# Can a highway become profitable?



## VECTROTALENZIS (Jul 10, 2010)

As the title says, can a highway/expressway become profitable?
Toll-booths?


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## italystf (Aug 2, 2011)

I guess they need decades to payoff the initial construction cost, plus large sums are needed regularily for maintenance. Off course private companies who have motorways in concession make profits, but motorways are build mostly with public (state and sometimes EU) funds.
Large shares of those companies are owned by the state or sometimes by regions.


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## ChrisZwolle (May 7, 2006)

Every road in the Netherlands is very profitable if you take all taxes motorists pay into account. The 2012 budget for national roads is € 2.7 billion and other roads is € 1 billion. The amount of taxes paid by motorists (fuel duty, car purchase tax, car ownership tax) you'll get to about € 12 billion.


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## italystf (Aug 2, 2011)

ChrisZwolle said:


> Every road in the Netherlands is very profitable if you take all taxes motorists pay into account. The 2012 budget for national roads is € 2.7 billion and other roads is € 1 billion. The amount of taxes paid by motorists (fuel duty, car purchase tax, car ownership tax) you'll get to about € 12 billion.


Yes, but tax revenues are the same if either you build new roads or not. Are your taxes excises on fuel or possession taxes for motor vehicles?


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## ChrisZwolle (May 7, 2006)

There are three taxes in the Netherlands:

* fuel tax, which is an excise duty. VAT is also levied on this (tax + tax)
* purchase tax (Dutch: BPM) which you have to pay if you buy a new vehicle. Can be € 10.000 easily
* monthly road tax (Dutch: MRB). Ranges from about € 500 a year for a petrol car to over € 1.200 per year for a diesel car.


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## keber (Nov 8, 2006)

Most EU countries have such taxes and in almost every case there is a profit for a state if you look in such way.

However if you looking at particular road, answer is not so obvius. Often tolls are not enough to cover loans payment and maintenance (like in Croatia). But in some cases motorways can be profitable, like Frejus and Mont Blanc tunnels.


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## Surel (May 5, 2010)

You are all forgetting the most important fact. Roads and infrastructure allow for economic growth. It improves mobility, makes trade cheaper and faster, lowers transaction costs, lowers costs of production, allows acces to broader labour market, allows access to education and leisure, improves turism, etc etc.


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## hofburg (Jun 27, 2009)

if that, tolls should be abolished. Is motorway a service or just wealthier standard infrastructure?


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## Surel (May 5, 2010)

It depends. Sometimes the tolls could be the more effectvie solution.

In general I my oppinion is that infrastructure is a public good (many economists would disagree), but not in a pure sense and not all of it. It is public good in a sense that welfare created by its existence affects the whole society and the welfare is experienced by the whole society irrespective of who is consuming the infrastructure. Its however quite uneasy to quantify the effects of the infrastructure on the total welfare.

Private tolling can have detrimental effect on this welfare creation = some people may choose they won't consume it as the costs are too high and their incomes too low. (In fact private ownership of infrastructures creates welfare inefficiencies everywhere. However, it also creates efficiencies compared to the public sector). Its just choosing the more efficient variant from two not perfect variants.

I.e. the best posibilitiy would be having a governmental non profit organisation that would take care about the infrastructure (roads, rail, water, gas, any pipes, internet, mobile technology, etc etc). Since such a organisation would work with the economies of scale and scope it would have very low average costs , however, such organisation would face no competition and thus no incentives for improvement . The infrastructure would be financed through taxes allowing for production of very high externalities and welfare creation , but neverthless also wasting  and corruption.

Thus the decission between tolling or public financing hangs on the mix of above stated conditions that should produce some optimal solution. Of course we can't forget that there are also private interests on whether the infrastructure should be private or public. Is nothing like a good old private monopoly. It combines the advantages of low costs, no competition, no wasting => Very high profits , however the welfare effect is not a concern .


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## ChrisZwolle (May 7, 2006)

The main advantage of toll roads is that it can be operated independent of the government budget. Usually that means these projects can be realized much faster than a government funded project. The downside is that the end product is usually more expensive for the user. Tax financed roads are much cheaper for the user on a per kilometer basis. Also; toll roads do not necessarily means taxes are lower, though France may be an exception (they don't have a separate road tax like many other countries).

