February 01, 2003

Tolling starts on the Trans-Israel Highway … Sort of

Travel was free on the Highway for the first months, despite the fact that tolls will be used to pay for the road’s construction. This was to ramp up the fully automated tolling system, but was also supposed to serve as a “marketing device.” The free opening was an unusual move, however, as international experience has shown that drivers resent paying for something once they have used it for free.

Without tolls, traffic was a brisk 50, 000 vehicles a day ? many times the projected volumes, according to a Highway Company announcement. Once tolling began in January, traffic dropped to 16,000.

Radio ads began to encourage use of the Highway, touting it as “the calmest there is.” Especially marked was the drop in volume of trucks over four tons, which pay $4 with a subscription, and $5 without. Many companies hauling freight felt that the tolls on their fleet would cut too severely into their profits, and told drivers that they personally, not the company, would be liable for toll charges.

Time will tell whether this initial refusal to use the road is a ploy of trucking companies to get a reduction in rates, or simply a pragmatic assessment of benefits.

The army has also found the time savings not worthwhile, and ordered its extensive fleet to avoid the Highway. Another group that is upset with the tolls are the owners of leasing and car rental companies. Because the toll billings are sent to car owners, not their users, these companies fear that their clients will evade payment.

While these tolling problems might be written off as the inevitable teething problems of a new system, other facets of the new road are more worrisome.

For example, the tendency for traffic jams at the exit of the highway when it was untolled may be indicative of a problem that was anticipated by critics: while the road will provide a convenient congestion-free corridor to the East of Tel Aviv, it leaves access into the city itself untouched unless a set of lateral connecting roads is built.

The Highway itself is budgeted at over a billion dollars, of which half has already been spent. But the lateral connecting roads necessary to provide the anticipated levels of traffic are estimated to cost nearly a billion more dollars, and they are nowhere near ready.

Since the Highway concessionaires are assured that the government will cover 80% of any shortfall from traffic projections, the pressure is large to get the roads ready in time.

In particular, the Public Works Department responsible for the construction of the lateral roads is scrambling, and sidelining other projects as the payment of Trans-Israel shortfall penalties will come out of their general budget. They are worried, since most of the lateral roads are experiencing one kind of trouble or another, whether challenges to the project tenders, or environmental opposition.

This government commitment to cover shortfall from projected traffic is one of several paradoxes in the attempt to balance public and private risks and capacities in a “public/private partnership” for highway infrastructure. In this case, the allocation of risks seems to amount to a built-in incentive to maintain high traffic volumes on the road.

The Trans-Israel contract with the Derech Eretz Highways Limited (DEC) franchise constructing the road specifies 23 million trips a year in 2002, rising to 93 million in 2027. Thus: a government guarantee to more than triple car use on the Highway over the coming decades, and for the Highway company a guaranteed and increasing revenue stream.

The financing scheme for the project, one of the largest toll road financing projects completed by the international finance community in recent years, was named “Deal of the Year” by Project Finance International Yearbook 2000.

In the event that traffic volumes remain consistently low, despite promotional campaigns and completion of lateral feeder roads, there is talk of a contingency plan: to cancel the tolls in favor of “shadow pricing.” In this scenario, tolls for drivers will be scrapped and the government will pay the DEC consortium directly, based on projected levels.

Thus, one major benefit of the highway would evaporate: directing the costs of infrastructure only to those who use it, and according to the amount of use. Under shadow tolling, all taxpayers would pay, and only drivers would benefit.

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