Rail & Infrastructure

Payback time

Higher tolls and longer concessions likely for struggling expressways


Roads to nowhere

The world’s longest desert highway – which spans 900 kilometres of Inner Mongolia – opened to traffic last month. It offered evidence once more that China’s road-building race continues at a pace that leaves other countries in the dust. Profits have been more elusive: indeed the Ministry of Transport has just announced another year of losses for China’s toll roads.

In 2015 revenues from toll roads were about Rmb410 billion ($61 billion), a small increase on the year before. Expenses had surged to Rmb728 billion, leaving a deficit of Rmb318 billion. Total debt for toll roads had also reached Rmb4.45 trillion, a new record, although Zhao Jian, a professor at Beijing Jiaotong University thinks that the number could be much higher. “Rmb4 trillion of debt is certainly a large figure but I think the total debt of the nation’s toll roads won’t stop there,” he told Beijing Business Today. “At the time of the [Ministry of Transport (MoT)] report a lot of local governments hadn’t released figures yet. The actual debt could exceed Rmb10 trillion.”

Other experts took a more sanguine view. “Although China’s toll road debt is relatively large, this is just a phase,” Sun Yonghong, an official at the transport ministry’s highway division, assured People’s Daily. “In the long run, the risks are controllable.”

Yu Yuanming, the director of a think tank affiliated to the transport ministry took a similar line, suggesting that liabilities have surged because China has built more expressways in the last five years than at any time in its history. That rate of construction is now easing off, he explained to Beijing Business Today, and the debt pile will be reduced gradually, without “too much human intervention”.

In the short term the pressure has been more intense, with reports that almost 80% of last year’s toll road revenues went to paying down debt and interest. Operators have also been pushing for extensions for the periods in which they are allowed to levy tolls on users. Commentators have warned that this gives the expressways an incentive to exaggerate their woes. But last month MoT published recommendations that concessions could be extended for highways where the investment is larger and longer return periods are required. The plans also indicate that new standard fees could be introduced by the end of 2017, at levels calculated with “scientific reasoning”, though it remains unclear what this MoT term might mean in practice.

Certainly, the disparity in toll revenues between provinces is marked. Zhejiang’s network of toll roads earned an average Rmb5.05 million per kilometre, ranking top. Unsurprisingly, provinces with smaller populations and lesser economies are having more trouble servicing their debts. The costs of building the highways have also increased significantly over recent years, and Zhao at Jiaotong University thinks that toll fees will need to be set higher, even if that contradicts another of the ministry’s objectives: lowering costs for the logistics sector.

Road haulage companies have complained that expressway fees make up more than a third of the expenses of long-distance trips.

The government has been trying to shift some of the financial burden through the encouragement of public-private partnerships. But Zhao questions whether the surge in construction in parts of central and western China is even sustainable. There, the likelihood is that local officials are less concerned about the long-term prospects for revenue generation from their roads than the immediate boost of building them. Three years ago, a report from the provincial transport ministry in Guizhou suggested that every Rmb100 million in highway spending could generate at least Rmb400 million in local GDP, and incentives like these have made it very tempting to fund the construction of expressways, even if there is little demand for them. “The real problem here is whether local governments in the central and western areas will continue to use toll road construction as major driver of the local economy,” Zhao told the Global Times.

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