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Road reform: Could Australia lead the world?

Scott Wilson

Managing Director, D’Artagnan Pacific

ACCC/AER Regulatory Conference

1 August 2019

Brisbane

Road really are different Along with water, the oldest “utility”? PICTURE OF ROMAN

Significant use of land compared to other utilities

Functions vary considerably – Arterial, access, public space

Dominated by private users with their own vehicles, resulting in

1214 deaths per annum primarily due to user behaviour

Interactions between 25 kg humans at 6 km/h and 120 tonnevehicles at 110 km/h

Opinions on them are common and polarised

Infrastructure design dominated by response to human factors

Transport policy puts a lot of effort into discouraging some use YET

Hardly anyone knows how most of them are funded or managed

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No shortage of reports recommending road reform

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• 2007 Productivity Commission Inquiry• 2009 Henry Tax Review• 2014 Productivity Commission• 2015 Harper Competition Policy Review• 2016 Infrastructure Australia - Australian Infrastructure Plan

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Key themes• Poor link between charging road users and spending on the network• Low use of user preferences in informing spending decisions• Poor quality of many spending decisions• Short term approaches to asset management, maintenance and renewals• Poor incentives to improve levels of service• Poor incentives to improve productivity of network supply and use• Charges do not well reflect consumption of the network and costs generated by

users

The case for reform is considerable


Sources: Roads to Riches, April 2016, Grattan Institute and Road Congestion in Australia, October 2018, AAA.


Globally, most jurisdictions respond to pressing issues

Issue Most common responses

Difficulty in financing large projects

More public sector borrowing, bonding against new revenue (e.g. gas tax increases), PPPs

Insufficient revenue to fund priorities

Fuel taxes and registration fees, tolls on major new crossings or corridors

Difficulty in funding long-term spending

Multi-year budget agreements, PPPs for large projects, hypothecated roads funds

Need to ration spending Technical and economic advice on funding decisions

Poor road managerperformance

Establish specialist agency under Departmental supervision

User input Planning process for major projects

Incentives for productivity Budgetary restraint, PPPs, sub-contracting

Few jurisdictions have embarked on comprehensive reform


Austria

Croatia

England

France

Hungary

Italy

Japan

Latvia

N. Zealand

Portugal

S. Africa

S. Korea

Three examples are notable for Australia

New Zealand: Heavy vehicle RUC since 1978, hypothecation since early 1990s, independent funding agency. 1990s attempt to fully commercialisemanagement of ALL public roads. BUT has slipped back


England: Highways England – Crown company, manages and maintains strategic road network of England. Has five year funding settlement with government with agreed performance standards and projects to deliver. Hypothecated fund to come in 2020/21

Austria: ASFINAG – Federal Government owned company, plans, manages and maintains national highway network. Borrows against revenues collected directly from users of that network

Austria – Self-funded Federal commercial highways manager


1982 ASFINAG set up as a highway financing company, 1997 reformed to be commercial road manager, with assets “bought” from Federal Government

• Has right to charge all road users on its network

• Separate supervisory board• Solely funded from road

user revenue• Life cycle asset

management• Investment based on return

from users• State guarantee for its

borrowing

Austria seen as a success story by stakeholders


• 2004 introduction of distance/mass based heavy vehicle charges supplemented by vignette (time based permit) for light vehicles. Toll/vignette system costs 6% of gross revenues. Fully funds maintenance and capital construction budget

• Road maintenance, funding for new capital is not an issue in Austria. Large base of assets well maintained (1950s-1980s network)

• Only taxpayer contribution has been EU contributions to planning costs of strategically significant network (TEN-T) (<20% of planning costs)

• Ranked 10th by World Economic Forum for road network quality (Australia 35th), 4th in the European Union

England: Commercial highway manager, but early days

Highways England set up in 2016, responsible for all motorways and strategic roads in England. Carries 34% of traffic in England, but is only 2.4% of network length

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• Five year funding settlement agreed with Cabinet, includes list of agreed projects. Priorities may be adjusted due to planning, legal issues

• Funding settlement performance supervised by Department for Transport• Office of Rail and Road reports on performance and efficiency • Transport Focus (independent quango) provides user input on performance• Eleven KPIs set to meet covering safety, network availability, completion of

capital works, efficiency of operations, environmental objectives and user satisfaction

• Partial funding from hypothecated registration fees from 2021

Early results appear encouraging

32% reduction in fatalities in four years

98.3% lane availability, 88% of incidents cleared within one hour.

