Irish Transport Minister rejects more road pricing, but Ireland can do better

In an unsurprising announcement, the Irish Times reports that Minister for Transport Leo Varadka has "ruled out" new tolls or congestion charging during the term of the current government.

The point appeared to be that public transport wasn't good enough to allow for the imposition of additional charges on motorists, so on the face of it, it looks like a rejection of any congestion charge for Dublin (which is the only sort of scheme that the comments would seem to be directed towards).

The report quoted him saying:

"We need major improvements for public transport before we bring in any new taxes on motorists. Places like London, Oslo and Singapore have congestion charges but they put in place top class public transport first. That is the right way to do it in my view but the current state of the public finances means we have limited resources to invest in public transport".

It is curious that several other dimensions to pricing don't appear to have been entertained at all.  

One being to replace some existing motoring taxes with some form of road pricing, as I advocated in a presentation to the ITS European conference in Dublin last year.

The obvious example would be to replace the high tax on ownership of heavy vehicles with a distance/weight based charge for using all untolled roads in Ireland.  This could evolve into a system whereby motorists choose to pay by distance for using their cars, with a significant discount on fuel taxation and ownership taxes.

Ireland, being a relatively self contained country (its border with northern Ireland creates some issues, but also some opportunities) can evolve towards a more efficient way of charging for its roads, and take the success of individual toll roads and use it towards a road pricing system that isn't about paying more, but about recovering the same revenue more efficiently and fairly.

Yet why should this be done in Ireland?

News Briefs - Australia, Canada, Ireland, South Africa, USA

Australia – Survey says distance based congestion charge would change behaviour

According to AAP, reported by Perth Now, a survey from the University of Sydney has indicated that a distance based congestion charge of A$0.05/km (US$0.08 mile) at peak times could see 22% of peak commuters driving at different times (assuming a charge between 0700-0930 and 1630-1830) and 13% to shift to public transport.

The survey comprised 1000 adults. 66% said they had no flexibility to change travel times for commuting, but the other 34% said they did.

Obviously a survey isn’t a wholly reliable measure of behaviour, but what I find telling is the potential for time shift. Far too many think congestion pricing is about mode shift, when there is as much (if not more) to gain from changing time of travel to periods when there remains spare road capacity, which means getting optimal use of the network.

Canada - British Columbia debates road pricing

According to Straight.com, British Columbian Green Party leader, Jane Sterk, has come out in favour of "pay-as-you-drive" road pricing for Vancouver, to reduce congestion and raise revenue to pay for public transport.  The same article notes that the current Minister of Transportation and Infrastructure for the province, Mary Polak (Liberal), says the issue is up to the cities to come up with a proposal and convince the provincial government that it has public support, whilst the Opposition spokesman Harry Bains prefers to consider other measures first.  The general election for British Columbia is on 14 May.

Meanwhile, the Delta Optimist has published an opinion piece by Ted Murphy who says that road pricing is likely to be the best option:

It stands to reason those who put the greatest strain on the system, and those who are most likely to benefit from any improvements, should be the ones that pay the largest share of the tab.

Conversely, it doesn't make much sense for homeowners, who are an easy mark but don't necessarily tax the transportation network, to continually be gouged every time TransLink is in need of more cash.

There's much to be worked out when it comes to road pricing, and there will undoubtedly be resistance to the idea of paying to traverse roads that up to now have been free, but at the end of the day I suspect it will be the favoured option.

It's not a question of if, but how, they're going to extract more money from us, so they might as well do it in the fairest way possible.

It isn't clear as to whether British Columbia voters think the same way.

Ireland - manual toll booths add costs to trucking firms

The Independent in Ireland reports that toll booth barriers cost them on average an extra (Euro) 0.99c each time (US$1.30) in wasted fuel.  This is with DSRC toll tags that enable automatic payment, but require trucks to slow down to a crawl to trigger the lift of the barrier.

This is crazy of course. The M50 toll road in Ireland was converted to electronic free flow a few years ago, largely because of congestion (it being the ring road for Dublin).  There ought to be a transition towards at least a mix of free flow lanes and barrier lanes.

