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Spanish firm offers $12.8 billion to lease Pa. Turnpike
Philadelphia Inquirer ^ | 19 May 2008 | Paul Nussbaum

Posted on 05/21/2008 7:51:41 AM PDT by BGHater

A Spanish toll-road operator won the bidding war to operate the Pennsylvania Turnpike, offering $12.8 billion for a 75-year lease, Gov. Rendell said today.

The proposal by Abertis Infraestructuras, of Barcelona, must be approved by the Pennsylvania legislature, and legislative leaders in Harrisburg have said the plan faces tough sledding with lawmakers.

In making the largest bid ever for the private operation of a U.S. toll road, Abertis partnered with a subsidiary of U.S. investment bank Citigroup, and Spanish investment firm Criteria CaixaCorp.

Abertis operates toll roads in Spain, France, Italy, the United Kingdom, Argentina and Puerto Rico. The company also operates airports, telecommunications systems and parking garages.

Under Rendell's plan, the Abertis/Citi consortium would lease the turnpike for 75 years with the right to raise tolls 25 percent next year and 2.5 percent or the rate of inflation every year after that.

Rendell called the lease plan "a very good deal for Pennsylvania drivers and taxpayers," and he said it would mean about $1.1 billion per year for road, bridge and transit projects in the state, on average, over the next 10 years.

Under the terms of the lease, the private operator would be required to maintain and improve the turnpike and honor existing labor contracts until they expire. At that point, employee unions would need to negotiate new contracts with the Abertis/Citi consortium.

If approved, the turnpike lease would mean the end of embattled efforts to toll I-80 as a way to raise transportation funds. And it would mean the effective end to the 70-year-old Turnpike Commission, the politically powerful agency that operates the toll road.

The Rendell administration would invest the multibillion-dollar lease payment and use the proceeds to pay for highway, bridge and public transit projects. But the total would be reduced by about $2.3 billion dollars necessary to assume existing debts and other obligations, leaving about $10.5 billion to be invested, according to the administration's calculations.

Rendell said the lease money would be invested with the Pennsylvania State Employees' Retirement System, and he said the administration expected to earn 12 percent a year on its money. He said that was the average return for SERS over the past 20 years.

Rendell has said he wants the 359-mile east-west turnpike and the 110-mile Northeast Extension to be in the hands of a private operator by mid-September, but legislators said that is very optimistic.

If approved, the lease would be the largest-ever of a U.S. toll road. The Indiana Toll Road was leased in 2006 for 75 years for $3.8 billion, and the Chicago Skyway in 2005 for 99 years for $1.83 billion.

Pennsylvania Turnpike Commission chief executive officer Joseph Brimmeier said today his agency opposes leasing the turnpike, prefering to stick with Act 44, the new law that would raise transportation funding by tolling I-80 and increasing turnpike tolls.

"With Act 44, the Turnpike will supply PennDOT almost $84 billion over 50 years without raising taxes or out-sourcing a critical asset," Brimmeier said in a statement. "That's why we remain committed to implementing Act 44 and seeing it through to completion."

Rendell, though, argued a lease would raise about $150 million more per year than Act 44.

"If you don't have to toll a road, that's a very good idea," Rendell said. "It seems like a slam dunk to me."

Act 44 relies for much of its funding on the tolling of I-80, which requires federal approval. That approval remains uncertain, as the Federal Highway Administration returned the state's first application for permission to toll I-80, and the state has not yet resubmitted its application.

Rendell said today he will urge the Turnpike Commission "in the strongest terms possible" to resubmit the I-80 application this week. And he said he will ask U.S. Transportation Secretary Mary Peters for a quick response, so state lawmakers can weigh that information in their deliberations on the lease proposal.

But Turnpike spokesman William Capone said the application "is clearly not ready to go this week...no way it's close to being ready to be resubmitted."

Abertis and its predecesor companies has been operating toll roads in Europe for 40 years. Its network covers 68 percent of Spain's toll routes and toll roads in northern and western France. It also has a stake in toll road operations in Italy, Portugal, the United Kingdom, Chile, Colombia and Argentina.

In addition, it operates telecommunications facilities, parking garages, and airports, including the Orlando (Fla.) airport, the Burbank (Calif.) airport, and one concourse of the Atlanta airport.

Abertis reported a first-quarter profit of 134 million euros ($208 million), up 9.4 percent from the same period a year earlier.

Citi Infrastructure Investors is a divsion of Citigroup, a financial services company whose brands include Citibank, Primerica, Smith Barney, Banamex and Nikko.

Under the lease plan, Abertis and Citi would equally share management responsibilities of the toll road, while Abertis would own 50 percent of the company, Citi 41 percent and Criteria 9 percent.