Besides that, tolls are only an option for a marginal amount of the road network. You cannot toll rural roads unless it has a huge time advantage. Toll bridges or tunnels with no alternatives are the most viable, while flatland toll roads with ample alternatives are sometimes a money loser, like many recent toll roads in Spain.


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## Surel (May 5, 2010)

ChrisZwolle said:


> Toll bridges or tunnels with no alternatives are the most viable, while flatland toll roads with ample alternatives are sometimes a money loser, like many recent toll roads in Spain.


Tolling a bridge or a tunnel, that is not operating at the peak of its capacity, and having no alternative may result in huge welfare losses, although the whole business might be quite profitable.


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## verreme (May 16, 2012)

Most toll roads in Spain are actually profitable. Toll revenue has been enough to pay construction costs and maintenance.


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## ChrisZwolle (May 7, 2006)

Political tolling is usually what reduces welfare the most. Like the unnecessary high tolls on the New York bridges and tunnels and congestion charges in London and Stockholm. These tolls reduces the discretionary income of commuters by thousands of euros / dollars annually.


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## MattiG (Feb 11, 2011)

Surel said:


> You are all forgetting the most important fact. Roads and infrastructure allow for economic growth. It improves mobility, makes trade cheaper and faster, lowers transaction costs, lowers costs of production, allows acces to broader labour market, allows access to education and leisure, improves turism, etc etc.


Typically, the infrastucture decisions are based on three main elements:

1) Cost
2) Benefit
3) Political priorities

It is rather a common way to calculate the B/C ratio to show one figure telling if the benefits exceed the cost. That calculation is rather volatile, because the costs are real but the benefits are speculative. One might create a model having an average price tag for deaths, time lost, noise, loss of cosiness, etc, but all these can be challenged. Minor changes to the weights may cause a major change to the result.

The impact of political priorities is not negligible. A project with the B/C ratio less than 1 may be started if the politicians see that 'necessary'.


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## italystf (Aug 2, 2011)

ChrisZwolle said:


> Besides that, tolls are only an option for a marginal amount of the road network. You cannot toll rural roads unless it has a huge time advantage. Toll bridges or tunnels with no alternatives are the most viable, while flatland toll roads with ample alternatives are sometimes a money loser, like many recent toll roads in Spain.


Well, but tolling roads with no alternatives is unethical because it limits the freedom of movement. There are no way to avoid the 30€+ toll between Courmayeur and Chamonix, so these towns very close together are pratically very distant with no commuting traffic between each other.
On the countrary you can drive from Milan to Brescia via normal road if you don't want to pay, while the motorway serves those who are in hurry and values times more important than money.


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## ChrisZwolle (May 7, 2006)

I think a network works best if either all routes are tolled or no routes are tolled at all. Otherwise you'll see people taking preference routes that may not be the best suited roads from a traffic engineering point of view. Such as people driving on two-lane roads or through villages instead of safer toll motorways. 

But there is not a country in the world where every route (every mile driven) is tolled.


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## Penn's Woods (Apr 8, 2010)

ChrisZwolle said:


> But there is not a country in the world where every route (every mile driven) is tolled.


For now, anyway. I can't find the article but I know we've discussed the proposed vignette-for-all-roads in Belgium.

(Off topic, but just for reference: what European countries have a Swiss-type freeway vignette?)


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## ChrisZwolle (May 7, 2006)

Well, I meant a toll system where you would be tolled per mile / kilometer, not a flat-fee vignette system with unlimited mileage. A vehicle miles tax has been proposed in the United States to replace the gas tax, but the idea doesn't seem to be gaining ground. It was nearly implemented in the Netherlands, but highly unpopular. 

The major downside of these systems is the incredible operating cost (typically 20% of revenue), which only benefit companies like Kapsch who provide the transponders. 

Switzerland and Slovakia have a GPS-based truck toll that could theoretically be implemented in other vehicles as well.


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## Surel (May 5, 2010)

Per mile tolling is also creating welfare problems.

Basically any public systems which are aimed to be financed directly (per use), prohibit certain part of the population from their use, which creates efficiency and welfare problem. Unless the toll is proportionall to the income such systems won't be any improvements (i.e the price of the use would be discriminatory). Therefore it might make bit more sense to toll business use of the infrastructure, however not toll private use of the infrastructure.

