NSW advances toll reform

Tolls have been a major political issue in New South Wales (NSW) for some years, or rather (I should say), Sydney.

It is sometimes claimed (including by the NSW Government) that Sydney has the greatest number of toll roads of any city in the world. That's not true. While it has 156km of toll road, Tokyo easily has over double that as does Dallas/Fort Worth (which has about the same length of full toll roads as Sydney, but the same again in tolled lanes/HOT lanes on otherwise untolled roads). Santiago, Chile has over 200km of tolled roads, as does Osaka, Japan.

Of course Sydney does have the longest length of toll roads of any city in Australia. Brisbane has around 90km and Melbourne 78km (although North East Link will add another 10km), so Sydneysiders may feel it is unfair, but Sydney has a lot of toll roads because its geography

Sydney's toll road network is impressive, but toll rates are un-coordinated. The map below depicts the tolled road segments only.

Sydney toll road network

The Independent Toll Review for the NSW Government, released two years ago and led by Professor Allan Fels (former Chairman of the ACCC) as Independent Chair with Dr David Cousins as Deputy Chair, proved controversial, especially with toll road concessionaires.

I wrote about it in three parts: Background, Findings and Recommendations. in 2024. 

It is telling that it has taken so long for the NSW Government to determine what was feasible—not merely politically and legally, but commercially—given that most of the state’s toll roads are locked into PPP concessions. This is a legacy of successive Coalition and Labor governments (it is simply not true that the results are just because of the Coalition's "privatisation" policies, when Labor embarked on multiple toll road concessions itself), and simply reflects the rather ad-hoc development of Sydney’s tolled motorway network over the past thirty years. Those concessions have locked in toll rates and, in particular, complex and expensive-to-renegotiate price escalations.

Notwithstanding these constraints, the NSW Government retains some flexibility. It owns two key toll roads (the Sydney Harbour crossings) and can negotiate with concessionaires. Some concessions are coming to their end.

It is therefore a relief that decisions on toll reform have finally been made. While some may argue that the measures only scratch the surface, they represent a step forward.Note that Transurban, as the sole or part owner of virtually all the concessions in Sydney, is also publicising its role in the negotiations. So what is going to occur?

There are 12 toll roads in Sydney (if you count the Military Rd E-Ramps as being associated with the Lane Cove Tunnel), so the impacts vary across the roads.

The official NSW government information on the reforms is here.

Transurban has also published its own press release about the reforms. Transurban says it has been working constructively to enable tolling reform and its own website is replete with useful information. Of course Transurban is, legally and commercially, focused on protecting and enhancing its own profitability, but that also requires ongoing social licence and political acceptability. It's a careful balance for a business that perhaps thought itself somewhat under siege during the Independent Toll Review and understandably so, particularly given its long term interest in protecting its position as lead toll concessionaire and operator for existing (and future) toll roads.

I haven't sought to detail all of the changes, just the main ones.

Tolls reduced or toll increased reduced

Four roads see tolls reduced for most users:

• Lane Cove Tunnel (10%)
• M2 (longer trips only) (10%)
• M7 (10% lowering of the distance cap)
• Cross City Tunnel (20% reduction when Western Harbour Tunnel opens).

The Sydney Harbour Bridge and Tunnel toll increases, which were to be 4% are now going to be at 3.25%.

Change vehicle class multipliers

Heavy vehicle multipliers on Sydney toll roads have varied from 2x to 3.47x the standard light vehicle rate. From 1 July 2027, all (except the Lane Cove Tunnel) will be standardised at 3.15x.  This both simplifies tolls for trucks, but also ensures demand by heavy vehicles is more evenly spread between toll roads and untolled roads.  For example, the Eastern Distributor is cheaper than the M7, effectively encouraging more truck traffic through that central corridor, compared to the M7/M2 corridor.

The other adjustment is to implement a 0.5x multiplier for motorcycles. This is a reduction for all roads, recognising that motorcycles occupy much less road space (and should encourage more use by motorcycle owners).

Two way tolling

This had already been agreed for the Sydney Harbour Bridge and Tunnel, so that tolling will be northbound as well as southbound, which will better regulate demand on both crossings. especially with the imminent opening of the Western Harbour Tunnel. 

