Scott Charlton

Network pricing will inevitably have a place in the transport network to manage demand and upgrade transport infrastructure, says Transurban Chief Executive Scott Charlton.

Infrastructure has been a constant in my career, and I am very keen in my role to advance our industry, and for Transurban to play a big part in that policy debate.

I’ll get straight to the point that I’d like to make. In the not-too-distant future, we will see variations of network pricing in Australia in order to better utilise our transport infrastructure.

Whether it’s corridor charges, congestion charges, demand pricing or distance-based tolling, network pricing will have to be introduced to fund infrastructure, manage demand and promote public transport alternatives.

It’s very important to talk about all three of those, because people will hear what they want to hear. The contractors will hear, ‘great, we’re going to fund infrastructure with this’; the press will hear: ‘managed demand – you’re talking about congestion tolling,’ so that is going to be difficult publicly.

The government will hear ‘you want to promote public transport,’ and that’s positive. I think it’s important that all three of these things are managed together.

Looking at our major motorways, it’s obvious that we need new capacity and we need to find better ways to utilise our existing assets.

Scott Charlton

We have to use our transport networks more efficiently, and find ways to manage demand. That could mean anything from cheaper night tolls for trucks, to high-tech freeway management systems that are now being installed, tolled corridors shared with public transport, and integrated transport network pricing to encourage the use of public transportation.

These discussions are not easy, and, in particular, road pricing seems most sensitive for governments, users and communities. But I believe we are approaching a tipping point on this issue.

That being said, we have to work in today’s reality – with the flexibility to deal with tomorrow’s possibilities.

I will not go into great detail about the infrastructure challenge facing Australia; most of us are all too familiar with that, and we get bombarded every day about the growing backlog and how we continue to fall behind.

But, using Sydney as an illustration, we know that the problem is urgent. Recent data has shown that there will be another one million people in the western suburbs alone over the next 20 years.

Freight volumes at Port Botany are expected to increase more than threefold by 2031.

Passenger volumes at Sydney Airport are predicted to more than double by 2029, and congestion on motorways such as the M5 already spreads far beyond the traditional peak periods.

So it’s little wonder that the project to widen the M5 Motorway was top of the agenda during the most recent New South Wales election.

Peaks are growing and spreading – they are eating up the capacity of our roads. The M5 has grown dramatically from 1996 to today, and there are a couple of interesting points to note. Traffic at all times of the day has increased, and it is now as busy in the ‘counter-peak’ period as it is in the traditional peak period.

Using Sydney as an illustration, we know that the problem is urgent. Recent data has shown that there will be another one million people in the western suburbs alone over the next 20 years

Scott Charlton

That’s a reflection of the changing nature of our population and employment centres – and how much the orbital network in Sydney is being used.

We are all also acutely aware of the funding challenges to finance infrastructure. To put it simply, governments have a handful of choices: raise taxes, take on debt, sell assets or apply user charges.

None are particularly palatable to taxpayers – but neither is trying to navigate a network at breaking point.

Not so long ago, a blunt conversation about network pricing would have been difficult and fanciful; but I believe the discussion has reached a stage of maturity where public attitude appears to be shifting towards an acceptance that tough decisions must be made, and the planning processes now need to turn into delivery processes.

I believe the public is willing to accept more and diverse user charges if they can see the benefit to their lives.

There continues to be a lot of talk – particularly in the Sydney context – about network pricing as a potential option for funding infrastructure and managing demand.

There is already a form of network pricing in fuel taxes, which account for about 38 cents per litre of fuel costs.

This tax, however, is not transparent to the public, nor is it clear how it transfers into a delivered road service or makes people’s lives better.

Transurban, in general, supports the concept of network pricing to simplify user charges and make them more consistent and transparent.

We also believe that network pricing can deliver more efficient utilisation of transport infrastructure across the spectrum.

But there are still a number of fundamental questions that need to be answered before any such scheme could gain traction. And, of course, there is also the political reality of what governments are prepared to progress.

In recent months, the New South Wales Government has ruled out congestion charges, but has left road-pricing mechanisms, such as distancebased tolling, on the table.

In Victoria, the government has stated that it does not favour a congestion charge, but wants improved network management across all roads.

In this context, it’s interesting to consider the parallels between road pricing discussions and recent ‘peak-pricing’ initiatives implemented in the New South Wales electricity network. Being an electrical engineer, I understand these initiatives can be controversial; but from an engineering and efficiency perspective, they are essential.

The aim is obviously to simply regulate demand towards the times in the network where there is existing capacity, as illustrated in the peak, shoulder and off-peak pricing for residential electricity use in New South Wales.

