Traffic and Revenue Forecasting for Privately Funded Transport Projects Dr Alan Brett and Mr Peter Snelson WS Atkins Introduction The private sector has an increasing role in the provision and financing of transport projects. This has introduced new requirements for the processes needed in forecasting revenue streams associated with such projects. In many cases most or all of the revenue will be derived directly from patronage through fares, direct toils or shadow toll systems. Thus considerable emphasis is placed upon the quality of the patronage forecasting for such projects. In addition to a 'central case' forecast, the private sector requires detailed analysis of risks associated with the project and quantification of outcomes for a specified probability range or ranges. There have been a number of well publicised cases where schemes have failed substantially to achieve forecast patronage levels, including Eurotuunel, South Yorkshire Supertram and a number of toll road projects in Europe, the USA and elsewhere. Such examples have resulted in private sector investment agencies becoming increasingly concerned with regard to the quality of current transport patronage forecasting. This paper discusses a number of recent and current audit and monitoring projects undertaken by the authors for privately funded transport schemes. These have shown wide variation in the techniques used and the quality of the results achieved. The paper concludes by providing a set of guidelines forming a 'best practice' guide for the patronage forecasting of such transport projects. These guidelines recognise the requirements of different project types (e.g. road or public transport schemes), project sizes and funding arrangements. Toll Motorway An example of the way in which a BOT privately funded motorway can go very wrong has recently been witnessed. Given the delicate nature of this project the authors will not refer to its location suffice to say that this particular motorway was one of the first to be constructed in this region under the BOT system. It must firstly be pointed out that, at the time of the scheme inception and evaluation, in the early 1990% our professions' knowledge of the necessary modelling, economic and financial requirements of such a project were sparse to say the least, and some may say that they still are! This lack of experience and knowledge however did not only apply to the traffic advisors but also to the other parties in the team. The financial advisors and supporters, consortium members, legal advisors and the relevant national governments were all as naive as each other at this time. As we are all aware the processes involved in developing this type of project are the same, in basic terms as any infrastructttre evaluation; traffic model, economic model, finance model. However, when dealing with BOT schemes that are to be funded by direct charging, the macro economic and forecasting assumptions made are critical to whether the project will fly or sink like a stone. Unfortunately in the case in point the sinking stone scenario is where it has ended up. However, the recognised procedure of the time were undertaken, the project financed, and constructed and the motorway 47
opened. Unfortunately, however, upon opening the motorway attracted less that 40% of its predicted market, and still does, after a number of years of operation. What went wrong? With such a project there are a whole gambit of things that can go wrong and with this particular motorway just about all of them did. If we start with the basic premise that the base. traffic information for any such evaluation needs to be robust and reliable, in this case it was not. Also the procedures used in validating traffic models has been honed over the years to ensure the base is as accurate as possible, also in this case these procedures were not adhered to. Therefore the project started with a flawed base set of traffic figures. Regarding The economic evaluations undertaken, these are mostly outside of the influence of the traffic advisor or the consortium. In this case the National Economy took a downturn, due to national policy, between financial closing and completion of construction. This has affected the local ability to afford the toils set and therefore the usage of the scheme by them. A major intemational event had been planned to take place just after opening that was expected to have a long-term effect on international travel on the scheme. This had been taken into account in the forecasts. Unfortunately this event was cancelled between financial closing and opening. During negotiations the national government had given assurances that traffic management measures would be undertaken on the parallel routes to reduce heavy vehicle usage. These did not, and still have not, been put into place. Despite being included in the scheme, no service areas were constructed as part of the initial motorway construction. However the parallel route has numerous refreshment stops and overnight accommodation both in the main town bypassed and along the route itself. The willingness to pay tolls and resultant revenue forecasting procedure adopted for this scheme were based on time saving assumptions, as are most of this type of project. However the motorway in question leads to a major international border crossing point where, due to lack of correct documentation, over 50% of all heavy vehicles can spend anything from 4 hours to 2 days waiting to cross. The time saving comparing the motorway with the parallel route is measured in minutes. The publicity required to ensure that all possible users of a new motorway are informed of its existence is important. There was no publicity until well after the road was fully operational. When added together all these factors, each having a small (2-10%) influence on traffic flows on the motorway has resulted in a significant shortfall in usage and revenue. So much so that the operators of this particular motorway are no longer solvent. Estuarial Toll Road Crossing This toll road crossing provides a link in an important coastal route. The alternative to the route is the original route around a deep coastal inlet. A ferry service also operated prior to the opening of the crossing. 48
