Wednesday, 4 April 2012

Macro Level Trends – UK Investment (Part 2) – New Perspectives on Toll Roads...Examples to Date.

The previous web-log provided a very basic overview of why the UK should continue to review the broad topic of 'road pricing'. Given the present (and indeed long-term) dire state of public finances it is a subject that must be addressed with both clear investment rational yet public sensitivity.

New infrastructure spending programmes will need to span and weave many multi-party stakeholder requirements and ideals, demonstrating much improved national road-network productivity and general satisfaction of multiple user types, Central to such infrastructure re-invention the topic of R&D enabling highly visible 'cost-benefit' advances, which in turn may underpin a convincing business investment template. This now required by a more demanding clique of infrastructure backers, exemplified by the increasing number of global and regional infrastructure funds seeking out new 'value extraction' template formulae, and either behind them or independently alongside, those cash-rich, non-UK foreign investment houses in both SWF and PE forms.

Background -

The pattern of Britain's 21st century physical transport demands will undoubtedly alter when compared to the pattern seen last century, as a natural consequence of an e-connected world, social trend changes and what may be argued as a 'post-peak' slowing of economic growth activity as part of the 'new norm'.

However, national and regional infrastructure - in all its guises: from internet connection 'richness' to the 're-commandeering' of the canal network - will still obviously remain as the primary social and commercial enabling support device by which individuals, commercial enterprises and the state will undertake their respective functions.

However, in what is today a seen as a highly integrated - notionally singular – global economy, the now ageing general infrastructure of the west, largely created in the post WW2 boom years, is undoubtedly loosing its previous capability lead versus the more recent advances made in newer emergent economies such as S.Korea, China and elsewhere, with those country-specific advances expected to be replicated across the remainder of Asia, S.America, India, the CIS and Africa in time.

Where once the UK was perhaps the “sine qua non” of modern infrastructure development, conjoining the best of American and European planning methods and technology, Britain well recognises the heavy public cost burden now apparent in simply maintaining what is ostensibly 'yesteryear infrastructure'.

Entrenched long-term national debt together with meagre near and mid-term economic growth conditions inevitably prohibit any further sizable public expenditure; as both debt-GDP measures and PSBR levels require taming. This leaves little alternative but for the UK to rely upon private and foreign funding relative to infrastructure re-furbishment and renewal.

This in turn necessitates greater appreciation and focus upon commercial 'value-creation' and so creates an arena where the social good and commercialism must entwine, perhaps the very philosophical essence of CSR, and possibly eventually a return to Britain's Victorian past when the masses recognised that “the corporation” stood as a privately held but publicly orientated hybrid entity.
Consequentially, it is inevitable that a greater commercial bearing will be placed upon publicly used infrastructure, with roadways being perhaps the prime topic for business and physical development, and so increasing deployment of the toll road, albeit in electronic pay format compared to the hal'-penny and penny coinage format of centuries ago.

The UK Picture -

There have been five primary British examples to date, which have thus far resulted in three of the four schemes becoming generally accepted. Those road-toll schemes, in order of appearance, are:

1. The Queen Elizabeth II Bridge (over the River Thames).
2. The Central London Congestion Charge
3. The Greater Manchester Congestion Charge
4. The M6 Motorway “Toll Road”.
5. The Greater London Low Emission Zone

As is evident today, these initiatives span both 'proactive' privately funded and privately collected tolls regards new infrastructure build (QE2 Bridge and M6 Toll) and 'retrospective' pricing of state infrastructure assets (London & Manchester “CC” schemes & London Low Emission Zone).

The QEII Bridge came into being as part of a government Private Finance Inititive (PFI) in 1988 and completed in 1991, to enable greater traffic flow efficiency across the Dartford-Thurrock river crossing; a capacity expansion programme to support the over-burdened Blackwall Tunnels.

[NB Critically, the river crossing of both northbound (tunnel) & southbound (bridge) routes utilises instant recognition/instant payment technology to enable a pre-paid usage facility for regular crossing users; known as “DART-tag”].