Rendell said the two losing bidders for the turnpike lease were teams consisting of Goldman, Sachs & Co. and Transurban Group of Australia; and of the Macquarie Infrastructure Group of Australia and Cintra of Spain.


TOPICS: Business/Economy; Government; US: Pennsylvania
KEYWORDS: lease; pennsylvania; tollroad; turnpike

1 posted on 05/21/2008 7:51:41 AM PDT by BGHater
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To: BGHater
Now this makes perfectly good sense.

Lease your infrastructure to foreign interests. The next thing we know is that our ports might be turned over to our arab friends.

2 posted on 05/21/2008 7:56:49 AM PDT by ajodl (If a taxpayer is alive, he's kicking!)
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To: ajodl

There needs to be a balance but we do not need to let foreign interests own infrastructure or defense based companies.


3 posted on 05/21/2008 8:00:10 AM PDT by Resolute Conservative
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To: BGHater

Of course we can trusty the government to do only the right things with the taxpayers’ money. Once that is squandered away, then what will sell or lease to get the next big welfare payday?

Rendell is a jackass, as such would make the perfect VP for Obama or Clinton.


4 posted on 05/21/2008 8:00:15 AM PDT by AbeKrieger (There is a special place in Hell for Lyndon Johnson.)
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To: BGHater

What’s next? Are we going to lease out all our 7-11’s to India or Pakistan???


5 posted on 05/21/2008 8:01:33 AM PDT by Zuben Elgenubi (In Memorium: Old Atlanta, 1945 - 2000, RIP)
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To: ajodl

This is what happens when other countries collect too many dollars, because we are always in debt.

They buy us out.

Does Congress care? (silly question!)

However, the good news is that in case of war, they can’t pick up the Turnpike and take it with them.


6 posted on 05/21/2008 8:01:52 AM PDT by CondorFlight (I)
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To: BGHater
ABERTIS INFRAESTRUC (ABFOF.PK)

Not much financial info.

I love the logic. Lease your state assets for 75 years, have your citizens pay through the nose with increased tolls - but get the money NOW to pay for your Fast Eddie socialist programs to keep buying votes!

7 posted on 05/21/2008 8:03:38 AM PDT by 2banana (My common ground with terrorists - they want to die for islam and we want to kill them)
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To: ajodl

God only knows what those infernal Spaniards plan to do with the road once they hold the lease. They might even stop people from using it.


8 posted on 05/21/2008 8:03:47 AM PDT by 1rudeboy
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To: BGHater

The lease is either too long or too cheap. Of course, there won’t be any traffic on the road since there won’t be any traffic at all anywhere so the management of this management company is already suspect.


9 posted on 05/21/2008 8:07:53 AM PDT by RightWhale (You are reading this now)
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To: BGHater

Killing the Turnpike Commission AND the raid on I-80 might just be worth it.


10 posted on 05/21/2008 8:11:12 AM PDT by Petronski (Scripture & Tradition must be accepted & honored w/equal sentiments of devotion & reverence. CCC 82)
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To: 1rudeboy
God only knows what those infernal Spaniards plan to do with the road once they hold the lease.

They'll stop our military from using it. And they'll add IEDs. It's true! I read it on FR.

11 posted on 05/21/2008 8:16:13 AM PDT by Toddsterpatriot (Why are doom and gloomers, union members and liberals so bad at math?)
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To: BGHater

We have a Spanish group running the “interstate” system here in Chile. The roads are GREAT but DAMN are they expensive. Watch what you wish for!


12 posted on 05/21/2008 8:16:26 AM PDT by WellyP (How much does Huma know?)
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To: 1rudeboy
Pennsylvanians won't have to worry about their turnpike ever again as Spain is ruled by the socialists (communists) once again now that they're free from that evil old meanie Francisco Franco.

Franco saved the nation from communism by killing off the traitorous Spaniards and running the commissars and the Abraham Lincoln Brigade out of the country. How ironic that they're back and making investments like this one in another nation's infrastructure.

American politicians are killing our country.

I wonder if Germany is interested in selling the autobahn? I wonder where we would get the money? The Germans wouldn't want to be paid in the toilet paper we call money?

Just think if America bought the autobahn a speed limit would be established cutting down the number of tragic high-speed deaths and injuries.

13 posted on 05/21/2008 8:20:57 AM PDT by ajodl (If a taxpayer is alive, he's kicking!)
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To: CondorFlight
Does Congress care?

You mean America's Royal Class? I doubt it. Until Madame Dufarge breaks out her knitting needles, of course.

14 posted on 05/21/2008 8:24:13 AM PDT by Wolfie
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To: ajodl

I don’t know where to look, but I’d imagine that U.S. direct investment overseas totals $300 billion a year, or thereabouts. A U.S. firm owning the autobahn is a funny notion. Our trial lawyers would have a feast.


