The idea that our existing transport taxes will fully cover the cost of maintaining and expanding our transport system has long been false. Governments of all stripes have pumped billions of additional spending in to fund major transport projects like motorway extensions.
This government are taking that to the extreme with their obsession for mega roads and the many billions they will need to fund all of their roading wish list is money that can’t be spent on other things, like hospitals, schools or any of the myriad of other things the government do.
In order to help fund some projects, they have said they’re open to tolling and have confirmed that three roads under construction (or soon to be) – Penlink, Takitimu North Link, and Ōtaki to North of Levin – will all be tolled, joining the Northern Gateway in Auckland along with Tauranga’s Takitimu Drive and Tauranga Eastern Link.
Now they’re looking at whether they can sell off tolling rights for a quick funding hit, with Transport Minister Chris Bishop last week announcing:
“Although existing toll roads are currently managed by the NZ Transport Agency, the Government is, for the first time, considering private sector involvement in the operation of toll roads. This includes the potential use of toll concessions as part of a broader approach to infrastructure delivery.
“A toll concession involves a private entity—known as a concessionaire—being given the right to manage and maintain a toll road for a specified time. During this period, they collect toll revenue to recover costs and earn a return. In exchange, the Government receives an upfront capital payment which can be used to fund additional road projects and potentially deliver them years earlier than would otherwise be feasible.
“Concessions may apply to existing toll roads to operate and maintain a road, or be integrated into the development of new roading infrastructure. In the latter case, a private partner could be contracted to design, construct, operate, and maintain the road, and recoup operations and maintenance costs through toll collection.
“There are several advantages to toll concessions: they can provide immediate capital that can be used to deliver more infrastructure projects sooner, draw on private sector expertise and innovation in areas like construction and tolling technology, and can help government to share and manage risks more efficiently.
“It is important to note that the Crown continues to own the toll road under a concession arrangement. The private operator manages the road for the duration of the concession, after which control reverts back to a government agency.
“Next week, my officials will begin market sounding discussions with toll road investors, operators and financiers to test opportunities for private firms to operate and maintain toll roads through concessions. The officials will meet with a cross-section of market participants – from international toll road operators to domestic and international investors and iwi – to get a range of perspectives on the opportunities available. If work on concessions is taken forward, there will be wider opportunities to be involved in any transactions stage.
“Market sounding discussions will give us deeper insight into whether toll road concessions are viable here, under what circumstances, and the different ways they could be structured and phased.
“The Government will test concession opportunities on:
- New Zealand’s existing three toll roads – the Northern Gateway in Auckland, and Takitimu Drive and Tauranga Eastern Link in Tauranga
- Three roads in development that Cabinet has confirmed will be tolled – Penlink, Takitimu North Link, and Ōtaki to North of Levin
- All future Roads of National Significance
“Officials will also seek to understand the extent to which concessions could support private investment and involvement in delivering other future projects beyond the immediate RoNS programme, including an alternative Waitematā Harbour crossing, where the significant scale of such projects and investment needed means different delivery approaches may deliver greater value for New Zealanders.
“The Ministry of Transport has appointed global investment bank, Citi, as its financial and commercial advisor to support this market sounding process.
“Citi has extensive experience advising on toll road concessions overseas and we’re pleased to have access to their expertise, connections and insights to ensure we run a high calibre market sounding process.
“The insights we get from the market sounding will inform my decisions about whether and how to take toll concessions forward, including which ones are viable and have value. I look forward to hearing what the market has to say,” Mr Bishop says.
The Government expects to make decisions on toll road concessions later this year.
I’m certainly not opposed to tolling these new roads, and in cases like the Waitematā Harbour crossing we should probably even consider bringing back tolls on the existing bridge as a demand management tool which will help in assessing if a new crossing costing tens of billions is actually needed. But selling off tolling concessions risks locking New Zealand into poor long term outcomes. That is certainly the case in Australia where private tolling company Transurban has been able to secure extremely lucrative control over the urban highways in Sydney and Melbourne, not without its critics, see this from The Age, for example:
“CityLink gave Transurban financial clout. After overcoming a difficult and controversial beginning, Victoria’s first private toll road has generated $5.78 billion in revenue since it opened in 1999. By the time its Kennett-era contract ends in 2034, that figure is likely to be well over $20 billion (in nominal terms). This, on a project that cost $1.8 billion.”
As noted above, selling a tolling concession would see a third party pay the government an upfront fee to manage the tolling system for one or more roads. Despite what people might think when they’re paying a toll, most toll roads don’t collect all that much money. Furthermore a big chunk of the money collected goes straight back into paying to operate the system in the first place. This can be seen in the NZTA’s Annual Report which shows the tolls off the existing three toll roads was $41.3 million in the 2023-24 financial year but of that, $14.1 million – around 34% – went back towards running the tolling system.
That $41.3 million was quite a jump from 2023 and is in large part due to increases in the toll charge – though the increase in the Northern Gateway is also in part due to increased usage following the opening of Puhoi to Warkworth in mid-2023.