South Africa - 24 years to repay debts for Gauteng Freeway Improvement Project

Eyewitness News reports that the South African National Roads Authority Ltd has said that it will take 24 years of toll revenues to repay the debts incurred to build the Gauteng Freeway Improvement Project. This is based on the (R)30c/km (US$0.05 per mile) rate agreed by the Government.  The maximum monthly that can be charged is R550 (around US$61).

USA - Maryland - Intercounty Connector exceeds forecasts

At a time when there are more than a few examples of toll roads that have demand well below forecasts, it is perhaps good news to report on the InterCounty Connector in Maryland (Maryland Route 200), a fully electronic toll road that opened in 2011.  According to the Washington Examiner, estimates of 30,000 daily users by June 2012 have been exceeded on the western end of the road by September 2012 (to 35,000) and not far behind on the eastern end (26,000).  The road raised US$19.7 in the year ended June 2012 compared to projections of US$18.7 million.

News briefs - Australia, Ireland, Transurban

Australia

Brisbane's Courier Mail reports that the Federal agency Infrastructure Australia has suggested that Brisbane adopt congestion pricing to help pay for a A$4.5 billion (US$4.6 billion) rail project called Cross River Rail. 

 "Infrastructure Australia national co-ordinator Michael Deegan said the Queensland Government should consider a parking levy and congestion charging to help fund Cross River Rail"

The response from Queensland's Transport Minister, Scott Emerson, has been to oppose the idea. 

Ireland

Sinn Fein's newspaper, An Phoblacht, reports that that 7 million Euros in subsidies will be provided for the concessionaires of the Limerick Tunnel and the M3 in Meath.

I wrote last year that the Limerick Tunnel may have traffic levels as low as 25% beneath the threshold required to avoid subsidies, and the M3 (the northern motorway from Dublin) has volumes 22% below that level. Limerick Tunnel is owned by the DirectRoute consortium, and M3 by Eurolink M3.

Sinn Fein is opposed to public-private partnerships and seeks the renegotiation of the contracts, but it is extremely unlikely that the concessionaires will be backing out of these unless they were paid a substantial premium. The pricing paid would have been based on gaining enough revenue to support the long run capital costs and a profit, and existing toll revenue doesn’t do that (although Sinn Fein claims a profit is being made, it will not be a return on the cost of capital).

 Transurban

Australian based toll concessionaire Transurban has had a good year with Melbourne's Herald Sun reporting a nearly 6% increase in revenues in the year to 30 June 2012.  Total revenues are at A$943.9 million. (US$962.1 million).  It publishes detailed data about its roads indicating the following:

-  8.5% increase in revenue on Melbourne Citylink in 12 months, average daily transactions up 1.6%.

- 3.1% reduction in revenue on Hills M2 Sydney in 12 months, average daily transactions down 5.1% (attributed to substantial roadworks over this period, with closed lanes and lowered speed limits making the route less attractive);

- Lane Cove Tunnel Sydney has had a 0.7% reduction in average daily transactions, but truck trips overall grew 6.7% in the latest quarter (but not car trips);

- 0.6% increase in revenue on Sydney's M1 eastern distributor in 12 months, average daily transactions up 0.7%. Although truck traffic was down 1.2% in the latest quarter;

- 5.2% increase in revenue on Sydney's Westlink M7 in 12 months, average daily transactions up 1.3%. Notable was an increase in tolled trip length by 0.6% in the latest quarter;

- 8.1% increase in revenue on Sydney's M5 South Western motorway in 12 months, average daily transactions down 0.1%, with cars down 0.4% but trucks up 1.2%.  Car toll prices had been increased by nearly 16%, but not trucks;

- 5.7% increase in revenue on Virginia's Pocahontas 895 in 12 months, average daily transactions up 3.2%.

What this seems to indicate is that the jewels in the Transurban crown remain Melbourne Citylink (responsible for 50% of total group revenue) and the Westlink M7 (responsible for 21%).  The Lane Cove Tunnel remains a rather lacklustre performer, as does Pocahontas 895.

