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Are road tolls the economic answer?

First publishedin World Highways
2012 October
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Editor of World Highways
Tolling has been widely promoted as the answer to future road needs by many economists. The fundamental principle of a toll road is comparatively easy to understand: a driver wants to get from here to there and pays a small sum for the privilege.

Drivers generally prefer to access roads without having to pay but the sums involved in toll roads tend to be comparatively low. For all but the most parsimonious, parting with a few coins to use a stretch of highway in good order is comparatively painless, made even easier when up-to-date payment systems are used.

But toll roads are not always such a perfect solution to road transport needs. Firstly, the roads are not always in such prime condition as should be expected when a driver pays for use.

The famous Pennsylvania Turnpike in the US for instance has been criticised both for its surface quality and safety features for example.

Secondly, toll roads are not much use if the local roads they connect to are inadequate to cope with traffic volumes and underfunded to such a degree that basic maintenance has been ignored.

However the tolling sector faces a far greater and more fundamental issue. The projects have to be economically viable in the first place. Ensuring that a tolled highway will work economically is not as straightforward as it may seem, which is something that a number of investors and large corporations have learned to their cost. Land expropriation processes can be long and torturous in some countries, with unexpected costs and challenges along the way. Geological and topographical challenges can present a long list of possible technical factors and result in major cost issues that were utterly unforeseen when a route was initially proposed.

Construction costs often escalate for many reasons, too many indeed to list here.

Financing can also be a difficult area, with interest rate spikes or additional taxation being amongst the factors that can impact on profits.

But sometimes the problems are more fundamental. Concession packages have to be realistic from the outset and traffic predictions play a key role. Get those traffic predictions wrong and a concession can be in trouble from very early on. Various highway projects have hit financial troubles in Latin American countries with growing economies including Brazil and Mexico. Meanwhile investments made in 10 highway projects in Spain have been threatened by bankruptcy. A combination of high land costs and lower than expected traffic volumes has hit the concessions hard, with four highways already having filed for administration.

Spain’s optimistic growth predictions of a few years ago have turned into an economic black hole. Meanwhile in Greece the economic problems afflicting the country are even worse, with a damaging knock-on effect for its tolled roads. Many users of Greece’s excellent new tolled highways have been simply refusing to pay, with disastrous results for the concession holders.

Sometimes highway operators can be realistic from the outset. In Indonesia, one toll road operator has been asking itself whether to go ahead with a flyover project. The construction cost predictions are high and to make the project viable, user charges will have to be higher than comparable rates for other routes in the country, begging the question as to whether drivers would be prepared to pay or prefer using existing congested routes.

Companies in this article

Pennsylvania Turnpike
www.PaTurnpike.com
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Page Comments
CommentAdded ByTimeReport
You've covered some of the big-picture issues facing the highway system—and, for that matter, the wider economy. But I'm not sure why you fault tolling for facing macro challenges that go beyond the ability of any transportation finance strategy to fully solve. Financing, project viability, and predictable revenue in a volatile economy are all central to any dialogue on infrastructure construction and renewal—whether or not that infrastructure is a roadway, and whether or not its business model involves some degree of user financing. But it's a bit much to expect one financing strategy, however robust, to single-handedly solve a problem that vexes policy-makers and financiers around the world. The tolling industry is good. No one on their own is *that* good. But there are crucial things that tolling does very well. For the public sector, tolls cover expenses that are beyond the budgets of cash-strapped state departments of transportation, from operations and maintenance to some capital construction costs. And tolling is a proven congestion management tool, making tolled roads and lanes the best option for commuters or freight haulers who have to get where they're going, and get there on time. In the U.S. alone: • Users make five billion trips and crossings per year on 5,431 miles of toll roads. • The top 40 toll operators invested $14 billion in capital projects in a recent three-year span. • Fatality rates are three times higher on all roads than on tolled highways. • 84% of consumers believe tolls should be considered as a primary transportation revenue source on a project-by-project basis. When informed consumers have a say on those local projects, tolling is a winner. The Illinois Tollway gained 89% public support for an 87% rate increase that was essential to the success of a 15-year, US$12-billion capital program. When drivers can see agencies using the tolls they pay to build or improve the roads they use, customer support skyrockets.Patrick Jones23/11/2012 13:48:53