HARRISBURG – Gov. Edward G. Rendell announced Monday that the $12.8 billion, binding bid submitted May 16 for a 75-year lease of the Pennsylvania Turnpike will produce more funding for roads, bridges and public transit systems than Act 44. The concessionaire will also implement a capital investment plan in excess of $5.5 billion.
The winning bid was made by a team led by Citi Infrastructure Investors and Abertis Infraestructuras with Criteria CaixaCorp investing alongside this team as a major shareholder of Abertis.
“This is a great day for Pennsylvania,” Rendell said. “We urgently need new funding for road and bridge repair, and a turnpike lease will help us meet that need. Under the terms and conditions we set, the turnpike will be upgraded and tolls will be no higher than the Turnpike Commission will charge. Where Pennsylvanians will see a major difference is on our other roads. Road repair all over the state will accelerate and we will be able to cancel the plan to impose tolls on Interstate 80.
“Leasing the turnpike will deliver more per year than the I-80 tolling plan,” the governor said. “Pennsylvanians will get more and pay less, and that’s a good deal as far as I am concerned. I hope the legislature will give this proposal the serious consideration it deserves so all Pennsylvanians can begin benefiting from the additional funding.”
The $12.8 billion lease payment would be dedicated to road and bridge repair and support 73 public transit agencies across the state. By investing the money for the long term, the lease plan would generate annual payouts for transportation over the 75-year life of the lease. These payments would average 13 percent higher than the maximum available under the I-80 tolling plan, assuming investment returns equal to the average earnings of the Pennsylvania State Employee Retirement System over the past 20 years.
The winning bidder includes some of the world’s top investment and infrastructure companies. Citi Infrastructure Investors is a division of Citi, a leading global financial services company. It invests in mature, core infrastructure assets largely in North America and Europe.
Abertis is one of the world’s largest private toll road operators. It directly manages more than 2,000 miles of toll roads and, indirectly, another 3,000 miles in 10 countries on four continents. Abertis already operates and manages several large infrastructure facilities in the United States, including Orlando Sanford Airport, Concourse E of Atlanta International Airport, and Burbank Airport, as well as the Teodoro Moscoso Toll Bridge in San Juan, Puerto Rico.
“The commonwealth will retain ownership of the turnpike while the concessionaire will be held to the highest operating standards,” Rendell said. “They also plan to put more than $5.5 billion of their own money into repairing and upgrading the road, and will have to meet strict quality standards imposed by the commonwealth.”
Initial bids were received from three bidding teams on May 9. Because the top two bids received that day were within 10 percent of one another, those two teams were given an additional week to prepare best-and-final offers. A second place bid of $12.1 billion was submitted on May 16 by a group led by Goldman Sachs. A Macquarie-led consortium made a third bid but did not advance to the final round on May 16 because its bid was not within 10 percent of the highest initial bid.
Final acceptance of the winning bid will require enactment of legislation by the Pennsylvania General Assembly and will require modification of Act 44 — the most recent legislative action on transportation funding in July 2007. Act 44 directs the Pennsylvania Turnpike Commission to apply to the U.S. Department of Transportation for permission to impose tolls on Interstate 80. If approval is granted, the Turnpike Commission would make annual payments to PennDOT averaging $944 million per year for the first 10 years, and larger amounts thereafter. If permission to toll Interstate 80 is not granted, payments to PennDOT would fall to $450 million per year with no escalation.
“We are honored to be chosen to partner with the Commonwealth of Pennsylvania on this important project,” said Michael Froman, managing director and partner of Citi Infrastructure Investors. “We look forward to working with Governor Rendell, his administration, the legislature, the Pennsylvania Turnpike Commission and its employees to create value for the commonwealth and to serve the interests of those who live and work in Pennsylvania.”
“We greatly appreciate the confidence of the Governor and look forward to demonstrating our success in creating long-lasting partnerships with governments in the United States and around the world,” said Jordi Graells, Abertis’ managing director of toll roads for North America. “We now look forward to working with the legislators and the people of Pennsylvania to further detail how such a partnership can enhance the infrastructure of the state and the driving experience of those who use the turnpike.”
