The Tunnel As An Investment

There is obviously a lot more involved in the Tunnel story than we know yet. That is why I get so angry. We are not told everything but are given information as dribs and drabs along with the "isn't Eddie a genius" slant.

It hardly takes a finacial whiz to lease an infrastructure asset these days with all of the publicity about it and when the approach has been telegraphed for quite some time

Good luck to the Mayor of Detroit for eliminating his deficit by allowing the City of Windsor to operate his half of the Tunnel for the next 75 years, assuming of course that Alinda can be bought out of its agreement ending in 2020.

Presumably, according to what the Mayor said on the Melanie Deveau show, each side had financial advisors who said the deal made sense financially. The Americans had Goldman Sachs but the Mayor did not say who our advisors were. I hope that advisor provides a similar type of guarantee against losses that Mr. Sutts is giving on his part of the deal!

From a "deal perspective," I think what Detroit did was masterful. I think that Kwame and his colleagues seem to be a heck of a bunch of negotiators. We won't know for some time until Eddie drops Part 2 of his Tunnel Plan who got the best of the deal to be blunt. Kwame's advisors I think understood quite well Eddie's objectives in coming up with their number and capitalized on it.

I do not want to offend the Detroit Mayor nor do I want to jeopardize the deal for him but I have to look at the deal from the point of view of a taxpayer of Windsor I am afraid. I need to ask some questions from MY personal pocket-book perspective.

In any event, so far Eddie thinks it will work out but he has his built-in safety valves: Cliff Sutts who will say the deal makes no sense and Matty Moroun who will be accused of doing something to kill it.

The first and obvious question----how can we pay for the deal? Where is the US$75M coming from plus probably some money to buy out Alinda? I would not be surprised if there is some creative financing going on as was done in the financing of the University of Windsor restructuring.

It almost sounds like a buying a house with a conditional offer saying that it will only close if one can get financing. The "bank" appears to be Transport Canada or are their other sources:

• "The city has requested financial support from Transport Canada for the deal — given how the federal government also expressed strong fears about Moroun’s potential border crossing monopoly in Windsor.
  
  “We have invited federal and provincial governments to participate and hope they will see the benefit of preserving the tunnel as a public asset and give us the legal and financial assistance we require,” Francis said.
  
  Transport Canada is awaiting a formal proposal from the city on any funding support, said Mark Butler, spokesman for the federal ministry.
  
  “Certainly there may be an opportunity for the government of Canada to be involved in the actual transaction,” he said."

However, Gord Henderson claimed in his column:

• "Following that meeting, feelers were put out to the U.S. and Canadian governments about buying it. Ottawa and Washington weren't interested."

I wonder why Gord did not tell us about all of the other meetings that have been held subsequently amongst the Senior Levels and the City and why the City has put no formal proposal in front of Canada until this time. Is this called pressure negotiations ie to blame Harper if the deal falls apart too? Eddie ought to know that a deal of this size has to go to Cabinet for approval

If they were not interested then in "buying" the Tunnel, then why would Canada be interested in merely financing it? What's in it for them from a strategic perspective? Are we about to see Conservative-bashing now in the Star to bludgeon Stephen Harper into submission a la Sandra and Dwight?

Please, Eddie is not a financial genius. Give me a break Gord:

• "How the heck did little old Windsor snatch a blue-chip infrastructure investment opportunity out from under the money-sniffing noses of Canada's major pension fund managers?"

DUHHHH Windsor did not do it, that's how!

Seriously now, do you really think that Eddie is smarter than Matty Moroun who only was prepared to pay $20M for longer term deal? Was he smarter than Macquarie Bank who were involved with DCTC for years and would have the best idea of what the Tunnel was worth? Do you really think he was smarter than Borealis Capital who are desperate to salvage their DRTP investment in Windsor? How about Alinda who just bought the operating agreement from Macquarie...why would they move on without getting a nice premium? They need money to deal with Alabama boycotts right now.

Come on Gord, we do not need you to create another "urban myth" to enhance Eddie's CV for his future career. Tell us the rest as I speculated before--The Governments including the US Federal, MDOT and MTO along with all or part of the infrastructure companies are all part of the deal and Eddie is just along for the ride!

Or maybe this is a Federal Government deal so that Canada can own this border crossing in Windsor and then go after Matty Moroun's business next. (My goodness, if the Tunnel is worth this much, how much would the bridge be worth?) I can see Canada using Eddie to front the deal with Kwame. Since former Minister Anne McLellan harassed Kwame on the Bridge Co. deal and threatened him I thought with an anti-trust action, how could TC negotiate with him.

It's like the call centre story where Eddie was the hero on Day 1 until we learned who really was responsible for the deal, Sandra!

Please Gord, you cannot be serious about the Tunnel:

• "They'll be kicking themselves where the sun doesn't shine for not recognizing, as the City of Windsor did, a once-in-a-lifetime chance to purchase a safe and reliable revenue stream for the next century and beyond."

Haven't you read my BLOGs about the Tunnel finances and how traffic volumes are sinking like a stone---or did Eddie do that on purpose---and the Tunnel's volumes are down by about 50% since 1999. Interestingly, Gord's financial tale of the Tunnel finished in 2004! What about the financial picture in 2005 and 2006 and the start of 2007? Too ugly eh!

It's just like the other day with the Mayor talking about Tunnel revenues on Melanie Deveau's show. He talked about Tunnel net revenues of $4-5M last year when he full well knows that the Treasurer projected the net revenues this year to be in the $1 M range. I thought Detroit Council was in fact told as well in the Joint Councils meeting that the Tunnel's net revenues were $6.6M only months before a sharp drop was announced!

