Down a private road on the never never

NOBODY much noticed, but last week the Government took the first tentative steps to privatising an industry that is probably worth more than either the electricity industry, telecoms, gas or the railways. There were no accusations of selling the family silver, no calls for consumer protection, no fears voiced about job losses - and barely a squeak from the Opposition parties.

The industry is roads. And it was left to the junior Transport minister, John Watts, to unveil the first four roads to be designed, built, financed and operated by private-sector companies. The idea is that private companies shoulder the upfront costs of building the new roads; the Government then pays a fee per vehicle that uses the road - a system known as 'shadow tolling'.

New roads earmarked for the guinea pig treatment are a pounds 190m trunk road connecting the M1 and A1 in Yorkshire; a pounds 145m widening of the A1 near Peterborough; a pounds 35m improvement to the truck roads linking Swindon and Gloucester; and a pounds 10m maintenance contract for the Haltwhistle Bypass near Carlisle.

If concessionaires are attracted to bid for these, then half a dozen larger projects costing up to pounds 600m apiece will be put out to tender next year. If this all works, the sky's the limit: the Government spends pounds 2bn a year on new roads. It may not be privatisation in the conventional sense because the road reverts back to the Government after the 15 to 25 years of the concession. But it is a step in that direction.

The appeal to the Government is not as much a doctrinaire desire to privatise anything that moves as a way of cutting public borrowing. It's a fudge, of course. Taxpayers are still saddled with liabilities stretching ahead for 25 years, but the capital cost is not included in the key Public Sector Borrowing Requirement figure. It's road-building on HP, infrastructure on the never-never. The idea, too, is that roads will be built and run more efficiently if the private sector shoulders more of the risk.

The record of privately financed infrastructure projects is patchy. Overshadowing all else is the dismal financial performance of the Channel tunnel - horrendously over budget and still yet to see its first fare-paying passenger. Construction work was supposed to begin last year on the pioneering Birmingham Northern Relief Road, a toll motorway to be built and owned by Trafalgar House: it remains bogged down in a public inquiry without an inch of tarmac laid.

The Dartford Bridge, again a Trafalgar House project, is one of the few success stories so far, with its debts likely to be paid off ahead of schedule. It's still much too early to judge the second Severn Bridge or the Skye Bridge.

There is plenty of scepticism about Design, Build, Finance and Operate projects - DBFOs, as they are known among the hard-hat fraternity. The risks are considerable: estimating traffic flows two decades hence; having to forgo any revenues at all during the years of building; running the risk of competition from parallel roads, rail and airways. Then there is the question of what a Labour government might do. Another worry is that there are too few projects on offer. Bankers like 'deal flow'. They want enough prospective business to make it worth allocating resources to DBFOs.

But in spite of the doubts, the construction industry is queueing up to take a look. When I spoke last week to Neville Simms, chief executive of Tarmac, he was plainly excited by the prospect and was busy trying to put together a suitable consortium. He believes the City can be persuaded to stump up the necessary investment. The Pru, Bank of America and Kleinwort Benson each took 17 per cent of the equity of the Dartford Crossing company. Certainly there is more private sector interest in roads than in the Government's more pressing privatisation priority, railways.

Once built, roads are cash cows, requiring comparatively little upkeep and yielding a steady, reliable income stream like a utility stock. That the Department of Transport usually underestimates traffic volumes (the notorious M25 effect) only adds to the appeal. Private-sector Spanish road operating companies have made a comfortable living for decades.

Much will depend on the fine print of the tender arrangements, but I suspect that the consortiums that take the plunge on the initial deals will end up doing rather well when the final sums are done in the year 2019. The corollary is that taxpayers may not.