To build out a system – whether it’s electrical or road transport – to fulfil the unrestricted demands of the peak periods is, by definition, uneconomical. It’s much more effective to make use of the underutilised capacity of the existing infrastructure, and to shape the demand across all the alternatives.

If you look at just one of our Sydney motorways – the Eastern Distributor – there are peaks in the AM and PM periods, but the motorway has excess capacity during other parts of the day. The question is – could peak pricing change this profile? Or could discounts during the off-peak periods produce a better transport outcome for Sydney?

Consumers accept the concept of peak or demand pricing in the context of electricity and other utilities, but shy away when the same concepts are discussed for transport infrastructure. As IPA has said in the past – and I think it’s a great line – roads are the ‘last great unpriced utility’.

Is this because motorists believe they must travel at certain times and do not see alternatives? One key fact in the road pricing debate is that a significant number of motorists do have an option regarding when they travel. Some studies suggest as much as 40 per cent of travel in the afternoon peak is discretionary.

By applying pricing to regulate demand, our cities are avoiding – or at least deferring – the need for significant capital outlay. This pricing can also be a source of funds for future transport projects. We are asking people to consider their travel more deliberately, and question the time of day they need to travel, or by what mode they need to travel.

Pricing restrictions could be a bitter pill to swallow for a country that prides itself on high standards of living. Avoiding difficult initiatives will result in uneconomical decisions on infrastructure delivery and the further build-out of existing roadways that are only fully utilised for a small number of hours a day.

Scott Charlton

A number of road pricing options have been tried and tested, with varied results, in cities such as London, Singapore, Stockholm and in Sydney, with peak-hour tolling on the harbour crossings, which was introduced by the previous government.

Before we get to implementation, though, we have to ask: What would network pricing be aiming to achieve? Is it designed to generate funding for future transport infrastructure? Or is it about managing demand? Or, potentially worse, could it be used for short-term revenue raising?

Whatever form network pricing takes, public transport must be part of the equation. Just as some drivers may choose to avoid peak periods, others might avoid using the car altogether.

This would be a great result for our cities, but it is only possible with real choice provided by extensive public transport. On this front, cities such as London and Singapore are well ahead of our major Australian capital cities.

We also need to guard against a system that becomes a form of regressive tax. That is, it could transfer the greatest burden to those who live in the outer suburbs or fringes of our cities; those who may be the least able to afford it.

Any network pricing scheme has to look at the whole transport network to ensure a functioning system and fairness of options for the travelling public.

Finally, any network pricing scheme would have to consider the needs of many stakeholders across the total transport networks. If we look at the Sydney scenario again, there are a number of concessions in place with the private sector that make this problematic.

These are fundamental – and fairly complex – issues that would need to be resolved before we can go down a fully integrated network pricing path.

So is there a perfect system? No, obviously not. However, we need to be pragmatic and get on with what we can do now in order to provide meaningful progress against transport congestion.

Besides, what we plan and know today will inevitably evolve into some other form in the future, with the changing of technology and demographics.

Right now, however, governments can take measures to provide flexibility in new concessions to account for forecast changes in the pricing and demand management landscape.

This would allow for options such as peak and offpeak pricing to be introduced over time to maximise infrastructure use. These provisions – like most others – can be priced and managed by the private sector.

Getting moving now on infrastructure also means looking at innovative solutions to manage demand. We can make more of our existing road space – and this needs to be part of the discussion.

Scott Charlton

Smart freeway management systems, such as the one in use on CityLink, provide one option. They represent network management at work – and can be utilised more broadly.

These are incremental – not radical – solutions. But they all contribute to a better-functioning system.

I can’t talk about innovation without discussing our Express Lanes project in the United States. It’s a great example of a pragmatic approach – and one that could work well here in the Australian context.

The lanes are on a 22-kilometre section of the Capital Beltway – the ring road around Washington DC and one of the most congested corridors in the United States.

We have built two dynamically tolled lanes in each direction, next to the eight existing freeway lanes, so motorists will have the choice of travelling free or paying for a more reliable journey.

The price will fluctuate in real time, depending on demand, to maintain a minimum speed or minimum level of service. The express lanes also support public transportation and carpooling options, with buses and cars with three or more passengers travelling for free. We are guaranteeing a speed of at least 45 miles per hour on these lanes.

Think about that for a moment: this is one of the busiest roads in the United States, and we are guaranteeing that you can travel at least 70 kilometres per hour any time of the day or night.

Have you ever missed a flight or turned up late to your child’s event? What price would you put on a more reliable trip?

The political will for this project comes from the fact that we are building new capacity and upgrading ageing structures.

Before Transurban got to the Capital Beltway, there were four congested lanes in each direction that you could travel on for free, and 40-year-old structures in need of urgent repair.

When we finish, there will still be four lanes for free. The difference is that now people have a choice to avoid the congestion.

