Friday, September 22, 2006

US 'toll-road market' "at the tipping point."

Beware road rage toll in US, says MIG

September 22, 2006

David Nason, New York correspondent
The Australian
Copyright 2006

MACQUARIE Infrastructure Group chief executive Stephen Allen has warned that Wall Street's investment banks are ready to exploit US xenophobia as they compete with foreign operators for lucrative US toll-road opportunities.

Speaking at a Merrill Lynch-sponsored Australian investment conference in New York, Mr Allen said xenophobia was "alive and well in the US today".

"It is a real issue and it's one we need to deal with," he said.

"The market here is going to get more competitive. All the major investment banks are all starting infrastructure funds. In the marketing, they'll be promoting the US side of the business."

He suggested it would be infrastructure funds set up by the "less salubrious" investment banks which would try to incite resentment against foreign operators. But he did not name any banks.
Mr Allen's remarks came during a discussion of MIG's recent experience in Indiana, where the company, in conjunction with Spanish toll-road operator Centra, has taken a 75-year lease on a highway across the state's north. The Centra-Macquarie consortium will collect all the toll revenues in return for an upfront payment of $US3.8 billion ($5.1 billion). Indiana Governor Mitch Daniels intends to use the money to fund transport infrastructure in other parts of the state.

But the deal has sparked an outcry over debt-free public assets being leased to foreigners. That concern has now spread to other parts of the US and has become a live issue in several state elections.

Mr Allen said the US had the potential to be a "massive market" for MIG.

"We think the US is going to be the biggest market in the world for what we do. There's a great need to improve the road network here. Big money was spent in the 1950s and 60s, but the gas tax is no longer covering the funding requirements and nobody wants to raise the gas tax. Bringing in private money is a very attractive proposition for providing more infrastructure."
But partly due to the emotive climate, Mr Allen said, MIG would spend the next 12 months consolidating its holdings in four of five main toll roads in the US.

However, after his presentation, Mr Allen said MIG would be interested in the New Jersey Turnpike, one of the world's busiest toll roads, if Governor John Corzine put it on the market.
MIG has sold a 50 per cent stake in its US holdings to Macquarie Infrastructure Partners (MIP), a US investment vehicle established under Delaware law and managed by a Macquarie subsidiary. The move was designed to allow MIG to seek future US toll-road opportunities with a US partner and so counter the notion of a foreign takeover by MIP. It would also create a platform for "going ahead in the US".

States with legislation allowing public-private partnerships include Texas, Oregon, Indiana, California, Utah, Colorado, Illinois, New York, New Jersey, Delaware, Virginia, North Carolina and South Carolina.

There are currently $US25 billion worth of projects in play and another $US20-$US25 billion in new road projects under consideration.

Mr Allen named Texas as one of the most prospective states because its population was forecast to grow from 25 million to 50 million by 2030.

He said the US toll-road market was "at the tipping point" following Indiana and MIG's Skyway deal with Mayor Richard Daley in Chicago.

"Two people (Daniels and Daley) have done it now, but you just don't know how many more it will take before it becomes widespread," Mr Allen said

© 2006 The Australian: