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Wednesday, June 21, 2006

Ind. Gov't. - Harris County Texas won't sell or lease toll roads

A well-timed story in today's Houston Chronicle reports:

Rejecting the temptation of a multibillion-dollar windfall, the Harris County Commissioners Court voted unanimously Tuesday to continue running the county's lucrative toll road system rather than selling or leasing it to a private firm.

"Now we can erect a sign on the toll roads: 'Not for sale, not for lease,' " said Commissioner Steve Radack, who had agreed to studying privatization even though he opposed the concept.

The action means the system, which comprises 83 miles on the Hardy, Sam Houston and Westpark toll roads, will continue to be operated by the Harris County Toll Road Authority.

The county could have gotten as much as $20 billion if it sold the system and ceded all or nearly all control over tolls, reported JP Morgan and Popular Securities, which studied that option for the county.

The Commissioners Court decided to keep the system public after an official from First Southwest, an investment consulting company, advised them that the county could imitate a private firm's practices in seeking to increase profits.

A private firm would rely on toll hikes and schedule such hikes years in advance so bond companies could project the system's revenues, said Michael Bartolotta, vice chairman of First Southwest.

The toll road system had $373 million in revenues in fiscal year 2006, and revenue is projected to increase by 11 percent annually because of the area's rising population. * * *

[T]he privatization studies concluded that the county would have to cede most control over future toll hikes to get the best price for the toll road.

The county most likely would have netted $5 billion to $12 billion after paying off bonds, the JP Morgan-Popular Securities study said.

The county could have made $7.5 billion-$10 billion on a 50-year lease and $10 billion-$13 billion on a 99-year lease, concluded Goldman Sachs and Loop Capital, which studied the leasing option.

Citigroup-Siebert Brandford Shank & Co., which studied keeping the system county-run, concluded it could continue to be profitable for the county, especially if the county better leveraged its steady stream of revenues for future expansion. * * *

Private firms and investment banks now run a number of toll roads worldwide. The Spanish toll company Cintra paid $3.1 billion (Canadian) in 1999 for the right to run a 42-mile toll road in Toronto. The Cintra-Macquarie Consortium last year paid $1.83 billion to lease operating rights to the eight-mile Chicago Skyway for 99 years. And a Cintra-led consortium is negotiating to develop a segment of the Trans-Texas Corridor, a proposed system of toll roads, pipelines and railroads.

An article in Slate, published March 29, 2006, includes this:
What's in it for the foreign companies? Huge potential profits. Gigantic, steady profits. Toll roads are an incredible asset class. They're often monopolies. They can support debt, since they provide a recurring guaranteed revenue stream that is likely to rise over time, as more people take to the roads and tolls increase. According to Cintra, the Indiana Toll Road generated $96 million in revenues in 2005, and Cintra expects a 12.5 percent internal rate of return on its investment. The heavy lifting has already been done: The state or federal governments have acquired the land and rights of way, built the roads and maintained them for years, and enacted toll increases. All the private companies have to do is deliver cash upfront, maintain the roads, and collect the windfall. The buyers can also increase their profits by making toll roads run more efficiently with technology. After assuming control of the Chicago Skyway, the Cintra-Macquarie consortium installed electronic toll equipment on some lanes. And by refinancing nimbly, companies can cash out. Last year—just seven months into its 99-year lease—Cintra announced that it had recovered 44 percent of its initial investment in the Chicago road through refinancing.

Posted by Marcia Oddi on June 21, 2006 08:19 AM
Posted to Indiana Government