An unholy alliance? Toll roads, the millionaire factory & off target traffic projections

I’m an admirer of Streetsblog, the US based organization that describes itself as “a daily news source connecting people to information about sustainable transportation and livable communities”.

It produces great articles, mainly about transport and its effects on cities. It recently ran a three part series about privately funded highways, of the sort usually called tollways. You know, a government does a deal with the private sector to build and operate high speed roads on which they can levy a toll.

On the face of it, this seems like a good idea to the average punter – a new road gets built to connect places up; the government (and therefore the taxpayer) doesn’t have to fund it and the user pays.

Except a lot of them go broke. Here in Brisbane, we are up to two tollways (namely the Clem7 and Airport link) that have gone bust – both were tunnelled and largely privately funded, with a combined cost of around $10b.

Even so, would you believe we are building another one, and talking about a further one beyond that. Thanks to Streetsblog, I’m starting to understand more about why, beyond the flawed belief that building more roads will solve congestion.

The first of the three part series looks at a particular example, the Indiana Toll Road privatization, as “an example of shoddily structured infrastructure deals”.

But what I found most interesting were the second part called “How Macquarie Makes Money By Losing Money on Toll Roads”; and the third called “The Great Traffic Projection Swindle”.

That’s Macquarie as in the Australian group (which pre-GFC used to be called the millionaire factory because of the number of people it made rich) that has developed a model for making a lot of money by buying these assets at inflated prices, mostly using someone else’s money, and shifting the ultimate cost to investors. As respected financial journalist Alan Kohler is quoted as saying in the article: “The Macquarie model is justly famous around the world. It is quite possibly the most efficient method of legally relieving investors of their money ever conceived.”

But that’s not all. The third part connects the dots on the history of various consulting firms producing what turn out to be heroic projections for future traffic volumes (and therefore revenue) that usually turn out to be vastly exaggerated, and are explained away for a range of reasons after the fact. In the Brisbane examples, the projections were more than double the traffic that turned up. The article points out the other ways these consulting firms benefit from these projects.

And in the end, it is often governments and taxpayers left holding the baby.

So one could be forgiven for concluding many of these projects are giant Ponzi schemes, where the smart money makes money but the punters (and the public purse) lose out.

Yet they keep getting built. Witness the unseemly enthusiasm of the (now defeated) Victorian government and the Federal government for Melbourne’s East West Link.

Time to call the behaviour and for our governments to start making smarter transport infrastructure investment choices, methinks!

Greg Vann
December 2014


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  1. Tim Nichols says:

    Spot on Greg, good summary. And it doesn’t stop at roads – take a look at Paul Mees’ work on the privatisation of Melbourne’s PT network. Inflated useage projections tied to complex contracts that require the public to top-up the difference – or put simply, ‘rent seeking’. I believe the Vic gov now spends more on PT than prior to privatisation? I think he attributed it largely to the naivety of governments in believing they can deal with multi-nationals on a level playing field.