It would be allright if you could toll a bridge in a folloving way. Imagine you have three income groups: High (above 100), Middle (20 - 100) and Low (less than 20). You build a bridge and you want to repay the cost by tolling. Imagine that the existence of the bridge allows for increase of the incomes by each income group by multiple of 1,1. Depending on the shares of high incomes and middle and low incomes you set the toll price.

If you set it higher than 2, the population with low income will never be able to use it, and will never experience the increase in incomes.

If you set it higher than 10, the population with middle income will never be able to use, and will not expereince the increase in incomes.

Thus too high toll can actually make the whole point of infrastructure worthless. The solution could be if you could discriminate and set the toll different to each income group.

I guess the taxes are much better tool for this than the tolling... Thus when you really care about the welfare you won't use tolling as a tool in transport infrastructure.

Tax financed infrastructure allows for much more projects to be undergone and allows for higher welfare increases.


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## Surel (May 5, 2010)

MattiG said:


> Typically, the infrastucture decisions are based on three main elements:
> 
> 1) Cost
> 2) Benefit
> ...


and



Surel said:


> Its however quite uneasy to quantify the effects of the infrastructure on the total welfare.


And thats one of the reasons why some economists think that direct paying for the infrastructure consumption (in terms of toll e.g.) are better. I don't agree with this, because they don't improve a thing. The calculation has to be done anyway. The only thing that happens is that mostly those projects are private and the government has to step in to bear the risks and pay when the calculations were off. Results in privatizing the profits and socializing the losses. No welfare improvement, only a redistribution.


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## Road_UK (Jun 20, 2011)

ChrisZwolle said:


> I think a network works best if either all routes are tolled or no routes are tolled at all..


Impossible. Look at France. No toll in metropolitan areas, it starts way outside these areas, far away from mass commuter traffic. Otherwise you'd get even worse situations then Milan or Dartford, where you pay to sit in traffic.


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## Penn's Woods (Apr 8, 2010)

^^This is why God invented E-ZPass Express Lanes:

http://blogs.deldot.gov/files/2011/07/I-95-Toll-Plaza.jpg

The thing reads your transponder while you pass through at the speed limit. (And the left lane is E-ZPass only far enough back - a mile or two - that you aren't, at least theoretically, caught in the back-up from the cash booths.)


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## MattiG (Feb 11, 2011)

ChrisZwolle said:


> Well, I meant a toll system where you would be tolled per mile / kilometer, not a flat-fee vignette system with unlimited mileage.


That system is in use in most countries. It is called fuel tax.


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## riiga (Nov 2, 2009)

MattiG said:


> That system is in use in most countries. It is called fuel tax.


Not true. Fuel tax is only applied to certain fuels, such as petrol or diesel. There are vehicles that run on other fuels which are not taxed, and as such, fuel tax can hardly be considered tolling.


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## MattiG (Feb 11, 2011)

riiga said:


> Not true. Fuel tax is only applied to certain fuels, such as petrol or diesel. There are vehicles that run on other fuels which are not taxed, and as such, fuel tax can hardly be considered tolling.


In most countries, the petrol or diesel based traffic is more than 98% of the road traffic volume. Thus, there is a good reason to say that the fuel tax is a mileage tax: the more you drive and the more you produce CO2 emissions the more you pay.

If electricity cars ever gain significant market share, the governments will create ways to implement instruments similar to the fuel tax.


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## Penn's Woods (Apr 8, 2010)

I haven't said so yet, but when this thread first appeared, I said to myself "Should a highway be profitable?" 

Obviously, a private company has a right to make money. I don't know about the economics of this, but I'm wondering to what extent the fact that tolls are so high in, say, France is attributable to the fact (if it is a fact) that they need to make a profit for the operator. Which brings up political questions like should they be privatized...?

Our national reputation for rampant capitalism notwithstanding ( ;-) ), privatized toll roads are relatively rare here, and mostly limited to relatively new ones in metropolitan areas. The 326 miles (528 km) of the Pennsylvania Turnpike from the Valley Forge interchange where most traffic heading west from Philadelphia would get onto it to the Ohio border would cost me $22.55 westbound, $26.53 eastbound. That's with E-ZPass. Cash rates are $26.55 westbound, $31.30 eastbound. (The difference between westbound and eastbound rates is due to a barrier at the Ohio border which collects a toll eastbound only). I don't know if there's a more expensive long-distance toll road in the country - the Ohio Turnpike, which I've used a couple of times, is much cheaper - perhaps the New York Thruway.

