Unification of Road Tolls
March 31, 2001 | BY
clpstaff &clp articles &Beginning with the recently completed Beijing - Shanghai expressway, the Ministry of Communications (MOC) is considering instituting a unified toll pricing…
Beginning with the recently completed Beijing - Shanghai expressway, the Ministry of Communications (MOC) is considering instituting a unified toll pricing and management structure for toll road projects in the PRC. MOC officials expect that an ongoing pilot study of a less complex pricing regime and an electronic toll (E-toll) management system will lead to the replacement of current policies, under which individual provincial communications and price bureaux jointly ratify and govern rates charged by individual toll management companies. Along the Beijing - Shanghai expressway, there are 11 tollgates throughout Beijing, Tianjin, Hebei, Shandong, Jiangsu and Shanghai. The present toll rates vary so greatly that while a car owner pays .34 yuan per kilometre along the Beijing section of the expressway, the same car owner pays .71 yuan per kilometre along the adjacent Tianjin section of the expressway.
Existing Pricing and Management System
When structuring toll collection rights for a PRC toll road project, investors face a complex network of laws, regulations and precedents, split between national and provincial authorities. While the principal legal references for structuring toll collection rights are the PRC Highway Law (amended October 31 19991) and the Ministry of Communications, Administration of the Assignment of Highway Operating Rights For Compensation Procedures (1996), the national government has delineated responsibility for implementing these national laws to each province. For instance, while Chapter 6 of the PRC, Highway Law sets guidelines for matters such as the type of road on which toll collection is permitted and the minimum and maximum distance allowed between toll gates, important details regarding toll collection rights, including toll pricing and management practices, are found in provincial level regulations and precedents. The complexity of structuring toll collection rights is exacerbated because such precedents are not only found in provincial level project approval notices, but also in provincial level administrative measures governing a project, as well as in concession agreements executed by the governmental entity with authority to approve the project.2
Before toll fees are sanctioned, individual provincial communications and pricing bureaux must use their respective pricing mechanisms to value conflicting investment considerations that exist between the government, project investor and end user. Among this list of considerations are a project's scale of investment, loan repayment period and initial investment recovery period, traffic flow and value of the toll price to end users, and other such investment considerations.
Likewise, individual provincial communications and pricing bureaux must address contentious toll management issues that are common to toll road projects nationally on a project-by-project basis. These issues include limitations on the types of vehicles exempt from toll fees and toll adjustment guarantees, including formulae for calculating adjustments and provisions concerning the frequency of such adjustments.3
Under the present system, two separate sections of an expressway having similar scales of investment, loan repayment periods and initial investment recovery requirements and other such investment considerations, are likely to be given very different toll rates and management schemes. Although this method of allowing provincial level bureaux to oversee the development of separate toll road projects tends to work well within the boundaries of a particular province, such an opaque method needs significant overhauling if it is to be the foundation for a national network of highways.
Centralization and E-toll
To counteract the negative effects of a lack of coordination between provinces, the MOC is contemplating centralizing pricing standards. Such a move suggests the creation of a comprehensive national valuation formula to be used by provincial authorities when setting a specific toll price. While it is unclear how the central government will handle different toll rates being charged at individual tollgates along existing highways, such a move to centralize pricing policies, and subsequently clarify how an investor will earn revenue through its toll collection rights, will make investing in PRC toll road projects significantly more transparent.
In line with its bid to unify toll pricing standards, the MOC is conducting a pilot study of an E-toll collection system along the Beijing - Shenyang expressway, with the expectation that toll collection along the Beijing - Shanghai expressway and other toll roads will eventually be handled through a network of computers and scanable E-toll cards. Not unlike other countries now using computerized toll collection systems, the PRC would have a much more reliable and efficient means of regulating toll rates throughout its burgeoning highway system. In addition, the PRC would be able to make a significant number of its current tollgates obsolete, reducing long-term costs. While immediate questions regarding E-toll's influence on important concepts such as an investor's or management company's direct control of toll collection rights will have to be addressed, in the long run, a set of national standards for toll collection promises to help create a more definitive price range in which toll management companies can earn revenue.
Dr. Zhu Guolin and Jason Trollope,
Freshfields Bruckhaus Deringer,
Hong Kong
Endnotes:
1. For a discussion of the revision of the PRC, Highway Law, see 'Amendments to the PRC, Highway Law', Carl B. Cheng and Debra Levin, China Law & Practice, February 2000.
2. For a list of common terms contained in concession agreements, see 'Toll Collection and Concession Rights under the PRC, Highway Law', Carl B. Cheng and Simon Kwan, China Law & Practice, January/February 1998.
3. Due to the prevalence of official vehicles in the PRC, an exemption of official vehicles generally is a loophole, which could have a significant adverse effect on a toll road's revenue.
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