Westconnex sale – a taste of tolls to come

slowing down

The NSW government on 31 August 2018 sold 51% of Westconnex to Transurban, owner of 15 of Australia’s 19 toll roads. Competition regulator ACCC at the last minute, cleared the way for Transurban and its partners’ bid.

The hefty $19.3 billion sale price makes Westconnex the state’s biggest privatisation and infrastructure project. It will entrench the company’s position as the dominant operator of Sydney’s toll roads.

Dominant operator

Commentators describe Transurban as dominant rather than having a monopoly. It does not meet the technical criteria for monopoly because it does not set prices and drivers do not have to use its roads.

Under the terms of each contract or concession agreement, tolls go up every 3 months by more than inflation. Many businesses would be very happy with that kind of non-setting of prices.

Next, nobody forces drivers to use toll roads. But they will be increasingly disadvantaged as more and more roads are tolled. In fact, truckies that don’t use NorthConnex can already be fined if they opt for free roads.

The ACCC found the Transurban purchase would not lead to “substantial lessening of competition” in breach of the Competition and Consumer Act. However, it does require Transurban to publish crucial traffic data to help future bidders for future toll road concessions.

But in future, the current incumbent will have the advantage of owning Westconnex.

Incumbency advantages

ACC says other bidders for Westconnex were disadvantaged because they did not have sufficient traffic data to satisfy lenders. When Transurban published it (after “significant delay”) they did not have enough time to include it in their modelling. Two bidders pulled out of the process.

As the ACCC said, “Bidders with existing toll road concessions have an advantage in acquiring further ones… These incumbency advantages were the main focus of our investigation.”

Given this statement, why weren’t all bidders for Westconnex given more time to use the Transurban data if it was considered so important?

Second, why help future bidders for future toll roads, when buying the mammoth Westconnex entrenches Transurban’s dominant position now? When WestConnex is completed in 2024-25, the company will control most of the motorways around Sydney. Owning Westconnex could give the company an incumbency advantage to secure Western Harbour Tunnel, F6 and the Northern Beaches link.

Meanwhile, the terms of the Westconnex sale were secret. It appears the recommendations of the recent road tolling Senate inquiry for transparency and competitiveness made no difference to that process.

Of course, Transurban is not the only operator that will charge tolls. Any operator of a toll road will charge a toll that reflects their risk and offers a profit. Some motorists might get their money back through tax-free dividends from owning shares in Transurban, either directly or through their superannuation fund.

At the same time, revenue from fuel excise is falling because newer vehicles use less or no fuel. This means the funds for government-owned roads must come from somewhere else. It looks highly likely they will come from some kind of pay-as-you-go system, like tolls.

Sydney drivers can look forward to paying heavy tolls that go up every 3 months as a fact of life.

Corrina Baird

Writer and expert

Corrina used to lend her car to her kids and discovered first hand what Ls, Ps and demerits mean for greenslips. After 20 years of writing and research in financial services, she’s an expert in the NSW CTP scheme. Read more about Corrina

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