Resistance in Ireland to more tolls on existing motorways

It’s fairly well known that Ireland has a severe fiscal problem. Its public debt and budget deficit have ballooned, primarily because the Irish government gave 100% backing to Irish banks, which subsequently collapsed (and were nationalised) following the bursting of the Irish property bubble. So as a result, the government has been looking for money.

Dublin's M50 bypasses the city to the west. Yellow marks the toll plaza

The National Roads Authority, already responsible for Ireland’s network of toll roads (most of which are under concession), is currently seeking out consultants to help it with tolling. One of the key issues is where and whether to introduce new tolls on existing roads. One idea that has been discussed is to institute more tolls on the M50 – Dublin’s “ring” road bypass to the west – which already has one toll plaza, which was recently converted to fully electronic free flow operation.

Unlike the Minister's recent comment on Dublin congestion pricing, his view is that it is "unfair" that motorists are only charged at one point on the M50. According to the Herald, he said:

You pay quite a high toll just to cross over the Liffey, the section between Blanchardstown and Lucan. The idea is to have multi-point tolling, a lower toll but spread out over a number of points on the M50...estimate is that it could bring in an extra €50m

In blue is the untolled Jack Lynch tunnel, part of Cork's bypass

He is advocating using the extra money to reinvest into roads and public transport.  He says the toll could be €0.60 (US$0.80) at various points rather than the current single toll of €2-3 (US$2.67-US$4).  The Irish Examiner reports that he is also advocating imposing tolls on the Jack Lynch Tunnel in Cork - part of the city's N25 ring road. 

The idea has resulted in considerable opposition being expressed in some quarters, as this will be Ireland’s first example in modern times of tolling a section of road that was not previously tolled.   The Herald reports the view of the Automobile Association which says "It is a basic mistake to put a toll on a bypass...In the case of the M50, a toll will automatically recongest suburbs like Sandyford, Dundrum, Rathfarnham and Blanchardstown. "

Apparently the M50 toll as it stands raises €80m per year, with a €20m cost to run the system according to the AA. It ran a poll asking motorists what they would do if there was a toll on the route they commute on, and 61% said they would find an alternative route (hardly scientific or useful as a poll though).

There is merit in replacing one toll point with several on the M50, particularly if it is to spread the toll over multiple points.   Low tolls at multiple points could result in low levels of diversion as well as picking up more vehicles,  but the traffic modelling will take some doing to ensure that realistic sensitivity tests are undertaken.  By no means should there be a rush into this as motorists have time and time again proven that every extra euro, dollar or pound they are charged is worth more to them to avoid tolls than it is in spending at a shop.

Another bonus of tolling the M50 more thoroughly will be to manage congestion, except that it is no longer that congested. 

It was, but a combination of three things has changed that dramatically:

- The recession. Demand on the road has dropped because of the economic downturn;

- Removal of manual tolls. Instituting fully electronic free flow tolling has eliminated the toll plaza queues that once existed;

- Widening. Much of the M50 has been widened to three lanes in both directions with additional lanes between some interchanges.

In other words the road is actually functioning well. More tolls are likely to have a small impact on demand, but do create the risk of diversion if not located in the right places. A sound economic argument might be made for sufficient tolls to be in place to cover the long run capital costs of the road, except motorists may rightly note that they pay fuel taxes as well, which should be taken into account. Another point is the claim of a 20% operating cost for the toll, which is comparatively high, which may result in some criticism (although NRA no doubt expects its yet to be appointed consultants to help improve that).

The use of the money from extra tolls will be critical.  Motorists tolerate the M50 toll being used to pay for the road itself and the recent widening and improvements.  Using more of that money to make further improvements on that road or adjacent roads is likely to be more acceptable than using it for public transport projects that do little to benefit the users of the M50.

For the Jack Lynch Tunnel in Cork, there is a risk of diversion through the city centre, but a deal with motorists on using the money for some road improvements doesn't seem out of the question.

The policy reasons to toll sections of road currently untolled, are understandable. The money is needed, but in exchange for paying more, motorists are right to want something in return.  Concepts of tolling existing roads need to be created and linked to a programme of future expenditure of road improvements that would otherwise not proceed.  Tolling has been widely accepted in Ireland to date, as it is helped enable the financing of a significant network of new intercity motorways.  New tolls should help finance smaller scale improvements to the road network, but also be clever enough to manage congestion where and when this makes sense.  However, there are limits.  

