"To get an upfront cash payment and give away control for 75 years would be detrimental."
May 9, 2008
By SANTIAGO PÉREZ
The Wall Street Journal
An increasing number of international companies are looking to make multibillion-dollar investments in U.S. roads and bridges. But a brewing fight in Pennsylvania offers a test of the American public's willingness to give up control of vital infrastructure -- and potentially pay higher tolls.
Morgan Stanley estimates Pennsylvania could raise as much as $18 billion by leasing the state's major highway system to private investors, who would charge tolls and fund the system's upkeep. Units of Spain's Grupo Ferrovial SA and have said they are considering bidding. Abertis Infraestructuras SAAustralia's Macquarie Group Ltd. and Spanish construction giant Actividades de Construcción & Servicios SA are considering bids, said people familiar with the matter. Potential bidders have been invited to submit offers in coming days.
The prize: The Pennsylvania Turnpike, which includes more than 500 miles of highway stretching between Pittsburgh and Philadelphia that carry about 190 million cars, trucks and commercial vehicles annually. Under its current toll system, the turnpike contributes more than $600 million annually to the state.
If completed, a lease deal would be the latest in an increasing number of infrastructure agreements that put U.S. roads and airports under private control. U.S. infrastructure has appeal for investors because such deals have long been common in the rest of the world and many of the best roads and projects have been taken. Chicago raised $1.83 billion in 2005 by leasing its Chicago Skyway to a group that includes Macquarie and Ferrovial for 99 years. Indiana obtained $3.85 billion in 2006 through the 75-year lease of the Indiana Toll Road to the same group.
State officials see a potential source of funds for their aging roads and bridges. Pennsylvania estimates its immediate needs total $1.7 billion a year. Proponents of lease deals see them as a way to meet the U.S.'s growing infrastructure investment needs, which total $1.6 trillion over the next five years, according to the American Society of Civil Engineers.
But Pennsylvania's lease efforts under Gov. Ed Rendell face hurdles that could bode ill for the future of such projects in the U.S. Some potential bidders are having difficulty arranging financing for a bid amid the global credit crunch, said people familiar with the matter.
In addition, the lease deal is generating sizable opposition because, under the current formula proposed by the state, the winning bidder will have considerable freedom to raise tolls. Many members of the Democratic Party, which controls Pennsylvania's House of Representatives, are opposed because of the potential for higher tolls at a time of uncertainty over gasoline and diesel prices. Some frequent turnpike users also are lobbying against it.
The turnpike "is a huge contributor to our transportation infrastructure," said State Rep. Joe Markosek, majority chairman of the Pennsylvania House's transportation committee, which must approve the plan. "To get an upfront cash payment and give away control for 75 years would be detrimental."
"Our feeling is that a toll is a tax," said Bob Long, owner of Daily Express Inc., which has a fleet of 350 trucks that haul large machinery and building materials across Pennsylvania.
State Rep. Richard Geist, a member of the Republican Party and minority chairman of the House's transportation committee, expects a deal would be approved through a "consortium of Republicans and Democrats from cities with mass transit" in need of infrastructure funding. "I'm convinced public-private partnerships are a viable funding alternative," he said.
Under the terms being discussed, toll increases can match the rate of inflation or rise by at least 2.5% a year, following a 25% increase set for next year. Currently, a car crossing the state would pay $22.75 in tolls, according to Dennis Enright, a principal of New Jersey-based NW Financial Group, which specializes in project finance. By the end of the 75-year term, tolls to cross the state could reach $176, he estimated.
Forecasts of higher tolls may sound alarming, but U.S. per-capita income will also grow over that time, said Nicolás Rubio, business-development director of Ferrovial's Cintra unit. "The price of bread rises along with inflation levels over the decades, but the economic effort to buy such bread for the average U.S. family is much lower today than it was 50 years ago," he said.
--Jason Sinclair contributed to this article.
Write to Santiago Pérez at firstname.lastname@example.org
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