Why we need toll roads and PPPs and how they work

By CATHY ARONSON

Why do we need private-public toll roads?

To get through a huge backlog of road projects which otherwise would not be built by councils or the Government for 10 to 20 years.

Public money for roads could become even scarcer - Transport Minister Paul Swain has warned that as cars become more efficient and need less petrol, there will be less income from petrol tax to fix roads. The Government is also spreading its money over other forms of transport, including rail and cycling.

Private-public partnerships can also create more innovative designs. Contracts are more integrated, putting design, construction and operation in the hands of one contractor.

Toll roads have been used in New Zealand before, including Auckland Harbour Bridge and Tauranga Bridge, but each toll required a separate piece of legislation. Under the new legislation, the national roading body, Transit, and local councils will be able to build and toll their own roads or get private investment. Each proposal still requires a final signature from the Minister of Transport.

Exactly what role will businesses play?

The key word for both business and the Government is risk. The bill has included strict restrictions to protect the public and put the financial risk back on the private sector.

But the Government will need to share some risks because if contractors are asked to take on too much, their tender prices and tolls may be too high for the public.

The bill says roads have to be new with an alternative route, which lessens the amount of traffic and therefore the possible return.

It also requires the route to remain in public ownership, instead of allowing the private sector to own it and transfer it back after a number of years, as other countries have done. This restriction could affect financing for some contractors.

Crucially, the bill includes a clause to stop the private sector from penalising the public if traffic volumes are less than predicted. Traffic volume agreements are used overseas to bring down the price but normally on highways in larger cities with more traffic. The technique is simple - if traffic is higher than predicted, the private sector pays a return to the public; if it is lower the public pay more.

Has the idea worked overseas?

Transit is due to present a preliminary study to Swain based on overseas examples. Officials say successful toll roads need:

* At least 12,000 vehicles a day

* Standard four lanes

* Significant length - greater than 20km, providing time savings and better travel quality (bridges and tunnels are the exception)

* Few alternative routes

* Toll rate based on willingness to pay.

Mexico built more than 5000km of new roads between 1989 and 1994 but some only met a fifth of traffic projections and had to be saved with public money. The Dulles Greenway, outside Washington, attracted only one-third of its expected daily volume. Even after a toll cut of 40 per cent, it still only generated two-thirds of its original forecasts.

In Britain, the Government operates shadow tolling, where it pays the contractor for the traffic instead of tolling the public. This has led to some quick fixes but big bills at the end of a project.

Transit chief executive Robin Dunlop says vital components include traffic projections, the level of detail in the contracts and proper transfer of risk.

Is the bill likely to change much?

The bill is still open to submissions and a test of political will as it goes through Parliament in the next six months. Opposition politicians and United Future have already complained that it gives too much to the Greens, who agreed to support it only in return for concessions, including the requirement for alternative routes.

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