Chilean toll roads profitable for Skanska

Open PR reports on the success of the sale of 50% of Autopista Central by Swedish firm Skanska to Alberta Investment Management Co - a pension firm.   The report indicates Skanska invested US$350 million into the successful Chilean toll road and sold its shareholding for US$790 million.  Not a bad return at all.  Meanwhile, Skanska still owns a concession for the Antofagasta toll road, involving 117km of new lanes and 207km of upgraded roads planned to open in 2012.  Skanska is a 100% shareholder of its subsidiary in Chile responsible for that concession.

Chile has been a great success in terms of toll roads, with its investment climate, economy and infrastructure requirements matching with well planned and executed toll highways that have plugged real gaps in its highway network.  The roads are well maintained, operated efficiently and perhaps can be seen as a model for Latin America.  It is fair to say that Skanska's report that it sold its share in Autopista Central because of the price offered, is reasonable.  Nevertheless, with one of Santiago's most critical strategic assets, Alberta Investment Management Co. has not bought a bad investment.

(Skanska still has Autopista Central on its website though, showing it needs a bit of work done to keep its website up to date)

Empty arguments against tolling in San Diego

A columnist called John Van Doorn in the North County Times in San Diego is opposing proposals for a new toll road to bypass a congested section of the I-5.  The arguments against tolls are nothing new, and easily refuted.  Indeed three comments on the column already make good points in response.  

This is what he argues, with my response

1.  Toll booths add to delays:  It is wilful blindness to ignore electronic free flow tolling, even though deployment in the US has been glacial.  This argument should be left in the 20th century where this thinking belongs.  Any new toll road in the USA should be built with electronic free flow technology in mind.

2. Studies claim collection costs can be up to one-third of revenues:  I can say "studies show journalists rarely are experts in things they write about", without quoting a study.  Any toll road with such high costs is either grossly inefficient, heavily underpriced or is not viable (for having too little traffic).  Efficient operations today of any toll road should manage costs well below 10% of revenues. 

3. If there isn't congestion, more will use the free original road congesting that route:  So it is better to not have a new route then?  It is entirely circular.  If the current route is congested, the toll route will relieve it.  It wont be empty, so it benefits users of the original route.  You might believe a new route could induce demand, but if tolled that will put a price on that and besides demand could always increase on the untolled route regardless.  The solution is to price ALL roads efficiently, but Van Doorn shows scant knowledge of economics so he wouldn't consider that.

4. Motorists would be tracked:  After implying a toll road means manual collection, he then jumps on an assumption made for electronic tolls.  It is also empty.  Electronic free flow toll roads are charged usually through a tag and beacon system that only identifies a vehicle crossing a particular point so the account associated with it can be charged.   It reads number plates in other systems either to charge or for enforcement purposes.  It isn't tracking, it is no different from paying for your shopping with a card, leaving a record of your presence in a shop at a particular time.  Yes, in theory if done by government entities they would know that you had, driven past a point at a particular time, but that isn't tracking.  Automatic number plate recognition cameras could be placed all over road networks to do this, and mobile phones do it more effectively than conventional electronic tolls.   Now it is more complex if GPS and distance charging are involved, but that isn't what is being discussed and even if it was, it doesn't involve tracking either.  It involves measuring distance.

Tolling has many opponents, typically they are people confused with technology, with little understanding of transport economics, but also understandably sceptical of government agencies running toll roads.  There are good reasons to be resistant of politicians incompetently using tolls as a quick fix, but not to resist tolling per se.  Tolls can be a low-cost and efficient way of raising funds for new roads and maintaining existing ones, and debate about tolls should be about their viability, not on the basis of ill-informed presumptions.

Ohio turnpike privatisation faces opposition

According to Cleveland.com, Northeast Ohio Areawide Coordinating Agency (NOACA) has voted to oppose a lease of the Ohio Turnpike as proposed by the State Governor John Kasich. Kasich was seeking a lease price of at least US$2.4 billion for the toll road in the hope it would help raise money to fix other roads, bridges and waterways. NOACA fears tolls would be increased, resulting in diversion to parallel routes and the standards of maintenance of a lessee would be lower. NOACA does not have the power to stop a lease, but its arguments ought to be addressed. 

A lease can put a cap on toll increases (e.g. inflation only, or approved congestion based increases) and ensure the road is returned to the state to a high standard of maintenance.  This is the experience of those letting out concessions in various countries, such as Australia and the UK.  It isn't a reason to oppose the lease, but certainly a reason to ensure a minimum price is obtained under satisfactory conditions.

My view is that any lease ought to be a matter of price and contract conditions, which will mean much money spent on the transaction. Yet if even US$5.8 million is spent on advice in such a deal (which would be fair over a year) it would still be 0.2% of the net revenue from a lease!  A bit of time and money seeking the right advisors should save the state hundreds of millions.