88.4% user satisfaction (target 90%)

95.5% of network in good condition (target 95%)

£848m in savings (5.6% of total budget) in capital programme in four years (70% of target to date)

Significant effort in changing competencies of the company (more commercial and asset management capabilities)

BUT 4% increase in time lost per mile due to congestion

Only expected to deliver 68% of projects forecast

Rees Jeffrey Roads Fund (thinktank) called for management and funding of another 3,800 miles of main roads to be reformed


New Zealand has had a long history of reform

Distance/mass Road User Charges (heavy/light diesels) since 1978 (no excise duty on diesel)

1990s saw:

Benefit/cost ratio based rationing of funding

Mandatory outsourcing of all infrastructure works

Pioneering of mandatory asset management and long term maintenance planning for all road managers

National Roads Fund established

Politically independent road funding agency established

Multiple studies on structural reform and pricing


Drivers for reform in New Zealand were familiar

Too many road managers (75) affecting efficiency and responsiveness of the system to user needs

Increased funding unlikely to deliver systematic benefits

Existing structures too inflexible

Existing structures unable to access capital markets

Poor incentives around customer service and innovation

Weak signals about choices and levels of investment

Poor pricing signals to users

Pressure to subsidise other modes inefficiently as second best option to better pricing

Existing structures unlikely to develop pricing options to meet users’ needs rather than technical, bureaucratic or political imperatives


1998 announcement: Better Transport Better Roads package

All public roads to be managed by independent road companies:

Crown-owned state highway company

Up to eight local-authority owned regional road companies

New independent funding company to manage roads fund and purchase road maintenance and improvements on behalf of all road users as customers

End of local authority rates funding of roads

Road companies empowered to price directly in exchange for opting out of existing charges

Road companies required to retain existing network, with CSO equivalent

Pricing subject to independent regulation to avoid abuse of market power

Bill defeated after 1999 election and change of government


What went wrong contains key lessons for Australia

Local government opposition was significant. Insufficient attention paid to rural concerns, and urban opposition to loss of power

Public sceptical that higher charges would be countered by lower rates bills (lack of trust in local government

Public largely unaware of how system worked and how reform might benefit them

Reform fatigue after 15 years of widespread economic reform and disruption

Change of government saw philosophical change towards more interventionist and centrally planned approach to land transport funding

Consistent budget surpluses saw all fuel duty hypothecated from 2008. Pressure for efficiencies subsided as supply solutions became politically popular


Australia faces big challenges and opportunities


Challenges Opportunities

Constituency of support for reform Reform can address persistent congestion, access and maintenance issues over time. CSO guarantees

Public sector resistance to restructuring

Build constituency of support from users about improving levels of service

Depoliticisation of spending decisions Users told best projects get funded, always. Maintenance first

Benefits of reforms are incremental Most reforms invisible to the public

Hypothecation means loss of control Hypothecation increases acceptability of reforms

Pricing is unpopular Trials can ease concerns and engage stakeholders

Fuel tax is unsustainable long term Easier to trial RUC on a small fleet of electric vehicles

Other points to consider

Roads vary considerably with different user needs and stakeholder interests (arterial vs. access)

Changing the culture of road managers takes time

Few trust governments to scrap or significant reduce existing taxes in exchange for new charges

Impact on and of existing PPP concessions

Reform of safety regulation and enforcement to be responsive to user and policy needs

Incentivising appropriate management of environmental impacts based on evidence not perceptions


What next?

Reform should be an integrated, coherent package of steps

Communications of the benefits of reform is critical

Advancing HVRR supply side reforms can help build momentum and confidence in progressing further reforms

Options for structural reform of road management need to be developed, and linked to reform of funding from the Commonwealth

Charging will only be acceptable with hypothecation and independent price regulation

Trials of heavy vehicle charges can build confidence for a transition from rego/fuel duty towards direct user charges


Thank You!Scott Wilson

Managing Director, D’Artagnan Pacific Pty Ltd

TEL: +61 (0)405091622

EMAIL: [email protected]

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