|Spanish firm offers $12.8 billion to lease Pa. Turnpike
Inquirer | May 19, 2008
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.