By way of comparison, the 570 km from Paris to Bordeaux would cost 53.00 euros - $68.67 at the exchange rate of the moment.

I'm not trying to open something up here (although it might be an interesting topic if we could stay away from "national reputations," for rampant capitalism or anything else); just wondering. Why did some countries rely on private companies to build their roads - they'd get done faster? Be maintained better? We could even compare France, Italy or Spain to Germany, Belgium, or the Netherlands, which went a completely different route. With those American states that have toll roads falling somewhere in between. But my basic question is how much of that Paris-to-Bordeaux toll, just by way of example, is accounted for by the operator's profit?

EDIT: The Ohio Turnpike, end to end, about 240 miles, is $16.50 cash, $11.25 with E-ZPass.
And the New York Thruway is not, it turns out, more expensive than the Pennsylvania Turnpike: $19.60 cash, $18.62 with E-ZPass from New York City to Buffalo, about 420 miles (it would be a few dollars more in the other direction thanks to an eastbound-only toll at the Tappan Zee Bridge).


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## verreme (May 16, 2012)

First motorways in Spain (1970s) were tolled simply because the State had no money to build them, so it had to rely in private companies. It was not until the 80s that we had enough cash to duplicate some long-distance roads, and the result were very low-quality motorways that had no maintenance at all. These first toll roads have become profitable on the long run, so I guess it was a good option rather than not building any motorways at all. Had we waited to have the money to build toll-free roads, we wouldn't have had motorways until the late 90s.

I guess that in the US there was enough money to build roads, so there was no need to make them tolled. Same goes for the UK, the Netherlands or Belgium. But for poorer countries such as Spain (I'm talking about the 70s), the only option was private funding.


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## Stahlsturm (Mar 30, 2012)

riiga said:


> Not true. Fuel tax is only applied to certain fuels, such as petrol or diesel. There are vehicles that run on other fuels which are not taxed, and as such, fuel tax can hardly be considered tolling.


That lack of tax for alternative fuel is more of a temporary subsidary until such vehicles become a number to recon with. Trust our politicians to whip out plans prepared decades in advance should we ever get to that point.


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## Stahlsturm (Mar 30, 2012)

Penn's Woods said:


> I haven't said so yet, but when this thread first appeared, I said to myself "Should a highway be profitable?"


I totally agree, a far more valid question.

Personally I'd answer with "no".


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## Stahlsturm (Mar 30, 2012)

MattiG said:


> If electricity cars ever gain significant market share, the governments will create ways to implement instruments similar to the fuel tax.


I don't know about Finland but here in Germany electricity is heavily taxed too.


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## ChrisZwolle (May 7, 2006)

The problem is the electricity consumption from electric cars are currently barely cheaper than diesel fuel (per kilometer) and is still untaxed. Unless the efficiency of electric cars improves dramatically, driving on electricity will be substantially more expensive than diesel fuel if taxed the same amount. (not to mention electric cars are far more expensive than regular cars).

Charging your car for 100 kilometers costs about € 6 without additional taxes in the Netherlands. I can drive 90 kilometers for € 6 in diesel fuel - including excise duty and VAT.


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## ChrisZwolle (May 7, 2006)

verreme said:


> I guess that in the US there was enough money to build roads, so there was no need to make them tolled. Same goes for the UK, the Netherlands or Belgium. But for poorer countries such as Spain (I'm talking about the 70s), the only option was private funding.


The Netherlands created an infrastructure fund in 1926 to pay for road improvements. The fund was filled with taxes levied on motorists. So motorists have always been paying for the infrastructure in the Netherlands, unlike some other countries where earlier road construction was paid for by the general budget. 

Political taxes were imposed on fuel and cars during the late 1980s and early 1990s (including a car purchase tax of 43% on top of the regular VAT). Excise duty on gasoline was raised substantially in 1991. Dutch motorists have been grossly overcharged for their road network ever since.


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## Surel (May 5, 2010)

ChrisZwolle said:


> Charging your car for 100 kilometers costs about € 6 without additional taxes in the Netherlands. I can drive 90 kilometers for € 6 in diesel fuel - including excise duty and VAT.


