DPP Will Pay the Price for New Highway Toll System

UNCLAS SECTION 01 OF 03 TAIPEI 000729

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DEPT FOR EAP/TC

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E.O. 12958: N/A
TAGS: ELTN PGOV TW
SUBJECT: DPP Will Pay the Price for New Highway Toll System



1. (SBU) Summary: Taiwan's new electronic toll collection
(ETC) system has come under fire for the high costs to
drivers and snarled traffic despite low usage rates. There
have also been accusations of corruption in the bidding
process. The ETC is only latest in a series of
transportation build-operate-transfer (BOT) projects that
have run into difficulty and become political scandals. It
will further reduce the likelihood that Taiwan will use BOT
financing for future infrastructure projects. This public
relations embarrassment could also harm the ruling
Democratic Progressive Party's (DPP) prospects in mayoral
elections later this year as well as Premier Su Tseng-
chang's chances of securing the DPP nomination in the 2008
presidential election. End summary.


2. (U) Taiwan awarded the ETC contact, which has been valued
at up to NT$ 10 billion (about US$ 310 million),to Far
Eastern Toll Collection Company (FETC) in February 2004.
FETC beat out seven other bidders. Under the BOT contract,
FETC sells and installs on-board units (OBUs) with prepaid
toll cards so that vehicles can pass quickly through
separate automatic toll collection lanes on Taiwan's
freeways. The system went into operation on two of Taiwan's
busiest freeways February 10, 2006. Since then, a series of
difficulties have turned the system into a political problem
for the Taiwan government.

Problems: Too Expensive...
--------------


3. (U) Late last year drivers, legislators, and Taiwan's
Consumer Foundation started criticizing the cost of the
OBUs. Initially the total cost of installing an OBU,
including extra charges for the battery, toll card, minimum
toll credit and installation, was NT$ 2,249 (about US$ 69).
Critics claimed that FETC could sell the units at a profit
for as little as NT$ 900 (US$ 28). Others complained that
the 5 percent discount on tolls for ETC users was too low.
FETC answered the charges by claiming that OBUs in Japan and
Singapore were much more expensive at about US$ 181 and US$
92 respectively. The company also announced that it would
sell up to 200,000 units at a promotional price of NT$ 680
(US$ 21),including installation but not including the NT$
200 deposit for the toll card and minimum NT$ 500 toll
credit.


4. (U) Because of the high prices, drivers have been slow to
purchase OBUs, anticipating that slow sales will force FETC
to lower the price. Taiwan's Consumer Foundation has
encouraged drivers not to buy the units in order to put
pressure on FETC. Bus companies have also boycotted the ETC
system because of reduced subsidies for their tolls. Before
implementation of the ETC system, the government subsidized
NT$ 49 of every NT$ 50 toll paid by passenger buses, but
after implementation, the subsidy was cut to NT$ 46.6. In
response to the boycott, MOTC announced that it would
eliminate subsidies after one month for bus companies that
continued to refuse to use the ETC system.

Traffic Jams...
--------------


5. (U) The numbers of ETC users was initially low,
compounding inevitable traffic problems as drivers adjusted
to the new system. Only 2.3 percent of drivers took
advantage of ETC lanes during the first day of the trial on
Taiwan's No. 1 Sun Yat-sen and No. 3 Freeways. With a
reduced number of manual toll lanes, there were reports of
traffic backed-up for 10 kilometers. Utilization rates rose
steadily during the first week of operation, reaching 4.37
percent by February 17 with 9.25 percent of large vehicles
using the ETC. However as of March 3, the number of
vehicles with installed OBUs had not yet reached 80,000
(about one percent of all vehicles in Taiwan). MOTC
announced that it would reduce the number of ETC lanes if
the total number of equipped vehicles failed to reach
100,000 by March 9. If the number of ETC lanes is reduced,
it will make drivers more reluctant to adopt the new system.

And Perhaps Corruption

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6. (U) More serious problems emerged on February 24. The
Taiwan High Administrative Court on February 24 ruled that
the Ministry of Transportation and Communications (MOTC)
decision to award the contract to FETC was unfair and
against public interest. Yutung Information Technology Co.,
the firm that came in second in bidding for the project, had
filed the suit that led to the ruling. To comply, MOTC
would have to take the BOT project away from FETC and either
reopen to bidding or take over the toll collection system
itself. MOTC and FETC have decided to appeal the decision.
If MOTC is forced to buy back the project from FETC, the
estimated cost could be as high as the NT$ 3 billion (US$ 93
million) that FETC claims it has already invested in the
trial implementation. A rebid could be more expensive
still. Uncertainty about the project's future has already
increased driver reluctance to adopt the new system.


7. (U) In addition, a former MOTC office has been accused of
accepting bribes during the bidding process. The Taipei
District Prosecutor's Office is investigating former MOTC
Minister Lin Ling-san's secretary Soong Nai-wu on charges of
illegally leaking secret documents on the bidding process in
exchange for bribes. Prosecutors also questioned former
Minister Lin on his knowledge of the alleged bribes and
possible involvement.

Political Pile-Up
--------------


8. (SBU) Legislators from both the Pan-Blue and Pan-Green
camps have criticized MOTC and FETC's mismanagement of the
bidding process and possible corruption, as well as the
costs of OBUs, the number of lanes allotted to the ETC, and
the fines levied against those who drive through ETC lanes
without OBUs. Politicians from both sides have called on
MOTC to take over the system from FETC. For now, the
administration is sticking with FETC. Last week, both
Premier Su Tseng-chang and MOTC Minister Kuo Yao-chi
confirmed that the administration would allow FETC to
continue implementing the system, while promising to protect
the interests of drivers who have already purchased the
OBUs.

Another MOTC BOT Breakdown
--------------


9. (SBU) The ETC is just the latest in a series of troubled
MOTC BOT projects that contributed at least in part to Lin's
replacement in January by Kuo. Taiwan's high-speed rail
project has been delayed one year and has required repeated
injections of capital, most recently from government
sources. The Kaohsiung MRT project erupted into scandal
after protesting foreign workers drew attention to possible
corruption associated with the project. The Kaohsiung MRT
scandal may have cost the DPP several close races in
December's island-wide local elections.

Comment - Bad News for Taiwan's Infrastructure and DPP
-------------- --------------


10. (SBU) This latest BOT scandal will likely force the
Taiwan government to abandon BOT financing for major
projects. Tight budget constraints will preclude direct
appropriations for new projects and make further
improvements to the island's infrastructure difficult. In
addition, the ETC scandal will likely hurt the DPP in coming
elections. Inconvenience and added expense have hit voters
where they live. The bidding process scandal has focused
public outrage at the project. The scandal drove other news
items to the back pages of Taiwan dailies for a week and
even distracted local attention from Chen's announcement on
the National Unification Council and Guidelines. Coverage
has started to decline, but the story isn't over. The fate
of FETC's contract remains undecided and many drivers will
continue to resist buying OBUs, further impeding
implementation. The scandal will certainly return to the
front pages of Taiwan's newspapers and will likely hurt the
DPP's prospects in the Taipei and Kaohsiung mayoral

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elections later this year. In the longer term, it could
damage Premier Su, currently the front runner for the DPP
presidential nomination. End comment.

KEEGAN