Two way tolling will also be implemented on the Eastern Distributor, once the Western Harbour Tunnel is opened. With the toll in each direction being 53% of the current one way (northbound) rate, this should also better regulate the flow of traffic in both directions on this corridor, and more importantly across the harbour.

Other measures

The press release indicates that toll concessionaires will pay A$75m over five years to help pay for the weekly toll cap, which is a recognition that it will increase demand on their roads.

The remaining two-lane each way (four lane) sections of the M7 and M2 motorways (Richmond Road to Old Windsor Road) will be widened, at taxpayer expense without a toll increase or extension of the private concessions.

The weekly toll cap will continue. It means that a NSW resident with a personal toll account (such as Linkt or E-Toll) and a privately registered vehicle is subject to a cap of A$50 per week in tolls.  It works through lodging a claim for the excess quarterly through Service NSW.

The M5 Cashback programme will also continue (although you cannot use both the cap and the cashback on the same road. M5 Cashback effectively means M5 toll road users, registered with private vehicles in NSW, can claim back the toll quarterly. 

Conclusions

It was hard to negotiate any changes with concessionaires, but from an economically rational point of view, several of the announced measures are a step forward.

Standardising vehicle class multipliers makes a lot of sense. For toll roads the multipliers should mostly reflect road space occupancy (and the capital of the capacity built to take the vehicles).  

Two way tolling is more rational than one-way, particularly when there are alternative routes that see some southbound traffic use the Gladesville and Iron Cove Bridges, then the Anzac Bridge, to avoid tolls. Moving to two way tolls should rebalance those flows. 

Everything else appears to be a subsidy or a cap on tolls charged. There is a point to capping or discounting heavy use of toll roads, as frequent users are undoubtedly over contributing towards the costs of that infrastructure, but blanket caps on private users and the M5 cashback subsidise demand.  There might be a point to capping off-peak use, but there is nothing here about charges varying by time of day.

Sydney Harbour Crossings have peak, shoulder and off-peak charges, but that's because they are not subject to a concession. Wider application of time of day varying toll charges would obviously have an impact on congestion and spread demand, but the chances of toll concessionaires agreeing to this with countervailing reductions in tolls over longer off peak periods appear to be next to zero. 

So a step forward? Yes.

Does it address all of the fundamental limitations and issues around tolling in Sydney? No. That will have to wait another day.

It's my view that the public image of tolls in Sydney is by far the single biggest barrier to any form of congestion pricing in the city. Quite simply, few believe that pricing roads leads them to flow better and be less congested, or that it isn't primarily about money.  Most cities that have introduced congestion pricing did not had tolls on any scale previously (Singapore, London, Stockholm, Gothenburg). 

The best hope for Sydney demonstrating congestion pricing in some way, in the medium term, is the state applying higher peak charges on the tolled routes it owns in exchange for cheaper off-peak charges (to encourage use of spare capacity). Perhaps once the Western Harbour Tunnel opens, and all harbour crossings are tolled two-way (once more), there may be more will to do this.

Australian toll road lawsuit successful

Some time ago I wrote about the Clem 7 toll road in Brisbane, Australia.  It provides a north-south tunnelled bypass of the Story Bridge and other roads approaching downtown Brisbane from the south and east.

It is a PPP toll road that went bankrupt as the demand for the road was little more than half that forecast.  In December 2013, the road was taken over by Queensland Motorways, which at the time was a company owned by the Queensland State Government, but has since been privatised and is now owned by Transurban. 

The road was acquired by Queensland Motorways for A$618 million (US$472 million), but cost A$3.2 billion (US$2.4 billion) to build.

Transurban's latest traffic data reports AADT of 27,000 on the road, which is notable when you consider the forecast was that up to 100,000 a day would be using it.   

However, what was significant about this case was that around 1000 investors who bought shares in the project engaged in a class action lawsuit (PDF detailed) against the demand/revenue forecasting consultants - AECOM - and the original Rivercity Motorway company.   The Sydney Morning Herald reports that they have won a settlement gaining a payout of A$121 million (US$92 million).   The allegation was that AECOM had made traffic forecasts without reasonable grounds, and specific information had been excluded from the product disclosure (prospectus) document for investors.  

