Once again, on this Valentine’s weekend, we are reminded of the price of love.
Each year, you see, Valentine’s Day falls around the same time as the interim profit results for Transurban.
Not only are these results a perennial reminder of how lucrative it is for corporations to do business with government, they also show how the monopoly toll-road operator monetises love, and not just from the fillip in flower deliveries at this time of year.
As one Transurban shareholder noted, in the aftermath of another excellent – and, as usual, exquisitely tax-free – set of profit and traffic numbers on Thursday, the price of love has been getting rather steep lately.
Perusing his bank statements, this fellow noticed that his son had, for some time, been racking up $18 a day in road tolls visiting his girlfriend on the other side of town.
Under a sweetheart deal struck by the Kennett government in 1995, tolls on Melbourne’s CityLink motorway were set at 4.5 per cent or CPI, whichever is the highest. This 4.5 per cent is probably the most lavish “base escalator” in the country, and though it was slated to finish this year, has been extended.
Our toll-struck father estimated that, if it persisted until the end of the concession period in 2034, Melbourne motorists would be paying $40 for the round trip. Were it extended another ten years, as is now under negotiation, it could run to $60.
For many, love may simply have to be conducted over the internet.
Indeed lovers would be moved – like Transurban with the lofty discount rates it ascribes to the value of its future cash flows – to discount the future value of their relationships by beating up risk factors and forecasting lower returns.
Neither is the grass much greener over yonder. In Sydney, the escalation and proliferation of tolls has even prompted people to move house.
Tolls can already surpass $500 a month for those commuting from the north-west of the city to the south via the M7 Motorway, the Hills M2, the Lane Cove Tunnel and the Harbour Bridge.
Clandestine arrangements between corporations and governments are a rising concern. With little in the way of disclosure, and therefore accountability, a government can now whack its infrastructure deals on the state credit card.
Build a road now and compel future motorists and taxpayers to pick up the tab, with interest.
Following the lead of NSW and its backroom deal with James Packer for the casino at Barangaroo, the Victorian government is now accepting unsolicited infrastructure proposals, too.
Its Western Distributor extension, due to be finalised with Transurban in March, is a case in point.
It’s all shrouded in secrecy, but we know Transurban is the sole contender for this $5.5 billion deal. It will cost a lot more than that, although the company rejects estimates by actuary Ian Bell that put the nominal value of the concession at $20 to $30 billion.
Whatever the case, Transurban has a track record of trumping state governments on deal terms, so unless there is enough transparency and debate Victoria will be put to shame again.
CityLink now charges $8.48 in tolls, one-way.
It was $4.24 in December 2000 soon after the tollway opened. Tolls are up by 100 per cent over 15 years while the CPI has risen just 48 per cent.
If tolls had increased by CPI, as is the case with most other tollways in Australia (including EastLink and the Queensland tollways recently bought by Transurban) the current CityLink one-way toll would be just $6.28.
Projecting a 4.5 per cent annual price increase forward another 18 to 19 years gives you a one way maximum toll of about $20 at the end of the current concession period and $30 at the end of the 10- to 12-year concession extension.
A spokesman for Transurban said the 4.5 per cent escalator had been due to end last year, after 16 years, and revert to CPI. However, as part of negotiations for the $1.3 billion Tullamarine widening, the government agreed to extend it until mid-next year.
As talks are now afoot for the Western Link, you can bet that 4.5 per cent base escalator will be on the negotiating table. The spectre of politicians wanting a quick deal – prodding their Treasury bureaucrats in talks with patient and crafty corporate types from the monopoly transport giant – is not a salutary one for motorists or taxpayers.
The state sometimes wins in a public-private partnership. Two Queensland toll-road projects and two in NSW collapsed, leaving the respective states with good assets on the cheap. When it comes to Transurban, though – and this is a credit to its management – shareholders are the winners.
Looking at transport deals more broadly, economist and transport planner Cameron Murray has created a database of 38 major projects over the past 20 years. What stands out, he says, is that PPPs are generally sold on nonsense traffic projections, while their costs are similar.
Somehow, those who put these deals together are able to shift investment towards bad transport project (low benefit-cost) from good ones in which the public would invest instead.
“This ‘over selling’ is clear in my data,” says Murray. “The average actual traffic demand for PPPs is 40 per cent below estimates, with many even lower. While for non-PPPs, actual traffic demand is 6 per cent above forecasts.”
Cost and time blow-outs are similar (both raw cost and cost per lane) though PPPs are far less efficient.