Maryland's toll increases highlight risks of political interference

The Baltimore Sun reports on an issue stressing some in Maryland – a proposal by the Maryland Transportation Authority to increase tolls on a wide range of roads, including 100% increases (and most controversially an extra 220% on the Chesapeake Bay Bridge). The article highlights that the State needs the money, the problem being that tolls have not kept pace with the debt raised to pay for major road projects. In short, politicians took a short term approach to such debt, to the point that the current administrators have to take steps to address a growing deficit.

Fair on current users? No. These costs should have been spread among users for the last decade or so, but it is more fair to require motorists today to pay than to raise other taxes. However, should this not be a wider lesson in underpricing toll roads? Some fear privatisation or private roads because of concern that private owners will extract rents from motorists using such toll roads, or in other words, monopoly profits. However, there is at least an equal issue with politicians cross-subsidising constituencies they seek support from to maintain power. A longer term solution to Maryland’s toll road debacle could be greater private ownership, which could mean tolls are maintained at sustainable levels and there is little incentive to subsidise private owners if their own investments prove problematic. In addition, private ownership may raise efficiencies that could offset such increases.

The lessons are obvious. Short-term political expediency in reducing tolls has long term consequences. It can be avoided by greater use of the private sector, or keeping politicians from being able to alter tolls without countervailing revenue to cover debt associated with roads. It is a lesson in governance, ownership and procurement that politicians have imperatives not associated usually with economic efficiency.

UPDATE: More on toll increase proposal from the Washington Times.  The State Transportation Secretary argues that Maryland has the steepest discounts in the US.  It simply reinforces how scandalous it is that tolls do not currently cover maintenance costs.

St. Petersburg's first toll road opens

The Voice of Russia reports that the first stage of the Western High Speed Diameter Toll Road is being opened for tolled traffic, and will be St. Petersburg’s first toll road. Tolls will vary by type of vehicle, and time of day suggesting a congestion element to the toll, given it is essentially an urban orbital. More details on the road are on the project website. Once complete in 2015, it will be over 46km long, mostly 4 lanes in each direction at a cost of US$7.6 billion. Although it is currently under construction, its concessionaire will be chosen in July.

According to the St Peterburg Times Basic toll rates for all toll roads in St. Petersburg have been set by the council, as being between US$2.94 for cars and US$13.35 for heavy trucks, with distance based charges of between US$0.32 per km for cars and US$1.47 per km for heavy trucks. These will be the maximum allowed for the concessionaire, which will be able to vary the prices below that on different days and at different times according to congestion.

Russia has been embarking on a massive motorway building programme in recent years, and tolls have become one way of making money from this.  It is hardly surprising that Russia has figured out the value capitalism can bring to the highways sector.

Jakarta's inner city toll road truck ban

The Jakarta Post reports about the relative success of a truck ban imposed on the Jakarta inner city toll road. In order to reduce congestion, trucks were banned on the route between 5am and 10pm for the period of the ASEAN Summit hosted in the city (ASEAN is the Association of South East Asian Nations). It has improved traffic flow on the road, but has significantly increased costs for freight, including travel times and operating costs.

A better obvious answer is to increase tolls to manage demand at peak times. Not only trucks should be subject to demand management, but also cars, taxis and buses. Then pricing would mean those road users that most value the road space will decide when the use it. Although it should be combined with a shift to electronic free flow tolling to eliminate toll booth bottlenecks. The Jakarta Post thinks that the policy is a good start, but not enough. I think that moves towards congestion pricing may be one of the appropriate next steps, to replace such a ban.

UPDATE:  Jakarta's trucking industry is planning a strike to protest the ban, claiming it has halved their revenues says the Jakarta Globe.   They claimed they made US$175 a day before the ban.  The strike is planned for next Friday 20 May and will mean no service to the Port of Tanjung Priok.   Like I said, the solution for Jakarta should be a combination of moving to electronic free flow technology, congestion pricing on the toll road and congestion pricing for inner city Jakarta, with the money reinvested in upgrading traffic management and fixing bottlenecks.

Nairobi toll road cancelled because of concessionaire

According to the Daily Nation of Kenya, the Nairobi Urban Toll Road project has been suspended because the World Bank is refusing funding.  The reason for the refusal is because the winning concessionaire -  the Austrian based Strabag Group - has apparently failed the bank's "compliance procedures".    As a result, the Kenyan government will have to commence negotiations with a new group, or seek alternative sources of financing.  The government is committed to the project, and the World Bank website (PDF) explains the justification for the project as follows:

There has not been any major road infrastructure improvement in the Nairobi area for over two decades and the basic network is still the one designed in the 1970s. The results are massive congestion soon expected to cause complete gridlock given the anticipated traffic growth. Decongestion of this main artery NC that passes through the middle of town and development of new infrastructure surrounding Nairobi is therefore paramount...Feasibility studies carried out under the NCTIP confirmed the viability of a toll road concession for a stretch of 77 km along the Uhuru Highway including the construction of a 29 km bypass.