15 posted on 05/21/2008 8:26:03 AM PDT by 1rudeboy
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To: BGHater

Just when you though Fast Eddie couldn’t do something any dumber.....

And HE is on the Dem’s VP short list? I heard Beckel say that Rendell would be his first pick for VP.

Going home to dig the shelter another 10 feet deep.....


16 posted on 05/21/2008 8:28:47 AM PDT by Eagle of Liberty (Ownership, Individuality, Freedom, Responsibility - The Backbone of Conservatism - falconparty.com)
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To: BGHater
It is not a Spanish company!! It has it's home offices there company is owned by the oil counties of the middle east.
17 posted on 05/21/2008 8:29:17 AM PDT by org.whodat (What's the difference between a Democrat and a republican????)
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To: BGHater
It is not a Spanish company!! It has it's home offices there company is owned by the oil counties of the middle east. Those fellows with the towels around their heads.
18 posted on 05/21/2008 8:30:01 AM PDT by org.whodat (What's the difference between a Democrat and a republican????)
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To: ajodl
The Germans wouldn't want to be paid in the toilet paper we call money?

Funny, considering the trade surplus ($44.7 billion in 2007) they run with us.

19 posted on 05/21/2008 8:30:08 AM PDT by Toddsterpatriot (Why are doom and gloomers, union members and liberals so bad at math?)
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To: 2banana
The Ben Laden Family are good at hiding their name.
20 posted on 05/21/2008 8:33:12 AM PDT by org.whodat (What's the difference between a Democrat and a republican????)
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To: Toddsterpatriot

I’ll take some of that toilet paper if anyone has extra.


21 posted on 05/21/2008 8:44:51 AM PDT by 1rudeboy
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To: BGHater
Read the CAFR for the PA Turnpike - it was throwing off $320 Million a year in profit, in the last year I read about, 2004.

With a 25% rise in charges at no additional spending, we are talking an out of the gate profit of almost $400 Million per year.

Divide that into 12.8 Billion you get a payback period of a little more than 30 years - but the lease runs for 75.

Conclusion: this would be very profitable for the company and is just another way Rendell is trying to rip off the taxpayers.

22 posted on 05/21/2008 8:56:34 AM PDT by ikka
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To: ikka; groanup
With a 25% rise in charges at no additional spending, we are talking an out of the gate profit of almost $400 Million per year.

Divide that into 12.8 Billion you get a payback period of a little more than 30 years - but the lease runs for 75.

$400 million/$12.8 billion = 3.125% a year.

Conclusion: this would be very profitable for the company

You bet, especially when you consider they could make 3.8% by buying 10 year US Treasury bonds. LOL!

23 posted on 05/21/2008 9:03:40 AM PDT by Toddsterpatriot (Why are doom and gloomers, union members and liberals so bad at math?)
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To: Resolute Conservative

There needs to be a balance but we do not need to let foreign interests own infrastructure or defense based companies.

This is crazy! Our asshat politicians divert all our tax money to socialist causes and end up having to find the lowest bidder from overseas to cover the basics like transportation?.....frick’in lovely!


24 posted on 05/21/2008 9:21:03 AM PDT by AngelesCrestHighway
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To: Toddsterpatriot
Remember that after the first round of 25% increases, the price continues to go up the higher of 2.5% or inflation.

So after 10 years of continuous 2.5% increases, (that is, the 11th or 12th year), they are up another 25%.

I didn't cover that case because it would take a spreadsheet to go over all of the possible scenarios.

25 posted on 05/21/2008 9:23:03 AM PDT by ikka
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To: BGHater

So fast Eddie, how much did you get?


26 posted on 05/21/2008 9:27:24 AM PDT by stimpy17 (Home of the free because of the Brave.)
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To: ikka
And if you ignore the expense of repairs and actually running the thing, they can make trillions.
27 posted on 05/21/2008 9:29:07 AM PDT by Toddsterpatriot (Why are doom and gloomers, union members and liberals so bad at math?)
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To: Toddsterpatriot
And if you ignore the expense of repairs and actually running the thing, they can make trillions.

Don't be an idiot, I read the 2004 CAFR - did you?

The costs are $80 million per year for workers and maintenance, and that is as performed by our goldbricking PennDOT workers or under bid proposals that they put out.

Current take (2004 numbers) is $400 million, leaving $320 million per year as profit.

28 posted on 05/21/2008 9:33:51 AM PDT by ikka
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To: BGHater

Wow - last time I drove the Pa Turnpike (admittedly a few years ago) it was like driving along a creek bed with 4 flat tires. Between the potholes, cracks and leftover material from previous ineffectual repairs, driving the speed limit in a stiff-suspension vehicle was similar to the old “magic fingers” hotel bed experience. Add in the “convenience” of plaza monopoly food and gas, and you had a complete “why would anyone ever pay to drive on this pig trail” moment. Maybe private ownership is a good thing.


