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Tollopoly on Sydney’s orbital

 

Round and round we go

How that helps the money flow

Or: why we always need new toll-ways

Nov 11th, 11:11 hrs. The silly season has started. Time for a silly story, completely fictional. Any resemblance with reality is purely coincidental. No responsibility is accepted for readers taking  this seriously.

Suppose your are owner of a toll-way. Your business has been growing. Your toll-revenue has been growing. But payments to suppliers, employees and banks to pay interest on your loans are high. They are around 80% of toll revenue.You need a lot of cash in your cash box to finance all these activities. Unfortunately, the cash balance from investing activities is in the red. You are under constant pressure to arrange re-financing deals for maturing loans and other financial instruments to keep things going. And your shareholders also want their fair share of the pie.  You consider your next moves.

Here comes a golden opportunity. Your adjoining tollway operator has just hit the wall due to an unexpected and unfortunate combination of wrong traffic forecasts, high construction costs, low tolls,  high fuel prices, community backlash over funneling traffic onto toll-roads and the general itchiness of credit markets as the GFC evolves. You have a once-in-a-lifetime opportunity to snatch up this bargain at the receiver’s auction for 1/3rd of the construction cost of this wonderful piece of infrastructure.  You go on the money market to finance this deal and put the money in the cash box, just at the right time in the annual financial cycle. You have now a high cash balance  at the end of the financial year. Your shareholders are happy. Your management is also happy as the successful bidding meant high bonuses.

round_and_round_we_go_on_the_sydney_orbital

In the next financial year you really have to pay what you have just acquired. The cash balance drops. And here comes another coincidence to the rescue. The government is planning a gigantic new town which happens to be near where your tollway runs and where you basically have a monopoly, with no competition from public transport which is very poor in this area. A by-product of this clever policy is that house prices are kept high and the number of foreclosures is low. However, power and water bills go up to finance the infrastructure needed for the new residential development. But we are being told we can enjoy endless riches from the mining boom Mk2. Thus, undeterred, everyone accepts population growth – even if mainly generated by high immigration – and consequently believes in perpetual traffic growth.

Therefore, additional lanes  are needed for your toll-way.  An environmental impact study is done but 100s of stupid objections are submitted, ranging from protecting the ump-teeth frog species to CO2 emissions. No problem, they are all debunked in a final document, often with contradictory arguments. But who cares, no one will notice these subtleties. What’s more important, no demonstrators are blocking the road to protest. The general public is lethargic and knows nothing will change if they try to take action.

Fine. You are ready to go on the money market to improve your cash position. All banks know and don’t question that new lanes are needed, investors believe in growth and yet another deal is done. Not one moment too soon. The cash in your cash box had to be topped up. Now construction starts and the contractor bills roll in which have to be paid. The end of the financial year is in sight and another deal is needed. And yet again another new town is planned on the other side of the carousel. Rescued.

Now it is time to start planning for another phase on the orbital…..

You have heard of peak oil? Another oil price shock?  “Not in my backyard, mate. I mean, not on my tollway.”  What’s more, there is plenty of coal for new coal fired power plants to generate electricity for electric cars. And we can export a lot of coal to get money for the import of all the oil we need. Climate change and global warming? No worries. It will be addressed by others. So you’ll be OK, the next round of toll-way expansion can start.

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