News briefs - Australia, Germany, UK

Australia - Transurban CEO calls for network road pricing and hangs onto Pocahontas 895

AAP reports that Transurban CEO, Lindsay Maxsted, told the company AGM last year that 

"The time is quickly coming where we must face concepts such as distance-based tolls, peak-hour pricing or demand pricing... We must utilise our existing networks better."

The Sydney Morning Herald reported him saying:

the states could not ''build our way out of congestion forever'' and needed to look at different pricing models for roadways.

He said that there could also be off peak discounts, but existing concessions meant Transurban could only charge one price all day long.  He insisted Transurban was not motivated to renegotiate these, but that future concessions should include the flexibility for peak and off peak pricing.

This is a welcome step, and besides being obvious, it demonstrates that private road owners are incentivised by the market to increase yields at peak times, and utilisation off peak, which would benefit them and off peak users (and peak users if congestion is avoided).  

However, New South Wales Minister for Roads, Duncan Gay, responded saying there wouldn't be a "congestion tax" or "time of day tolling", which frankly is a missed opportunity.  Curiously an online poll on the Sydney Morning Herald website suggested 42% would support higher peak time tolls.  A figure which astonishes me, as I wouldn't expect people to support this without expecting more reliable trips or reductions in off peak tolls.

On the beleagured Pocahontas 895 toll road he said Transurban will hang onto the asset, but seek to renegotiate with its lenders:

"That's the most likely outcome: a full reconstruction with those lenders, and we may well be the ongoing owners of that asset," he said  "The fact is that because of the poor performance of the asset, there's not a lot of people out there that run the asset, and in terms of our expertise, we're still probably the logical owner of it but not at the price paid those many years ago."

Germany - attitudes to urban congestion charging

I already reported on how some German states have been considering urban congestion charging as a revenue raising proposition.  An article in The Local points out some more details of what was being considered and responses to it:

- It talks of a single charge of EURO 6.10 per day (US$7.85);
- Green Party says it is "badly needed" to pay to maintain and modernise transport infrastructure;
- Federal commissioner for tourism Ernst Hinsken, of the conservative Christian Social Union (part of the ruling Federal coalition), warned against "defrauding commuters and tourists" arguing it would unfairly punish commuters facing increasing fuel prices;
- HDE, a retail business association, claimed it would make downtown city centres less attractive, by penalising those who visit them for shopping.

Still a fair way to go in Germany before this goes further.

UK - Local transport chief calls for nationalisation of private toll road

According to the Birmingham Mail, Centro (the public body responsible for planning and contracting public transport services in the West Midlands) Chief Executive Geoff Inskip has called for the UK Government to nationalise the M6 toll road.  He said it was "madness" that the parallel untolled publicly owned M6 is "choc a bloc" with congestion, but that high prices on the toll road meant it was underutilised.  Midland Expressway (the company that owns the road) responded by saying it had a "long term view" of the investment.

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).  

Transurban advocating network wide urban road pricing

TransUrban CEO Scott Charlton, at a conference in Melbourne, called for network road pricing in Australian cities to better manage network utilisation.  He suggested that full network pricing might include discounts for trucks travelling at night, and mean a simplified charging structure with peak and off peak charges, which could also facilitate efficient use of corridors for both public transport and other vehicles (which to me sounds a lot like, well, roads).  He also suggested that toll lanes parallel to untolled lanes may work in certain contexts in Australia, although he did not suggest any specific examples.

In the Sydney Morning Herald it was reported that he said that some studies suggest that as much as 40% of afternoon peak journeys are discretionary, indicating considerable scope to change demand patterns and substantially reduce congestion.

The report said:

"Whether it's corridor charges, congestion charges, demand pricing or distance-based tolling - network pricing will have to be introduced to fund infrastructure, manage demand and promote public transport alternatives," said Mr Charlton, whose company operates the M2, M5, the Eastern Distributor, the M7 and the Lane Cove Tunnel.

"Just take a look at our major motorways and it's obvious: we need new capacity – and we have to find better ways to utilise our existing assets."

So he is advocating wider pricing not just to fund more infrastructure, but to better manage existing highways.  This shows a wider interest than that traditionally expressed by toll road concessionaires, who typically look little further than the demand/revenue of their roads against debt.   Could it be that TransUrban would be interested in having more responsibility for traffic management and highway management in cities than just the roads it manages now?

