Thursday, 25 November 2010

UPDATE: RBS bails out of Brisbane toll road (originally Brisbane's M7 Clem Jones toll tunnel fails to meet forecasts)

The M7 Clem Jones tunnel is Brisbane's (Australia) newest toll road being a A$3.2 billion project to connect (maps here) the near southern suburbs of Brisbane (from the Pacific Motorway) to the northern suburbs on the inner city bypass, bypassing the congested Story Bridge.  In essence it is a 4.8km north-south inner city bypass tunnel (with 2km of approach roads) for Brisbane, bypassing 24 sets of traffic lights and providing an additional river crossing with 2 lanes in each direction.

It is the first privately owned toll road in Brisbane with a 45 year concession owned by Rivercity Motorway Group (a publicly listed Queensland company with no single shareholder holding more than 11% of shares).

It has a fully electronic free flow tolling system using DSRC tags and ANPR (Automatic Number Plate Recognition).   Tolls range from A$1.50 for motorcycles to A$3 for cars and up to A$9.90 for HGVs and buses.   However, since the tunnel opened in February 2010 traffic forecasts have failed to eventuate.  Bear in mind that the global recession has barely hit Australia at all, so the real issue is the optimism around forecasts.    The forecast was around 60,000 vehicles a day, but actual usage only reached 34,705 at best in August. 

The effect of this is that the owner has asked its lenders to give it a two year break, as the Airport Link toll road is expected to increase demand when it opens in 2012. 
A Sydney Morning Herald report gives five reasons for the failure as:
- Flat traffic growth in Brisbane since 2005;
- Significant roadworks on approach roads reducing the attractiveness of the route which will not be finished until 2012;
- Lower value of time in Brisbane compared to Sydney and Melbourne, in short Brisbane motorists tolerate delays more than motorists elsewhere in Australia;
- Other road improvements completed far sooner than predicted (Gateway Motorway duplication, which is the main outer Brisbane north-south bypass, and the Go Between toll bridge which eases congestion in the inner city); and
- Tolls seen to be too high (a 6 month discount period was introduced that recently ended).

Assuming the banks agree (and what choice is there), this tunnel will limp on and the Airport Link project will likely improve its viability.

More widely this road shows the wisdom of letting private investors carry this risk.  The tunnel exists, regardless of what happens to the investors, it will be kept open and operated by any creditors, and so creates a major benefit for Brisbane over the long run.  It removes traffic from busy at-grade corridors, improving environmental conditions and allowing more road space to be free for buses and other traffic approaching the city.  Moreover, the toll ensures not only are the costs recovered from road users but that traffic will remain free flowing over time.  These toll roads are not only financing new capacity and saving taxpayers (and other road users) money (as well as benefiting residents and users of bypassed roads), but also ensuring the new capacity is priced efficiently (too high and the road would be used, too low and revenues will be inadequate and the road gets congested).

UPDATE: One of the largest shareholders in River City Motorway Group, the 78% UK Crown owned Royal Bank of Scotland Group (RBS), has bailed out according to the Courier Mail.  RBS's original stake was worth about A$120 million (US$118 million).   However, by the time of the divestment its value had dropped to $A581,000 based on the sharemarket value.   The divestment has been by donation to a charity for A$1, because a sale would have raised a conflict of interest as RBS was a leading banker to the company. 

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