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The Ontario government has abandoned its election-campaign promise to roll back tolls on Highway 407, the privately run highway that skirts Toronto.

The province and the highway's operators, 407 ETR, jointly announced yesterday that they had settled the long-standing legal dispute over rates that began after Premier Dalton McGuinty, while still in opposition, pledged to "stop the 407 rip-off."

According to the deal, the highway's operators will introduce a series of measures designed to reward customers or to provide a more transparent way of appealing toll fees they believe are unwarranted. In return, the government agreed to drop 14 separate legal challenges and to accept 407 ETR's right to set tolls and to seek to deny licence-plate renewals to drivers with unpaid bills.

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"This is a reasonable settlement for both sides and we look forward to a new era of co-operation with the government," said Enrique Dias-Rato, 407 ETR's president.

Transportation Minister Harinder Takhar characterized the deal as a "major improvement in customer service" because it provides for a clear-cut dispute resolution process overseen by an independent auditor.

The pact also provides for a four-year, $40-million program to reward frequent users with airline points or gas discounts. No toll increase will be allowed until this scheme is established.

Critics accused the McGuinty government of reneging on yet another campaign promise.

"The king of broken promises has run the white flag up the pole," said Progressive Conservative Leader John Tory. "It's not only another broken promise, it's a total surrender."

New Democratic Party Leader Howard Hampton charged that Mr. McGuinty never intended to keep the rollback promise he made five months before the 2003 election. "It was just another cynical ploy to win votes," he said.

Highway 407, which was built in mid-1990s, was leased for 99 years to 407 ETR by a Progressive Conservative government just days before the 1999 election. The deal allowed 407 ETR to raise tolls in accordance with higher traffic volumes. The Conservatives promised -- in a press release -- to cap fee increases at 2 per cent a year plus inflation for the first 15 years.

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When the tolls soared, Mr. McGuinty relied on that 1999 press release in promising minimal increases. His government found, however, that the lease was airtight and it found itself on the losing end of a string of judicial decisions.

The deal announced yesterday is formal acceptance that the government does not have to power to require 407 ETR to seek authorization for toll increases.

When the tariff for light vehicles rose 8.7 per cent on Feb. 1, pushing the peak rate to 16.25 cents a kilometre, Mr. Takhar said this was "another reminder of why this contract needs to be improved."

In an interview yesterday, he reiterated that "this was a very bad deal" and he rejected suggestions that the Liberals had backtracked from a promise it was wrong to have made.

"Let me tell you who was wrong," he said. "I think it was the previous government that was wrong to have signed this contract. . . . It is because of the Premier's determination and resilience that we have been able to accomplish what we did."

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