29 posted on 05/21/2008 10:15:57 AM PDT by Some Fat Guy in L.A. (Nope. Not gonna do it.)
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To: BGHater

First Kennywood, and now the Turnpike.. guess its time to just start accepting that PA is a Spanish satellite state.


30 posted on 05/21/2008 10:23:46 AM PDT by HamiltonJay
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To: Some Fat Guy in L.A.

If you think 76 is bad, go try riding the free I 80 east to west.

Rendell’s basically a full time employee of the clinton campaign anymore... PA has no governor at the moment.


31 posted on 05/21/2008 10:25:50 AM PDT by HamiltonJay
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To: Toddsterpatriot
Is this a thread about how private ownership of infrastructure is good unless it's a foreign entity then it's bad?

Remember when those dumb, unpatriotic Americans sold Pebble Beach to those brilliant Japanese many years ago and then bought it back at a discount?

32 posted on 05/21/2008 10:50:37 AM PDT by groanup (Most of my cliche's aren't original.)
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To: ajodl

This possibility is even more frightening as this is the group that has a contract to take over a major chunk of Texas highways as part of the corridor to Canada.


33 posted on 05/21/2008 11:21:12 AM PDT by Grams A
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To: ikka
Sorry for assuming you're a moron. Whenever I see a post like this...

With a 25% rise in charges at no additional spending, we are talking an out of the gate profit of almost $400 Million per year.

Divide that into 12.8 Billion you get a payback period of a little more than 30 years -

...that ignores the cost of capital or the risk free rate of return, I automatically assume the poster is a moron.

34 posted on 05/21/2008 12:37:41 PM PDT by Toddsterpatriot (Why are doom and gloomers, union members and liberals so bad at math?)
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To: groanup
Is this a thread about how private ownership of infrastructure is good unless it's a foreign entity then it's bad?

When foreigners buy our debt, it's bad.

When foreigners buy our stocks, it's bad.

When foreigners invest in our infrastructure, it's bad.

Remember when those dumb, unpatriotic Americans sold Pebble Beach to those brilliant Japanese many years ago and then bought it back at a discount?

Even when foreigners buy our real estate and lose big, it's bad.

35 posted on 05/21/2008 12:39:57 PM PDT by Toddsterpatriot (Why are doom and gloomers, union members and liberals so bad at math?)
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To: Toddsterpatriot
...that ignores the cost of capital or the risk free rate of return, I automatically assume the poster is a moron.

If you look over the article a little more closely, you will see that they will be raising the toll rates a great deal year over year, and those increases will be compounding, e.g. for a $10 toll which is increased (a minimum of) 2.5% each year, after a decade the toll will not be $12.50 but more like $12.80. And we are not talking a decade but 7.5 decades.

I didn't put all that in, because future toll increases and future costs will at the least offset each other.

As a rough, "back of the envelope" calculation, I would have thought it was pretty obvious that the costs to those using the Turnpike will be higher and the corporation will be making a boatload of money - all while the original bondholders were paid off years ago and the Turnpike was supposed to be returned to the taxpayers at that point.

36 posted on 05/21/2008 1:13:37 PM PDT by ikka
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To: ikka
If you look over the article a little more closely, you will see that they will be raising the toll rates a great deal year over year,

Yeah, 2.5% or the rate of inflation.

and those increases will be compounding,

You bet.

I didn't put all that in, because future toll increases and future costs will at the least offset each other.

Sure.

As a rough, "back of the envelope" calculation, I would have thought it was pretty obvious that the costs to those using the Turnpike will be higher

Right, by 2.5% a year.

and the corporation will be making a boatload of money

I bet they will make money. Maybe big money. But to ignore their cost of capital and claim they'll earn back their investment in 30 years may be pushing it.

What if they borrowed at 6%? They need to clear $768 million, just to pay their annual interest. Should be easy, they're making $400 million a year in profit.

37 posted on 05/21/2008 1:46:52 PM PDT by Toddsterpatriot (Why are doom and gloomers, union members and liberals so bad at math?)
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To: ikka
all while the original bondholders were paid off years ago and the Turnpike was supposed to be returned to the taxpayers at that point.

I live in Illinois, you don't have to tell me about getting screwed by corrupt tollway authorities.

38 posted on 05/21/2008 1:48:12 PM PDT by Toddsterpatriot (Why are doom and gloomers, union members and liberals so bad at math?)
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To: Grams A

It will be more than mildly interesting, frightening is the word, when Americans wake up and find who’s buying their municipal water systems.


39 posted on 05/22/2008 5:23:21 AM PDT by ajodl (If a taxpayer is alive, he's kicking!)
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