Most of the government’s RoNS projects are on routes that currently have traffic volumes less or maybe equal to the two Tauranga roads. Any third party operator is obviously going to want to make some profit from the deal. Maybe they could use some existing systems to help significantly lower the cost of operations but it’s likely the majority of that profit would need to come out of the remaining revenue and means on a like-for-like basis the government are bound to get less than they do today.
Sure, if you take what’s left after operational costs and profit are taken out and multiply over a long period, say 30 years, it will look like a big amount, possibly hundreds of millions of dollars. I’m sure the government would proudly proclaim this as a great result for the country even keeping the existing system would collect more over the same period.
Hundreds of $millions will also not go all that far when many of the projects are expected to cost billions each.
Perhaps a bigger concern would be what secondary impacts these tolling concessions could bring. Could they for example argue against or even prevent projects or policies that might offer additional options in how they travel, be it by road or other mode. Could they sue if traffic predictions don’t turn out as expected?
Will these third parties also be able to set toll fees? Surely the more control they have over that the more interested companies will be in getting involved but what happens in the future if they start cranking up those fees. Notably New South Wales are currently in the process of looking how they can get more control of tolls
Perhaps the only real reason for this comes from the notes at the bottom of the announcement. Is this all just to appease one coalition party?
Exploring toll concessions gives effect to the National-ACT coalition agreement to institute long-term city and regional infrastructure deals, allowing Public Private Partnerships (PPPs), tolling and value capture rating to fund infrastructure.
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Wouldn’t it be best to use RUC to 100% pay for roads? People can then see a direct added cost for their journey, and might be more inclined to change their transport choice.
There is a new bus route near us. It’s been operating for a year and now the road surface has been ripped apart (it was fine for 10+ years with only light vehicle use), so heavy vehicles should be paying substantially more RUC (based on the added maintenance cost they add).
Agree, transport should be 100% user pays. Imagine if the government subsidised food, they would be considered communist, but for transport it is completely accepted and voters complain about excise tax increases.
Old people complain about their rates bill, a big percentage of that is for transport. They pay the same rates (or more depending on their house value) to drive to the bowls club and back once a week as a family who commute 200km a week. RUCs would solve the rates issue too.
I also wonder if PT could be unsubsidised and even privatised if using cars wasn’t so cheap.
“Agree, transport should be 100% user pays”
It’s a lot more complicated than that. The socioeconomic impacts, including their distribution, of 100% user pays need to be considered & mitigated.
For example, the poor are forced to live on the outskirts of the city due to land prices. The swap housing costs for transport costs.
Adding user pays tolling then disproportionately impacts them.
I’m all for user pays in transport, but charging such as tolling it has to go hand in hand with offsets to mitigate the socioeconomic impacts.
e.g. free park n ride, substantially improved PT services, and potentially increases in welfare transfers.
With regards to PT being subsidised, it is the only form of transport available to some people. Because we don’t all have the same income and wealth there are substantial socioeconomic reasons to subsidise PT.
Also, vehicle users pay nowhere near there full costs. If we are going down the user pays route removing the massive subsidies (no congestion tolls, underpriced parking, taxpayer funding of roading, etc etc etc) vehicle users enjoy is the first place to start.
If the government subsidises something that could easily be user pays, it leads to all sorts of bad outcomes. In Venezuela they subsidised electricity, the result was massive grid outages because people mined bitcoin. Here we subsidise roads and wonder why we have congestion and obesity.
stop subsidising Police and Courts. They shall be user-payed
In fact I’d go one further – instead of rate/tax payers paying for roads, they should be being paid for roads:
– Collect rates on roads
– Collect rent for council/government land used by roads
– Collect a tax for pollution caused by transport
Those should all be paid for by the user.
All of a sudden, more space efficient means of transport like PT become more desirable.
What we have at the moment is neo-liberalism only when it suits.
Yes, the irony of the “PT must pay its way” brigade is that if we applied that to all we would probably get less roads, but more cycleways and bus lanes.
RUCs should pay for operations and maintenance. Tolls should pay for capacity. If a new or wider road is needed to cater for additional traffic then it should be tolled (or other user pays funding ie Land value capture). Ideally the existing route should be tolled first – to see if demand response eliminates the need for the new road at all.
Il not a fan of tolls at all. Imagine if we did that with power, some area needs new transmission lines due to growth and they have to pay the full cost (maybe 10x the power bill), while another area with no growth pays maintenance only as their lines are existing.
If we want the likes of tolls, go the full privatisation approach, sell the roads to a private parties who can extract as much money as the user is prepared to pay, new or used.
We very much do that for power transmission! It was one of the main goals of the new transmission pricing methodology changes a couple years ago.
Capacity and resilience investments are charged on a beneficiary pays basis. For example the big Whakamaru to Brownhill line to Auckland built 2012 is paid for by generators, and the consumers of the upper north island.