A generally successful toll implemention took place within Central London via the 'Congestion Charge' scheme, introduced as part of the then new London Mayoral city transport reform agenda; effectively managed by TfL. It came into being in 2003 pertaining to central and inner London and was extended westward in 2007 – the extension retracted in 2011. As part of expected revenue raising efforts, its simple initial flat-fee and exemption pricing structure appears to be progressing toward a more nuanced methodology relative to vehicle and user types.

A similar 2008 initiative became a flailed effort in Manchester when government sought to create 2 'inner' and 'outer' ringed areas across the city under the wide-span programme previously known as the Greater Manchester Transport Innovation Fund. Questionnaire polling conducted amongst the public at the time found typical initial “Yes but No but” public reaction, appreciating the positive infrastructure improvements of the proposed scheme but preferring not have to incur the costs. The issue went to the voting polls amongst Manchester's 10 constituent boroughs and was voted against by a massive majority, so terminating the scheme in the near and mid-term.

[NB The GMTIF a local sub-element of the broader national Transport Innovation Fund which delineated local/regional (Congestion TIF) and national (Productivity TIF) infrastructure monies and planning. The TIF has now been superseded by the Urban Challenge Fund].

The M6 Motorway Toll Road (otherwise known as the Birmingham North Relief Road) was conceived in 1980 with one of the five proposed routes settles upon in 1989, created to alleviate M6 slow / start-stop / grid-lock of the M6.

It was an early example of a contemporary Public-Private Partnership project in which the tender winner (Midland Expressway Ltd) was given a 53 year tenure to construct the highway within 3 years, operate it using 'toll plazas' and the like for 50 years, at the end of which the road would be passed onto the state. Opened in 2003, unusually, toll rates are left flexible and set by the operator (reviewed every 6 months) with no upper limit pre-ordained by government. Thus it operates as a wholly insular highway. There are four modes of payment collection: automatic coin bins, cash booths with attendants, automated credit/debit card method or by the pre-paid electronic 'M6 tag' (as with the Dartford Crossing). The proposed extension route known as the M6 Expressway was abandoned in 2007 due to cost and construction difficulties.

[NB Midland Expressway Limited (MEL) is owned by Macquarie Infrastructure Group; see previous post].

Very basic research indicates that capacity levels on the M6 Toll have been less than anticipated, the early years showing “disappointing” usage levels, 2005 showing about a 66% capacity rate (50,000 vehicles versus an expected 74,000) and declined in 2008 to about 50% capacity, that rate still the case as of December 2011.

This demonstrates the obvious tendency for drivers to avoid what is considered an overtly high fee, when alternative route(s) are available. However, what is interesting is the manner in which the toll roads owners, Midland Expressway & Macquarie have chosen to run their business model, offering the road effectively as the premium-priced alternative, as opposed to dropping toll prices to attract greater custom. This the inevitable result of a dual choice 'M6 offering' as is the present case, and would not presumably be the case – given its monopolistic bias – if there were no alternative.

The Greater London Emissions Zone may be viewed as a toll zone by virtue of the fact that it imposes a hefty fee upon what are classified as high-carbon emitting vehicles. However, it of course operates essentially as a deterrent and so catalyst for behavioural change to heavily prompt those truck and fleet operators who wish to transport through greater and inner London to use newer, cleaner vehicles.