The report noted support from the New South Wales Premier, Barry Farrell, for reform of tolling in Sydney to have charges on a distance basis on existing tolled motorways, but not charging by time of day.  There is a strong intention to make the charges, at least in the first instance, revenue neutral (but of course this cannot be guaranteed over the longer term if demand increases).

Yet this approach, whilst welcome, is insufficient according to Charlton, as it deliberately avoids peak charges (which already exist on the Sydney Harbour Bridge).

He makes the point eloquently, arguing effectively that Australia cannot keep building new capacity that is only fully utilised for a few hours a day:

"If you look at just one of our Sydney motorways – the Eastern Distributor – you can see the peaks in the am and pm periods," Mr Charlton said.

"You can also clearly see the motorway has excess capacity during other parts of the day. The question is – could peak pricing change this profile? Or could discounts during the off periods produce a better transport outcome?," he said.

"One key fact in the road pricing debate is that a significant number of motorists do have an option of when they travel. Some studies suggest as much as 40 per cent of travel in the afternoon peak is discretionary.

"We are asking people to consider their travel more deliberately, and question the time of day they really need to travel or by what mode.

"Pricing restrictions on travel will be a bitter pill to swallow for a country that prides itself on high standards of living. Avoiding difficult initiatives will result in un-economical decisions on infrastructure delivery and the further build out of existing roadways that are only fully utilised for a small number of hours a day."

He's right.  One of the critical points about congestion charging is encouraging a time-shift of trips, not just a mode shift, and there need not be an alternative mode for every trip (which is not only impractical, but not economically viable).  

The chief executive of Infrastructure Partnerships Australia, Brendan Lyon, agreed with him, saying:

''Our historic approach has been to add new roads to address congestion, but there are natural limits to a supply-only approach,'' Mr Lyon said.

''Australia cannot endlessly build its way out of trouble, and that means we need to begin a national dialogue about how pricing can better manage congestion and help to fund the huge backlog of public transport and road infrastructure.''

Quite.

This view was echoed again by Infrastructure Australia chairman Sir Rod Eddington, who once led a detailed inquiry into transport policy for the last UK government (which was swiftly, and wrongly, ignored by that and the current government).  According to The Age, Eddington said there should be "Mature and dispassionate" discussion about pricing and that congestion cost the state of Victoria A$4 billion per annum (US$4.2 billion).

He believes the first step should be a a road charging system for trucks, as congestion charging for cars is far more difficult.

He's right of course.  For road pricing will only actually be accepted if motorists see value in it, which will come from effectively reducing congestion, ensuring existing networks are well maintained and some offsetting of existing non-motoring taxes.

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.

News shorts from Florida, London, Portugal and Virginia

Florida

According to Miami New Times, tolls on all state toll roads in central Florida are rising by 25% on average, an increase intended to match inflation over several years. This has provoked considerable outrage by motorists. Ire seems to be focused particularly on the Miami-Dade Expressway Authority which is using the toll revenue to build more roads. It is responsible for five toll roads, three of which have been converted to fully electronic free flow operations. A group called RollBackTolls has set up a website opposing the strategy of the Authority. The organisation doesn’t seem to oppose tolls per se, but is more of a group supporting directing some of that revenue towards public transport subsidies. That’s an interesting variation on those who oppose tolls elsewhere, who tend to want them abolished and don’t have any interest in tolls paying for other modes of transport. However, I suspect the group will use its name to generate support from those simply opposing toll increases.

If the increase is still linked to expenditure on the tolled network it is difficult to argue against, especially if it clear that the additional capacity is economically justifiable.  Given the state tolling authorities are bound to reinvest revenue in new roads, the risk is that this continues in perpetuity, rather than generating a reasonable rate of return for the owners as an investment, because at some point it wont be worth it to make major investments in new capital.

London

Fleetnews reports that Transport for London is consulting on amending its current 100% discount for environmentally friendly vehicles, by lowering the threshold for low emission vehicles from those which emit less than 100g/km to 80g/km. The current standard is 100g/km and meeting the Euro 5 standard. There is pressure to reduce this further, in part to increase revenues, but also to keep incentives for more environmentally friendly vehicles at the cutting edge of low emission vehicles.