Conventional tolls can only be easily applied to motorways and crossings.  It will be possible, political will notwithstanding, to expand tolls on existing Irish highways, using electronic free flow technology, but Ireland's motorway network is not ubiquitous.   If the issue in Ireland is revenue, surely the time will have to come to consider more universal network charging, perhaps of heavy vehicles so that road maintenance costs can be recovered from the vehicles creating most of those marginal costs.  Such a road user charging system would vary revenue according to demand, but could also charge in a way that avoids diversion, avoids the risk of revenue erosion that fuel taxes create and can target charges towards specific types of roads and regions.

Ireland's issues are significant, but it should expand tolls in a way that can get support from motoring groups, by offering something in return - which will mean lower tolls, at more frequent locations, and for the majority of extra toll revenue to be put into roads.  Beyond that, Ireland should look more seriously at road user charging beyond the motorways.

Dublin congestion charging ruled out for now

The Irish Herald reports that Transport Minister, Leo Varadkar, has ruled out an introduction of congestion pricing in Dublin in the medium term.   Dr. Varadkar has been Minister since March, after the Fine Gael party roundly defeated the Fianna Fail party in the general election in February, so has had a chance to consider transport policy.

He was responding to the government's National Transport Authority proposing a congestion charge for driving into downtown Dublin as part of its draft transport strategy for the city through to 2030.  The previous government had endorsed the concept as being part of a long term strategy.

However, it has been ruled out because the Minister believes Dublin's public transport system is not good enough to provide an alternative to motorists.  He insists that motorists have a viable alternative to commuting by car.   Dublin already has a commuter rail system, light rail and an extensive bus network.

I don't think congestion pricing must be limited to ensuring all motorists can have an alternative mode, when there are other alternatives, which could be changing time of travel, or even route (depending on the design of the congestion charge).  It simply isn't viable to ensure all have an alternative, but certainly what public transport exists should be seen as being a major useful alternative.   Alternatives include public transport, cycling, walking, telecommuting, off peak driving, changing destinations and car sharing.  Congestion charging is likely to shift demand in a wide range of ways, not just a shift to public transport, as important as that is.

See the Dublin Demand Management Study of around six years ago for a rather basic consideration of congestion charging (and other measures) for Dublin.   However, I suspect a key reason for not considering congestion charges for Dublin for now, is the economic situation (and the simple fact that congestion in Dublin has notably reduced in the past few years due to the economic crisis).   So for now, this politically controversial idea, will be parked, until Dublin's economy revives enough for congestion to get back to the levels of five or so years ago.

Series of toll road investor results: Ferrovial, Atlantia, Transurban, Metro-Pacific

Ferrovial

Construction News reports Spanish infrastructure investor Ferrovial reporting a 312 million euro in net profit in the first half of 2011, contrasting with losses of 164 million euro in the same period of 2010. Notable was how the EBITDA on the Toronto 407 ETR rose by 8% in part due to higher tolls and lower operating costs. The Airports division contributed 62% of EBITDA, Services 14%, Toll Roads 14% and Construction 10%.

Ferrovial owns its toll roads through its subsidiary CINTRA.  Its highway assets (whole and partial) are:

- 407 ETR Toronto, Canada;

- Santiago-Talca Highway, Chile;

- Talca-Chillan Highway, Chile;

- Forest Route Highway, Chile;

- Collipulli-Temuco Highway, Chile;

- Temuco-Rio Bueno Highway, Chile;

- M-203 Madrid (Alcala-O'Donnell), Spain;

- AP36 Madrid-Levante, Spain;

- AP7 Costa del Sol Highway (Malaga-Guadiaro), Spain;

- Autema C16-E9 Highway (San Cugat del Vallés to Manresa), Spain;

- R4 Madrid-Ocana, Spain;

- Chicago Skyway, Illinois, USA;

- Indiana Toll Road, USA;

- LBJ Express Toll Lanes, Dallas, Texas, USA;

- North Tarrant Express toll lanes and road, Dallas-Forth Worth, Texas, USA;

- SH130 Austin-San Antonio, Texas, USA;

- E65 Central Greece Motorway;

- Ionian Roads (Antirio to Ioannina, Athens to Skarfia), Greece;

- M3 (Dublin-north of Kells), Ireland;

- M4 (Kilcock-Kinnegad), Ireland;

- A22 (Portimao - Vila Real de Santo Antonio), Portugal;

- Euroscut Azores Highway, Sao Miguel Island, Portugal; and

- A27-A28 North Coast Highway, Portugal.

