fuel efficiency to reflect the growing costs of highway capital.

David Linklater in the same newspaper make a similar mistake.  He's upset that the RUC paid offsets the fuel efficiency savings, which again indicates that tax on petroleum is relatively cheap and not reflective of highway costs as much as RUC is.  However, I don't expect writers of car reviews to have a grasp on the economics or policy ramifications of different forms of charging for road use.

Macquarie Atlas Roads revenue up in June 2012 quarter

The Herald Sun of Melbourne reports that toll road concessionaire Macquarie Atlas Roads has stated that toll revenue across its investments increased 1% in the latest quarter, despite a weighted average toll volume reduction by 1.7%.  The headline results are reported by MAR as follows:

• In 6 months to 30 June 2012, weighted average toll revenue is up 0.9% compared to the same period the previous year.
• Autoroutes Paris-Rhin-Rhone (France) has seen a 0.5% reduction in revenue in the past 6 months compared to the previous, reflecting a 5.2% reduction in heavy vehicle traffic and 2% reduction in light traffic.  This was put down to the weak economy, reduction in workdays (negative for trucks, but the positive effect on cars was offset by poor weather) and high fuel prices.
• Dulles Greenway (DC) has seen a 8.3% increase in revenue in the past 6 months compared to the previous, with a 0.3% increase in total trips.  Revenue increased due to an average 8% increase in pricing on 1 January 2012 approved by the Virginia State Corporation Commission, indicating very low demand elasticity relative to pricing.
• M6 Toll (UK) has seen a 3.1% increase in revenue in the past 6 months compared to the previous, with a 0.6% increase in trips (although this involves a 1.8% increase in workday trips, but 3% reduction on weekends and public holidays).  The proportion of cash transactions (indicating more occasional users) increased by 1.7% of all transactions.  Revenue increased due to changes in pricing on 1 March 2012 and increased demand.
• Chicago Skyway (IL) has seen a 4.9% increase in revenue in the past 6 months compared to the previous, with a 1.1% increase in trips (comprising a 2.6% increase on workdays but a 1.6% decrease on weekends/public holidays).   Revenue and trip increases were driven by a 18.9% increase in heavy vehicle volumes, offsetting the 0.9% decrease in light traffic.
• Indiana Toll Road has seen a 7.7% increase in revenue in the past 6 months compared to the previous.  Traffic was up 2.6%.  Most notable is an 18.7% increase in heavy vehicle traffic paying using manual collection rather than account based transactions, this compares with only a 2.2% increase in traffic for all light vehicles, and heavy vehicles with accounts.  Toll rates were revised in 1 July 2011 which also contributed to higher revenues.
• Warnow Tunnel (Germany) saw a 7.1% decrease in revenue in the past 6 months compared to the previous.  This followed a 12.2% decrease in total trips.  The primary reason is that roadworks on the “competing” untolled route ceased in October 2011, resulting in a diversion back to the no longer disrupted untolled option.  Toll rate increases on 1 November 2011 and 1 May 2012 partly offset this reduction in demand, although it would not be surprising if the November 2011 increase induced a greater shift in demand as the tolled route was seen as even less competitive on price and travel time.