PwC Transport

National TransportRegulations Reform 2013Case study: Strategy for roadCase study: Strategy for roadsupply and charging in Australia

June 2013

June 2013

Agenda

Page

1 Purpose of the strategy 1

2 Current situation 3

3 Key findings 93 Key findings 9

Purpose of the strategySection 1

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1National Transport Regulations Reform 2013 • Case study: Strategy for road supply and charging in Australia

Industry sought an independent review

Section 1 – Purpose of the strategy

• Identified disconnect between road charges and road investment

PC

• Identified disconnect between road charges and road investment• Propelled issue onto national agenda

CRRP

• Found that more direct heavy vehicle charging could yield benefits• But only realised if integrated with funding and expenditure reforms

HVCI

• Currently preparing a RIS of supply and charging reform models• More long term, theoretical focus to date: mass distance location charging

2006

2010-2012

2013→

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• Focus to date has been on charging more than supply/investment

• ATA sought an independent review to guide the trucking industry

• Practical approach that considered timeframes for change.

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Current situationSection 2

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Australia’s heavy vehicle sector

Section 2 – Current situation

Growth in Australia’s road freight task (1980-2030, billion tkm)

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• Critical to the production and distribution of a diverse range of commodities

• 70% of domestic freight is transported by road (t)

• Road freight task expected to double by 2030 and triple by 2050 (ntk).

Road freight vs. regulation of other sectors

Section 2 – Current situation

Natural monopolies (electricity, water) Key differences for road freight

• Have been tightly regulated for the last 20years

• Independent assessment of efficient costs

• Use-based charges

• Achievement of standards

• Overseen by national regulators

• Non-excludable

• Non-rivalrous

• Social / community

• No examples of full regulationinternationally

• New Zealand has come the closest.

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Road supply: complex distribution of funding

Section 2 – Current situation

CommonwealthNation Building (NB) Program:

• Road investment ($1,956 m)• Black spot ($60m)• Heavy vehicle safety & productivity ($20 m)• Roads to Recovery (18 m)

Road-related expenditure$17.9billion

(administration, enforcement,arterial and local roads)

State

Payment for workon arterials

NB: Roads to Recovery($332 m)

SA Local Roads ($16 m)Regional and Local

NB Off-networkprojects ($225 m)

• Roads to Recovery (18 m)

Building Australia Fund ($312 m)NB Plan for the Future ($27 m)

FIRS ($69 m)

($11,887 m)

Road-related revenue$18.8 billion

• Fuel excise ($11,247 m)• Federal Interstate Registration Fees

(FIRS) ($69 m)• Vehicle registration fees ($5,294 m)• Stamp duty on registration fees

($2,167 m)

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Local

on arterials($705 m)f

Identified Local RoadsGrants (paid through

the States)($641 m)

Regional and LocalCommunity Infrastructure

Program ($189m)($6,469 m)

Heavy vehicle charging

Section 2 – Current situation

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• 60% of charges are allocated by the Commonwealth (fuel excise)

• Remaining 40% is paid directly to states (high annual registration)

• Some distortions due to increasing interstate freight.

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Problems with the current situation

Section 2 – Current situation

Road supply issues:Case for more demand-ledinvestment• Lack of national cohesion in road supply

decisions• Lack of accountability and transparency• Does not meet diverse needs of road users• Poor incentives for heavy vehicle access• Disjointed access for heavy vehicles• Uncertainty about how to treat CSOs

Road charging issues:Balancing charging reform withreality• Road user charges do not reflect costs of

use• Cross-subsidisation within vehicle classes

and across time• Over-recovery and distortions• Limited behavioural response to charging• Practical constraints on charging revenues

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• Uncertainty about how to treat CSOs• Lack of demand data to inform investments

• Practical constraints on charging revenues

Key findingsSection 3

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Recommended road supply and charging model

Section 3 – Key findings

Short term (0-3 years) Medium term (3-6 years) Long term (7+ years)

1. Three-tier road freightnetwork + service standardsand access levels

2. Reporting, benchmarkingand review of road costs

3. Transparent formula forallocating funding to roadsuppliers

4. Improve cost reflectivity

1. Reporting, benchmarkingand review of efficient roadcosts – tied to funding

2. Further improve costreflectivity of road charges– majority fuel-basedcharge

1. Potentially establish national roadfund to assess demand data andsubmissions for Tier 1 and 2investment plans

2. Continue with a fuel + registrationcharge until strong business casefor variable charging emerges:

• Can and will detailed dataobtained through variablecharging be used to improveinvestment decision-making?

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4. Improve cost reflectivitythrough adjustments toPAYGO

investment decision-making?

• Is added cost, time andcomplexity warranted?

Key findings/learnings

Section 3 – Key findings

1. Understand why roads is one of the last monopolies to undergo micro1. Understand why roads is one of the last monopolies to undergo microeconomic reform: diversity of users as well as road network infrastructure

2.There is a case for more demand-led investment in roads used by heavyvehicles: critical to meet future freight growth through productivity,however linkages with light vehicle investment to be resolved

3.Better alignment of charging is promising if detailed data can be used toimprove investment decision-making and other benefits justify cost, timeand complexity.

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Thank you

Further questions, please contact:Further questions, please contact:sarah.close@au.pwc.com

The strategy prepared for ATA is available at:http://www.truck.net.au/industry-resources/future-strategy-road-supply-and-charging-australia

This publication has been prepared for general guidance on matters of interest only, and doesnot constitute professional advice. You should not act upon the information contained in thispublication without obtaining specific professional advice. No representation or warranty(express or implied) is given as to the accuracy or completeness of the information containedin this publication, and, to the extent permitted by law, PwC Australia, its members, employeesand agents do not accept or assume any liability, responsibility or duty of care for anyconsequences of you or anyone else acting, or refraining to act, in reliance on the informationcontained in this publication or for any decision based on it.

© 2013 PwC Australia All rights reserved. In this document, “PwC” refers to PwC Australiawhich is a member firm of PricewaterhouseCoopers International Limited, each member firmof which is a separate legal entity.