Tuesday, August 11, 2009

Truckers ditch privatized toll roads in United Kingdom

First-class driving makes little economic sense


By John Kay
The Financial Times (UK)
Copyright 2009

You may be planning to take the motorway north from London towards the Lake District or Scotland in this holiday period. If so, you have a choice of routes as you approach Birmingham. You can stick to the original M6. Or you can pay £4.70 and use Britain’s only modern toll road.

The M6 (toll) takes a more northerly but no more direct route and rejoins the main highway 27 miles farther north. There is not much to distinguish the M6 from the M6 (toll) except the toll. And that makes a big difference. The toll road carries barely a quarter of the traffic of the old motorway, and almost no trucks. Driving on it is a considerably more pleasant and relaxing experience at all times, and especially when the roads are busy. Even the motorway service station seems more congenial. And travellers stop there: they are not using the toll road because they are in a hurry.

We are used to first- and second-class services on trains and aeroplanes; but we are unaccustomed to first- and second-class roads. Even on cramped short-haul air services, there is some attempt to offer business-class passengers a better service, if only a plated lettuce leaf.

There are other opportunities in the world to pay a toll and travel on a faster road – around Dulles Airport in Virginia and on the Toronto Lakeshore, for example. But in these places the free route is inherently inferior. The alternative at Dulles takes you through a dozen sets of traffic lights. On the M6 toll road you pay for the sole privilege of sharing the road only with other people who have paid the toll – without even a business class-style salad and cheese platter. This is a price most Financial Times readers are likely to think worth paying.

It is not obvious this outcome was intended. In fact, it is not obvious what outcome was intended. As is the way of these things in Britain, the road took 20 years to build, with more time spent in public inquiries than in construction. These lengthy investigations confirmed the self-evident fact that motorway capacity in the Birmingham area needed to be expanded. But not much other illumination was cast.

When the road opened in 2003 the toll for cars was a more modest £2. At a £10 toll, almost no trucks used the new road, and the character of the two routes was immediately established; and when the charge for trucks was cut to £6, nothing much changed. Hauliers will pay very little to save their drivers time and hassle, as other operators of private travel utilities, such as Eurotunnel, have discovered.

The benefit of road improvements is principally the reduced time and strain on private motorists, not the economic advantages to road transport operators: that lesson should influence the way we plan our road networks. Fast roads for light traffic are much cheaper to build than superhighways.

The curious conjunction of first- and second-class motorways on the M6 is unlikely to be repeated. The project is a hangover from the heyday of the Thatcher era, and no other toll road proposal has reached the stage of serious planning.

The road cost about £700m to build, and yields net revenue today of less than £50m ($82.5m, €58m). The unregulated toll is probably at around the profit-maximising level. Traffic levels have recently fallen and, at 13 euro cents per km, the charge for a car is high. In France, where autoroutes do not face direct competition from similar roads, the average charge is about eight cents per km.

So the economics of the project, even on the busiest stretch of the long-distance road network, are marginal. With hindsight, an investor might choose to build it, but without great enthusiasm. The valuation implied by the accounts of Macquarie Infrastructure Group, owners of the road, suggests a much higher figure, but the discount to reported asset value on which that company’s shares stand implies a justifiably sceptical view of the valuation methodology.

So enjoy your 30 minutes of privatised motoring. You are not likely to have another opportunity in Britain in the near future.

© 2009 The Financial Times: www.www.ft.com

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