Toll Roads – a view after 25 years

David Hensher at ITLS Sydney writes: Toll Roads – a view after 25 years. I excerpt an interesting bit below, emphasis added, but read the whole thing.


One of the great errors in the current tolling model has been the political decision to prescribe a unit toll rate which is indexed over time by the consumer price index. This has resulted in ring fencing on a crucial mechanism that is capable of recognising the need to adjust the toll to ensure that the travel time savings are delivered commensurate with the value (to the users) of those time savings relative to the non-tolled route(s), given travellers’ value of travel time savings. Consultants have struggled to establish the best outcome in relation to patronage forecasts because of this seriously problematic imposition. Added to the fact that consultants associated with the bidding consortia are often told to improve the patronage forecasts in ways that require what might be best described as imaginative (‘long tail’) futures, extending the range of time related benefits (such as the toll quality bonus) in the search for even higher patronage forecasts for a fixed toll regime. This point aligns with Bain’s 21 ways to inflate toll road traffic forecasts2. This becomes a commercial proposition in contrast to a network efficiency solution, resulting often in the loss of network welfare gains. Unfortunately, there is no incentive for the operator of a stand-alone asset to think ‘network’ There currently exists a complete failure across all tolled roads in Australia to optimise the level of toll and I believe this is generally opposed to by the operating companies of tolled roads on many grounds, but specifically their liking of the greater certainty of revenue flows even if these flows are a mismatch in delivering a better performing road network.  Only the state thinks ‘network’.  This is a key issue.  The state gives away pricing controls and then finds it difficult to optimise the network when it only has control over this important lever for part of the network.  This is of little concern when there are small, isolated sections of privately-operated toll roads.  It suddenly becomes a massive concern when these privately-operated toll roads ‘become’ the network!

Note: Bain, R. (2012) Twenty-One Limitations & Shortcomings with Traditional 4-Step Models, “In Australia, a number of the toll road concessions were awarded to the bidder offering the largest upfront payment to the state. That’s a recipe for disaster. Without checks and balances in place the bidding process simply turns into a competition on traffic numbers. Toll road traffic generates revenue, and the largest upfront payments can be justified by those with the highest traffic forecasts. The whole process becomes skewed and the numbers get bent out of shape in response. Considerable pressure is placed on traffic consultants to come up with the ‘right’ numbers; numbers that meet the requirements of the financial model.”


I made a similar point in my post “setting the right toll“, which was mostly theoretical in nature, but has clearly become problematic in nature here in Australia.