Travelling east from Vancouver on the Trans-Canada Highway, there are two routes to the Okanagan cities of Kelowna and Kamloops. You can stick with Hwy. 1 and head up toward Cache Creek before veering east, or you can save yourself a little more than an hour and take Hwy. 5, the Coquihalla Highway through the Great Bear Snow Shed, crest the summit of Coquihalla Pass (elevation 4,068 feet), then cross the top of the Thompson Plateau. It’s a gorgeous highway, and not just for the scenery. The road is fringed with wide shoulders and high, wire fencing to keep wildlife from straying into your headlights. Avalanche guns mounted on platforms beside the highway battle the elements to keep the highway open in winter.

And at the halfway point, a line of toll booths. The one-way fee for trucks in excess of 6,000-kilograms gross weight spans from $20 for a two-axle vehicle to $50 for six axles or more. Passenger cars and RVs pay $10. Despite the $40 million in revenue the highway generates, the British Columbia government has said it can’t afford the $14.5 million a year in upkeep, and last year announced plans to privatize the province’s only toll highway, leasing the operation and maintenance to a private company for 55 years.

In July, after relentless opposition from motorists and trucking groups, Premier Gordon Campbell said the lease plan was off. “There are times, I think, when you have to take a second look,” he said. “I’ve listened to our MLAs who listened to the public. We’ve taken their advice. We will not be proceeding with the lease of the Coquihalla.”

The idea of using private companies to provide what are traditionally public services isn’t new in B.C. Nor does it always involve a user-pay system (the province has farmed out its road maintenance since 1988). But increasingly, when private-public partnerships are formed to finance, build, and maintain highways, one word springs to mind: tolls.

It’s not that public-private partnerships, or “3Ps,” are a bad way to create roads. Heck, when you can mesh the public’s right to safe, affordable highways with a developer’s opportunity to make a profit, chances are you’ve got an infrastructure development tool for the ages.

But when that balance tips heavily out of whack–maybe the tolls are too high, the road is poorly designed, or there’s no alternate fee-free route–you get stretches of bridges and roadway that motorists avoid because they’re just too darned expensive to useFrom a motorist’s standpoint, Hwy. 407 in Ontario is a perfect example of how not to engage a private-sector partner to take over a highway. The 407, which extends 108 kilometres east-west, just north of Toronto, was built in two phases. The first was completed in 1997 and paid for by the provincial government at a cost of $1.5 billion. The second phase was finished two years later when the province, strapped for cash and just days before an election, signed a 99-year lease with 407 International, a consortium made up of the Canadian arm of a Spanish construction conglomerate and Montreal-based SNC-Lavalin. The group paid the province $3.1 billion and won the right to operate the highway and collect tolls from users.

At the time of the deal, the Conservative government said tolls could not be increased by more than 2 per cent a year plus inflation for 15 years. In 1999, car drivers paid 7 cents per kilometre and tractor-trailer drivers paid 21 cents. It now costs car drivers just under 13 cents per kilometre to travel on the 407 during peak periods. Drivers who don’t have a transponder for automated toll collection are charged an extra $3.30 per trip. Tractor-trailer drivers pay almost 39 cents per kilometer.

Ontario Premier Ernie Eves says the toll issue is out of his government’s hands. “People do have a choice. They don’t have to use Hwy. 407. They know it’s a toll highway and they do have other means getting across the top of the city, which is Hwy. 401,” he tells critics. The implication is that 407 International has done what any good for-profit enterprise strives to do: to maximize ROI.

That hardly placates the local trucking industry. “The government made the contract as attractive as possible to the private-sector corporation,” says Doug Switzer, manager of government relations for the Ontario Trucking Association. “But because the government wanted to make as much money as it could, it basically stripped out all government controls. Highways are not just there for the convenience of the user. They’re infrastructure that supports the economy.”

This, says Larry Blain, chief executive of Partnerships B.C., a Crown corporation created to explore 3Ps, is where the argument for privatized highways floats or falls. In most cases, private companies get the job done faster than government can, he says. But the opportunity for profit has to be balanced by real risks. That starts with soliciting lots of bids. “If you get competition, if they really want to do the deal, they end up taking all the risk that they can [and] get a return that’s very modest for taking that risk,” Blain says.

The point was a critical one for British Columbia Trucking Association president Paul Landry. There has to be a “clear, demonstrable benefit” to road users and the private-sector operator must be required to provide a safe, affordable tolled facility. Otherwise, he says. forget it.The Maritimes offer both good and bad examples of 3Ps. Voters in New Brunswick showed that political fortunes can turn on 3Ps and toll roads. In 1999, they elected Premier Bernard Lord on the promise that his government would remove tolls from a new stretch of highway being built by a private partner between Fredericton and Moncton.

