Indiana Toll Road Remains Contentious Infrastructure Financing Case

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Indiana Toll Road Remains Contentious Infrastructure Financing Case
By Tom Curry
Roll Call
June 17, 2014

For Rep. Michael E. Capuano, the senior Democrat in a group of House Transportation Committee members that met with New York investment bankers Monday, the key private infrastructure investment case that needs explaining is the 2006 lease of the Indiana Toll Road by a group of investors including Macquarie Atlas Roads, created by the Macquarie Infrastructure Group, an Australian firm.

As states take a keener interest in public-private partnerships to pay for infrastructure, “the first major one in the country that I remember was the Indiana Toll road and, as I sit here today, I still do not have answers” on the benefits and costs of that deal, Capuano, D-Mass., said during the discussion.

“It’s a relatively straight-up project, it’s not like a water project that might be complicated, it’s not unique” and yet, he complained, there’s not enough data on the cost of the project.

“I need to be able to compare how many cars and how much toll money was being generated before it was sold, and how many cars and how much toll money now. Kind of simple. And we [the Transportation and Infrastructure Committee] haven’t gotten them.”

“If the cars aren’t there [on the toll road], where did they go? And if they’re going on to another road, is that road now need more infrastructure upgrades? Does that other road now have time constraints, now people are being backed up? What about its impact on the rest of our infrastructure? I don’t know the answer,” he said after the event.

Karl Kuchel, chief operating officer of Macquarie Infrastructure Partners in New York, did give the committee members some insights at the roundtable event Monday.

The traffic numbers for the Indiana toll road “are below the projections that were used for the original transaction” in 2006, Kuchel said.

When the Indiana Toll Road transaction was financed, private investors made a $3.8 billion payment to the state of Indiana. Traffic “has not performed to the level of our expectations — no surprise given the economic conditions from when the transaction was completed in 2006 to today.”

But he said, “None of that downside reverts to the public sector. That [loss] goes to equity in the first instance and then to the lenders. So it’s a private-sector risk at the time the transaction was financed. A view was taken on traffic. The present value of that was paid over [to the state] in the purchase price — and the equity and debt holders have to live with that.”

He said the Brisbane, Australia, tunnel example cited to the committee by Columbia University urban planning Professor Elliot Sclar as a case of another private infrastructure investment gone awry was in the same category. It was financed with private money, the project was delivered “and then traffic did not meet projections. From the public-sector perspective, if you wanted to be glib, you would actually say that they [the public] received a piece of infrastructure at well below the cost of its procurement. Because the private sector took the risk on traffic, financed 100 percent of it, and as it turns out, the traffic is not sufficient to justify the return.”

He added, “This is what risk is – and the private sector tries to price it.”

Despite some disappointments, there are still reasons to do private-public partnerships, Kuchel suggested.

He argued that “competition is a powerful driver of efficiency in these transactions. As somebody who invests private capital, PPP transactions can take sometimes years and millions of dollars just to submit a bid. You want to know as you’re going through that process, what the parameters are … and you want know that you will be competitive and hopefully successful. That drives you constantly to be looking at ways in which you can deliver the project more efficiently” – and the cost savings hopefully can be paid through to the taxpayers.