Thursday, June 28, 2007

Private consultants cry "Foul!"

Some say private firms may shy from Texas if Cintra loses 121 project

121 project could leave companies with sour taste about prospects

June 27, 2007

The Dallas Morning News
Copyright 2007

Texas' reputation as the pacesetter for public-private partnerships could be on the line today.

Financial experts and industry consultants say that if Texas' Department of Transportation picks the public North Texas Tollway Authority over Spanish company Cintra for the lucrative Highway 121 toll project, it could discourage private companies from bidding on future projects.

"It's not going to help keep private bidders enthusiastic about doing business there," said William Guernier, managing director in construction practice for Navigant Consulting in New York, who has been watching the bidding to build and operate North Texas' next toll road.
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Private companies will still bid for the projects, just not as enthusiastically, predicted Robert Poole, a proponent of public-private transportation partnerships.

"I don't think the interest will dry up, but you may not get as many companies – or as much money being offered – to go to the effort to prepare the proposals," said Mr. Poole, a policy director for the Reason Foundation, a California-based think tank.

Madrid-based Cintra had tentatively won the bid before NTTA entered the contest at the last minute. The Regional Transportation Council endorsed NTTA's bid last week.

"Texas has been seen as far and away the leader, and the most attractive place to do business in the country," Mr. Poole said. "And all of the sudden, it is being questioned very seriously, with some wondering whether Texas is now just going to be an ordinary state."

Some state officials favor the structure of NTTA's bid and the concept that the toll income would remain in Texas. Others say the state should stay true to its commitment to Cintra and believe that a private company is more likely to be more efficient and provide better service to motorists than a public agency.

Such political differences are also apparent on a national level.

In May, top U.S. House Transportation Committee members Jim Oberstar, D-Minn., and Pete DeFazio, D-Ore., sent a letter to states questioning how the public would be served with such partnerships. The partnerships should supplement – but not replace – public investments in transportation, they argued.

U.S. Transportation Secretary Mary Peters is among the strongest advocates for private partnership in transportation projects. But that could change if a Democrat takes the White House.

Taking the lead

In the nationwide movement toward privatization, "Texas was kind of in the lead in these types of financing structures and was viewed as groundbreaking," Mr. Guernier said.

That reputation may fade if Cintra is sent home with nary a parting gift by the five-member commission, which is scheduled to vote today.

Jose Lopez, head of North American operations for Cintra, told members of the Regional Transportation Council this month that awarding the contract to NTTA would dampen enthusiasm among private firms intent on investing in transportation projects.

Those firms value "transparency" highly, he said, and would be more likely to look to projects in other states.

That said, Mr. Guernier and others say there's enough of the public-private partnerships under way that a loss for Cintra won't mean the death knell for the movement in Texas.

Cintra has a $1.3 billion contract to build a toll road between Austin and Seguin, Texas, and has projects in Indiana and Chicago.

Backers say the money private firms bring to projects will always be welcomed by cash-strapped states and cities looking to relieve road congestion and potentially even more chronically underfunded services such as schools.

"I think there's a lot of people interested in this decision" because of how the bidding process changed, said Laura Mcdonald, a credit analyst for Standard and Poor's Credit Ratings Service in New York.

Separately, her company projects NTTA's credit rating would drop if it won the contract because of the $4.5 billion in new debt needed to build the project.

Whether NTTA could afford to bid for more work after winning the 121 project would depend on how it would finance any new projects, Ms. Mcdonald said.

The planned Trans-Texas Corridor Project could provide more opportunities for NTTA and other bidders. A lower credit rating would increase NTTA's financing costs, which may make its future bids less attractive to the state.

Embracing competition

NTTA spokesman Sam Lopez said the authority isn't opposed to any kind of privatization for road projects and welcomes competition from other companies and countries.

"We just feel that SH121 needs to be part of the NTTA system, and it's as simple as that," he said.

Texas tentatively awarded the $3 billion, 50-year contract for the 26-mile road to Cintra last winter, which won out over other private companies that made proposals. But some lawmakers pressured transportation officials to push NTTA to bid at the end of the process this spring.

The Regional Transportation Council voted 27-10 to endorse NTTA's bid, which pays the state more money up front than Cintra would.

The process was unfair, said Mr. Guernier, the New York consultant.

"The pursuit costs for bidding on these projects is enormous" – often in the millions of dollars, Mr. Guernier said. "For Cintra to follow all the rules and to have the rules changed on it in the 12th hour, it can't be encouraging."

© 2007 The Dallas Morning News Co

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