Interactions of commercial considerations and government policy
The arrangements for toll roads in Australia interact with a large
number of areas of government policy. The most obvious are infrastructure and
urban amenity, but there are also impacts on environment, health and general
living standards and the legal system. There may also be broader considerations
around safeguarding the revenue stream and also about transparency and the
danger of corruption of processes.
Selection of projects, builders and operators
Tollways are by their nature major pieces of urban infrastructure which
link with other infrastructure. They involve many considerations which cannot
be resolved simply.
In general, the need for a transport link will be identified years in
advance in high-level planning processes.
In years gone by, governments would make a series of decisions: what
priority to attach to the problem, whether the link would be rail or road, the
various technologies to be employed, how people affected by the project would
be treated (including consultation processes), when the project would go ahead,
and whether funds from general revenue or a special loan or bond would be used
for the project. Tenders would be called with detailed specifications, and
contracts would be let to private sector construction companies. At least in
theory, all of these processes would have been public.
Public-Private Partnerships or PPPs have been an important element in risk-sharing
between government and business, and they have been used particularly in road
provision. Toll roads have emerged as a way for governments to save money, or
at least move expenditure out of the budget, in times of fiscal constraint.
While this may have been effective in ensuring finance, it may also have led to
a reduction in scrutiny of how proposals are adopted.
The old linear planning process is not necessarily followed now.
Processes vary from state to state, so the following discussion proceeds
largely by reference to specific examples. A project by project approach is
suggested by the operations of Infrastructure Australia, the body established
by the Commonwealth Government in 2008 'with a mandate to prioritise and
progress nationally significant infrastructure'. This approach
is also suggested by the establishment, announced in the 2017–18 Budget, of the
'Infrastructure and Project Financing Agency, to assist in the identification,
development and assessment of innovative financing options for investment in
major infrastructure projects'. It is possible that this
project-by-project approach, rather than holistic planning processes, is itself
a function of reliance on PPPs.
A series of commercial failures of toll roads has confirmed that there
are issues in the scrutiny process. In particular, the failures have confirmed
the well-established observation of 'optimism bias'. The forecasts of traffic
on a proposed new road are frequently far too high, especially for the first
few years after completion. One submitter suggests that it is realistic to
assume that traffic will be 60 per cent of the forecast.
Similarly, there is a systematic tendency to underestimate the costs of
building a motorway. Costs are projected with an estimate of the probability of
overruns. The Grattan Institute says that what proponents say is a cost level
that has a 90 per cent chance of being achieved is actually more likely to have
an 81 per cent chance.
While these errors have been treated as commercial issues, they are also
relevant to the decision to build a road at all. Inflated traffic forecasts
mean that the forecast overall benefits to the community are also inflated;
cost estimates that are too low similarly understate the cost to the economy.
The fact that the errors in forecasting are greater for toll roads does suggest
that the commercial interests involved may be influencing the calculation of
The Westgate Tunnel project and the proposed NorthConnex link in Sydney
are both the result of unsolicited proposals by Transurban. Several other major
Transurban projects, including the CityLink Tulla widening in Melbourne and the
Logan Enhancement project in Queensland, were also market led proposals.
As Transurban's submission points out, both of the current projects are
consistent with longstanding transport master plans, and both state governments
have requirements in place for rigorous assessments of such 'market led'
It is important that the market led proposal process explore alternative
ways of achieving similar outcomes. This is to ensure that public outcomes are
maximised and that private interests do not dominate the motivation of
Impacts on planning and urban amenity
Modelling by Ernst & Young and KPMG shows that motorways have
created benefits for individual drivers and for cities, largely by reducing
travel times. The adoption of the toll road model has enabled the bringing
forward of beneficial projects.
Transurban notes that:
In all of our project proposals, we look for ways to address
broader policy considerations such as providing active transport corridors, and
urban green spaces, and reducing vehicle emissions at the ground level, while
avoiding the need for the compulsory acquisition of homes.
