Financial-Architects.Asia

Road Pricing - a future imperative

BACKGROUND AND WHY REFORM IS NEEDED

We have extensive experience in financial modelling of toll road PPP's. Leo/Numtech developed some very specific analytical software for this purpose, and he can tailor this as required for variations in PPP concession design.

One of our concerns is that the standard Australian Patronage PPP model for toll roads incorporates a basic mismatch between assets and liabilities of the toll road owner, and over time could create unaffordability for users. A fixed concession term and a ramp up period for which cash reserves are kept within the debt structure, followed by potentially above-inflation toll rate escalation designed to eventually reduce debt levels (but where bank lending terms posit a need for re-financing before any amortisation can occur) makes it inherently unstable in changing economic (and especially interest rate) conditions, and in a low inflation scenario could make it poor value for users. That is why an Availability PPP is safer, but on the other hand we believe that is not the most cost-effective structure because the better credit standing of government is omitted from the design - meaning that as debt it is expensive [see ex-NSW Auditor General Tony Harris' comments to NSW Road Tolling Inquiry, 2017].

BRIEF PICTURE OF OUR WORK SINCE 2012

Financial-Architects.Asia has submitted suggestions and proposed solutions involving road user charging to several arms of Government and to certain politicians and bureaucrats, starting in 2012 including:

* In 2012, submissions to Federal and NSW public service entities on the concepts of a national-State framework of Long Term Infrastructure Funding Corporations/Funds - designed to utilise the Commonwealth's superior credit rating and borrowing capacity and make infrastructure co-investment and debt funding by large superannuation funds into transport infrastructure more achievable; some elements of this thinking seem to be embodied in the new Infrastructure Project Financing Agency but without the adherence to the National-State fund framework we envisaged, nor to our concept of using more formal road user charging regimes to help fund gaps in the public transport systems

* In 2013, confidential submissions to the NSW Parliamentary Inquiry into Road Access Pricing chaired by Charles Casuscelli [that Committee report was never released by Government] - based on network tolling concepts which recognised that the differentials in cost of land for road space in different locations, eg inner city versus remoter rural, meant that these differentials  should be reflected in differences in road user charges if the system was to be sustainable in the forward looking environment; so unfortunately due to lack of awareness and action plus a tendency to stick with the existing fixed formula PPP model, we now have the situation in Sydney where the WestConnex tolls will be very expensive for those in the western parts of the city whereas in the east and north plus beaches areas, road usage remains virtually totally free*, except for crossing the Harbour

* In 2014, submissions and verbal evidence to the Productivity Inquiry into Public Infrastructure, pointing out that the PAYGO system for heavy vehicle road cost estimation was flawed and that the Transport Reform Network and Infrastructure Partnerships Australia proposals for Universal Road User Charges (URUC) had under-estimated the future costs of new motorways and urban arterials, and even national highway augmentation

* In 2017, submissions to the latest NSW Upper House Inquiry into Road Tolling [our submissions not yet released publicly]

What we are prepared to show here are some elements of our 2012 suggestions for motorway "network tolling" in Sydney which would eventually raise significant amounts for a land transport fund not unlike that involved in the Long Term Infrastructure Funding Corporation concept mentioned above.

Figure A shows a conceptual zoning of Sydney motorways and major arterials that would have differential per km road user charge rates, set so as to reflect both the traffic density/congestion factor and the relative differences in land and road construction costs.

Figure B shows illustrative per km rates and a simple plan for phasing in the changes over a period commensurate with the likely decline of fuel excise receipts by the Commonwealth.

THE REMAINDER OF OUR WORK AND PROPOSALS REMAINS COMMERCIAL-IN-CONFIDENCE.

We have also refined our thinking further since 2012. [Flag falls, peak-time surcharging, access vs usage charges, special situations, etc.]



















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THE IMPERATIVE

Fuel Taxes wil decline as new non-fossil fuelled vehicles come to dominate road space

[We need new road revenue sources]

POLITICIANS ARE FEARFUL

The trucking and roads lobby are powerful and will fight new tax impositions (so may voters)

[Everyone under-estimates road costs]

ROAD PRICING IS A SOLUTION

General road pricing can fund new transport solutions if road versus rail biases are overcome

[Govt policy changes needed]

With the advent of non-fossil fuelled vehicles, declining fuel taxes mean that new roads revenue sources are needed.

FIGURE A

FIGURE B

© Copyright Financial-Architects.Asia, Financial-Architects.Asia Pty Ltd, 2017


Train, road images attribution Wikimedia Commons, except where otherwise shown


EXTENT OF LAND USED FOR ROADS, most of which is an asset State Governments provide free to users:

* An interesting paper on the extent of free roads in Melbourne by Dr David Adams is shown here. Sydney should be similar.