With some € 0.22-0.3 per kWh is a 20 kWh battery car 5-6 euro per battery charge. This is some 130 kms per charge. Lets say we would need to recharge 3 times a week. In a year some 170 recharges. In total we need 170*20=3400 kWh. This would need some 30 square meters of photovoltaic panels (some 14 pannels) with investments of some € 6 - 7 000.

yearly kms driven (170*130)
22100
yearly diesel cost (6 euro per 100 km)
€ 3683

This would pretty much pay the cost of the photovoltaic installation in two years. Given we need to use the car in radius of 50-60 km only.

The calculations are not precise but I can see a huge market here.


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## ChrisZwolle (May 7, 2006)

With solar panels you could indeed generate your own power, and thus evade taxes on electricity.


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## Surel (May 5, 2010)

ChrisZwolle said:


> With solar panels you could indeed generate your own power, and thus evade taxes on electricity.


Till the government finds a way to tax it anyway :d.

Seriously. I can see quite nice business going on with complex solutions. Delivery of the photovoltaics and the car in one setup.

The biggest problem that would be faced is that the car is mostly used during the day and therefore gone from the installation and can´t be charged. There would be aditional costs on either recharging from home storage battery (energy losses, infrastructure problems, etc) or having two batteries, that could be switched every day (again infrastructure problems). But this problem is solvable. Lets keep the numbers conservative.

Total costs EV variant:

up to € 25 000 for the EV
photovoltaic installation + second battery up to € 17 000
lifetime some 10 years with two batteries

total € 42 000

Total costs Diesel variant (same class)

up to € 17 000 diesel car
yearly costs € 3 500
* 10 years = € 35 000
total € 52 000

In 10 years we are some € 10 000 in plus. Not bad.


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## MattiG (Feb 11, 2011)

ChrisZwolle said:


> With solar panels you could indeed generate your own power, and thus evade taxes on electricity.


I depends...

I would not be extremely surprised if for example EU created a legislation making it legal to charge the batteries through a certified device only. That device would count the kilowatthours and the memory content would be downloaded regularly for the taxation. Tampering or bypassing the device would be subject to a 50,000 euro fine.


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## alesmarv (Mar 31, 2006)

VECTROTALENZIS said:


> As the title says, can a highway/expressway become profitable?
> Toll-booths?


Well its kind of like asking if schools can be profitable...so its kind of difficult to calculate the profit of something that is built for the greater good.


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## alesmarv (Mar 31, 2006)

italystf said:


> Yes, but tax revenues are the same if either you build new roads or not. Are your taxes excises on fuel or possession taxes for motor vehicles?


Well productivity is directly related to mobility, and mobility is directly related to highways, and tax revenue is directly related to productivity...so its kind of one big circle. I think its safe to say that without highways tax revenues would not be the same, because you would simply not be capable of maintaining productivity at the same level with the reduced mobility and as a result the taxes you would expect to scrape off of the top would be proportionally lower.


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## Groningen NL (Dec 26, 2010)

Surel said:


> The biggest problem that would be faced is that the car is mostly used during the day and therefore gone from the installation and can´t be charged.


Electric car manufacturers should put solar panels on the roof of their cars. This is common with camper vans, so why not on cars right?


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## Paddington (Mar 30, 2006)

If I'm not mistaken, the New Jersey Turnpike is highly profitable. The Ohio Turnpike is also profitable, and the governor wants to tap its funds to pay for highway construction elsewhere in the state.


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## Paddington (Mar 30, 2006)

Penn's Woods said:


> ^^This is why God invented E-ZPass Express Lanes:
> 
> http://blogs.deldot.gov/files/2011/07/I-95-Toll-Plaza.jpg
> 
> The thing reads your transponder while you pass through at the speed limit. (And the left lane is E-ZPass only far enough back - a mile or two - that you aren't, at least theoretically, caught in the back-up from the cash booths.)


The ones in Florida are even better. You can zoom through this thing at full highway speed, and there are no pesky barriers to worry about crashing into:


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## Latin l0cO (Nov 8, 2004)

^^Soflo highways are so congested that you rarely have a chance to go through it at full speed.


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## Paddington (Mar 30, 2006)

Maybe in Miami, but the expressways are quite good in Central Florida. :cheers:






At 2 minutes in you can see the sweet transponder lanes, though this guy doesn't have one and needs to stop to pay toll. One convenience is that if you ever fly into Orlando and rent a car at the airport, the vehicles do tend to come with the transponders.


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