Posted on 05/21/2008 7:51:41 AM PDT by BGHater
A Spanish toll-road operator won the bidding war to operate the Pennsylvania Turnpike, offering $12.8 billion for a 75-year lease, Gov. Rendell said today.
The proposal by Abertis Infraestructuras, of Barcelona, must be approved by the Pennsylvania legislature, and legislative leaders in Harrisburg have said the plan faces tough sledding with lawmakers.
In making the largest bid ever for the private operation of a U.S. toll road, Abertis partnered with a subsidiary of U.S. investment bank Citigroup, and Spanish investment firm Criteria CaixaCorp.
Abertis operates toll roads in Spain, France, Italy, the United Kingdom, Argentina and Puerto Rico. The company also operates airports, telecommunications systems and parking garages.
Under Rendell's plan, the Abertis/Citi consortium would lease the turnpike for 75 years with the right to raise tolls 25 percent next year and 2.5 percent or the rate of inflation every year after that.
Rendell called the lease plan "a very good deal for Pennsylvania drivers and taxpayers," and he said it would mean about $1.1 billion per year for road, bridge and transit projects in the state, on average, over the next 10 years.
Under the terms of the lease, the private operator would be required to maintain and improve the turnpike and honor existing labor contracts until they expire. At that point, employee unions would need to negotiate new contracts with the Abertis/Citi consortium.
If approved, the turnpike lease would mean the end of embattled efforts to toll I-80 as a way to raise transportation funds. And it would mean the effective end to the 70-year-old Turnpike Commission, the politically powerful agency that operates the toll road.
The Rendell administration would invest the multibillion-dollar lease payment and use the proceeds to pay for highway, bridge and public transit projects. But the total would be reduced by about $2.3 billion dollars necessary to assume existing debts and other obligations, leaving about $10.5 billion to be invested, according to the administration's calculations.
Rendell said the lease money would be invested with the Pennsylvania State Employees' Retirement System, and he said the administration expected to earn 12 percent a year on its money. He said that was the average return for SERS over the past 20 years.
Rendell has said he wants the 359-mile east-west turnpike and the 110-mile Northeast Extension to be in the hands of a private operator by mid-September, but legislators said that is very optimistic.
If approved, the lease would be the largest-ever of a U.S. toll road. The Indiana Toll Road was leased in 2006 for 75 years for $3.8 billion, and the Chicago Skyway in 2005 for 99 years for $1.83 billion.
Pennsylvania Turnpike Commission chief executive officer Joseph Brimmeier said today his agency opposes leasing the turnpike, prefering to stick with Act 44, the new law that would raise transportation funding by tolling I-80 and increasing turnpike tolls.
"With Act 44, the Turnpike will supply PennDOT almost $84 billion over 50 years without raising taxes or out-sourcing a critical asset," Brimmeier said in a statement. "That's why we remain committed to implementing Act 44 and seeing it through to completion."
Rendell, though, argued a lease would raise about $150 million more per year than Act 44.
"If you don't have to toll a road, that's a very good idea," Rendell said. "It seems like a slam dunk to me."
Act 44 relies for much of its funding on the tolling of I-80, which requires federal approval. That approval remains uncertain, as the Federal Highway Administration returned the state's first application for permission to toll I-80, and the state has not yet resubmitted its application.
Rendell said today he will urge the Turnpike Commission "in the strongest terms possible" to resubmit the I-80 application this week. And he said he will ask U.S. Transportation Secretary Mary Peters for a quick response, so state lawmakers can weigh that information in their deliberations on the lease proposal.
But Turnpike spokesman William Capone said the application "is clearly not ready to go this week...no way it's close to being ready to be resubmitted."
Abertis and its predecesor companies has been operating toll roads in Europe for 40 years. Its network covers 68 percent of Spain's toll routes and toll roads in northern and western France. It also has a stake in toll road operations in Italy, Portugal, the United Kingdom, Chile, Colombia and Argentina.
In addition, it operates telecommunications facilities, parking garages, and airports, including the Orlando (Fla.) airport, the Burbank (Calif.) airport, and one concourse of the Atlanta airport.
Abertis reported a first-quarter profit of 134 million euros ($208 million), up 9.4 percent from the same period a year earlier.
Citi Infrastructure Investors is a divsion of Citigroup, a financial services company whose brands include Citibank, Primerica, Smith Barney, Banamex and Nikko.
Under the lease plan, Abertis and Citi would equally share management responsibilities of the toll road, while Abertis would own 50 percent of the company, Citi 41 percent and Criteria 9 percent.