Throughout the fall and spring, the commonwealth and its financial advisor, Morgan Stanley, worked with transportation experts to develop specific terms and conditions so Pennsylvania could maintain ownership of the turnpike while generating maximum guaranteed additional annual transportation funding. Rendell insisted that a lease be sufficient to eliminate the need to toll I-80 and include specific terms and conditions to:
• Limit toll increases — Turnpike toll rates under the lease would be on par with the toll schedule proposed by the Turnpike Commission for Act 44 – a 25 percent increase in 2009 and 2.5 percent or inflationary increases as a cap thereafter. Act 44 imposes a 25 percent increase in 2009 and 3 percent target increases thereafter that could be higher if operating expenses increased above expectations or if traffic volume decreases.
• Protect turnpike workers’ collective bargaining agreement — The new operator will be required to maintain terms and condition of the current contract. When it expires, it will be up to the operator to negotiate a new agreement.
• Ensure completion of scheduled turnpike improvements — The new operator will ensure implementation of the current 10-year capital investment plan for the road and meet strict quality standards for the entire life of the lease.
• Maintain the turnpike at the same or better condition — Annual, independent audits will be conducted through PennDOT to ensure compliance with the concession agreement. The agreement requires the concessionaire to reimburse the commonwealth for the costs of the compliance audit.
Pennsylvania has nearly 6,000 structurally deficient bridges, the most of any state in the nation, and nearly 9,000 miles of highways in poor condition. PennDOT estimates the cost of repairing all of the structurally deficient bridges on the state system at approximately $11 billion.
In its November 2006 report, the bipartisan Transportation Funding and Reform Commission recommended an annual investment of $1.7 billion a year to meet highway, bridge and public transit needs. Even at that level, the commission projected it would take 17 years to cut the percentage of structurally deficient bridges in Pennsylvania from 24 percent to the national average of approximately 11 percent.
WINNING BIDDER
The winning team is made up of three companies: Citi Infrastructure Investors, Abertis Infraestructuras, and Criteria CaixaCorp.
About Citi Infrastructure Investors:
Citi Infrastructure Investors is an investment center within Citi Alternative Investments, a division of Citi, which invests in mature, core infrastructure assets, largely in North America and Western Europe. Its focus is on securing high quality assets and providing pension funds, insurance companies and other institutional investors with an opportunity to invest to create long-term value. The team is comprised of some of the most experienced infrastructure investors and asset managers in the world, with broad and deep backgrounds in toll roads, airports, ports and utilities. Investments include the acquisition of Kelda, a Yorkshire (United Kingdom) water company, and a joint venture with Vancouver Airport Services.
About Citi:
Citi, the leading global financial services company, has some 200 million customer accounts and does business in more than 100 countries, providing consumers, corporations, governments and institutions with a broad range of financial products and services, including consumer banking and credit, corporate and investment banking, securities brokerage, and wealth management. Citi’s major brand names include Citibank, CitiFinancial, Primerica, Smith Barney, Banamex, and Nikko. Additional information may be found at www.citigroup.com or www.citi.com.
About Abertis:
Abertis Infraestructuras, which has been joined by its major shareholder Criteria CaixaCorp in this effort, manages transport and communications infrastructures in five segments: toll road concessions, airports, parking garages, logistics parks, and telecommunications. The company, based in the Barcelona, Spain, has interests in 60 operating businesses in 17 countries on four continents with a U.S. presence in five airports, including Orlando Sanford Airport, Concourse E of Atlanta International Airport, and Burbank Airport. The company also manages the Teodoro Moscoso Toll Bridge in San Juan, Puerto Rico. Abertis employs 12,000 globally and currently manages more than 2,000 miles of toll roads directly and an additional 3,000 miles indirectly on four continents.
About Criteria CaixaCorp
Criteria CaixaCorp is Abertis’ major shareholder as well as an active investor in different areas such as financial institutions, energy, insurance, water supply, etc. Criteria is a quoted company with “la Caixa” savings bank as its majority shareholder.