The concerns are around meeting social and environmental conditions, particularly around land acquisition.  Business Daily Africa reports:

The project is the centre of a dispute between the government and property owners over intended demolition of buildings valued at billions of shillings while an alternative road can be designed to pass through a less built-up area.
 

Florida - toll roads for "sale" between authorities

Although in 2007 the Florida State Legislature passed legislation allowing state owned toll roads to be leased out, politics has prevented any serious moves to privatisation.  Instead, a rather odd series of efforts by the state and local authorities to take over various toll roads have eventuated.   Tampa Bay Online reports that the State is seeking to take over three regional toll road authorities including the Tampa-Hillsborough Expressway Authority.  By contrast, the Tampa-Hillsborough, Orlando-Orange County and Miami-Dade authorities are all seeking to take over state toll roads in THEIR areas, paying off the state to get local control.  It is a form of nationalisation - well on the state and local levels.  The state argues it could get economies of scale by having a single state wide toll road enterprise, but local politicians and authorities see them being able to get better control if they looked after toll roads in their areas.  

In both cases, those involved believe it would be a good investment, so there are no major fiscal hurdles (although a lot of borrowing would be needed).  That alone indicates the soundness of the toll roads as investments.  However, what it doesn't indicate is whether or how private sector and commercial imperatives might be used to improve the management of these roads.  Whilst other states and countries consider significant private sector involvement in their toll roads, Florida is looking at a strange blend of government ownership to gain efficiencies.  It is not impossible for government owned entities to operate very efficiently and be responsive to users, but it requires arms-length structures that are away from politics and the ability and freedom for management to do what is required to operate in a business like way.

Ohio Turnpike lease under further discussion

On 4 December 2010 I reported on how the new Governor of Ohio had proposed privatisation of the Ohio Turnpike, as he sought to realise some value from the asset to improve the state's fiscal position.  It was seen as at least being able to realise US$1 billion.

Ohio Turnpike map from website

Now Associated Press is quoted on Trucker.com as saying that it is more likely to be leased than sold and the Governor has said he is unlikely to approve of any deal worth less than US$2.5 billion.  There is also concern for tolls not to increase at a rate that would encourage traffic to divert onto parallel routes.  One early step mooted is conversion to electronic free flow tolling to reduce operating costs.    It is reported by the Ohio Transportation Director Jerry Wray that any net proceeds from a lease would be used to pay for highway improvements and "harbor dredging". 

Certainly I'd encourage Ohio to proceed with any form of privatisation it wishes, as long as it can get a good price and that the terms and conditions do not hinder the use and development of other assets.   There are great potential benefits in having such roads privately owned, as they can emphasise efficiencies and ensure a core piece of infrastructure is well run.  Concerns over monopoly profits can either be addressed by having price cap formulae and avoiding restrictions on parallel route development (although no subsidised parallel routes).   Obviously there are risks beyond getting a poor price and getting an owner interested in making money with minimal expenditure on service, but these can be managed. 

The bigger issue is whether the current investment climate will be keen to put so much money into one asset.  There are good reasons to consider a very long lease on such a strategic and potentially profitable asset, but the toll road concession sector has been burned badly in some cases with the recession.  It will take some convincing and advertising to show investors that this is a far better deal that relatively new toll roads in countries like Spain and Ireland (and yes, it does mean any residual xenophobia about foreign buyers will have to disappear if Ohio wants a good price).

Call for electronic free flow for New Jersey Turnpike Authority

Map of the two New Jersey toll roads

The advantages of electronic free flow tolling over manual tolls are obvious.  On heavily used toll roads such manual booths are obvious bottlenecks which can create long tailbacks and delays to motorists.  However, a growing issue is cost.  According to the Gloucester County Times, New Jersey (USA), 90% of toll booth staff of the (state owned) New Jersey Turnpike Authority (responsible for the New Jersey Turnpike and Garden State Parkway) are earning US$65,000 per annum (which compares well to the US GDP per capita average of around US$47,000).

That means that moving to electronic free flow tolling not only would remove the cost of delays through time and wasted fuel, but also administrative costs.   Apparently 70% of trips now use the electronic EZ-Pass system that avoids this, no doubt mostly being locals who prefer to get past the queues where the toll plazas widen.   However, there is every good reason to go further and fully automate toll collection.

The paper reports how the Turnpike Authority is to vote on Wednesday 27 April whether to privatise the collection and operation of the toll roads, which would allow any company responsible to adopt whatever techniques it wishes to deliver such efficiencies.  The Gloucester County Times supports it, as so it should.  Electronic free flow tolling is not cutting edge, it is proven technology.  As long as New Jersey has access to the enablers to make it work, it should proceed so that New Jersey toll roads are no longer working with 19th century technology.