This discount replaced the Alternative Fuels discount in 2010, which had been criticised for not being based on objective environmental criteria. The latest ultra-fuel efficient petrol and diesel cars having lower CO2 emissions than some older hybrids. Of course an obvious solution, and complication, would be to apply a lesser discount to the vehicles above 80g/m. At the moment it is all or nothing, and if the congestion charge is to maintain this secondary environmental objective, would it not make sense to offer perhaps a 50% discount for those currently eligible that will no longer be so? Or are the administrative costs of this confusion such that it is simply not worth it?

Portugal

Now I’m an advocate, in principle, although not evangelical about, the switch of toll roads to fully electronic free flow tolls. It saves time, fuel and makes a toll road trip akin to an untolled trip, with the minimum fuss involved in payment. However, what happens when motorists are in a foreign country and face trying to find out how to pay for such a road when signage and information is not readily available. This is the situation in Portugal according to the Daily Mail.

The road in question is the A22 from Castro Marim (near the Spanish border) to Lagos on Portugal’s southern coast. The scenario is that rental car firms do not advise of the toll roads, how to pay or a facility for motorists to pay unless you leave credit card details (in which case the rental car company will pass on the tolls plus administrative charges – which risks being potentially high). However, it is clear once on the roads that there is a toll – just no obvious means to pay. Rental cars and tolls are a perennial problem. Ideally, rental car firms in locations with regular toll use should simply have accounts with tags for the toll roads, and when finally billing the customer the toll transactions can be calculated and added onto the trip. Otherwise, there needs to be clear information in advance of toll roads of ways of paying by phone, for example. No doubt incentives to do this are mixed. Toll roads may make more money from chasing up violators than spending money on information so tourists know how to pay, but I suspect in the long run it is far superior to have a relationship with rental car companies that means motorists find it easiest to use the toll roads. 

Virginia

Location of Pocahontas Parkway

The West Australian reports that Australian toll road concessionaire, Transurban, has written down its investment in the Pocahontas Parkway in Virginia, USA, by A$138.1 million (US$140.7 million).   It has a 75% shareholding in the road.   The reason being that forecast growth in traffic is not expected to eventuate, as it was predicated on substantial property development that has now been shelved due to the state of the property market.   This concession lasts till 2105 (yes that is a year) and the Sydney Morning Herald claims it originally cost $US611 million ($A815 million) in 2006 values.

It reported that the original deal was that Transurban contributed $US191 ($A255 million) in equity and gained 100 per cent control of the Pocahontas Parkway.  Of the $US611 million of funds for the acquisition, $US487 million was used to pay Pocahontas debt.

In effect, the equity stake is now substantively written off.

Curiously, the Sydney Morning Herald also has a tongue in cheekreference to a claim by some that the road is “haunted”.

Canadian exit from Transurban

The Sydney Morning Herald reports on the Canadian Pension Plan having sold its cornerstone stake in toll-road company Transurban for A$903 million(US$919 million). Transurban is best known for owning the lucrative Melbourne Citylink, six toll roads in Sydney, and the I-495 HOT lanes and Pocahontas 895 in Virginia, USA.

The deal is a sale of almost 170 million shares - about 12 per cent of the issued capital - for A$5.23 a piece. The block trade was picked up by a range of mostly domestic institutional investors.

The paper also notes that recently that another fund, the Ontario Teachers Pension Fund has taken advantage of the strong Australian dollar by swapping its stake in Sydney Airport and paying A$791 million (US$805 million) in cash for MAp Airports' (formerly Macquarie Airports) cornerstone holdings in two European airports (Brussels and Copenhagen).

It’s a fairly obvious transaction. With the Australian dollar so high, it makes sense to cash in investments on the Australian market, and hunt around for cheap deals in Europe and the US, where currencies are low and the market (and prices) are subdued. The bigger question is where to invest, given the prospects for toll roads in some locations (e.g. Greece) look rather dire. Some wise modeling and forecasting will be needed to ensure that bargain prices are indeed what is obtained.

Shares dropped on the news of the exit.

Weekend shorts: India, London and Transurban

India

In Thane District, Mumbai, India, there is a political problem with tolls. People don’t know what they are paid for. So, according to the Times of India, the State Excise Minister, Ganesh Naik, has decided that at every toll plaza electronic signs should be installed to tell people where the money is going. He accepted the suggestion by MP Eknath Shinde who said:

I suggest that toll operators must put up computerized display boards listing out the total cost of the project, the toll collected till date, and the number of vehicles passing through the toll plaza and their daily collection data

This is intended to give people confidence that the tolls aren’t being wasted, and I suggest provide an audit to ensure toll plazas are collecting what they should.

