Posted on 08/17/2007 5:57:07 PM PDT by BenLurkin
As roads and bridges crumble, private investment groups are aiming to reap stock market like returns by taking over transportation infrastructure. By some estimates, specialist funds and private groups have raised about $200 billion worldwide, not counting credit lines, to invest in infrastructure deals.
While the money seems there for the taking, investor groups still must persuade cash-strapped governments to go along with the idea of handing over toll roads, bridges and other assets.
Freeway, Not Free Market
But America, the land of the free, has been more hostile to free-market infrastructure than the rest of the world. In Europe, Australia, Canada and emerging markets such as Brazil, the private sector has jumped in to build new roads, bridges, tunnels and airports.
Private groups usually make an upfront payment, manage the assets and get toll revenue under leases that span 75 years or more.
In the U.S., the federal government provides much funding for repairs and new projects. When Uncle Sam is tapped out, state and local governments turn to the bond market.
With government debt soaring, though, public interest groups have pushed another option -- gas-tax hikes. Critics charge privately run toll roads could gouge consumers.
Political battles lay ahead, but supporters of private funding say more deals will be struck.
"The bridge collapse in Minnesota has galvanized the issue," said Christopher Lawton, a partner at consultancy Ernst & Young.
"Governments have a funding shortfall. PPP (public-private partnership) models are working overseas. It's not a panacea. But, it's a real alternative to gas-tax hikes."
The Transportation Department has estimated the cost of fixing the nation's highways and bridges at $495 billion. Including rail lines and ports, the American Society of Civil Engineers puts the tab at $1.6 trillion.
Many states have wrestled with private funding for infrastructure.
Chicago forged ahead in 2005. The city sold a 99-year lease on the 8-mile Chicago Skyway road and toll bridge for $1.83 billion.
The buyer: a consortium led by Australia's Macquarie Group and Spain's Cintra. Indiana cut a $3.8 billion toll-road deal with the same group in 2006.
Opposition derailed attempts to lease highways in Pennsylvania and New Jersey. Texas has put a two-year moratorium on building privately run toll roads.
In May, Colorado agreed to lease a toll road to a private group led by Brisa, Portugal's largest highway operator. New York is mulling private funding as a way to replace its Tappan Zee bridge, which spans the Hudson River.
No Quick Deals
Governments won't rush into deals, says Dana Levenson, head of Royal Bank of Scotland's North American infrastructure arm.
"These are large assets. It's a huge shift in paradigm. It's a long process to get deals done," he said. "There have been minor speed bumps on a road that's frankly inexorable. Municipalities need the money."
A Merrill Lynch report says eight to 10 states are looking at toll-road deals.
Prior to joining RBS, Levenson was Chicago's chief financial officer when it sold the Skyway lease. He says private investor groups expect to get annual returns of 10% to 15% on infrastructure deals.
Other bankers agree that double-digit returns are possible, from the steady cash flows thrown off by usage fees. Under leasing deals, future toll hikes are usually pegged to inflation.
Levenson says pension funds have been active investors in infrastructure funds. Other observers cite insurance companies.
Investment banks Goldman Sachs (NYSE:GS - News) and Morgan Stanley (NYSE:MS - News) as well as private equity firm Carlyle Group have set up infrastructure-focused funds, says a Reason Foundation report. Citigroup (NYSE:C - News), equity firm Blackstone (NYSE:BX - News), Credit Suisse (NYSE:CS - News) and General Electric (NYSE:GE - News) have teamed to form infrastructure ventures.
CalPERS, the California Public Employees' Retirement System, is mulling a big move into infrastructure investing, including highways, ports, and power and water plants. It's playing catch-up with Canada's Ontario Teachers Pension Plan, which acquired a 48% stake in a U.K. airport in May.
"This would be a new asset class for us," said Clark McKinley, a Cal-PERS spokesperson. "We already have several billion dollars indirectly in infrastructure through our passive index funds and global equity funds. We would look at big projects and take it on a case-by-case basis."
Investor groups and governments have struggled over the fine-print of proposed deals. Rather than collect big, one-time payments, states should stay on as revenue-sharing partners, say some public interest groups.
Consumers are more likely to go along with new "greenfield" projects that give them use of new bridges or roads, says John Foote, a senior fellow at Harvard's Kennedy School of Government. He says it's harder for the public to accept tolls on older highways.
However, greenfield projects are dicier for investors, cautions Lawton. That's because of construction risks and the chance usage could be lower than forecast.
