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It’s been a week of facing up to the various troubles caused by the fad of governments trying to solve their problems with help from the private sector.
All governments have indulged in the fashion of privatising their businesses and outsourcing the provision of public services to a greater or lesser extent, with varying degrees of success. Victoria was first with the idea of selling off its electricity monopoly, and it’s had its own adventures with private toll roads.
But this week it was NSW’s turn to grapple with the almighty mess it’s made of its toll roads, guided by two visiting Victorians – Professor Allan Fels and Dr David Cousins. There is much for Victorians to learn from the northerners’ travails, as they struggle to keep the schadenfreude off their face.
First, how did this supposed “reform” push get started? Partly, it was ideological – many people believe private businesses are always efficient, whereas governments are always inefficient.
But mainly it was politicians trying to do the impossible – or look like they’d done it. How can the government do more without getting bigger? How can we respond to the voters’ unceasing demand for us to provide more without increasing taxes or adding to government debt?
I know, let’s use “public-private partnerships” to work their magic. This thinking has left Sydney ringed by 13 toll roads, 11 of which are majority-controlled by the ASX-listed giant tolling company Transurban, along with many minority partners.
Toll roads now make up almost half of Sydney’s motorway network. It has more toll roads than any other Australian capital city, which hasn’t stopped it from being the most congested. These toll roads have grown like Topsy, each with differing tolls and rules about how the toll is regularly increased.
Taken together, the toll road system is regarded as inefficient, unfair and lacking transparency.
This week’s final report of Fells’ and Cousins’ independent reiew found that tolls are higher than they need to be and higher than they should be. Unless something is done, they’ll increase too quickly in coming decades.
Tolls are too high in the sense that they probably encourage trucks to use less suitable roads, and lead to greater congestion on other roads as motorists try to save money. There is no provision for pricing rules set to run for decades to be reviewed to ensure they still make
A toll road contract is a natural monopoly, but not all the contracts were awarded after competitive bidding. Where bidding did occur, contracts weren’t necessarily awarded to the firm offering to charge the lowest toll.
Often, the government set what the toll would be, with the contract awarded to the firm offering to take on the most of the government’s obligation. This was a way of shifting costs that should have been covered by the taxpayer onto motorists, thereby making budgets look better and taxes lower.
Sometimes the cost to motorists was disguised by contracts where the toll started low but rose excessively over time.
All the contracts involved the private firms borrowing the money to pay for the motorway, even though governments can borrow much more cheaply than businesses can. This made government debt look lower, but hid the higher interest costs in higher tolls.
All the contracts involved the company accepting “traffic risk”. When fewer cars use the road than had been predicted, the company’s out of pocket, but when there are more cars than predicted, the company makes a windfall gain.
By now, windfall gains are common, and the companies are cleaning up. But this is an unnecessary burden on motorists. Why? Because companies have to be paid to take on the risk, whereas governments are much better at bearing such risks. They can spread any costs over millions of taxpayers so that they become trivial.
The system of tolls is biased against motorists who live in the outer western suburbs, and biased in favour of those in better-off northern suburbs using long-established, government-owned toll roads crossing Sydney Harbour.
For some years NSW governments have sought to reduce this unfairness by paying subsidies to western suburbs motorists with excessive weekly toll bills. This makes the system less unfair by adding a cost to taxpayers with no loss to the toll companies. They actually benefit because more motorists can now afford to pay their high prices
The Minns Labor government has vowed to bite the bullet and renegotiate the contracts. This week’s final report recommends that it replace the hodgepodge array of tolls with a uniform system where the price is based on distance travelled, with those travelling longer distances charged less per kilometre.
The Harbour Bridge and Harbour Tunnel tolls would be included in the pricing mechanism, so that northern suburbs motorists paid more, while western suburbs motorists paid less.
The government says it will compensate the toll companies for losses from changes to their contract arrangements, but would transfer “traffic risk” and its windfall gains to the government. This would help cover lower tolls in the west.
Transurban has belatedly agreed to renegotiate, but proposes setting the toll on a different basis, suggesting the negotiations may be long and hard. But getting agreement from all Transurban’s many minor partners could take an eternity. The government wants a deal by Christmas.
To this end, the report recommends that the NSW government take back control of tolls by setting up a state-owned entity, NSW Motorways. Its changes to tolling arrangements would be overseen by the NSW Independent Pricing and Regulatory Tribunal. The new entity should look for opportunities to add competition to the system, especially for any new roads.
The existence of the new tolling entity would allow the government to act should it take Transurban and its many partners too long to agree to a satisfactory deal.
The private companies have rights, but they don’t have the right to impose on the people of NSW and their government an unfair and unsustainable arrangement lasting forever and a day.
Ross Gittins is the economics editor.