Removing the Toll Bar – What about the Banks?

Issues to consider in polish reality ?

Based on John Deighton presentation

Rafał Szwedowski

History

The World’s first official toll road or turnpike was created at Wadesmill in Hertfordshire, United Kingdom by Act of Parliament in 1663.

The turnpike ran a distance of 17 miles between Wadesmill and Royston along the line of the Roman Ermine Street.

Tolls were one halfpenny for a horse and sixpence for a coach & horses.

There was one frontal toll gate at Wadesmill.

Key feature – Toll gate

The Key feature of all Turnpikes is the Toll Gate

If you do not pay you are not allowed through the gate!

The concept of Gate – Pay – Open Gate remains to this date on many Turnpikes, although gates now replaced by Toll barriers

By kind permission of www.ideal-homes.org.uk

Toll barrier

Technology advances

Over the past 20 years there have been advances in the technology of Electronic Tolling Collection (transponders) and Licence Plate Recognition (LPR) and the technology is now proven.

So why has it not been adopted on all toll roads?

Advantages

• No queues at Toll gates

• Improved journey times

• Higher traffic volume capacity and consequential revenue

• Tolls do not need to be manned 24/7/365

• Greater user satisfaction

• Lower overall operation cost

• Reduced emissions

Disadvantages

• An “open door” opportunity for Violators who may consider they can get away without paying the toll

• Loss of business for toll bar manufacturers!

The Banks position – First law

The First Law of Toll Road Revenue

Traffic volume X Toll Rate = Revenue

Second Law

The Second Law of Toll Road Revenue where the Toll Barrier is removed

Traffic volume X Toll Rate X K = Revenue

Where K = the proportion of users that pay the Toll (non – violators)

Third law

Third Law of Toll Revenue

The Gate protects the First Law of Toll Revenue

No money – no entry!

K= 1.0

The second law results in revenue uncertainty

The Banks dilemma

• Uncertainty as to the predicted number of potential Toll Violators leads to Risk Mitigation and the choice by the Banks of either picking a low K Factor or insisting the Toll barrier remains

• Introducing a low K factor impacts on project financial viability

• Revenue certainty is often considered more important than all the advantages of removing the toll gates

The Banks dilemma

The first questions the Banks will ask the Concessionaire borrower and the Banks’ Technical and Traffic Adviser

What is Factor K?

How certain is your answer?

The answer

• Pick a factor from 0.01 to 0.99

• It depends on public behaviour and attitude

• Your guess is as good as mine

• It depends on the perceived probability of the violator thinking he can get away with not paying

• Depends on legislation for enforcement measures and penalties for non- payment

The Banks response

• K factor is pushed low

• Assumed revenue reduced

• Project viability put at risk

• If the project involves Operation subsidy the subsidy will increase

• Cost to the State and taxpayer increases

Need for revenue risk mitigation

In these circumstances Project Bankability becomes an issue and there is a real need for Violator Revenue Loss Risk Mitigation.

What can be done?

Toll Roads without Toll Barriers

There are examples of a successful toll road operating without Toll barriers across the World

Our advisory teams have examined the key features of these successful projects to provide recommendations for those projects contemplating operating without Toll Barriers

Key features

• Robust legislation covering requirement to pay tolls and enforcement

• License plate recognition (LPR)

• Transponders for regular users

• Ability of non – transponder owners to pay prior to and for a short time after use of the turnpike

• Must have traceability from License plate to vehicle owner

• Full access to State Number plate – address database

• Responsibility for payment on vehicle owner not the driver

• Effective enforcement measures

• Violators identified from LPR and sent invoice for toll dues plus additional penalty for failure to pay

• Violator toll payment and penalty enforced by the State either directly or through Police authority involvement.

Important features

• In terms of the K factor there are two important features

• Violator penalties must be set at a level that provides sufficient funding to cover top-up of the toll revenue back to K=1.0 plus enforcement/collection costs

• State enforcement (with or without Police involvement) provides a deterrent to potential Violators

Deterrent

• If the Turnpike Agreement only provides the right of the Concessionaire to pursue Violators for the Toll + Fine through civil procedures only, Potential Violators will be aware that the cost of pursuit may outweigh the cost of recovery and “test” the project.

Result = lower K Factor

• State involvement via legislation with or without Police involvement is an essential deterrent

Key ingredients

• Sound Appropriate Legislation

• Good User awareness of the turnpike through good marketing and good publicity

• Methods of toll payment should be easy to use and user- friendly minimising risk of user “forgetting to pay” or “risking not paying”

• Designated State enforcement authority department needs to be established

• If enforcement is delegated by the State to the Police Authority it must not only be given the powers through legislation but should also be both willing, able and suitably manned to carry it out

• State involvement to provide significant deterrent

The overall regime is important

If the legislation and enforcement penalty strategy is robust, the risk of loss of

revenue can be mitigated to acceptable levels for the Banks.

Conclusions

• The Toll bar can be removed

• There are significant user and environmental benefits from removal

• There are significant economic benefits from removal

• Removal will be sanctioned by the Banks as long as there is appropriate State legislation providing the necessary and violator toll recovery, penalty and enforcement strategy

Conclusions

The Banks will not have a problem with Toll Bar removal if the

following are adopted:

• Appropriate State Legislation covering responsibility for toll fee (vehicle owner), enforcement and access to number plate database

• Violator penalties set at a level that recoveries are at least equal to lost revenue + cost of collection from Violators

• The State is ultimately responsible for collection of tolls from Violators unwilling to pay, providing security on revenue and more importantly a deterrent against non - payment

Conclusion

With the right project legislation this scene will become a thing of the past!

Without the right legislation the scene is here to stay!

Our experience

• We have served as banks technical advisor on Electronic Tolling and Traffic Management Systems (ETTM) for Melbourn City Link

• We supported Department for Transport’s Road Users Charging team on investigation of the practical use of PMR, GSM and GPRS for tracking freight vehicles

• For the Santiago South Highway we performed a due dilligance of the toll collection proposals.

• Halcrow lead a study ROCOL (Road Charging Options for London)• We are currently advising Edinburgh City Council on its congestion charging

initiative• And many other

Rafał Szwedowskiemail szwedowskir@halcrow.com Halcrow Group Limited Branch Office in Poland Koszykowa 54 str.00-675 Warsawtel. +48 22 630 83 79direct +48 22 630 83 81fax +48 22 625 42 11halcrow.com