Seville, Spain.

[dropcap style=»default, circle, box, book»]I[/dropcap]n the last 20 years I have taken part in many roadway studies and recently, the government has announced a rescue package for the Madrid Toll Roads due to their scant usage(coupled with the over-expenditure resulting  from expropriation) all of which has inspired me to write this new post. I would like to achieve with this article a kind of self-critical reflection, maybe even a catharsis, if you like, on how traffic studies are undertaken for concession processes.

On this occasion I am going to base my piece on an address I gave at the Pan-American Transport Congress in Lisbon a few years back and which will be held this year in Spain (for more information, click here http://www.panam2014.unican.es/)more specifically in Santander, next June. Though beforehand, I would like to mention briefly the project for the Madrid Radial Motorways, should any reader not be aware of this. These toll-roads were built in 2004 using the Public – Private Partnership (PPP) method involving a concession for the construction and development of the system, as we have already mentioned in the article on who pays for and finances PPPs .Their aim was to provide rapid access to Madrid although by charging users. They linked up with other Madrid bypasses, notably the M-45.

I should like now to make a series of digressions that may appear obvious (and if so, why do we need adhere to them?)responding to key issues and illustrating the topic with the example of the Radial Motorways as to show you my vision.

Why is it that if you do not invest in a good traffic study the concessions can go bankrupt?

• One of the main risks that a bidder must assume refers to traffic so that in this way it is considered as a project not added to the public deficit, as I have previously explained in my post on Public – Private PartnershipsPPP. Who pays for and finances our infrastructures?. Transferring demand risk also encourages the bidder to create quality service to ensure users are attracted to the infrastructure/service. In other words, if there is a great deal of demand, more traffic than expected, the entrepreneur will earn more. Conversely, if there is less, the risk, and as has been seen in the case of the Madrid Radial Motorways (some carry half the traffic levels forecast in the financial models), they lose money, and that is how it should be. As the Madrid Radial Motorwayscarry less traffic, they will eventually go bankrupt, as demand risk was included in the concession contract
• However, concession bidders are oftenaverse to spending money of far-reaching studies, based on the gathering of data(surveys, questionnaires), even when they take into account the fact that this can reduce not only risks but also financial costs

What has to be included for a traffic study to be considered valid?

Traffic studies into the creation of dual carriageways or building of new motorway routes are the more standard studies whose aim is to:

• Make projections over time depending on the foreseeable evolution of socio-economic factors: if the population is forecast to grow, motorisation, industrial developments or of any other type that could increase demand levels. Also, economic development,an aspect that undoubtedly affected the Madrid Radial Motorways as nobody expected such a severe economic downturn. Mobility is very closely linked to wealth.
• Adequate definition and estimation of the impact new infrastructure elements will have in terms of attracting demands. For example, a motorway can have an effect from the development and construction of a High-Speed Rail Line. It can also affect other motorways, as is the case of the R-4 Radial Motorway, which have lost traffic due to the improve of the “Silver Route” that has provided an alternative itinerary between Western Andalusia via Estremadura.
• In these studies,the most critical aspect, precisely, is to get the following right:

1.  Impact year for these new infrastructure elements. Seeing when the aforementioned AVE High-Speed Rail Line will take demand from a motorway.
2. Extent of the impact;be it positive or negative: in other words, seeing how much traffic will be taken.

• For toll motorways, there is a different problem. Whilst for the previous cases, there is a certain amount of captive traffic on the part of the road under study (travellers do not usually have an alternative route), for toll motorways the drivers’ response will also depend on the definition of the product, on the project’s conditions and quality, and the fare charging system in place for the usage of the Toll Road in comparison with other alternatives. To illustrate this, let us look at the example of the R-2 Madrid Ring Road. This runs alonga section markedly distanced from urban centres, and therefore, accessing it is no mean feat. It is practically only of interest to travellers coming from Guadalajara or beyond. With regard to the immediate environs (Torrejón, Alcalá de Henares, San Fernando), the standard of the product is poor, time is not saved generally, and in the cases when it is, this is so relatively little that is not worthwhile compared to the high costs involved.

Are we agreed on the fact that the toll roads require a market study?

• In short, a demand study for a toll road is a market study that must tackle:
• Product definition: how much will be paid, how this amount will be paid, will there be any type of travelcards. Furthermore, the quality of the roadway itself, along with the savings in terms of time and the risk involved with it use, must also be studied..Demand estimations.Revenue calculation.
• All of this must be undertaken within aprocess of continuous iterationas the three factors depend on each other. With this in mind, it is of the utmost importance to determine, amongst other aspects, which solution optimises revenue. From the licensee’s viewpoint, it is better to maximise revenue whilst the Public Sector Administration will prefer the infrastructure to benefit the greatest number of citizens.

What are simulation and forecasting models used for?

• Simulation and forecasting models are highly useful tools, though only if they are properly used and are capable of correctly reproducing known situations and provide results for sensitivity analysis. One must not believe them simply “because this is what the results said”, but rather because they adapt properly and provide coherent results.

• Irrespective of the application of the models,it is necessary highlight risks insomuch as is possible using contrast techniques. For example, the application of the following are worthy of note:
  • Scenario simulation without tolls to determine the maximum demand level.
  • Estimation of certain demand levels, those who have their journey paid for them or make it for professional reasons.
  • Application of ratios from other roads in service in similar corridors.
  • Valuation of the direct results obtained from surveys.

To summarise, demand studies offer a critical aspect of major importance whether it be part of the planning or the bidding on a concession. This isalso important during the process of the evolution of working life of a concession whereby it is worthwhile learning from true results in order to:

▪   Correct deficiencies.

▪   Provide “lessons learnt” so that future managers can tackle projects with greater levels of assurance.

As always I will finish and offer the floor to you to comment on my post, especially those dear readers involved in concession processes.