It encourages people to build load and generation in areas with existing capacity.
https://www.rnz.co.nz/news/business/465145/electricity-authority-adopts-long-awaited-power-distribution-pricing-plan
A trip on a moderately busy rural road that has existed for 100 years for example will cost dramatically less per km than a new highway especially if it involves a tunnel. The direct added cost equation is much more complex than RUC can reasonably capture. Tolls on the most expensive brand new routes can (very easily) be much more cost reflective.
When spread across regions this is significant. Ie Canterbury pays double into the NLTF than what it gets out because these roads are cheap to service and go to extremely expensive to build ones in the north island.
Heavy vehicles do pay for the added maintenance burden. But most roading costs are fixed regardless of use, due to weathering of the surface etc, so are charged to every vehicle.
“Perhaps a bigger concern would be what secondary impacts these tolling concessions could bring. Could they for example argue against or even prevent projects or policies that might offer additional options in how they travel, be it by road or other mode. Could they sue if traffic predictions don’t turn out as expected?” 8%er’s Regulatory Standards Bill comes to mind.
Good point. If the govt took the money and then ploughed it into rail, perhaps stalling any increase in traffic on certain routes, the toll operator would need to be consulted and, potentially, compensated.
Reason #124 why its an awful piece of legislation.
DCOM
1) The bank always wins
2) The Operator always locks in a “we can’t lose” clause
3) Want to add a new interchange/ enable development? Negotiate a fee!
4) You and your descendants pay forever, or buy out the toll (Skye Bridge, Scotland).
The ferry to Skye was lovely. The bridge just made things worse.
You wouldn’t say that if you lived on Skye. Once the bridge allowed direct driving, the penalty of the toll became too much for the island to put up with for long. The toll was very quickly bought out.
Firstly, why more roads? Fix our damn train system so passengers can ride everywhere!
Secondly, every time these neo liberal strange persons come to power, they try to sell parts of our motu, and they are doing it again. We own so little already, with UBER sending it’s taxes offshore, COAL being taken by a company not from here, GOLD being taken by a company not from here. How stupid are we? Sell everything so our children will suffer the consequences of our stupidity (again)?
It is boring, a repeat of what my own parents fought before and after I was born, and now as a “grown up” and father of two, I need to fight these idiots again? Loitering my time, just to be sure that my kids do not die younger than me (run over by a Remuera Tractor or similar tankesque vehicle)?
It is sad to be a dad in these circumstances.
I have the fortune of being an apartment dweller, and own a community services ATHOP card, so I can do everything without driving. But trying to convince the rest of the persons in this motu that life is better without traffic, now that will see me dead.
Move your tamariki in public transport, it is the only safe mode in the big city.
bah humbug
After complaining about the previous governments debt funded spending spree, now watch as this government go on a debt funded spending spree. The only difference being they will hide it off the books in PPP schemes where it will end up costing us much more to pay back.
This makes about as much sense as using your credit card to pay off your mortgage.
It’s extraordinary that MoT are talking to Citi “as its financial and commercial advisor to support this market sounding process” – this “global investment bank” has been bankrupt (morally and financially) so many times – and involved in Enron, the GFC, money laundering, false certification, collapsing mortgages, failed stress tests, and swallowed up billions and billions and billions of US Federal funding.
Why on earth would anyone trust them to do a traffic count, and how many oodles of dosh will this cost the MoT in this little folksy backwater? Someone really good at talking must have done the selling pitch that day! Good grief, the foolishness of this National/Act/Nazi coalition knows no bounds….
Who better to ask when you’re sure of the answer you want to get?
Conversely, one advantage to having a private operator set toll rates is we might get much closer to market clearing than a government setting the rates might get.
Even if this money is siphoned off to kingdom come, the simple act of prioritising high value traffic would be a huge net benefit.
Ask the Province of Ontario how selling Highway 407 turned out.
“Auto Shenanigans” has a great short video on a section of privately funded (DBFO) motorway in the U.K. that cost 128 Million to build, it will return its owners 700 million less maintenance over the contract period before handover to U.K. Govt, and would have cost ~285 million if govt had just borrowed and built in the first place. This is our future…
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A1M – The Secret TOLL Road That You Didn’t Know You PAY – EVERY TIME YOU DRIVE IT! https://youtu.be/BkZKVl8iCqc?si=iEVeTcpeAL2yhpUn
PPP’s /concessions are a nightmare.
a) the concessionaire extracts absurdly high rentier monopoly profits. Transurban in Sydney is a prime example.
b) they go bankrupt and the taxpayer ends up bailing them out.
c) the required rate of commercial return is typically double that what the govt can borrow at.
The best type of PPP seems to be that similar to Transmission Gully where the concessionaire is simply paid to keep the road open and operational. But even TG had contract issues.
NZ’s massive infrastructure deficit is self-inflicted. The population growth rate through net inbound immigration has been well above the rate at which the country can build at and fund.
NZ is now stuck in the situation, irrespective of how it is funded (PPP or govt) that the current generation of NZers will be clobbered with the cost one way or another.
Given the issue is intergenerational, very long term infrastructure bonds would seem to be the fairest way to address most of the infrastructure deficit.