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How did Sydney end up with a toll road system characterised by a lack of competition, inequity, lack of transparency, excessive tolls and toll increases, aimed at looking after the finances of corporations and not infrastructure use, which will cost motorists $123 billion over the next 35 years?
For the few remaining Sydney motorists unaware of how egregiously they are getting ripped off by toll giant Transurban, which dominates the city’s toll roads, the interim report of Allan Fels’ and David Cousins’ toll review — commendably commissioned by the Minns government — provides a detailed description of a system that works very well for Transurban and very badly for the public interest.
Fels and Cousins conclude that tolls are too high. After an initial period when traffic is building and debt repayments are high, toll roads aren’t likely to produce excessive profits, they say, but the probability is high that they will do so once that period is over. Moreover, “there is no requirement for concessionaires to pass on the benefits of efficiency gains to motorists in the form of lower tolls” and “concessionaires enjoy a regulated monopoly price, safe from competitive challenge. They are free from the threat of competitors coming in at a lower price.”
Moreover, the indexing of tolls to inflation, or even to “CPI+x” indexation above inflation, means “Australian toll roads are a particular beneficiary of high inflation.”
In its half-year report issued in February, Transurban reported a profit margin based on earnings before interest, tax, depreciation and amortisation (EBITDA) of 74.2%, up from 73.1% a year earlier. That’s better than the likes of BHP (54%), Rio Tinto (44%) and Fortescue (59%), which make billions out of shifting iron-rich dirt in northwest Australia in a competitive global market. Transurban doesn’t have to compete with anyone — it simply uses its government concessions to extract super profits from motorists in Brisbane, Sydney and Melbourne.
How Sydney got to this point is a textbook study in how neoliberalism leads to monopoly corporations ripping off consumers and pushing inflation up to increase profits. The 1990s saw a need for additional infrastructure in a rapidly growing city combined with the rational policy that infrastructure users should pay for their infrastructure use and a hostility to government debt in the wake of the financial disasters of the Victorian and South Australian governments. The result was a new period of “public-private partnerships” to build major infrastructure projects. This was neoliberal theory in action: cash-strapped governments asking the market to devise complex financial solutions to fund road projects to be built and operated by the private sector years or decades ahead of when governments could afford them.
But in such “partnerships”, government bureaucrats were like lambs to the slaughter as bankers like Macquarie Bank, infrastructure companies and various ticket clippers negotiated immensely profitable deals with hapless public servants. Sometimes the private sector miscalculated the risk, as happened with the Clem Jones Tunnel in Brisbane, leading to RiverCity Motorway entering receivership. But usually, it was taxpayers — and motorists — who were the victims of the deals, especially after Transurban, which grew out of Jeff Kennett’s CityLink project in Melbourne, began acquiring other toll roads in Sydney and Brisbane.
Compare and contrast: the theory was that the private sector would compete to provide the lowest-cost infrastructure solutions for governments reluctant to take on debt, even though governments can borrow more cheaply than companies. The reality is a company allowed to achieve monopoly power by governments and able to use that power to gouge consumers at rates above inflation, for a product that they have to use, in many cases, five days a week.
Good thing the Reserve Bank says we don’t have a profit-led inflation problem, or things would be really crook.
There’s only one permanent solution to the government-created, toxic dominance of Transurban: the NSW, Victorian and Queensland governments should jointly compulsorily acquire the company — its market capitalisation is currently around $42 billion — sell off its North American assets and run the company in the public interest. They could then suspend toll increases, or even reduce tolls, and direct the revenue to more appropriate uses than lining the pockets of shareholders.
It would be a bold step, but it was state governments that created this monster in the first place. They’re responsible for fixing it.
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