Setting toll road rates

Setting toll road rates

The disclosure that the government plans to raise Jakarta's
toll road fees again in June, after only eight months, gives rise
to questions about the mechanisms by which the rates are set.
This is even more so given that the increase has been proposed by
PT Citra Marga Nusaphala Persada, which builds and operates part
of the city's toll roads, rather than from Jasa Marga, the state-
owned company which operates the other portions.

Minister of Public Works Radinal Moochtar said the proposal
would have to be sent to President Soeharto for approval.

We have no reason to doubt Radinal's statement that the
government needs to make toll road construction attractive to
investors. Given the nature of this infrastructure industry -- a
long pay back period, tight cash flow in the early years of
operation and difficulties in securing loans in the absence of
collateral -- investors should be given sufficient guarantees
about the future return on their investments.

Yet, toll roads should be seen in terms of the function they
serve for the public, and not simply as a business concern. In
the case of Jakarta's toll roads, they facilitate the movement of
people and goods from one end of the city to another in a
relatively short time. Motorists are willing to pay for the
privilege of using the toll roads, but how much they must pay is
something which the government has to determine. While the rates
should guarantee good returns for the investors, they should not
punish consumers.

The standard international rule for setting toll road fees is
that they should not exceed 70 percent of the vehicle operational
cost, which is the estimated cost of getting from one place to
another if one does not take a toll road. The operational cost
takes into account speed, comfort, wear and tear on vehicles and
fuel usage. Given that Jakarta toll road authorities charge a
flat rate for any distance, this rule is difficult to apply here.
This is probably the reason that such calculations have never
been done. Or, if calculations have been done, they have never
been made public.

Now, however, in the absence of any other parameter by which
to judge whether the fees are too high or too low, it seems
worthwhile to do a study to see how local toll road fees stand in
relation to the international standard.

Citra Marga's reasoning in proposing the increase sounds weak.
It argues that with the completion of the 6.8 kilometer Ancol
Timur-Pluit segment next month, motorists will benefit from a
longer toll road, stretching from Tomang in the west to Semanggi
in central Jakarta, Cawang in the east, Tanjung Priok in the
north and on to Pluit in the northwest. The same argument was
used when the government, at Citra Marga's request, raised tolls
a range of 13 percent to 25 percent last October, when the city's
toll road network was extended from Tanjung Priok to Ancol Timur.

If the latest proposal is approved, it will set a pattern in
which an increase is due every time a new section is added to the
toll road network, irrespective of its cost and benefit to
consumers.

A more rational and acceptable mechanism is called for in the
way the government sets the toll rates, one that takes into
account the interests of both investors and consumers. And
certainly, the mechanism must be more transparent. We hope the
House of Representatives will give the proposal a critical look
when it is submitted by Radinal, and before it is sent for
approval by the President.