Sunday, February 13, 2011

Northern Gateway should be sold

The news that the New Zealand Transport Agency (NZTA), which if you haven't been keeping up is the result of Labour merging Transit NZ with its funder  Land Transport NZ (because the then government was tired of one government agency holding another accountable), has not prosecuted a single toll evader on the Northern Gateway toll road is not surprising.

Quite simply NZTA has not a smidgeon of experience in running toll roads as there have been no state highway toll roads (the Tauranga ones have been council owned) since the Auckland Harbour Bridge.   On top of that, the decision to toll a road once called ALPURT B2 and before that the Orewa Bypass, was very political, as Transit NZ wanted to prove it was competent as a tolling authority under the Land Transport Management Act - a child of the Labour, United Future and the Greens during the last government's second term.

The rate of evasion at 4% of trips is good by international standards, but reports such as those in the NZ Herald today undermine this significantly.   I know about good practice with toll roads, I have designed business rules for them, and one of those is to pursue repeat recividist non-payers with prosecution.  You see, in effect, non payment is trespass.

All of the net toll revenue is used to service and repay debt used to pay half the cost of the road (the rest has been funded through fuel tax and road user charges, so motorists effectively half pay for the road without the toll).  If there was a private owner, you can be sure that it would pursue prosecution and seek court costs from motorists who continue to not pay.  

Moreover, a private owner would likely run the tolling operation more efficiently than the government.  The reported NZ$0.75 transaction cost is rather high by international standards, it should be around a third less.   Why is it high?  For starters it is being run by a long established government bureaucracy called the Transport  Registry Centre.  Sure it does the best job it can, but it is not commercially driven, so is unlikely to be able to be as efficient as foreign counterparts.  Secondly, the sheer volume of transactions is pitifully low.  Thirdly, without the experience it is unable to adopt best practice easily or automatically.  Finally, unless it goes offshore it cannot get decent professional advice on these things, given the lack of experience in the country at all.   

So why not sell the Northern Gateway?  There is an alternative route after all, the original highway through Orewa (and even SH16 off to the west).  It would showcase how no one should fear privately owned highways.  Given many French and most Japanese motorways are privately owned, it shouldn't be a big deal, but the New Zealand left is rabidly irrational about such things.

Indeed, selling it ought to pay off the debt and some and it might mean the Tauranga Eastern Motorway is run better (that should be privately funded as well).   It might also mean the NZ Herald writes no more editorials that have involved the complete absence of research or journalism on the topic.   Given the NZ Herald somehow links this to regional fuel tax, when Labour approved tolls on the road in the first place, shows once again how incredibly shallow and nearly useless the media can be.  


Moneybags said...

Interesting but ultimately misguided post. You need to be careful with the application of you economic principles to transport - especially in the presence of congestion.

The Northern Gateway should not be sold because microeconomic theory tells us that would be a bad idea. Why? Well when you have two parallel roads, one public (untolled) and one private (tolled), the private operator will always charge too high a toll because they do not consider the effects of congestion on the public road. And these can be significant, e.g. Old SH1 in Orewa.

On a more general level, your suggestion that transport networks should be privatised does not seem to recognise economic reality. That is, because there are economies of scale in networks you will almost always end up with a monopoly provider.

But you are probably right that NZTA could a) collect revenue more efficiently and b) follow up on non-payment more vigorously. One of the reasons the costs are quite high in this case is (I believe) because the back-office systems are scalable to future toll roads, e.g. Tauranga Eastern Link. So over time the average collection costs should come down. The charge for trucks is also too low, mainly to get trucks off Orewa streets (ie externalities again).

If you're interested in learning something about transport economies I'd suggest you try Small and Verhoef "Transportation Economics." Focus on formulating and solving the "parallel routes with second-best pricing" problem.

Look forward to your next, slightly more informed, post on this topic.

libertyscott said...

First you're making some undeclared assumptions here. One being that the owner will have unfettered right to charge whatever it chooses, as there would be an option to cap the toll. I wouldn't advocate that, but it could address the congestion issue (although it is likely to be somewhat self moderating - capacity on the Northern Gateway is substantial, and congestion on the coastal route is largely seasonal).

Secondly, you assume the untolled route would not eventually be better priced. If congestion appears on the through route it is not difficult to introduce a toll based on vehicles transiting the old SH1. Hardly difficult and could be used to offset the rates contribution on neighbouring local roads based on the externalities they endure because of through traffic.

So that specific case can be addressed by better pricing. There is no good reason why the Orewa network can't be privatised by transfer of ownership to adjacent property owners, which would then be free to set prices as they see fit.

The concern about monopoly was noted in Better Transport Better Roads and can be addressed in the short-medium term by price control. It can be also be addressed by considering who networks should be sold or transferred to - an argument could be made to simply transfer ownership to all registered owners of vehicles, so there is effectively a co-operative arrangement which sees users represented on a board.

In other words, your concern is easily addressed. You may as well argue that telecommunications, water and electricity shouldn't be privatised, when ownership is not the issue.

On the cost of collection, NZTA already subsidises toll collection costs from motorists paying for the ill conceived Toll Systems Project which was scaled to be more than it ever was going to be. Indeed the costs of tolling what will end up being no more than maybe four toll roads through a central government agency were always prohibitive, but it proceeded for political reasons (and Transit was seeking control).

Trucks are probably NOT underpaying if you include RUC where trucks tend to overpay on state highways because the marginal costs of THAT network are far lower than the average per km RUC payment.