Rendell said the two losing bidders for the turnpike lease were teams consisting of Goldman, Sachs & Co. and Transurban Group of Australia; and of the Macquarie Infrastructure Group of Australia and Cintra of Spain.
I’ll take some of that toilet paper if anyone has extra.
With a 25% rise in charges at no additional spending, we are talking an out of the gate profit of almost $400 Million per year.
Divide that into 12.8 Billion you get a payback period of a little more than 30 years - but the lease runs for 75.
Conclusion: this would be very profitable for the company and is just another way Rendell is trying to rip off the taxpayers.
Divide that into 12.8 Billion you get a payback period of a little more than 30 years - but the lease runs for 75.
$400 million/$12.8 billion = 3.125% a year.
Conclusion: this would be very profitable for the company
You bet, especially when you consider they could make 3.8% by buying 10 year US Treasury bonds. LOL!
There needs to be a balance but we do not need to let foreign interests own infrastructure or defense based companies.
This is crazy! Our asshat politicians divert all our tax money to socialist causes and end up having to find the lowest bidder from overseas to cover the basics like transportation?.....frick’in lovely!
So after 10 years of continuous 2.5% increases, (that is, the 11th or 12th year), they are up another 25%.
I didn't cover that case because it would take a spreadsheet to go over all of the possible scenarios.
So fast Eddie, how much did you get?
Don't be an idiot, I read the 2004 CAFR - did you?
The costs are $80 million per year for workers and maintenance, and that is as performed by our goldbricking PennDOT workers or under bid proposals that they put out.
Current take (2004 numbers) is $400 million, leaving $320 million per year as profit.
Wow - last time I drove the Pa Turnpike (admittedly a few years ago) it was like driving along a creek bed with 4 flat tires. Between the potholes, cracks and leftover material from previous ineffectual repairs, driving the speed limit in a stiff-suspension vehicle was similar to the old “magic fingers” hotel bed experience. Add in the “convenience” of plaza monopoly food and gas, and you had a complete “why would anyone ever pay to drive on this pig trail” moment. Maybe private ownership is a good thing.
First Kennywood, and now the Turnpike.. guess its time to just start accepting that PA is a Spanish satellite state.
If you think 76 is bad, go try riding the free I 80 east to west.
Rendell’s basically a full time employee of the clinton campaign anymore... PA has no governor at the moment.
Remember when those dumb, unpatriotic Americans sold Pebble Beach to those brilliant Japanese many years ago and then bought it back at a discount?
This possibility is even more frightening as this is the group that has a contract to take over a major chunk of Texas highways as part of the corridor to Canada.
With a 25% rise in charges at no additional spending, we are talking an out of the gate profit of almost $400 Million per year.
Divide that into 12.8 Billion you get a payback period of a little more than 30 years -
...that ignores the cost of capital or the risk free rate of return, I automatically assume the poster is a moron.
When foreigners buy our debt, it's bad.
When foreigners buy our stocks, it's bad.
When foreigners invest in our infrastructure, it's bad.
Remember when those dumb, unpatriotic Americans sold Pebble Beach to those brilliant Japanese many years ago and then bought it back at a discount?
Even when foreigners buy our real estate and lose big, it's bad.
If you look over the article a little more closely, you will see that they will be raising the toll rates a great deal year over year, and those increases will be compounding, e.g. for a $10 toll which is increased (a minimum of) 2.5% each year, after a decade the toll will not be $12.50 but more like $12.80. And we are not talking a decade but 7.5 decades.
I didn't put all that in, because future toll increases and future costs will at the least offset each other.
As a rough, "back of the envelope" calculation, I would have thought it was pretty obvious that the costs to those using the Turnpike will be higher and the corporation will be making a boatload of money - all while the original bondholders were paid off years ago and the Turnpike was supposed to be returned to the taxpayers at that point.
Yeah, 2.5% or the rate of inflation.
and those increases will be compounding,
You bet.
I didn't put all that in, because future toll increases and future costs will at the least offset each other.
Sure.
As a rough, "back of the envelope" calculation, I would have thought it was pretty obvious that the costs to those using the Turnpike will be higher
Right, by 2.5% a year.
and the corporation will be making a boatload of money
I bet they will make money. Maybe big money. But to ignore their cost of capital and claim they'll earn back their investment in 30 years may be pushing it.
What if they borrowed at 6%? They need to clear $768 million, just to pay their annual interest. Should be easy, they're making $400 million a year in profit.
I live in Illinois, you don't have to tell me about getting screwed by corrupt tollway authorities.
It will be more than mildly interesting, frightening is the word, when Americans wake up and find who’s buying their municipal water systems.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.