Tuesday, 6 September 2011

Puerto Rico toll road privatisation goes to Abertis and Goldman Sachs

I wrote in December last year, that Puerto Rico was seeking to privatize two toll roads in order to reduce the territory’s public debts and to finance the upgrade of the roads themselves

Now, Cygnus reports that a US$1.436 billion deal has been signed between the Puerto Rico government and an consortium called Autopistas Metropolitanas de Puerto Rico, LLC- which consists of well known Spanish toll operator Abertis (45%) and Goldman Sachs (55%). Second bid was submitted by a group composed of another Spanish toll operator, OHL Concesiones and Morgan Stanley.

According to Landline Mag, the deal for Puerto Rico’s toll roads ranks fourth in size in North America behind the $3.85 billion Indiana Toll Road lease in 2006; the $2.2 billion 407 Express Toll Route lease in Toronto in 1999; and the $1.85 billion paid for the Chicago Skyway in Illinois in 2005. Each of the top three toll projects involved a partnership between Cintra of Spain and Macquarie of Australia.

Full details about the PPP development and selection process are on the Puerto Rico PPP Authority website.

Highways 5 and 22 will be leased to the company which will finance, repair and operate the highways for a 40 year concession period.

The report says that the Puerto-Rico Public Private Partnership Authority gets an upfront payment of US$1.08 billion, and will invest US$56 million in what are described as “accelerated safety improvements” in the first three years to lift standards on the road.

The report also says the concession: “requires the selected consortium to conduct significant investments in the rehabilitation of said toll road. In addition, it must meet rigorous quality and service standards that will bring about recurring investment and will elevate these toll roads to world-class level with respect to paving, signage, lighting, vehicle flow, safety, and service and toll areas, among others. The winning consortium must also meet operation requirements resulting in safer and more durable roads.”

Improvements are expected to be fast as "During the first year of the contract, lighting, signage, off-ramps, toll plazas and landscaping are all set to improve, and over the next two years, paving projects, rehabilitation of elevated ramps and bridges and a system of alerts for drivers are expected to be put in place.Currently, just 50 percent of the lighting along the highway is functioning" according to David Alvarez, executive director of the Public Private Partnership Authority.

Caribbean Business reports other obligations on the new leaseholders include:
-  Building a bus/toll lane along PR-22 for bus rapid transit, to operate as a dynamically priced lane to maintain a high standard of service.  Revenue from this is split with the government;
-   Paying US$450,000 a year for Police patrols of the roads, and an additional amount of US$450,000 every seven years;
-    Tough service standards such as "potholes need to be repaired within 24 hours on a temporary basis and permanently fixed within two months, while spills need to be responded to within 15 minutes and dead animals removed within eight hours. The standards also call for zero graffiti, with responses required within eight hours."

Caribbean Business notes the revenue of the roads is around US$90-US$95 million p.a. indicating that the consortium will recover its investment less than halfway through the term of the concession.  Toll rates are frozen until 2014 and then increased capped to US inflation + 1.5% (which is apparently the average of Puerto Rico inflation over that of the mainland USA). 

All in all, quite a deal.  No doubt a win win for both sides.  The winning consortium expects it can make a healthy profit on the deal, all the while the roads will be upgraded and maintained, whilst the government gets some relief from debt.  Perhaps others have some lessons to learn from Puerto Rico?

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