Atlantia

Reuters reports that the Italian toll road investor company had a 41% increase in profit for the first six months of 2011 compared to 2010. This reflected sale of a stake in one road and increased toll revenue, despite declining traffic volumes (with a 0.5% decline in volumes on Italian toll roads).

"Excluding the sale of an investment and charges related to impairments, profit rose 12 percent over the period."

Atlantia's highway assets are:

- Autostrade per l'Italia SpA (2854.6 km of network of Italian motorways);

- Società Italiana per Azioni per il Traforo del Monte Bianco (5.8 km), which manages the Italian section of the Mont Blanc Tunnel;

- Raccordo Autostradale Valle d'Aosta SpA (32.3 km), which manages the road linking Aosta and the Mont Blanc Tunnel (Italy);

- Autostrada Torino-Savona SpA (130.9 km), which manages the motorway linking Turin and the Ligurian coast (Italy);

- Società Autostrada Tirrenica SpA, which holds the concession for the entire length of the Livorno-Civitavecchia motorway (240 km) and currently manages the Livorno-Rosignano section (36.6 km) (Italy);

- Tangenziale di Napoli SpA (20.2 km), which manages Naples' orbital motorway (Italy);

- Società Autostrade Meridionali SpA (51.6 km), which manages the Naples-Pompei-Salerno motorway (Italy);

- A4 Krakow-Katowice motorway (Poland);

- Pune Solapur Expressways (50%) in India, which holds the concession (expiring 2030) for 110 km motorway in the state of Maharashtra;

- 135 km toll motorway serving the cities of Rio Bueno and Puerto Monttt in Chile;

- 442 km toll motorway in the state of San Paulo in Brazil;

- 23.5 km southern section of the orbital toll motorway serving the city of Santiago del Chile;

- 79 km toll motorway serving the cities of Algarrobo, Casablanca and Cartagena in Chile;

- 43 km of road network in the city of Santiago in Chile;

- 21.5 km north-eastern bypass in the city of Santiago del Chile; and

- Urban motorway linking the city of Santiago with Arturo Merino Benitez International Airport.

Transurban

The Herald Sun reports that Australian toll road company Transurban has reported a 90% increase in full year profit.  An 8.8 per cent rise in traffic on Melbourne CityLink, which netted A$434.6 million (US$424 million) in revenue, was a key contributor to total toll revenue of A$891 million (US$870 million) - up 10 per cent.  It carries a reported A$5.8 billion of debt behind its assets. 

The Australian reports an interview with Transurban chief Chris Lynch who said "Our roads are very robust ... There's not a lot of discretionary travel on our roads, it's largely people getting to work or the airport."

It was also noted that the Melbourne CityLink, it gained from an additional lane on the western approach to the toll road network allowing for greater use of its capacity.

The Australian also noted that:

"The acid test of an infrastructure company is the ability to pay generous distributions funded by real cash rather than debt. The "wedge of free cash" -- $390 million in all -- enabled Transurban to declare a 27c per security full-year payout, with management promising "at least" a 29c distribution this year."

Adelaide Now reports that Melbourne Citylink grew faster than the average 10% "with an increase of 12.8 per cent to contribute $434.6 million. Transurban said the completion of the upgrade on its southern link, adding lanes on CityLink between both tunnels and Toorak Rd, had been important in boosting traffic."

Transurban said traffic growth on the Lane Cove Tunnel, purchased nearly a year ago, had initially risen 6 per cent but had declined to 2.8 per cent this calender year due works on the M2.

