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.

Abertis sees credit rating drop due to Spanish toll road demand

Spanish toll road investor Abertis and its French subsidiary SANEF have both had their credit ratings cut to BBB by Standard & Poors according to Reuters.

Abertis has a network of 1500km of toll motorways in Spain via 8 subsidiaries (59% of toll roads in Spain by length), and a minority stake in another 200km of toll roads in Spain. It also has a nearly 15% share of Portuguese toll road operator Brisa, and 25% ownership of RMG (company holding non-tolled concessions on two UK roads). It also owns or partly owns companies responsible for around 700km of Chilean toll roads, has a part share in concessions over 89km of roads in Puerto Rico and has a controlling stake in the concession of one road in Argentina.

SANEF has a network of 17570km of almost entirely toll motorways in France, in the north and east.

The reason given for the downgrade is “of volatility in traffic volumes experienced by its Spanish toll road network operators”

Interesting statistics from the press release:

- Average daily traffic declined by 24% between 2007 and 2011 on Abertis's Spanish toll roads;
- In 2012, S&P forecasts a further contraction by 9% on Spanish toll roads;

- This is driven by very high unemployment, weak economy;

- Abertis's Spanish toll roads have greater exposure to competition from untolled roads than similar roads in France or Italy.

- 80% of dividends in past three years originated from Spanish toll roads, with concessionaire Acesa (541km of road) contributing 70% of that. This decline will be partly offset by good performance on toll roads elsewhere, and expected tariff increases and cost savings.

However, S&P sees risks in the proposed acquisition of the Brazilian and Chilean toll road operators of Obrascon Huarte Lain (OHL) which includes over 3100km of roads in Brazil and around 340km of roads in Chile because it Brazil is:

-- An emerging economy, with a soft currency that could suffer  depreciation vis-a-vis the euro. 
-- A relatively dynamic regulatory environment in Brazil, where the bulk of the operations to be integrated are located. Unilateral changes to concessions are allowed in Brazil, although appropriate remuneration must be provided to the toll road operator to restore the concession's economic
balance.
-- A greater proportion of heavy vehicle traffic, which we view as more volatile than light vehicle traffic. Heavy vehicle traffic volumes account for more than 30% of total traffic volumes on the roads to be integrated, compared with 15% on average on Abertis' network.

On SANEF, S&P says:

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.

Conclusion

Even a casual observer of Spain's economy can see the crash of property and construction dramatically affecting overall demand, and it appears far too many concessions were predicated on forecasts of demand that now look unattainable in the medium term.  Abertis may be big enough to hold onto most of what it has, but it is likely this sector will remain tough for some time, and there is pressure to have consolidation and refinancing so that such roads can be on a sustainable footing.  There is rumour that the Spanish government is considering how to address these problems, and it may even think about having some form of charges on existing roads.