VZCZCXRO2844
RR RUEHCN
DE RUEHIN #0729/01 0680119
ZNR UUUUU ZZH
R 090119Z MAR 06
FM AIT TAIPEI
TO RUEHC/SECSTATE WASHDC 8929
INFO RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RULSDMK/DEPT OF TRANSPORTATION WASHDC
RUEAIIA/CIA WASHDC
RUEHBJ/AMEMBASSY BEIJING 4820
RUEHHK/AMCONSUL HONG KONG 6018
RUESLE/AMCONSUL SHANGHAI 8460
RUEHGZ/AMCONSUL GUANGZHOU 9066
RUEHCN/AMCONSUL CHENGDU 1091
RUEHSH/AMCONSUL SHENYANG 5040

UNCLAS SECTION 01 OF 03 TAIPEI 000729 
 
SIPDIS 
 
DEPT FOR EAP/TC 
 
SENSITIVE 
SIPDIS 
 
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 
 
TAIPEI 00000729  002 OF 003 
 
 
---------------------- 
 
¶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 
 
TAIPEI 00000729  003 OF 003 
 
 
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