The Confederation Bridge linking Prince Edward Island with the mainland works because toll costs are lower than what truckers would have incurred had they continued to use the ferry. Lower cost tied to inflation over 35 years was important because there is no alternate route, a consideration clearly spelled out in Ottawa’s contract with bridge developer Janin Atlas.

The same can’t be said for Nova Scotia’s four-lane Cobequid Pass highway between Masstown and Thomson Station. Under its deal with the province, Atlantic Highways Management, the province’s private-sector partner, paid for half the $113 million cost to build the structure (government kicked in the remaining $55 million) in return for managing the highway (and collecting tolls) for 30 years. So the province got a badly needed, high-quality 45-kilometre replacement for a treacherous stretch of road, credit-rating protection, and freed up capital for other projects. And Atlantic Highways nabbed revenues projected at $538 million over three decades.

What did truckers get? Literally, no free ride, says Ralph Boyd, head of the Atlantic Provinces Trucking Association. “We are restricted as commercial operators from using the older route. There is no alternative for us at no charge,” he says. That’s important because carriers say the higher elevation and steeper grades of the highway have raised their operating costs. On top of burning more fuel, for which there is no fuel tax rebate, carriers are paying a $15 toll.

“The toll should be based on whatever savings the industry sees by using that roadway,” Boyd asserts. “For example, if I can save another dollar a mile and that’s a 13-mile road, then there would be a provision for us to pay a toll based on the savings that we see.”
Next time, Boyd says, truckers should build their own highway. “We as an industry should have become the private partner,” he suggests. “We’ve got some carriers down here that are doing in the area of $100 million worth of business a year over that corridor. I mean, $60 million wouldn’t have been that hard to raise.”

Boyd insists he’s serious. At $113 million, 50 per cent of which is paid by two levels of government, all his members would have had to raise to build the Cobequid was $56.5 million. “It would have been a very attractive business proposition for the lending community,” Boyd concludes.

Paul Landry, on the opposite end of the country, is unconvinced. Getting involved in such a deal entails not just raising large amounts of money, but estimating income and costs over a long period. In other words, he says, you have to be “a very, very astute business organization.”

“Road building,” says the BCTA president, “is not our business.”
But keeping an eye on the people who build the roads certainly is an essential part of it.

Public-private partnerships for roadbuilding are a global phenomenon. Make no mistake, states a report on commercial export and import prepared by the International Roads Federation (IRF) in 2000: “Private-sector efficiency and management skills frequently help achieve cost savings.”

As proof, the IRF cites Portugal, which uses the private concession/tolls approach for financing roads, and Slovenia, which is developing a financing model on private concessions for road maintenance and rehabilitation “that might well serve as best practice in other countries in economic transition.”

The clear advantage of tolls combined with private concessions, the reports adds, is that public money is not involved. Just make sure that you get the framework right–first, by imposing concession conditions that safeguard public interest.

Apparently, those who planned Britain’s M1 and M15 motorways weren’t listening. There, concession conditions such as reasonable toll-rate increases are not included in government’s contract with the private-sector company. Like Hwy. 407 in the Toronto area, toll levels aimed at maximizing profits along those routes are so high that commercial road users simply refuse to travel them.

Commercial truckers in the United States, meantime, don’t face the same problem because any kind of P3–tolled road or otherwise–is simply harder to pull off. Private developers seeking favourable financing rates can’t compete with investment bankers who use the tax-exempt status of municipal bonds to raise enormous sums for building capital.

Still, according to Nicholas Hann, Managing Director for McQuarry North America, a firm that spearheads P3 projects around the world, tax-exempt financing comes at a cost.

“The problem (in the United States) is there’s a lot of leakage,” says Hann. “Basically, not all the value of the tax exemption gets into reducing the cost of the project. A lot of it gets eaten up by investment bankers and only a comparatively small proportion actually finds its way into improving the cost effectiveness of the project.”

Hann has a lot of good to say about highway tolls, especially “shadow” tolls, a system whereby a private operator accepts certain obligations and risks, such as construction, operating costs, and uncertain traffic volumes and receives from government periodic toll payments for every vehicle that uses the tolled facility. The government is still effectively buying the service, but instead of investing in the asset, it’s making a performance-related payment for that service.

Stephanie Williams isn’t buying. The vice-president of the California Trucking Association says public-sector financing (i.e. California’s State Highway Account) is the answer to how new highways and bridges should be paid for. Her association is adamantly opposed to tolls.

“You go through the Bay Bridge (in San Francisco), you pay your two dollars and the traffic slows down for miles,” she says. “And although they have ways to make it more efficient, we’re already paying three different taxes for roads. And those taxes that we’re paying should be used for roads. Why do we have to keep paying more?”

The same argument against double taxation is made here in Canada. The difference is Stephanie Williams’ members can at least take advantage of fuel tax rebates for every mile of tolled highway they travel.

It’s a measure that Canadian trucking associations argue is long overdue in Canada