The International Picture -

Having shown various UK examples, the following provides a very basic view of the other prime international cases:

The small but wealthy island recognised in the early 1970s the mismatch between the city-state's economic boom with the inevitable rise in materialistic consumption patterns including passenger vehicles. It pioneered the use of a toll fee to enter down-town (CBD) Singapore in 1975 called the Singaporean Area Licensing Scheme, which has operated in conjunction with other 'deterrent' policies which make car ownership costly. This scheme was replaced by an Electronic Road Pricing Scheme in 1998, operating via overhead detection gantries which collect vehicle identification information from licenced and unlicenced vehicles. An electronic chip held within a windscreen mounted 'pass' is linked to a pre-paid credit account and the vehicle's annual (re)registration process. Unsurprisingly this sophisticated level of vehicle tracking with an ability to effectively monitor and so price individual journeys – becoming increasingly 'real time' - demonstrates Singapore as the most advanced 'intelligent' road pricing case-study. Advantageously, as with 'top-up' mobile phones etc, the scheme provides for substantial amounts of credit-based income accrued ahead of client usage, thus assisting the state's own public finances – which includes its prime SWF: 'GIC' (Government of Singapore Investment Corporation).

Toronto, Canada:
Like Singapore this uses 'open road' automatic road-price billing and has been implemented on the 407 Express Toll Route (ETR), in a system which is able to either photograph a vehicle license plate for non-registered users or identify the I.D. of an in-car transponder and so bill the owner. The system has been criticised for a number of technical failings which have incurred erroneous costs and so unjustified debt-collection demands from drivers.

Stockholm, Sweden:
After trialling the Stockholm Congestion Charge was permanently introduced in 2007., with income collected dedicated to Stockholm's road improvement programmes and general regional environmental concerns. The system identifies a vehicle's entry and exit from the controlled zone which itself is price regulated based upon time of day and traffic flow demand. Sweden's intrinsic eco-concerns have ensured that electric vehicles are amongst the officially vehicle exempt list (inc: diplomatic cars, military vehicles etc). As with other systems the technology consists of number plate recognition and ID transponder.

Milan, Italy:
Started in 2008 as a trial, the scheme was titled 'eco-pass' and affects the central Cerchia dei Bastioni area of Milan. An extension in 2009 ran through to 2011. In early 2012 the initiative was re-titled 'Area C' and recognised as a conventional congestion charge exercise. Importantly, this initiative differed from others by actually utilising from the very beginning – as central to its ideology - defined (vehicle emitting) CO2 categories.

[NB This in contrast to the flat-fee structure in London, Toronto and to the daytime-rates which are applied to Singapore and Stockholm].

San Francisco, USA:
Proposals were forwarded to the San Francisco Board of Supervisors in 2008 and 2010, seeking a trial programme to be instigated by 2015.

New York, USA
As part of Mayor Bloomberg's 'PlaNYC2030' a proposal was submitted in 2008 to instigate a 3 year trial programme. After a protracted city-wide debate and an effectively 'strung' outcome, the federal monies intended for the New York trial were transferred to Chicago for public transport needs.

Building Future Pricing Formats -

These cases highlight the manner in which the character and capabilities of 'congestion charging' has evolved over the years, each demonstrating a specific locally-tailored mix of policy-ideology, budget availability and technical solution.

Yet the most important aspect to developing a successful, long-term road-pricing model is the ability to introduce the scheme in an attractive manner, possibly having to 'sugar the pill' for the public. Thereafter continually manage the prevailing income stream to deliver the near, mid and far-horizon ROI expectations relative to initial capex costs and through-life maintenance costs.

As noted, to date there have been 3 pricing dimensions applied:

1. Flat-Fee
2. Graduated Daytime-Rate
3. Graduated CO2 Emissions Band Rate

Thus, the applied pricing structure will very much depending upon specific local conditions, especially regards scheme introduction.

But it looks very much the case that the most progressive of schemes will seek to merge various criteria so as to make any future scheme more sensitive to social and economic needs and allow for a rational and acceptable road-pricing framework.

Part 3 -

In the next web-log investment-auto-motives seeks to provide brief (and very incomplete) analysis as to how the future of Britain's road infrastructure could evolve relative to 'market segmentation' theory so as to generate alternative income streams and thus attract new 'deep-pocket' rounds of investment monies from foreign sources.

That income to be necessarily utilised to provide for the much needed 'leap-frog' of infrastructure productivity capabilities and of course to similarly improve by a marked degree the 'public good'.