Saturday, 14 May 2011

Ohio turnpike privatisation faces opposition

According to Cleveland.com, Northeast Ohio Areawide Coordinating Agency (NOACA) has voted to oppose a lease of the Ohio Turnpike as proposed by the State Governor John Kasich. Kasich was seeking a lease price of at least US$2.4 billion for the toll road in the hope it would help raise money to fix other roads, bridges and waterways. NOACA fears tolls would be increased, resulting in diversion to parallel routes and the standards of maintenance of a lessee would be lower. NOACA does not have the power to stop a lease, but its arguments ought to be addressed. 

A lease can put a cap on toll increases (e.g. inflation only, or approved congestion based increases) and ensure the road is returned to the state to a high standard of maintenance.  This is the experience of those letting out concessions in various countries, such as Australia and the UK.  It isn't a reason to oppose the lease, but certainly a reason to ensure a minimum price is obtained under satisfactory conditions.

My view is that any lease ought to be a matter of price and contract conditions, which will mean much money spent on the transaction. Yet if even US$5.8 million is spent on advice in such a deal (which would be fair over a year) it would still be 0.2% of the net revenue from a lease!  A bit of time and money seeking the right advisors should save the state hundreds of millions.

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