Transurban's highway assets are:

- Melbourne Citylink (Australia);

- Hills M2 motorway, Sydney. Australia;

- Lane Cove Tunnel, Sydney, Australia;

- Eastern Distributor, Sydney, Australia;

- Westlink M7, Sydney, Australia;

- M5, Sydney, Australia;

- Pocahontas 895, Virginia, USA; and

- Capital Beltway HOT lanes, Virginia, USA

Metro Pacific Tollways Corporation (Philippines)

The Filipino toll operator was reported by the Business Inquirer as saying:

earnings slipped 4 percent in the first half of the year to P725 million (US$17 million) due to lower-than-expected traffic growth and higher tax payments during the period. “Though traffic demand could be lower given sharp increases in fuel prices and the expiration of MNTC’s (Manila North Tollways Corp.) income tax holiday, MPTC still expects a strong financial performance this year with the increase in toll rates and modest traffic volume growth,” MPTC president Ramoncito Fernandez said in a statement.

The company's latest road is the Subic-Clark-Tarlac Expressway. Its portfolio also includes the North Luzon Expressway.

Ireland pays for poorly performing toll roads

I’ve written a few articles celebrating the benefits to governments from PPPs that transfer risk of failure to the private sector. Examples most recently being in San Diego, USA and Brisbane, Australia. However, if PPPs are not so attracted by bearing all of the risk, they may demand risk sharing if usage is below a minimum level. That, of course does mean that the PPP bears all of the upside, but taxpayers bear much of the downside. Ireland has adopted this model for two expensive toll roads and is now paying for it.

The Independent in Ireland reports that the Irish National Roads Authority (NRA) is paying €5.7 million this year to privately owned toll operators because traffic figures are not meeting estimates. The two routes suffering from low traffic are the Limerick Tunnel and the M3 motorway from Clonee to Kells. Similar guarantees do not apply to other toll road PPPs in Ireland.

The Limerick Tunnel is part of the N18 Limerick Southern Ring Road, effectively an east-west bypass for the city. It costs €1.80 for cars and up to €5.70 for the heaviest trucks. It was expensive by Irish standards, at €600 million, one correspondent to the Irish Times claims traffic figures are 25% below what is needed to avoid state subsidies. The concession is owned by the DirectRoute consortium comprising Strabag AG, John Sisk & Son (Holdings) Ltd, Lagan Holdings Ltd, Roadbridge Ltd (Mulcair), and two third party equity providers - Meridiam Infrastructure Finance S.C.A. SICAR and Allied Irish Banks p.l.c.

The Limerick Tunnel was meant to be part subsidised in any case, with €180 million paid for construction, and another €60 million to be paid over the life of the operation of the road (31 years out of a 35 year concession). However, if the road succeeds it is also mean to be revenue sharing between the NRA and the concession, so there is a potential upside, with a similar arrangement for the M3.

The M3 cost €650 million and is essentially a northwest corridor from Dublin. The toll costs €1.30 per toll plaza for cars and up to €3.30 per toll plaza for the largest trucks. The concession is owned by Eurolink M3 a consortium of Spanish company Cintra Infraestructuras SA and Irish contracting company, SIAC Construction.

It has traffic figures 22% what is the minimum to avoid state subsidies.

However, there are Irish toll roads that do make money. The NRA said it was paid €1.47 million in revenue sharing from successful concessionaires (though this still means a net loss). The N1/M1 (from Dublin to the northern Ireland border towards Belfast) and M4 motorway (west from Dublin towards Galway).

The NRA justifies its decision to guarantee minimum usage of those routes because of their expense, in that if it didn’t happen the prices would be higher as the bidder would factor in the risk. The interesting question would be whether that escalation would be more than what is likely to be paid by the state in the coming years. Under the current economic climate in Ireland, it may be some time before traffic figures recover sufficiently to avoid such subsidies.

Meanwhile, Dublin wont be getting congestion charging soon according to Transport Minister Leo Varadkar, saying that the public transport alternative isn’t good enough. A better reason is that an economic recession is not the right time to impose new charges on road transport.  However, I suspect the real reason is politics.  The Independent in Ireland also reported that the National Transport Authority said there had to be congestion charging in Dublin by 2020 or the city faces gridlock.

