Texas Transportation Commission has accepted a proposal by Cintra and JP Morgan to pay $2.1b in an upfront concession fee and some $560m in immediate construction commitments to complete to 12 lanes some 37km (23 miles) of State Highway 121 (TX121T) in the northern part of the Dallas area. Cintra/JPM would gain a 50 year concession giving it the right to the toll revenues. In addition to the upfront concession fee of $2,100m Cintra/JPM but would pay some $700m to the state in revenue sharing over the life of the concession.

Cintra is in a joint venture in the project with a JP Morgan (JPM) asset management fund.

TxDOT has already spent some $700m on construction of TX121 and tolling started on the first completed segment Dec 1 2006.

The road has the outer frontage road lanes an signalized intersections in use along most of the length and inner mainlanes open in some places also, some tolled and some untolled. The concessionaire will be responsible for completion of the project, for construction of major interchanges to supplement frontage road junctions, and for improvements to some untolled connecting roads. Not all portions will be tolled.

The road trends northeast out of the Dallas Fort Worth Airport area, at first rather parallel to but north of the recently opened stretches of the Pres Geo Bush Turnpike. It crosses the northern end of the Dallas North Tollway in Plano and heads further northeast to the US75, the Northeast Expressway in McKinney.

The format of the road's initial 12 lanes (using F for frontage and $ for tolled) is 3F/3$/3$/3F with 2x3 toll lanes ($) connected by slip ramps to three lanes of one-way frontage (F) roads on either side - the classic Texan expressway. Frontage roads meet cross streets at signalized intersections.

Cintra's US president Jose Maria Lopez de Fuentes told us he's "very very happy" with the win:

"Of course pundits will say again we paid too much, but we see this highway as comparable with 407ETR (see ENDNOTE) There is a desperate need for this highway. This is a very strong project in a very strong region. We think it is a real landmark, and we are very happy to have won it."

Texas DOT announced yesterday (Feb 27) they were recommending the Cintra/JPM proposal.

Texas Transportation Commission, by law the decisionmakers, heard a presentation from the Turnpike Division of TxDOT today (Feb 28) and in a meeting this morning formally accepted the Cintra/JPM bid.

Cintra was recommended over bids from Macquarie and Skanska.

TxDOT says "incredible" and local officials deserve credit

In a statement TxDOT director Mike Behrens says the deal is "an incredible transportation milestone not only for North Texas but (for) the whole state." He says regional officials "made this happen."

Michael Morris director of transportation at the North Central Texas Council of Governments said: "Austin, we have a solution." This is apparently an allusion to gaining changes in a TxDOT proposal with had initially met serious local opposition, but which after some months of local haggling, the state department went along with.

Local officials say the deal allows them to get projects done now which otherwise were a quarter century off.

Bill Hale, district engineer: "The Collin County segment of SH 121 should be finished by the fall of 2009, with an interchange at U.S. 75 completed a year later, followed by an interchange with the Dallas North Tollway by 2011."

US support with PABs and TIFIA

USDOT has approved designation of $1.9b in bond sales for the project as private activity bonds (PABs) allowing them tax-exempt status. This was the first major commitment of PABs which were included in the last five year federal highway bill. TxDOT has also applied for $700m of low-interest TIFIA loans for the project, which means the US Government was involved in facilitating some $2.6b of the project.

Word is however that Cintra/JPM is only likely to make use of the TIFIA funds, and that the PABs have no appeal to the group which can raise capital more economically than doing PABs along with the complexities of gaining federal approvals.

Under the agreement the financial close could happen in as little as two months from signing of a contract, but there are provisions for two 45 day extensions, suggesting the deal should be done by mid-summer.

The Collin County portion of the project still needs final environmental approval.

TxDOT in its statement says the financial close will be "this summer."

No "non-compete" but compensation

The contract contains no restrictions on provision of competitive extra capacity. Extra free lanes can be added regardless of their effect on Cintra's revenues. Under the heading "Competing Facilities" the concession contract says (11.3.1.1) that TxDOT will have the unfettered right to upgrade and add capacity to existing facilities including frontage lanes regardless of the effect on the concessionaire's revenues and "without liability" except as provided for in a compensation provision for "Competing Facilities." (11.3.2) The concessionaire is due compensation equal to the net loss of toll revenue attributable to the added competing capacity. The concessionaire has to make a claim with 90 days after a notice by TxDOT of the proposal to add capacity. A dispute resolution process is laid down for resolving any disagreement on compensation or other issues - that starts with negotiation and ends in Travis County Court.

TxDOT entitled to extra toll revenue attributable to improvements it makes

Symmetrically with the concessionaire's right to compensation for loss of revenue TxDOT has a right to extra toll revenues attributable to any positive impacts of improvements.

Maximum toll rate controls about 14c/mile base and CPI adjustment every two years

The contract provides for traditional concession style regulation of maximum toll rates, setting maximum base toll rates in cents per mile for cars of 13.9c 2008 and 14.5c 2010 and tractor trailers 55.5c and 58c with other axle configurations having proportional per mile rates.

The escalation rule is shoddily written in Exhibit 4 referring to an unexplained price index called a TPI or Toll Price Index. There is an unreadable bit of algebra referring to this TPI but we are told to accept that it provides for increases in maximum tolls every two years if the change in consumer price index has risen less than 6% (about 3%/yr). If the increase in the previous two years in the CPI is greater than 6% it will be adjusted by a southern employment cost index (ECI) if the ECI is less than the CPI increase.

