Northern Toll Road an Economic Disaster

The really interesting thing about the editorial in the NZ Herald about toll dodgers is that it tells us that ” the tolls paid off more than $11.3m of a 35-year $159m loan it took to complete the $356m project ” in the last two years. The article claims that this is “more or less on target”.

I cranked up Excel to find out what the return on capital is. It works out that if you pay off a 35 year loan at $5.65m per year, then the effective interest rate is just 1.5%! That’s less than the cost of inflation. What a disaster!

Furthermore, it is difficult to see how the toll road to Warkworth can be justified. Assuming that half the cost ($450m) is financed through the toll, then the annual income needs to be $16.2m at a 1.5% interest rate. That’s about three times the revenue than from the Northern Gateway, suggesting a toll of $6 and $12 each way for cars and trucks respectively. (OK there will be economies of scale here as the costs of tolling will be reduced, but roughly…)

Hopefully we get this sort of interest rate for public transport projects as well!

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