The report continued:

Thane district has a total of 14 toll plazas and residents of Thane, Navi Mumbai, Kalyan have to pay anywhere between Rs 30(US$0.68) to Rs 50 (US$1.13) towards toll every time they drive in or out of the city.

The Minister asked for an investigation into whether any toll plazas might be eliminated. Now if ever there was a country crying out for more up to date tolling, it would be India. Manual tolls always carry risks of corruption and theft, and there are relatively easy ways of addressing this.

London

Guardian journalist Dave Hill asked Transport for London for a breakdown of the estimated £55 million p.a. net loss in revenue from the closure at the end of 2010 of the Western extension to the London Congestion Charge zone. It replied that it would lose £65 million gross and save £10 million p.a. in operating costs. Of the gross revenue, one third is from enforcement revenue. Yes, about £21 million p.a. was made from the Western extension in fines through Penalty Charge Notices. In other words, the money is made from people not complying with the law. Now it doesn’t take too many people to make that much money. Given the fine is £60 if you pay within 14 days (£120 if you pay within 28 days), compared to what was an £8 charge, you need 9 times as many law-abiding users to make as much money as one violator (operating costs for pursuing violators are higher, and let’s assume quite a few don’t pay in time). Any urban road pricing scheme ought not to be THAT dependent on violation revenue, but it should be a gentle notice to those considering it. The real money can be made from enforcement, as the fines have to be high to deter people, and you need few violators to make a lot of money. I gather non-compliance with the London scheme is less than 5%, so less than 1 in 20 vehicles that should pay, don’t pay. That is about right, but from that 5% one can make over a third of revenue.

AND just to show you shouldn't believe everything you read, a website called Ars technica (!) claimed this:

"the government built an extensive network of surveillance cameras with license-plate-reading technology as a way to fight car bombings by the Irish Republican Army. The network proved useful a decade later when London introduced a congestion charge (now £10) for entry into central London. The cameras snap pictures of all vehicles entering and leaving the congestion zone and match their license plates against government records."

Except that it wasn't the same network. A bespoke network of cameras were introduced that would take two images - a context one, and an ANPR one - were introduced.

Then it makes another mistake saying:

We've already mentioned the London congestion tolling system, and Singapore has had a similar system, known as cordon tolling, in place since the 1970s.

No, Singapore had a paper based system called Area Licencing Scheme since the 1970s, and replaced it with a non-cordon system called Electronic Road Pricing, using quite different technology (involving prepaid smartcards) that applies varying prices on different roads at different times. Similar? Barely.

Then it concludes:

Unfortunately, the people building these systems don't seem to be making privacy a priority.

I guess if you don't bother looking at how Singapore DOES make privacy a priority (prepaid anonymous smartcards), or Eroads in New Zealand does (measuring distance only against a prepaid licence), or the Swiss system (which only measures distance), then you'll make this mistake. However, if you only talk to people in your own country, then it's hardly surprising you'll get a rather distorted view.

Transurban

Australian toll road investor Transurban is a shining star in a world of toll road investors that have been burnt by the poor economic conditions in Spain, Portugal, Ireland and the US. According to The Australian, just under half of Transurban’s revenues come from one road – Melbourne Citylink. It isn’t difficult to understand why. Citylink includes the main highway from Melbourne’s main airport to the city (and there is no parallel rail link), as a result is a north-south bypass of the city, and an east-west one as well, providing connections from the south and east to the airport. It is in such a strategic position it is bound to do well, and its revenues grew 15.4% in the 6 months to December 2010. It bought Sydney’s Lane Cove Tunnel, which has tremendous potential as Sydney’s primary artery north. The company has been wise to not jump on more questionable assets, like Brisbane’s Clem 7 tunnel, but will have its eyes on roads with potential for growth. In that respect, I’d have thought it would have been disappointed that the British Government is not now selling the Dartford Crossing. Its share price is A$5.15 as of last quote, and it has been trading within a range of A$5.07-$A5.50 during the last 6 months.