It’s essentially a pay service for the time-poor commuter that also offers the same service to buses and the carpooling public for free. And, of course, it is about managing demand around peak periods. It’s also worth noting that this project would not have got off the ground without US Federal Government funding assistance in the form of a special loan for transport infrastructure under the Transportation Infrastructure Finance and Innovation Act (TIFIA).

The US Government has some innovative longterm and patient capital assistance funding to leverage infrastructure, unlike the Australian market. The government capital in our projects has had a leverage effect of 5X. While funding is a topic for another day, we strongly believe it is worth pursuing this type of government support here in Australia.

So could Express Lanes work here? Why not?

Before Transurban got there, there were four congested lanes in each direction that you could travel on for free, and 40-yearold structures in need of urgent repair

Scott Charlton

Let me just make it clear: we haven’t identified a specific application yet. The current concessions don’t allow it, nor are we negotiating for this outcome, just to make it clear.

But when you read survey results like those released by the NRMA – that one in four commuters spends up to 1.5 hours a day travelling to and from work – it becomes a pretty compelling proposition.

To conclude, I want to reiterate a few points.

In the longer term, or maybe even in the medium term, network pricing will have a place in the transport network to manage demand, promote public transport and fund the upgrading of transport infrastructure.

Governments have been making great progress in setting out their visions and priority projects with long-term transport plans.

But now is the time to get delivering. We know the cost of sitting on our hands – and it is too high.

But we are going to have to be pragmatic in our approach. We cannot wait for the perfect solution. We have to take on some immediate opportunities and be able to layer on that work over time. And that means using every possible lever – from user charges, to diverse funding sources, to innovative ideas, all the while providing the options and possibility to move to more efficient network pricing models down the line, as demand – and hopefully the community understanding – continues to grow.

Transurban very much looks forward to being involved in this valuable work and being part of the debate. SCOTT CHARLTON Chief Executive Officer, Transurban

Scott Charlton joined Transurban Group as Chief Executive Officer in July 2012. Scott has a wealth of experience in developing, funding, constructing, and operating infrastructure assets, and working with some of the sector’s leading corporations, including Lend Lease, where he was Chief Operating Officer for global operations (2010 to 2012). Prior to this, he was Chief Financial Officer at Leighton Holdings, and a Managing Director of Deutsche Bank. Scott is an engineer by training.

A HANDS-ON APPROACH TO INNOVATIVE INFRASTRUCTURE

As one of Australia’s premier road builders, with a number of major projects currently underway across the country, Abigroup’s success stems from its early and ongoing high performance in the transport sector.

In the past 15 years, the company has delivered some 1500 lane-kilometres of motorway around Australia, including some of the most complex sections of Australia’s transport network and through some of the most challenging terrain and conditions.

Responsible for the delivery of $6.5 billion worth of the national road infrastructure in recent years, Abigroup’s success is derived from more than just delivering on a brief; also from continually innovating and providing its clients with a solution, not just a service.

Some of the most important infrastructure and construction projects in the country have been delivered by Abigroup and the company is poised to continue this success into the future.

Despite the company’s illustrious career in the roads sector, Abigroup’s National Operations Director, John Kirkwood, is quick to point out that the company is a leader in more than just roads.

‘We have one of the country’s largest construction portfolios in the health sector, where we are currently delivering the Queensland Children’s Hospital, Cairns Hospital redevelopment, Westmead Millennium Institute’s new Medical Research Facility and the Campbelltown Hospital early works.

‘In addition we continue to unlock value for our clients in the resources sector through the delivery of critical pit to port infrastructure.’

John goes on to attribute the company’s success to a couple of core principles.

‘Abigroup has a hands-on approach to contracting that is unmatched in Australia.

‘We own and operate one of the largest construction plant and equipment fleets in the southern hemisphere, operate our own concrete paving yards and have our own in-house expertise and blue collar workforce – providing the company with unbeatable control over a project’s critical path, no matter the sector.’

Some of Abigroup’s high-profile road infrastructure projects that have been completed or are under construction include: D2G Ipswich Motorway upgrade, Banora Point Pacific Highway upgrade, Karuah to Bulahdelah Pacific Highway upgrade, Macleay River and Floodplain Bridge, Hunter Expressway - Kurri Kurri to Branxton, Albury Wodonga Hume Freeway project, Woomargama Bypass, Peninsula Link and Southern Expressway projects.

Abigroup’s hands-on approach to delivering infrastructure and rewarding and encouraging innovation across its workforce has supported the company’s rise as a leading provider of quality projects across diverse disciplines. It has also led to the growth of expert teams dedicated not only to traditional core areas of engineering and building, but also to key specialisations including national rail, water, energy and mining services businesses.