Traffic volumes during the period following the opening of the crossing have been sustained at approximate 40% above forecast. An estimation of the outline and forecast traffic has been undertaken. This examined three principal elements of the forecasts:- Market Size - 'in-scope' - traffic Market Share - degree of attraction of 'in-scope' traffic Market Enhancement - generation of new traffic It was estimated that each of these elements contributed to the under forecast by around 10%, leading to the net under forecast of 40%. The reasons underlying the under forecasting are discussed below. Market Size Market Share - Whilst traffic counts were available for the original coastal route, there was a lack of information as to the proportion of the measured traffic that was making the complete journey around the inlet. Thus estimates had to be made as to the proportion of this traffic that was 'capturable' by the crossing. In addition, estimates had to be made as to the number of foot passengers on the previous ferry.service who would change to become road users of the crossing. - Surveys were undertaken to establish 'willingness to pay' for the new facility. Two sets of surveys were carried out with differing results. The actual performance of the crossing showed a greater willingness to pay (and thus higher patronage) than that forecast by either survey. Market enhancement - The forecasts assumed a modest level of traffic generation as a result of the new crossing. Whilst the travel time savings offered by the crossing are substantial, the toll cost is also significant. However, the out-turn traffic generation was much higher than forecast. Thus the market size was under forecast due to conservative estimates made in place of lack of information. Market share and enhancements were under-forecast as a result of underestimate of the willingness to pay for the benefits offered by the facility. Whilst the margin of total error in the forecast was substantial, this resulted from conservative forecast for the key elements of the demand. The project was fundable at the forecast demand level. The actual demand (which is well within the capacity of the facility) will lead to enhanced returns for the investors in the project. A key point to note is that relatively small underestimates of components of the demand will lead to a substantial net underforecast. 49
The Humber Bridge The example of the Humber Bridge (which was publicly financed but through loans) is given in order to dispel the oft-quoted myth that the financial difficulties of the bridge stemmed from inaccurate traffic forecasting. Traffic levels on the bridge have accorded very closely with those forecast. Some 15 years after opening, traffic figures for the bridge were within a very small percentage of the forecast values. The financial problems of the bridge resulted from time and cost overruns during construction. These were compounded by capitalisation of interest on the extended (in scale and time) debt. Capitalisation was necessary, as no revenue was available prior to bridge opening. Thus at opening, the bridge had a debt level of near 100m in place of around 25m forecast. Toll revenue (although similar to that forecast) was insufficient to service the four-fold increase in interest on the debt, leading to further capitalisation and spiralling debt. Thus the Humber Bridge is an example of a project with accurate patronage and revenue forecasting but highly inaccurate estimates of time and cost of construction. Rapid Transit System This urban rapid transit system experienced significant lower patronage than forecast during the initial years after opening, with consequent revenue shortfall leading to financial difficulties for the system. Detailed examination was carried out to seek explanation for the differences between forecast and actual patronage. This showed that a number of the key parameters underlying the patronage forecasts had been inaccurately predicted. These included: System performance - travel times substantially exceeded those forecast Overall travel market size - land use developments in the corridors served by the system had not proceeded as forecast reducing the overall travel market Public transport market size - the public transport market was subject to continuing decline Competitive response - operators of existing public transport facilities responded to the system in a much more competitive manner than had been anticipated Modal shares - Road congestion did not increase as anticipated leading to greater competition from the private car Re-modelling of the patronage forecasts using the original methodologies but the actual out-turn parameters as discussed above provided patronage levels close to those achieved. Thus in this case whilst the modelling methodology was technically sound, the forecasts of key parameters proved to be inaccurate. In some cases the effects of changes to individual parameters were relatively small. However the cumulative effect resulting from downturn in all the parameters was a patronage shortfall in excess of 50%. 50
This demonstrates the importance of well designed sensitivity tests, in particular a realistic 'downside' test. Had this been undertaken in this case, the scale of the potential impact of downturn in many key forecast parameters would have been understood. This may have resulted in the establishment of measures to 'protect' the system from factors such as poor system performance or increased competition from other systems/modes. The key issue is to detenuine which of the forecast parameters are witl!i_'n and which are beyond the control of the system operator. This example also demonstrates the need for realism. In many cases the forecast parameters were manifestly 'bullish' and in some cases values were adopted for political expediency. An independent audit of the forecasts would have identified many of the areas of inaccuracy. G o o d P r a c t i c e G u i d e Key areas: M e t h o d o l o g y d e s i g n - fitness for purpose, transparency, avoid unnecessary complexity, utilisation of available data, ease of sensitivity testing D a t a - must be representative, must understand statistical error, must establish robust methods of data expansion, seek historic and/or comparative data Model - must be fit for purpose, precision must accord with forecast requirements and input data (tendency for precise models with imprecise data), must be validated Forecasting - base forecasts must use realistic parameters, tests to understand effects of model formulation and parameter changes R i s k a n a l y s i s - Understand impacts of all potential upsides and downsides, realism as to uncertainty inherent in input data, modelling processes and parameter forecasts I n d e p e n d e n t a u d i t - To confirm methodology, value ranges used in risk analysis, check for arithmetic blunders The moral of this story is that it is vital to ensure that all the base elements of traffic and economic forecasting are checked thoroughly and that all influences on the necessary forecasting are treated with an element of risk attached to them. There are no guarantees in this world, especially in its developing regions. 51
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