Private toll road builders consider counter-offensive against public backlash
May 14, 2007
By Robert Wright
The Financial Times Limited
Of the many kinds of infrastructure investment now attracting private investors' attention, the toll road is one of the simplest. Holders of a concession build and operate a road or take over the operation of an existing road from a public body. Drivers pay to drive on it. One speaker at a conference on infrastructure investment organised by Australia's Macquarie Bank in New York last week described it as the "purest" form of infrastructure investment.
But events in Austin, the Texas state capital, have illustrated the downside of that simplicity.
Voters feel far more directly connected with their roads than with their electricity supply lines, container ports or any of the many other infrastructure classes now attracting infrastructure funds' interest.
The state legislature in Texas has passed a bill - which has yet to become law - which would place a moratorium for two years on the award of any new concessions to private operators under the state's extensive planned programme of toll road concessions.
Stephen Allan, executive director of Macquarie Infrastructure Group, the arm of the Australian bank which invests in toll roads, told delegates at the conference: "The whole thing in Texas has shown that everyone in a local community feels they own a road."
The question for toll road investors involved in the potentially enormous sector in the US is whether political opposition to private toll road operation is likely to create a serious slow-down in the award of new concessions.
That could have serious consequences not only for companies such as Spain's Cintra, Macquarie and Portugal's Brisa whose business is to operate such roads. It would also have serious consequences for the United States' ability to cope with fast-rising traffic flows. Over the past 25 years, Texas, which has some of the most acute problems, has seen a 57 per cent population increase, a 95 per cent increase in road traffic but only an 8 per cent increase in road capacity.
According to Robert Poole of the Reason Foundation, a US free-market think-tank, the country currently spends $9bn annually less on existing roads than is needed to maintain present traffic conditions. That makes it impossible to see how stretched public transport funds will be able to find the resources to reduce capacity. About half the proposals for new highways since 1991 - 147 projects - have been for toll roads, according to Mr Poole.
Public resources are particularly short in the road-building sector because of previous local political revolts in many states which have prevented states from increasing the fuel tax which provides much funding for roads.
The position has become still worse over the last 30 years as cars' fuel efficiency has grown and driven down the fuel tax received for every mile driven by a car. Mr Poole said tax receipts per vehicle mile had now halved from since the late 1960s and early 1970s, when revenues were 4.5 cents per mile. But to add 104,000 new lane miles over the next 25 years - a figure Mr Poole said would alleviate just the worst congestion - would cost $533bn.
The case for awarding concessions to private investors to build and operate such roads was compelling, Phillip Russell, a senior official in Texas's Department of Transport, told the conference. Public bodies' ability to raise new funding to construct roads is limited by the competing demands on their revenue.
For one recent toll road project - state highway 130 - it would have taken 10 years before the state could have completed the project, which has already opened to traffic under a private operator.
"From our point of view, it's a great opportunity to accelerate a needed project," he said. "We're getting a project the citizens of Texas would not have got without this agreement."
Mr Russell's conviction that the case for private toll roads would eventually defeat the opposition was shared by others involved in the sector gathered last week.
Vasco de Mello, chairman of Brisa, a Portugal-based company which is active in the sector, said he strongly believed there were significant needs for road infrastructure in the US.
"This can only be done with private investment," he said.
But Mr de Mello, like others at the conference, had few specific ideas about how to overcome the Texas legislature's decision.
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