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Riding the rollercoaster David Turner Director, Halcrow The impact of prolonged high fuel prices and other factors on the region s roads MACQUARIE ASIA INFRASTRUCTURE CONFERENCE 8 9 DECEMBER 2008, MACAU

Traffic and Revenue Forecasting What are the Main Drivers of Revenue? Background Socio-economic Changes Physical Changes Imposed Costs 2

What are the Main Drivers of Revenue? Background Socio-economic Changes Changes GDP per capita Car ownership levels Underlying population levels 3

What are the Main Drivers of Revenue? Physical Changes New Development New Intersections / Feeder Roads Competing Schemes Capacity Constraints 4

What are the Main Drivers of Revenue? Imposed Costs The Level of Toll Internal Fiscal Policies (changes in tax) External Factors (Fuel shortages / price rises) 5

What are the Main Drivers of Revenue? Traditionally, traffic forecasters tend to concentrate on understanding: Background Socio-economic Changes Physical Changes Toll Levels 6

What are the Main Drivers of Revenue? Traditionally, fuel prices are assumed to behave in an understood manner 7

What are the Main Drivers of Revenue? Traditionally, fuel prices are assumed to behave in an understood manner This is confirmed by looking at historic data 8

Fuel Prices Malaysia 2000-2007 Fuel Prices (Real Values) Malaysia 2.5 2 Index 1.5 1 0.5 0 2000.0 2002.0 2004.0 2006.0 2008.0 2010.0 Year Fuel Price 9

Fuel Prices Philippines 2000-2007 Fuel Prices (Real Values) Philippines 2.5 2.0 Index 1.5 1.0 0.5 0.0 2000.0 2002.0 2004.0 2006.0 2008.0 2010.0 Year Fuel Price 10

Traffic Usage Philippines 2000-2007 Traffic Usage Index 1.40 1.20 1.00 0.80 0.60 0.40 0.20 0.00 2000.0 2002.0 2004.0 2006.0 2008.0 2010.0 Year Traffic Usage 11

However, in 2008 all this changed 12

Fuel Prices Philippines 2008 Fuel Prices (Real Values) Philippines 2.5 2.0 Index 1.5 1.0 0.5 0.0 2000.0 2002.0 2004.0 2006.0 2008.0 2010.0 Year Fuel Price 13

What impact did this increase have on vehicle operating costs? 14

What impact did this increase have on vehicle operating costs? In developing countries values of time are generally low Hence, fuel costs make up a significant proportion of operating costs 15

Others 1% Other maint 7% Depreciation 7% Interest 4% Staff 23% Oil 1% Tires 6% Truck operating costs in the Philippines Fuel 49% Jan 2005 16

Others 1% Other maint 5% Oil 1% Tires 4% Depreciation 7% Interest 3% Staff 16% Truck operating costs in the Philippines Fuel 63% July 2008 17

How much were these increases? Jan 2008 July 2008 Philippines $ 0.54 $0.75 South Korea $ 1.10 $1.30 Malaysia $0.52 $0.74 18

How much were these increases? Jan 2008 July 2008 Philippines $ 0.54 $0.75 South Korea $ 1.10 $1.30 Malaysia $0.52 $0.74 All increases were around $0.20 to $0.22 per litre 19

How much were these increases? Jan 2008 July 2008 Philippines $ 0.54 $0.75 + 40% South Korea $ 1.10 $1.30 + 40% Malaysia $0.52 $0.74 + 20% All increases were around $0.20 to $0.22 per litre 20

How much were these increases? Again, as fuel prices are generally lower in developing countries, because of lower taxes, the impact (in percentage increase terms) is greater 21

How much were the increases? Again, as fuel prices are generally lower in developing countries, because of lower taxes, the impact (in percentage increase terms) is greater This combination of low values of time + cheaper fuel costs means that the impact of fuel price rises will be much higher in countries like the Philippines and Malaysia, than in Europe, USA and Australasia 22

So, how did road users respond? 23

So, how did road users respond? Did traffic volumes decrease? 24

Fuel Prices Philippines 2007-2008 Philippines 1.85 1.65 Index 1.45 1.25 1.05 0.85 0.65 2006.50 2007.00 2007.50 2008.00 2008.50 2009.00 Year Fuel Price 25

Corresponding Traffic Activity - Philippines 2007-2008 Philippines 1.85 1.65 Index 1.45 1.25 1.05 0.85 0.65 6.50 7.00 7.50 8.00 8.50 9.00 Year Traffic Usage 26

Relationship Fuel Prices / Traffic Activity Philippines, 2007-2008 Philippines 1.85 1.65 Index 1.45 1.25 1.05 0.85 0.65 2006.50 2007.00 2007.50 2008.00 2008.50 2009.00 Year Traffic Usage Fuel Price 27

Fuel Prices South Korea 2007-2008 South Korea 1.45 1.35 1.25 1.15 Index 1.05 0.95 0.85 0.75 0.65 2006.8 2007.0 2007.2 2007.4 2007.6 2007.8 2008.0 2008.2 2008.4 2008.6 2008.8 2009.0 Year Fuel Price 29

Corresponding Traffic Activity South Korea 2007-2008 South Korea 1.45 1.35 1.25 1.15 Index 1.05 0.95 0.85 0.75 0.65 2006.8 2007.0 2007.2 2007.4 2007.6 2007.8 2008.0 2008.2 2008.4 2008.6 2008.8 2009.0 Year Traffic Usage 30

Relationship Fuel Prices / Traffic Activity South Korea, 2007-2008 South Korea 1.45 1.35 1.25 Index 1.15 1.05 0.95 0.85 0.75 0.65 2006.8 2007.0 2007.2 2007.4 2007.6 2007.8 2008.0 2008.2 2008.4 2008.6 2008.8 2009.0 Year Traffic Usage Fuel Price 31

Fuel Prices Malaysia 2007-2008 Malaysia Index 1.45 1.35 1.25 1.15 1.05 0.95 0.85 0.75 0.65 2006.50 2007.00 2007.50 2008.00 2008.50 2009.00 Year Fuel Price 33

Corresponding Traffic Activity Malaysia 2007-2008 Malaysia Index 1.45 1.35 1.25 1.15 1.05 0.95 0.85 0.75 0.65 2006.50 2007.00 2007.50 2008.00 2008.50 2009.00 Year Traffic Usage 34

Relationship Fuel Prices / Traffic Activity Malaysia, 2007-2008 Malaysia Index 1.45 1.35 1.25 1.15 1.05 0.95 0.85 0.75 0.65 2006.50 2007.00 2007.50 2008.00 2008.50 2009.00 Year Traffic Usage Fuel Price 35

What does this mean for the future? 37

What does this mean for the future? While fuel prices continue to be volatile the risks around revenue forecasting are increased A wide range of fuel price change assumptions may need to built into future forecasts May be, investors will be more sceptical about putting money into toll roads in developing countries, particularly if they are taking on all the revenue risk 38

What does this mean for the future? However: Over the longer term, research has tended to show that fuel price increases are generally matched by technology based efficiency improvements. This, coupled with a general move towards smaller, more efficient cars, could offset the worst impacts of fuel price rises. 39

What does this mean for the future? The key issue is likely to be the short term uncertainty that surrounds fuel prices, rather than the longer term impacts 40

David Turner Transport Planning Manager, Halcrow Riding the rollercoaster The impact of prolonged high fuel prices and other factors on the region s roads 41