Sunday, February 06, 2005

"Why use your Texas money to build roads when some fool Spaniards are willing to do it for you?"

Private tollways proven in Europe

Company aims to use 'new idea' with history of success in Texas

Austin American-Statesman
Copyright 2005

MADRID, Spain -- Drivers heading south from Madrid, perhaps on their way to the Med- iterranean coast, can start their journey on a brand-new six-lane divided highway called the R-4.

But there's a price for the privilege, a toll that comes out to about 8.5 U.S. cents per mile, to be collected and pocketed by a private company.

A great deal about this road is private. Its 60-mile length, 33 miles covered by tolls, was built with about $936 million in private money. A private control center monitors live video of the highway, counting cars, checking for wrecks and watching for congestion.

The highway will be maintained with private money. The snow will be moved with private plows. The ice will be melted with private salt.

Now the Madrid-based, family-controlled company that built and operates the R-4 wants to do the same thing in Texas . The company, Grupo Ferrovial, wants to build sections of the planned Trans -Texas Corridor , a multiple-use passage for cars, trucks, trains and utilities that would run from the lower Rio Grande to the Oklahoma state line.

Company executives expect to sign an agreement with Texas officials soon. No signing date has been set.

Under the agreement, it is anticipated that the state will pay Cintra, a subsidiary of Ferrovial, and Cintra's minority partner in the Texas proposal, San Antonio-based Zachry Construction, $3.5 million for its advice about how to route the highway to make it most attractive to drivers, and which commercially viable segments to build first in order to have tolls from those sections help finance the construction of other segments where tolls would not be feasible.

Those other segments, the idea is, would be built by other companies. Texas officials hope the entire corridor will be completed within 50 years, but there is, of course, no guarantee that will happen.

When that planning is complete, if Ferrovial finds the terms agreeable, it will get the chance to build those initial segments without an open procurement process. Ferrovial would spend an estimated $6 billion to build five tollways along the route, all between Dallas and San Antonio, at no cost to the state.

Two portions of the route won't be built by Ferrovial: a portion of Texas 130 that is under construction and a section along Interstate 10 east of San Antonio that is included among the facilities to be built in the corridor .

Construction on Ferrovial's segments would begin within five years.

The Cintra-led partnership would get the right to charge tolls on the roads it builds for 50 years to recoup its $6 billion investment, generate $1.2 billion to help develop other sections of the corridor and, of course, make a profit.

The amount of the tolls, which has been a point of contention at a Cintra-run toll road in Canada, has not yet been negotiated between the company and Texas officials.

Once the roads are built, they would be managed by Cintra, which already operates 17 toll roads in six countries, including, as of last year, the United States.

This is not a concept that meets with universal approval.

"Why would Cintra expend $7.2 billion on this project?" a group called CorridorWatch, which is opposed to the Trans -Texas Corridor , asked in a statement. "Because they see a golden opportunity to make a profit. A lot of profit. . . . Where will the Cintra profits go? Madrid?"

Nicolas Rubio, business development director for Cintra, said that is the wrong way to look at the deal. Rather than thinking about the money Ferrovial will take out of Texas , he said, it is important to focus on how much money Ferrovial will put in.

"You can use your Texas money to build hospitals and pay for education," he said. "Why use your Texas money to build roads when some fool Spaniards are willing to do it for you?"

Private entrant

The practice of having private companies build and operate toll roads is new in the United States, said Neil Gray, director of government affairs for the Washington-based International Bridge, Tunnel and Turnpike Association.

"Cintra is probably the first entrant of that nature" in the U.S. market, he said, referring to the Texas proposal.

But it is old hat in Europe. Ferrovial got its first such contract, for another road in Spain, 37 years ago, in 1968.

The company now manages 17 toll roads in six countries, including Ireland and Chile and, most recently, the United States.

Cintra was the leader in a partnership that last year paid the City of Chicago $1.83 billion to lease for 99 years the Chicago Skyway, a 7.8-mile-long elevated toll road that stretches from the city's South Side to the Indiana border. City officials wanted the money so they could reduce debt and increase reserves and investments.

Although Ferrovial is among the largest companies engaged in building and running toll roads, it is by no means the only company in Europe to engage in such public-private partner- ships.

ASECAP, an association based in Brussels, Belgium, of companies that operate toll highways and tunnels, lists various such projects in a dozen European countries.

The locations include Spain, which was among the first to participate in such partnerships, and Croatia, which, when it was part of Yugoslavia, was communist -- and privatized almost nothing.

Although there are some publicly operated toll roads, the norm in Europe is for them to be operated privately, ASECAP says. The reason is one that may resonate soon in the United States: Governments often do not have enough money to build the roads they need. Private companies do.

In Europe, there seems to be scant opposition to the arrangements.

"If you see motorways in France and Italy, they are well-maintained, they offer good services; so, of course, the users know that they have to pay tolls," an ASECAP spokesman said.

Although the roads are privately operated, governments control many areas of their operations. Governments control speed limits, impose safety regulations and regulate construction standards, lighting, signage and other aspects of the highways' construction and operation.

Final control of the roads always rests with the governments, which can direct their use at will -- in evacuations, other emergencies or other situations.

And if the private company fails to meet its obligations, it can lose the concession.

Public vs. private

Although the partnerships are accepted in Europe, Ferrovial executives acknowledged in recent interviews that some people in the United States oppose privatization of functions that traditionally have been performed by governments.

But they maintained that a concessionary agreement makes a private company far less likely to cut corners in the interest of profit than a company that fulfills a contract and disappears once the paint on the centerline is dry.

A company with a concession is responsible for long-term maintenance and has no interest in a poorly built road, they said. And to recoup its investment, they insisted, it must depend on the good will of drivers, who will not pay to drive on roads that are inconvenient, poorly maintained or dangerous.

"When there is such a long-term contract, there is no one cutting corners in any way, because it will hurt you," said Rafael del Pino, Ferrovial's chairman.

And he said that, with money to be collected, construction delays are less likely to crop up.

"It is in the best interest of the concessionaire to bring the project online as soon as possible," he said.

Ferrovial executives also applauded the unusual decision by Texas officials to involve them in the planning. Normally, in the view of company executives, all the planning is done by state officials, who may not have deep knowledge of what makes a toll road a total success.

"I think we have a lot of experience with many different projects in different countries in building, designing and operating toll roads," said Fidel Saenez de Ormijana, highway design manager for Ferrovial Agroman, the company's construction unit.

Although Ferrovial has long experience in the field, Rubio said officials with the Texas Department of Transportation will be "in the driver's seat, making the decisions" as plans for the road are developed.

Del Pino said the project is very important to Ferrovial, in part because of its size, but also because it represents the company's entry into the U.S. market of private road construction. And that is a market in which he expects this kind of public-private highway partnership to take off.

Government debt in many places in the United States is near its maximum, he said, but at the same time, there is an unsatisfied need for more infrastructure.

To del Pino, that represents an opportunity.

"History proves we have been able to satisfy the needs of the user and the government," he said.

Copyright (c) 2005 Austin American-Statesman

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