Will Toll Prices Rise even more?

Ross Greenwood speaks to ACCC Chairman, Rod Sims, about why they say Sydney drivers could lose out if Transurban buys the controversial Westconnex project.

Introduction: Will Toll Prices Rise even more?

Ross Greenwood:  Great to have your company here on Money News. Just a really big story that’s going to kick around the place in the next little while is in particular in Sydney. It goes to every other state as well. This is the power and the strength of Trans-urban, the roads operator. Now, Transurban, it is fair to say, has got significant power, right now, of 19 toll road concessions around Australia. Transurban owns 15 of them.

If you head in New South Wales, for example, it’s got seven out of nine. The question is whether that’s too many. Of course, remember that what happens when they buy these roads. They’re toll roads. They do a deal with the government. The government virtually guarantees not only the tolls that they will be paid today, but also the increases in the tolls over the life of that contract.

Therefore, that’s locked in. The question is whether there is sufficient competition. When they bid for these particular contracts, to make certain that there’s a good deal out there for motorists. Not just a good deal out there for government because it’s a different thing, if you think about this, It may be a great deal for government which gets a tunnel built or the road built. You as a motorist end up paying through the nose with ever-increasing tolls, that are much greater in many cases than the inflation rate and indeed your wages. Let’s go to the man who has to decide upon this. It was said that there will be an inquiry into Transurban proposal to buy into the WestConnex businesses, this giant new road system that the New South Wales Government is building. The chairman of the ACCC. Rod Sims is on the line, right now. Many thanks for your time, Rod.

Interview with: Rod Sims, ACCC, Chairman

Rod Sims: Thanks, Ross.

Ross Greenwood:  Can you just explain to me, Rod, why it is now that you have said that you will inquire into the proposal for Transurban to buy into the WestConnex project?

Rod Sims: Essentially, Ross, the Transurban consortium in attempting to buy WestConnex– That means it’s something we can decide to oppose in the courts, if we form the view that their purchase is anti-competitive. That’s what we’re assessing. We’ve formed the preliminary view that there are competition concerns in terms of if someone else got hold of WestConnex. That would mean there’s another big– because WestConnex is a huge road complex, Ross as you know–

Ross Greenwood:  I should just explain to people who are not in New South Wales, they don’t understand. This is a 33-kilometer road system that is primarily underground. That’s going to join up most of the major freeways that remain to be joined up in Sydney. As a result of it, pretty much all of those tunnels are going to have tolls on them. There’s going to be other widening of roads which will also see tolls reintroduced in some cases. From this point of view, we’re talking around now, with cost blowouts around $18.6 billion. It’s pretty big.

Rod Sims: That’s right, Ross. The choice is, does Transurban buys or does someone else buys? If someone else buys it that means you’ve got two big road operators in Sydney with knowledge about traffic. With the ability to put roads proposals to the government. Also, Ross, what’s really interesting here is it’s very likely that the Transurban roads will compete with WestConnex. If Transurban would open them to own them, that competition wouldn’t be there.

Whereas, if you had a new owner of WestConnex, other than Transurban, then there’s real potential for the WestConnex road system to compete with and distributor or the M2. That could lead to real benefits on motorists.

Ross Greenwood:  I should also explain to people, that the original strategy of the New South Wales Government when it was proposed to build this giant road system, was that the New South Wales Government would retain ownership of WestConnex until 2025. It was around about a year ago that the government announced its intention to sell at least 51% of the Sydney Motorway Corporation. Which is the holding company for the WestConnex.

There’s suggestions it could bring 51% anywhere between $2 and $4 billion. This is where, potentially, Transurban steps in. The point about this is also, given the fact that the contract, in many cases when these roads are built, is between the government and that particular contractor who operates the roads. Where does the consumer benefit unless it’s right at of the time the contracts are being drawn up?

Rod Sims: You raise a good point, Ross. You did earlier about whether the government’s interests are necessarily the same as the motorists’ interests. There certainly are ways where those interests could differ. If Transurban was offering the highest price for WestConnex, they could well be tempted to take that. It could well be that having competitive road systems, toll systems in Sydney could yield continuing benefits to motorists in the future.

Ross Greenwood:  See what I mean, was just going to say that. I want to take you to one other aspect which also concerns motorists. That was, you put out only a few days ago your regular petrol report. In this particular petrol report, you named the highest and cheapest retailers of petrol. In this particular case, you named Coles Express as having the most expensive petrol. That the likes of 7-Eleven and United had, on average, the cheapest petrol, perhaps as much as 10 cents a liter below those of other major retailers. This particular exercise, why is there such a disparity between the various petrol retailers?

Rod Sims: They’ve all got different value propositions, Ross. You’d have to ask the retailers why they price as they do. I think it’s largely Coles, BT, and Caltex pricing higher. You’ve got another band of 7-Eleven, United, Woolworth’s pricing significantly below those three. Further, you’ve got the independents in Sydney, for example, Budget Metro Speedway. You’ve got Liberty in Adelaide, you’ve got Vibe in Perth. These are by far the cheapest places to buy petrol. If anything Ross, competition. We’re trying to put out to consumers that petrol companies don’t all charge the same price. Your choice of where you buy your petrol matters, in terms of how much you’re paying for petrol.

Ross Greenwood:  One final one for you, with oil prices going up beyond $70 US a barrel, it means there is pressure on the raw material going into the refineries in Singapore and ultimately, on the price of the petrol coming to Australia. Are you satisfied with the market behaviour, right now? Given, in the past, you have complained about the fact that the margins on petrol for those people who are selling it is as high as it has ever been. Are you happy? Do you believe that competition is actually bringing that a little bit more under control?

Rod Sims: A little bit, Ross. It’s fair to say, margins are still too high. That’s why we’re hoping consumers do shop around because the more they shop at the lower priced petrol stations, the more those margins will come down. That’s one point, Ross. The other point, of course, is the reason petrol prices are going up is because of the International Cartel. That cartel is designed to push petrol prices up. It’s a government led cartel. There’s nothing any competition regulator can do about it, but it does cost Australian motorists. It is a very bad thing for Australia and for motorists worldwide.

Ross Greenwood:  I’ll tell you what, always great to have you in the program. Rod Sims is the chairman of the ACCC, the Australian Competition and Consumer Commission. Rod, as always we appreciate it here.

Rod Sims: Thanks, Ross.

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