As for what the value of the tunnel is:

• in February 2005, Eddie said "We're sitting on a $200 million to $300 million asset." (I am not sure if he meant total, or just Windsor's side)
• in September, 2005 Detroit received "three offers with a baseline offer of $20 million"
• in October, 2005, the Bridge Co. offered $20 million for a Tunnel deal with Detroit
• in November, 2005, Representative Steve Tobocman, D-Detroit said "Factoring in inflation, Detroit's side of the tunnel is worth at least $62 million up front
• in October, 2006 the Alinda deal closed for who knows how much (but it seemed to be part of a package with toll bridges so we will never know its true number)
• in April, 2007, Windsor bids $75M

Frankly, who knows whose numbers make sense but Windsor's seem out of whack.

Seriously, the Tunnel cannot compete against the Bridge Co. today---the Tunnel's market share has dropped over the years. How could the Tunnel compete against both the Ambassador Bridge and a new DRIC bridge when there is not enough traffic for two crossings now. Geee Gord, haven't you heard, the Tunnel dividend is just about gone so net revenues are NOT going up now. [And if the money was borrowed by the City, how many more millions would have to be raised to cover the funds borrowed?]

And as far as renovations go....what about the fact that US Customs has called the Tunnel a unique security risk, how much has to be spent on Tunnel Plaza improvements and expropriating the only land owner left in the area now that Burger King may be going to the Top Hat site, where is the exhaust scrubber and where is the land for reverse customs on both sides of the river?

Oh I read the Globe and Mail story too about infrastructure. In fact, I sent the author a note. Here is part of what I wrote:

• "I read your article "Infrastructure: "A safe road to riches..." with some amusement.
  
  You might want to re-read your colleague, Elizabeth Church's articles about OMERS and ask her about the FSCO investigation into Borealis Capital which was responsible for their infrastructure investing. It is a shame as well that you neglected to mention the...write-down in OMERS...
  
  As for infrastructure investments, it was frankly hilarious that you pointed to "OMERS jointly owns the Detroit River Rail Tunnel with Canadian Pacific Railway..."
  
  Infrastructure investments are risky for pension plans... It may look good on paper, as DRTP did, but reality may not play out as they think. But then again, pension plans do not care, especially government ones. They merely ask their contributors to pay in more to cover their losses while playing entrepreneur....just check out the financial problems that Ontario municipalities faced when OMERS dramatically increased the contributions that cities and their employees had to pay to cover their losses a few years ago.
  
  Oh heck, it's only taxpayers money after all!"

Here are a few thoughts I might leave Gord to consider if he gets a chance to ask the City what due diligence it took before making the offer:

1. The City's former budget chairman, Councillor Brister, said to Gord Henderson a year ago that he cannot provide any details but there are major issues pending involving the Windsor-Detroit tunnel that will consume "a significant amount of taxpayer resources." All such "issues" have never yet been revealed publicly
2. We know that the Tunnel Ventilation Building had a cost over-run so far of $7 million but have never been given a full accounting of what work was done and what work may still have to be done
3. A recent magazine article calls the Tunnel "a unique security risk, which makes US Customs and Border Protection officials nervous." Ask the reason why. It should be so obvious
4. That article states that US Customs has said that the Tunnel doesn’t meet their requirements
5. The City's $30 million Tunnel Plaza Improvement proposal creates a giant parking lot to get cars off of City streets but does not move one single vehicle though the Tunnel any quicker.
6. Why would anyone use the Tunnel to cross the border when the Bridge Co.'s enhanced project will have a bridge up and booths in operation to speed people through Customs quickly, never mind if a DRIC bridge is built too. They could not even get Transit Windsor buses through the Tunnel properly for Wrestlemania!
7. The Windsor side's low pricing policy has been a total failure as the Mayor admitted when quoted in the Star "Francis countered there hasn't been a noticeable increase in traffic numbers despite the Windsor side of the tunnel providing the cheapest cross-border tolls at either the bridge or tunnel in recent years."
8. The Bridge has still been able to compete against the Tunnel requiring the Mayor to concede "our traffic has gone to the bridge and we have to do a better job of convincing people that the tunnel should be their crossing of choice."

Please I am not that dumb...the Mayor will pull a deal out of the hat and be a hero by doing something with the Windsor half of the Tunnel too as part of a total package, if anyone is that foolish to invest in it. That is Eddie's Part 2 now. It's been obvious for a very long time. And it is no wonder that my Municipal Freedom of Information application is now in appeal and has been stalled for months.

It's just like Eddie's buddy in Chicago who did this with his toll road. Of course, when do citizens get to debate whether that should be done or to ask if we got the best deal by the issuance of an RFP or Tender for the transaction. Or will it be rammed through like the arena deal or kept secret like Canderel and Spitfires leases.

In other words, when do citizens have a say about what happens to our asset and should we have the risks of a $75 M deal when Standard & Poor's is worrying about our reserves.

I am sure that you have noticed that I am ignoring what Councillors and the WTC Board may have to say since my information is that some of them had little idea what Eddie was going to do in any detail. They have to feel inadequate and unnecessary. They are there to be rubber-stampers only because they are not as clever as our Mayor and would not understand financial wheeling and dealing.

I don't object to smart financial moves that make the City money or reduce the financial burden on my pocket-book. I applauded what the University did.

I just object to being treated like an idiot and being sold a bill of goods that could turn out very poorly in the long run! Short-term expediencies and then moving on may make sense for the Mayor but perhaps not for us.