Professor David Hensher observes that toll roads are often required to
meet conflicting objectives of community welfare and profit maximisation.
Similarly, the City of Sydney says:
The opportunity for a project to be delivered and funded by
user charges can overwhelm considerations of need, or whether a project is the
best approach to fixing an identified problem. A project may make financial or
commercial sense and still not be aligned with agreed economic, environmental
and social outcomes.
It has been pointed out above that the acceptance by governments of
market-led proposals for motorways has potential to disrupt orderly planning
processes. It was also noted that many of the processes, and much of the
discussion, around toll roads encourage a focus on individual projects. This
could be at the expense of broader questions of urban design, as well as
limiting the state government's ability to fund other projects.
The Westgate Tunnel project's community consultation process was
criticised as providing a framework for trading the benefits and impacts of the
proposal between the toll road and non-toll road users and between different
communities within the region, rather than for overall strategic assessment.
Some submitters expressed concern that big-picture issues such as the
objective of reducing the total amount of road traffic had been neglected.
On some projects there had been no full comparison with alternatives such as
rail. It has been argued that this is the case with the proposed F6 motorway
linking Sydney and Wollongong:
The planned toll road linking Sydney and Wollongong has been
costed at an extraordinary $18 billion – almost $12 billion more than the rail
alternative that would cut the journey to about one hour.
EcoTransit Sydney argued that reliance on motorways at the expense of
rail would reduce the attractiveness of Sydney as a global city, especially its
liveability and capacity to attract large scale investors.
Mr Paul Jeffery also judged them to have negative effects:
Spending vast amounts of public money on toll roads systems
at the cost of public transport is a blight on Australia [and] will reduce the
liveability of our cities with every kilometre built.
A common criticism of tollways, and of the process of deciding to build
them, is the failure to account for induced traffic. New roads may make
marginal trips more possible, they can result in land use changes, and they can
extend city boundaries. Along with the 'optimism bias' in forecasts is an
overstatement of the cost of doing nothing.
A further criticism is that tolls cause people to travel on alternative
routes, which may be residential and are certainly smaller and less able to
cope with a high volume of traffic. This is particularly the case with trucks,
where the tolls are much higher. This causes problems of noise and safety as
well as wear and tear on less well made roads.
In some cases the two effects, induced traffic and rerouted traffic,
coincide. For example both the Melbourne Westgate Tunnel and the Sydney Cross
City Tunnel have been criticised for bringing more traffic into city areas,
where local councils are trying to discourage traffic.
The CityLink project is an example of profound impacts on urban form.
The initial problem to be solved was gridlock in Melbourne streets in the early
...all these unconnected freeways were depositing unprecedented
volumes of traffic into the CBD. The freeways were linked by residential and
city streets, which were handling traffic volumes up to 80 per cent greater
than their capacity.
The CityLink project did not just relieve congestion, but changed the
dynamics of the city:
CityLink was not just important to the Melbourne road
network, it was its new spine, linking its far flung south-eastern suburbs with
its west, and Melbourne Airport to the north.
Impacts on living standards
The impact of tolls on household budgets has been dealt with in Chapter
4. Tolls exacerbate other factors that adversely affect living standards,
including stagnant wages and rising housing and energy costs.
Tolls are more inequitable than these other factors. People living in
some places pay tolls, while those in other places do not. In many cases the
inequity is exacerbated by the fact that toll roads serve areas that are less
affluent than the average. Thus, tolls function as a regressive tax.
In general, governments in Australia espouse equal treatment and progressivity
The enforcement of tolls and the treatment of unpaid tolls place a
further burden on individuals, who are often faced with debts which are
disproportionate to both their infringement and their means. This might attract
the interest of government consumer protection bodies, except that the handling
of unpaid tolls is dealt with in the original toll concession agreements, and
the actions that lead to very bad outcomes are made by state governments or
courts. It can be disowned by toll road operators:
Similar to a traffic infringement or a parking fine, it goes
through the state...once our customers fall into that system it's not good for
our customers and it's not good for Transurban...