TxDOT says concession money will be available for regional improvements

TxDOT says in its announcement Feb 27: "As part of its proposal Cintra will pay the region $2.8 billion."

The immediate upfront concession fee of $2,100m to be paid on closing and $700m in payments over the 49 years of the lease/concession agreement will be used on various transport projects throughout North Central Texas - the greater Dallas-Ft Worth metro area, the statement said. Selection of the projects will be done by the Regional Transportation Council of the North Central Texas Council of Governments.

The local availability of funds plus toll rate controls has been a large public issue locally. The toll rate and adjustments for inflation were approved by the North Central Texas Council of Governments which embraces some 40 mayors, city councilors, county commissioners and county executives termed in Texan as "Judges". The rate and increase mechanism were presented to TxDOT by the NCTCOG and TxDOT accepted these terms and included them in the contract in efforts to enhance local control and input in solving transportation projects. Cintra's immediate commitment is $2.1b+$560m in construction

Loston says that about $700m has already been spent on developing the tollroad by the state using its general funds. In order to complete the tollroad in line with the concession requirements Cintra is expected to construct works estimated by TxDOT to cost another $560m.

Commitments already made for toll systems and toll collection

The toll system work has already been alloted to Raytheon under their umbrella contract with TxDOT. There is to be no cash toll collection, just a mix of full highway speed transponder tolling and video tolls - license plate recognition by camera and a bill in the mail.

North Texas Tollway Authority is doing back office transponder accounts and video toll collection.

see http://www.keepitmovingdallas.com/SH+121/ and

http://www.dot.state.tx.us/services/texas_turnpike_authority/sh121_rfp.htm

Cintra leads in concessions

This reinforces Cintra's place as the leading tollroad concessionaire in North America with approximately 30% of 407ETR in Toronto, 50% of Chicago Skyway, 50% of Indiana Toll Road, 90% of TX130T/5&6, and the project development CDA contract for Trans Texas Corridor 35.

Cintra is in full Cintra Concesiones de Infraestructuras de Transporte SA (Cintra Transport Infrastructure Concessions), a company listed on the Madrid stock exchange and 60% owned by Grupo Ferrovial, a large international construction company.

Cintra has about 20 tollroads measuring about 2,000km (1200mi) in seven countries - Spain (7), Portugal (2), Ireland (1), Italy (1), Chile (5), Canada (1) and the US (2) but more than half its commitments are now in North America. It also operates a quarter million car parking spaces. Its US headquarters are in Austin TX. US manager is Jose Maria Lopez de Fuentes.

The company was selected on Feb 5 to do the 231km (143mi) E1.5b ($2b) E65 Central Greece Motorway under a 30 year toll concession.

In 2006 Cintra garnered $978m (E752m@1.3E=$) in toll revenues and incurred operating costs of $267m (E205m) for earnings before interest taxes depreciation and amortization of $711m (E547m) see www.cintra.es

MISTAKE & COMMENT: We were misinformed on no toll rate controls

Our initial report of no toll rate caps yesterday was wrong. A TxDOT spokesman told us firmly that toll rates on Tx121T would be "market driven." She told us today she had been out of date in her information, suggesting this was an early version of the deal.

There is an argument that price controls are generally to be avoided as inconsistent with a free market economy, and liable to produce shortages and underinvestment.

California's 1991 toll concessions which produced the 91 Express Lanes and the South Bay Expressway (opening this year) had no toll rate controls. Instead they had a profit sharing arrangement beyond a specified rate of return on investment.

M6Toll in Birmingham UK has no toll rate controls, not does the Ambassador Bridge (Detroit-Windsor) America's longest running toll concession or charter (goes back to June 1927). 407ETR in Toronto has no direct toll rate controls either although a complex system of penalties tends to deter a high toll/low traffic policy by requiring lane additions and discouraging diversion to competing free surface arterials.

Competition is the key to protecting motorists without rigid toll rate controls written into the concession.

see http://www.dot.state.tx.us/publications/tta/sh121_cda_exhibits_clean.pdf

Exhibit 4 at p12 titled "Toll regulation" of a draft comprehensive development agreement dated Dec 22 2006 provides the basis for TOLLROADSnews 2007-02-27/23:50

ENDNOTE: 407ETR

407ETR in Toronto Canada and was Cintra's first North American tollroad venture, and has been extremely successful with solid growth of traffic at relatively high toll rates. The group led by Cintra has approximately doubled the capacity of the highway in the seven years it has operated the concession - it now has ten travel lanes in sections making it the third widest in North America after the New Jersey Turnpike and Garden Sate Parkway - and more than tripled toll revenue to $385m (1999 $120m) in 2006 based on 292k trips per day at average tolls of 29c/mile. Like 407ETR TX121T is built in the major developing fringe area of a wealthy strong growing metropolis of 4m+. Both provide links to the area's major airport and both bypass the central city.

Differences are that Toronto is less well served overall by highways than Dallas so 407ETR faces less competition from expressway standard highways. 407ETR has no free frontage roads, though close by are quite modern signalized arterials somewhat comparable in level of service to the TX121's frontage roads. Also 407ETR at 108km (67mi) with 40 interchanges is much larger and covers the whole northern edge of the metro area whereas TX121Toll is 37km (23mi) with far less reach to attract traffic.

TOLLROADSnews 2007-02-27-17:30 ADDITIONS MADE 2007-02-27-19:40 REWRITTEN twice 2007-02-28