The masters of the highways

Giorgio Ragazzi: "I signori delle autostrade"

We, our parents and our grandparents paid for the highways. The building costs were written off years ago. In England and in Germany, highway travel is free. In those Countries, the citizens use the highways, quite legally, without paying twice. They originally financed them and now the highways belong to them. In Italy, the highways were given away to concession holders such as Benetton, who now earn billions of Euros, with no risks and no invested capital. The millions of Euros in revenues are then invested in all sorts of businesses and are used to finance the political parties.
Highway toll fees should be scrapped. We certainly didn’t pay taxes for decades in order to make Benetton and partners wealthy. The situation is very different in the case of new highways, and he who holds the concession must put in his own money. As regards the existing highways, we must turn around and refuse to pay any more protection money to the concession holders. Within the next few days I will be launching a civil disobedience campaign, for which I will act as spokesman.
Just a small word of warning before you listen to the interview held with the author of the book entitled "I signori delle autostrade" (The masters of the highways), Professor Giorgio Ragazzi, drink a double camomile tea and make sure that you’re not wearing a Benetton jersey, because you may end up eating it.

"The Italian highway network was built almost entirely in the 60’s and 70’s. It was financed almost entirely by means of loans. At the time, all the highways fell under the jurisdiction of either the Iri or local bodies, municipalities, provinces, etcetera and the loans were in many cases guaranteed by the State. By the end of the 1990’s, in other words twenty-five years later, these investments had been amortized and the loans repaid in full. The share capital invested in the highways was minimal and so, logic says that by the end of the 1990’s the toll fees should either have been abolished entirely, making highway travel free of charge, as it is in Germany and England, because the investment had been completely amortized using the toll fees, or the bulk of the concession-holders’ revenues should have been paid over to the State in the form of taxes or suchlike, as had been envisaged in the Legislation in force at that time.
But what happened? Iri needed money and had already decided to privatise the “Autostrade” company (Highway Company), which was the most important highway management company at the time and owned around 65% of the highway network. In order to facilitate the privatisation, a number of concessions were granted, or what I like to call enormous gifts handed out to these concession holders. Permission had already been granted previously for the values to be re-capitalised in the books of account, in other words to significantly increase the asset value reflected in the accounts, which could then be matched by higher toll fees. Then the concession fee payments were postponed, more or less free of charge, for an average period of 10 years. Highway users failed to realise what was going on. They didn’t realise because most people simply drive, pay the toll fee and are not particularly aware of what goes on behind the scenes, however, it is quite easy to work out the full extent of the gift handed out to the concession holder when a simple little law is promulgated and the payment of concession fees is postponed for ten years. The problem we face today is that these concession holders are making huge profits, but they are obviously not re-investing any money in the sector, because no more highways have been built. All they have done is to invest their money in financial operations and other diversification shareholdings in the real estate sector and they are now, inter alia, even investing money abroad, so we find ourselves paying very high toll fees for a highway network that is getting older by the day and is totally inadequate for the Country’s needs. All in all, a sad and strange situation.
The real problem is that once the amortization is complete, these toll fees are tantamount to taxes and, if we have to pay taxes, these should accrue to the State and not to concession holders that have never invested a single penny of their own money in the concession. It cannot really be said that, in general, that our highways are very expensive, in the sense that sometimes Italian toll fees are simply compared to those that are levied in France for example. Clearly, the toll fees levied should reflect the fact that the highways originally cost very little, that the costs have been amortized, the amount of traffic on the highways, etcetera and it is wrong, therefore, to look at the toll fees in isolation. What you should do is to relate the toll fee to the profitability of the concession holder because, in addition to covering the operating costs, the toll fee should also provide a reasonable return that is in line with the amount of capital invested. Therefore, when assessing the toll fee, it is important to consider how much capital was invested in the first place. Since 1999, Italy has applied the so-called price-cap system, in other words, a formula used to determine the maximum tariff increases from year to year.
In this regard, the system has two major flaws. The first flaw is the initial data utilised because, while tariff increases have been regulated, the tariffs applied at the time were used as a base, notwithstanding the fact that the investment made by the concession holders was extremely low and that, therefore, the concession holders already had an entirely unjustifiable profit margin. Tariffs are calculated on the basis of a financial plan, which means that part of the tariff is intended to cover inflation, and another part that takes into account a whole series of factors, including the forecast increase in the level of highway traffic. So what precisely has happened up to now? What has happened is that Anas has consistently made extremely prudent and very low forecasts of the increase in traffic, which have always been well below the actual rate of increase. All of the increase in traffic in excess of the forecast amount has turned into additional profit that has gone into the concession holders’ pockets. So, given an excellent relationship with Anas, I believe (with more than a little malice I might add) that it would have been an easy matter to draft a financial plan reflecting extremely low traffic volume forecasts and thereby ensure higher profits.
A third factor is the so-called quality remuneration, which is a rather fanciful concept because quality is measured not only as a ratio against a road surface condition index, but also in terms of the mortality rate on the road. So, if the mortality rate decreases, the fees increase. However, there is no relationship between the amount of money invested by the concession holders on improving quality, and the benefits they gain in terms of increased tariffs. Therefore, if the Government introduces stricter legislation, such as a points-based licence system, lower speed limits, etcetera, which then results in a drop in the mortality rate both on the highways and on the national roads, the concession holders obtain a totally unjustifiable tariff increase.
Certain things thus become patently clear. Firstly, we need to increase the level of investment in highway infrastructure, this because the Country has made no such investments for the past 30 years and we have therefore fallen very far behind. Secondly, building new highways now costs way more than it did in the past, for example, building a new highway currently costs somewhere between 25 and 50 million Euro per kilometre. The “Autostrade” company was privatised back in the year 2000, at a price equivalent to two million eight hundred thousand Euro per kilometre that, based on the number of kilometres managed and so, while they paid that price for the existing network at that time, to build new highways now would cost more than ten times as much. Clearly then, to build new highways on a project financing concession basis, the toll fees would have to be extremely high, while the toll fees on the existing highway network should be much lower than what they are at the moment. Therefore, what I have proposed in this book is to break the links between the toll fees paid by the users and the fees earned by the concession holder. Next is to implement a standard national tariff to be paid by all users. In the case of those highways where the concession holder is allowed a lower margin because the cost has long since been fully amortised, the excess revenues should be accumulated in a road fund, which would then be used to reduce the toll fees and finance the new initiatives." Giorgio Ragazzi