Impacts on the courts
The impact of the enforcement of tolls on the court system has been
discussed in Chapter 4. In Victoria, it is such that it is delaying the
processing of other, more serious matters.
It appears that toll road operators do not pay for the enforcement of
fines—properly so, in the sense that the enforcement is part of the criminal
But the costs they impose are an implicit subsidy to the operators.
Impacts on environment and health policy
To the extent that toll roads increase the amount of car traffic by both
increasing the total number of trips and by substituting for public transport,
they increase the difficulty of meeting carbon emissions targets. They may also
lead to reduced air quality.
Motorways may also substitute for walking or cycling, or make walking or
cycling more difficult. This has been argued with regard to the Westgate Tunnel
Most governments aim to promote cycling and walking for health reasons.
These are, of course, products of motorways in general, not specifically
toll roads. The existence of a commercial consideration does create proponents
with strong vested interests.
Constraints on flexibility
All of the impacts on policy discussed above are exacerbated by the nature
and length of the contracts negotiated.
The most obvious examples are the restrictive provisions such as 'no
compete' clauses and compensation clauses which have been mentioned above. They
take away certain options, such as the development of effective and efficient public
Toll concessions tend to be contained in long term contracts, typically
30 to 40 years. This puts a huge constraint on the ability of governments to
operate flexibly. A particular example in this inquiry has been with regard to
the impacts of unpaid tolls and the actions taken to pursue infringements. Mr
Denis Nelthorpe told the committee:
We are currently talking to the state government about
changing that law, but it has been consistently said...that if the state government
does anything that reduces road usage or compliance then it is suggested that
there are clauses in the concessions agreements that would allow clawback by
the toll companies.
Professor David Hensher notes this inflexibility particularly with
regard to the ability to move to a more rational system of fixing tolls:
One of the great errors in the current tolling model has been
the political decision to prescribe a unit toll rate which is indexed over time
by the consumer price index. This has resulted in ring fencing on a crucial
mechanism that is capable of recognising the need to adjust the toll to ensure
that the travel time savings are delivered commensurate with the value (to the
users) of those time savings relative to the non‐tolled
route(s), given travellers’ value of travel time savings.
The overwhelming majority of the toll road corridors we have
are privately held and are the subject of either a sovereign contract or a
sovereign concession deed. That means the price to motorists was set at the
time those roads tendered and is set in the contract.
This inflexibility will obviously be a problem in any attempt to develop
network-wide road pricing.
Impacts on transparency
In the 'old' model of planning and commissioning infrastructure outlined
above, there would have been consultation at each stage. The decision to build
a road would have been subject to debate, before commercial considerations
The commercial dealings would have been by public tender. The outcome
desired would have been publicly specified. While each tender document would
have been confidential, the tendering process would have been governed by
strict rules and would have been fully auditable. Further, the tendering
process itself, while never perfect, imposes a pricing discipline on tenderers:
they have to assume that a rival tender will be for the lowest possible cost
Evidence to this inquiry suggests that processes for toll roads have
been less transparent. A market led proposal by its nature is made before open
consultation. If the state government is immediately placed into a position
where it is negotiating conditions with a commercial operator, confidentiality
on both sides makes sense in terms of the bargaining situation:
Certainly, in disclosing information...the need to balance
public transparency versus valid commercial-in-confidence considerations is
weighed by the state in deciding how much to disclose.
Further, Transurban argues that commercial confidentiality is necessary
to protect companies' competitive advantage, and diluting it would reduce the
attractiveness of infrastructure projects to investors such as superannuation
funds. It might also contravene rules governing listed companies, which are
limited in what prospective financial information they can disclose.
