Earlier this month, ASX-listed Transurban extended its stranglehold over Sydney’s toll roads by leading a consortium to acquire the 49 percent of the WestConnex project that it did not already own, taking the group’s ownership interest to the full 100 percent.
The consortium, known as Sydney Transport Partners, agreed to pay A$11 billion ($7.9 billion; €6.8 billion) for the stake, more than the A$9.26 billion it paid for 51 percent of the scheme in 2018.
The latest 49 percent was split into two 24.5 percent tranches by the New South Wales government in the hope of drumming up some competition to Transurban. IFM Investors was the leading alternative candidate but decided to withdraw before final bids were due. In the end, Transurban won its stake unopposed.
While IFM Investors has not publicly said why it declined to bid, it appears from the outside that Transurban’s incumbent position in Sydney’s toll road market was too strong to compete with effectively, enabling the listed firm and its partners to comfortably bid a higher price given the data on traffic and other underlying asset fundamentals they have access to.
The Australian Competition and Consumer Commission examined the first auction in 2018 and decided that Transurban’s acquisition then would not lead to a lessening of competition for future toll road concessions – a view that has not aged all that well considering the recent auction.
Separately, a NSW Parliament inquiry into tolling regimes is currently underway, which is highlighting some of the challenges that Transurban’s monopoly could pose long-term.
In evidence to the inquiry this week, the Transport Workers Union, which represents workers in the roads and aviation sectors, revealed a note that Toll Group, one of Australia’s largest trucking companies, had sent to its drivers thanking them for not using toll roads unless they had prior authorisation from the company to do so. “In most cases, the cost of the toll roads outweighs any benefit we receive from using them,” the note said, according to a report in the Australian Financial Review, which should raise eyebrows given that freight traffic has underpinned toll roads’ resilience during the pandemic.
In some ways, this is just another chapter in the ongoing debate about light-touch regulation of what are effectively monopoly infrastructure assets in Australia. The toll road crossing Sydney Harbour via bridge and tunnel is the only toll road in NSW – and one of only two out of Australia’s 23 toll roads – that Transurban does not control.
Transurban, in evidence submitted to the inquiry, has rightly defended the private sector’s involvement from one important perspective: the amount of investment that has been secured thanks to the Asset Recycling Programme and other initiatives. “The current [road] network represents more than A$9 billion of investment, of which the private sector has contributed 80 percent. The involvement of the private sector has substantially accelerated this investment, delivering the associated benefits many years ahead of when they might otherwise have been achieved,” the firm stated.
That is difficult to argue with, but there is a fine balancing act here: Transurban will be able to raise tolls every year by 4 percent or in line with the consumer price index, whichever is greater, until 2040 – and in line with CPI after that. Chief executive Scott Charlton has argued this makes toll roads a “heavily regulated” sector with prices set by the government.
So, the company doesn’t have free rein, but what is stopping it from enacting the maximum possible rise every year?
After all, it is hard for any competitors to try and undercut it on price – for the simple fact there are no competitors.