If privatization goes slow in the U.S., there are plenty of opportunities overseas, analysts say. Russia, for example, has proposed building a tunnel under the Bering Strait, linking Siberia to Alaska.
The United States has more free highway and roads than the whole world combined.
That waste is what needs correcting.
https://www.cia.gov/library/publications/the-world-factbook/rankorder/2085rank.html
We send $50 billion dollars a year in foreign aid to other countries. Included in that is $2.2 to that ever friendly nation of Egypt. Heck, we were even sending money to the Taliban right up till 9/11. Seems to me if we quit cutting charity checks to the third world, we would have enough for some infrastructure work at home.
I am in favor of keeping them “free” (use tax dollars for roads NOT welfare).
The recent I-35W bridge collapse in Minnesota is the best example I can use to illustrate my point that owning transportation infrastructure in the U.S. is a miserable idea for private investors. When you consider that something like 35,000 people die on our nation's roads every year, you realize that an entity that owns a highway is basically exposed to open-ended, unlimited liability in U.S. civil courts.
“The United States has more free highway and roads than the whole world combined.”
As I used to say some liberal colleagues....
“Yes, South Africa needs some REAL changes.
But of all the miserable countries in Africa...why are you solely lashing out
at the one with more paved roads than all other African countries COMBINED?”
Perhaps if less aid went to building failing dams and into roads, they’d have more success. If it easier to get to school, the hospital, to the market to buy and sell, it has an impact on rural and semi-rural populations. Much more than yet another failed great leap forward.
The federal government should intervene with a novel proposition: support for upgraded transportation, and some degree of private parallel transportation systems if they are clearly superior to existing systems.
For example, there are many places in the US where conventional train routes exist, with right of ways owned by railroad companies. Such routes and what travels down them are calculated to the dime for efficiency, so there is no motivation to replace them with high speed rail lines. Unless the federal government involves itself, it just won’t happen.
An example of a parallel system would be the federal government demanding that States allow alternative air hubs away from their major cities, with strict limitations on what can be built in a wide perimeter around them. Even if these were restricted to cargo only, many of our air traffic control delays would be eased.
In Nevada, a private high speed toll road has been proposed, parallel to existing highways. Importantly, such a high speed toll road could have its own rules, strongly improving efficiency of travel. Lanes reserved for just heavy trucks, for example. Minimum speeds in excess of 100mph.
Ironically, the best intervention they federal government could do would be to order the State and local governments not to interfere.
This is happening in Texas also. The toll road that is presently envisioned (Trans-Texas Corridor) takes privately owned land and turns it over to foreign companies for profit, would allow easier importation of cheap Chinese goods from Mexico, and the owners od the corridors would be able to set their own "rules"{specifically, the rate per mile, speed limits}.
IMO, any governemt that would consider selling public infrastucture to a foreign entity needs to be tarred and feathered (or worse).
You want roads to be toll roads controlled by foreign companies.
You neglect roads and bridges so that they eventually fail and/or fall into disrepair.
You take advantage of a serious failure/accident to further implement your end goal.
Surprise, surprise, surprise.
In all probability the money will be spent on hiring more bureaucrats, funneling cash to welfare programs and building giant publicworks boondoggles like tunnels, mass transit trains and new courthouses.
And after these crooked politicians spend that money, then what? They’ll come crying to property owners that they need more taxes to run the assorted boondoggles they created with this cash.
I don’t trust the crooks. In the end, the taxpayer will suffer. Guaranteed.
Ooo. Apples and oranges between NV and TX. In NV, it is all being done with private money to purchase private land. It just needs some coordination with the State government for other reasons, such as emergency services.
And I truly doubt that they ever intended it to be like the Autobahn. More taking advantage of the fact that large diesel trucks have cruising speeds that differ from typical highway speeds. 55 and 75mph are sort of “between gears” for most trucks, so takes more shifting and burns fuel less efficiently. If allowed to go at their own speeds, truckers will drive at their best efficiency and save money.
The TX thing is a debacle. It was always a fantasy to a great extent based on the idea that the Plan Puebla Panama would work. But the PPP, being reliant on Mexico, is already showing signs of serious problems, which is a real Homer Simpson moment.
http://en.wikipedia.org/wiki/Plan_Puebla_Panama
Ironically, the one part of the PPP which had some success was the displacing of hundreds of thousands from southern Mexico, told to go North to America. Which is why the great upsurge in illegal aliens in the last decade.
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