The Victorian government has a process of preparing business cases for
various proposals, encompassing all transport modes, and comparing the costs
and benefits of the alternatives. In order to increase transparency, the business
cases are published. The process allows for independent scrutiny and peer
However, the processes have been criticised by Mr William McDougall, who
in the past has worked for the Victorian government as a peer reviewer for the
economics of the Westgate Tunnel project. His reservations about the project
have been discussed in Chapter 3. When he raised questions about some
techniques, all of which tended to increase the modelled benefit of the road,
he was moved to another area of work.
Mr McDougall had also worked for project proponents. His experience
suggested that the government was working to justify the Transurban proposal
rather than to analyse it objectively.
I worked for one of the bidding teams on CityLink and then I
worked briefly on another team bidding for EastLink, on modelling and
forecasting processes. And that was on the other side of the fence, if you
like, working for private sector teams bidding to win a contract to build these
projects. And in those processes there was a lot of concern that we had about
the way the modelling and forecasting was being made to look as optimistic as
possible. I think that sort of issue is well known, but I had never really come
across it before, on this side of the fence in particular. On the government
side of the fence, where this was supposed to be an independent assessment by
the government of a proposal presented to them by Transurban, the private
sector, it seemed to me to be geared up as a process really of seeking ways to
get the project up rather than doing a properly independent and [impartial]
assessment of the project's benefits. The way I was taken off the work when we
did raise those concerns confirmed, for me anyway, that there was more interest
in getting the project through than on doing the work properly.
A lack of transparency makes it difficult for the public to understand
the decisions of government, or to mobilise against particular proposals. EcoTransit
Sydney argues that when public money is being used, commercial confidentiality
...Sydney Motorways Corporation remains absolved of all public
scrutiny because its status is that of a private corporation, even though the
government is funneling billions of dollars directly into its development of
Infrastructure Australia establishes a priority list of infrastructure
proposals or projects—they are described as both—which it says:
...supports transparent, evidenced-based decision making, enabling
decision-makers to select the projects that deliver the most community
The priorities appear to be generated by a benefit-cost assessment of
proposals submitted to it, by federal, state and local governments, and by
private proponents. Projects are added to the list only when a business case is
submitted. It does not appear to compare alternative solutions to
infrastructure problems that are being addressed by the proposals.
Specific example: WestConnex, Sydney
The WestConnex project in Sydney has also attracted criticism. The
submission of NoWestConnex Public Transport (NoWPT) points out that several of
the parties involved with the WestConnex proposal had been associated with
previous failures: AECOM had a history of wrong traffic forecasts, and Leighton
Holdings (now CIMIC Group) had been involved with the Clem7 project in
The basis of their selection is unknown. What is
known is that after both large multinational corporations were involved in the
first phase of planning WestConnex they were both awarded contracts for major
parts of the design and construction of stages 1 and 2, and in the case of
AECOM, for delivering the critical element of public scrutiny, the
Environmental Impact Statements for both stages.
Ms Wendy Bacon also points to the involvement of these companies and
others including Macquarie and suggests poor public policy decision making,
exacerbated by commercial interests. She argues that there has
been no evaluation of WestConnex in comparison with public transport or other
She concludes that the decision was made to go ahead with the road before the
analysis was done. The project was declared to be of 'critical state
significance' and the processes were abbreviated. Ms Bacon
argues that modellers decide first what answers are needed and then develop a
model to arrive at them.
The Australian National Audit Office was critical of the Commonwealth's
role in funding the WestConnex project:
The upfront payment and approach to agreeing and adjusting
milestones for later payments did not adequately protect the Australian
Government's financial interests. Additionally, the provision of the
concessional loan did not achieve the Australian Government's objective of
bringing Stage 2 of the project forward by approximately two years. The
WestConnex project had not proceeded fully through the established processes to
assess the merits of nationally significant infrastructure investments prior to
Australian Government funding being committed.
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