Irish toll road case goes to Supreme Court

The National Roads Authority, Ireland’s government highways agency, initially took Celtic Roads Group (Dundalk) Ltd to court, for overcharging motorists paying tolls on Ireland’s M1 tolled motorway. The M1 connects Dublin from the north to the border with the UK (Northern Ireland). The Irish Times reported that the claim was that around 26,000 Euro a week in additional tolls was being collected above that which was legal under the PPP agreement.

The key point being that the bylaw regarding PPP tolls allows for toll operators to vary tolls according to inflation to maximum levels, but the NRA claims this means that at times of deflation, tolls should be reduced. As the consumer price index in 2009 in Ireland was negative, the NRA claims the toll of 1.90 Euro per car should have dropped to 1.80 according to TV3 Ireland.

Noting that it was acknowledged that it is impossible to reimburse the difference, the Commercial Court in Ireland agreed with the NRA. As a result, Celtic Roads dropped the toll immediately on the M1, as did the owners of three other Irish toll roads with similar PPP contractual conditions.

The Irish Times has since reported that Celtic Roads is now appealing the decision to the Supreme Court. Part of the motivation is that toll roads in Ireland are now in dire financial straits because of the recession and collapse of the property and banking sectors in Ireland. With demand down, toll revenues are down, and the owners are facing significant difficulties in meeting their debt management obligations.

Irish taxpayers are saved this risk of course, because it isn’t their debt, the roads were built (and to a high standard), so regardless if the owners go bankrupt, the roads will still be there for use. Meanwhile, the projections of investors in toll road PPPs may take a pause for breath before investing so quickly in new roads in economies that so clearly are subject to an inexplicable bubble of growth. Celtic Roads Group will be hoping its Supreme Court appeal is successful, as it is likely to want as much revenue as possible in the current economic climate.

Irish toll road operators caught between law and the economy

As part of the concession agreements between private companies and the Irish government (through the National Roads Authority - NRA) are rules around when and by how much toll rates must vary according to inflation.  Whilst typically that allows increases, it also requires decreases if there is deflation, which has been the case in Ireland in the past year.   The Irish economy is in serious recession as its property bubble has burst, and the Irish government's public finances have been ruined by a reckless promise to provide 100% state backing for its over-extended banks. 

Five operators have been directed to reduce tolls in 2011, only one has done so and the others face threats of legal action.  According to the Independent of Ireland:

The five tolled routes on which the NRA directed cost cuts are the M1 between Julianstown and Drogheda; the M4 between Kilcock and Kinnegad; the M6 from Galway to Ballinasloe; the M8 between Fermoy and Watergrasshill; and the N25 Waterford city bypass. To date only the company operating the M6 Galway to Ballinasloe motorway has dropped its tolls from €1.90 to €1.80 for a car.

Motoring organisations are calling on motorists to boycott the overcharged roads, yet the problem is fairly fundamental for the private companies responsible for these concessions.   Concessions will have been entered into based upon Ireland maintaining the high level of economic growth it had sustained, fueled by low-interest credit through the Euro, a low tax environment.  With that bubble burst, unemployment has sky-rocketed, along with repossessions of homes, property prices have dropped by up to a third, and with declining incomes have come reduced business, leisure and commuting trips.

Ireland's toll road companies are suffering from declining demand.  This is obviously hurting revenue.  However, those resisting reductions in toll are anticipating that these wont generate enough demand to offset the cut, because the economy means there are low elasticities of demand for the affected roads - which is probably correct.

Yet they have entered into concessions under certain conditions, which are now being legally challenged (as the concession firms believe they are not breaking the law).  Whilst this is likely to be concluded through a combination of negotiations and legal action, the Irish government will not want concessionaires to go bankrupt, nor will it want them to be seen to be profiteering from not fairly applying rules on increases that were agreed to.

However, if they fail, they will simply be onsold to creditors, who will be able to sell the concessions at a major discount.

When Ireland's economy eventually recovers, it will be to the relief of concessionaires, but I doubt if the forecasts for those concessions will remain remotely valid, as they were based on a view of demand that simply is no longer realistic.  Still, Ireland has an excellent, virtually complete motorway network.  They wont get closed, all that will happen is that tolls will vary, and the roads will remain.