Posted by Beppe Grillo at 06:34 PM in | Comments (7)
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I'm not sure if your gratefulness is addressed to me. Should that be the case, my friend, it is I that is gratefull to you for taking your precious time to read "the excellent post" It is such an honor! Please, be nice and let all readers know your name.

Posted by: lou pacella | September 20, 2008 02:02 PM

Time for Italy and France to change their policies. I have been lobbying the French Government through writing letters. Tolls are not only a bonanza now they have been privatized but add to polution with the queues and stopping and starting at peages.
Please read my report (In French) on my blog:
www.cavapeter.blogspot. com

Posted by: peterfieldman | September 20, 2008 12:25 PM

Excellent and a complete post after a long time..thanks

Posted by: sachin dhall | September 20, 2008 09:55 AM

In Mexico it's the same, we paid for the highways forever, one president gave them away to concession to his corrupted friends, the next government "rescued" the highways (we paid) and the actual president is thinking in give them in concession to his friends, I imagine they will be rescue by the next government. We have the worse and most expensive highways in the world.

Posted by: madreselvas | September 20, 2008 05:34 AM

Highways in Italy are antiquated and dilapidated and dangerously small for the volume of cars travelling on them. But traffic in general in Italy is so bad that I don't think there is a solution. It will only get worse. Urban infrastructures are crumbling but no one seems to care -much like nobody cared about the garbage and toxic waste in Campania. Italy has a huge waste problem -building incinerators is not the answer. Rivers and seas are polluted. Often the air in the cities is unbreathble. Water is becoming scarcer and scarcer. The environment in general needs clean up. Homelessness and poverty are growing and more housing will be needed, the population is getting older and in need of adequate health care. So far I haven't heard any politician address these problems, except for Berlusconi wanting to build a bridge on the Strait of Messina and skyscrapers in Milan.

P.S. Actually, I don't think Italians worry too much about fundamentals.

Posted by: lou pacella | September 20, 2008 03:39 AM

Alitalia's personnel let out a sigh of relief when they heard the news of CAI withdrawing their offer. Relief quickly turned into cheers of joy. Alitalia's workers had unburdened all anxieties, liberated themselves from the distress caused by their awareness of having to work for a cabal of rich people should the insulting offer have gone through. Yes, they were happy CAI's offer was rejected. Of course papers like "Il Giornale" "La Stampa" seized the workers' joy and gave it front page coverage as irresponsible workers gloating over Alitalia's death. Well, it was to be expected. After all, workers, for the kind of people running those dailies, are society's necessary devils. So, why not demonize them, by accusing them of having privileges no other workers have. Or, as in the case of pilots, are chastized for deferring skills to seniority, forgetting that a pilot is a pilot is a pilot. When they're hired they all have to have the skills needed to fly what they're hired to fly. Pilots are professionals. One is as good as the other. Who wants to fly knowing that your pilot might not be as good as the pilot taking off in the next runway? Seems some Italian journalists have a hard time recognizing as much. But then how else are they going to blame workers for everything?

Posted by: lou pacella | September 20, 2008 02:38 AM

The New york state thruway was supposed to end Tolls years ago.
We still pay and pay and pay and would NEVER even think that we will get free travel on this interstate.

Posted by: paolo latella | September 19, 2008 11:45 PM

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