US DRIC Math
If it is not enough that the US DRIC people have not yet done an investigation as to whether a new DRIC bridge will bankrupt the other crossings such that the Government will be forced to subsidize them, their economic model seems to me to be fatally flawed with respect to a DRIC bridge.
How can any of the Governments legitimately go to private investors and ask them to be involved in a P3 project with respect to the bridge when it cannot possibly make money if one listens to what the US DRIC people say. The bridge would be bankrupt from day one.
As I stated in a previous BLOG, at the Cropsey Senate hearings, the US DRIC people said that the new bridge would capture future growth and not take away business from the existing crossings. They must have been an error and got carried away when they were questioned on this issue. Alternatively, they did not read the US Draft Environmental Impact Statement where this was all laid out.
I know how busy their time must be so to save them effort let me set out some of the sections of the report the deal with the subject:
- Providing a new border crossing would cause travel shifts over a wide area. For example, a new Detroit-Windsor crossing could attract travelers from the Blue Water Bridge at Port Huron, Michigan. At the same time, the proposed border crossing would reduce traffic on the Ambassador Bridge and in the Detroit-Windsor Tunnel.
- Table 3-11B provides further definition of how traffic on the DRIC alternatives is drawn
from other border crossings in the Port Huron/Sarnia and Detroit River areas in the
2035 PM peak hour. It illustrates the following:
• A seven percent decline in overall auto traffic on the Blue Water Bridge and a 16 to 18 percent decline in overall truck traffic with the introduction of a proposed DRIC crossing in the 2035 PM peak hour. The decline is expected to be greater in the peak U.S.-to-Canada direction than the Canada-to-U.S. direction.
• The Detroit-Windsor Tunnel would register a 20 to 26 percent decline in total traffic, with the most significant reduction expected to occur in auto traffic in the U.S.-to-Canada peak direction.
• With Alternative Set #1/2/3/14/16 and Alternative #5, the Ambassador Bridge
would realize a 37 to 39 percent reduction in car traffic. Also, with Alternative Set #1/2/3/14/16 and Alternative #5, the Ambassador Bridge is expected to realize a reduction of 75 percent of its truck traffic
- The traffic volume assignments for the Ambassador Bridge and proposed DRIC crossings are highly sensitive to travel time differences. A proposed DRIC crossing could carry as much as 80 percent of the truck traffic handled by the two bridges and about 60 percent of all traffic, depending on the alternative
- For the U.S.-to-Canada Direction
– From I-75 Northbound: All DRIC alternatives would serve the majority of the car, truck and, therefore, total traffic
• For the Canada-to-U.S. Direction
– To I-75 Southbound: All DRIC alternatives would serve the predominant amount of the traffic
- Travel demand modeling shows a new bridge would cause travel shifts over a broad area, including drawing traffic from the Blue Water Bridge at Port Huron/Sarnia. Its greatest effect would be on Ambassador Bridge traffic. Considering the Ambassador Bridge together with a new bridge, a proposed DRIC crossing could carry as much as 80 percent of the truck traffic and 60 percent of all traffic in the 2035 afternoon peak hour.
Please understand that the DRIC people have a major problem. I did not see anything in this material that said that the numbers were "future growth" but rather was dealing with "total" traffic. Moreover at the Senate hearings in Canada the following was said by Transport Canada:
- "Ms. Marcoux: The intent of this bill [Bill C-3] is not to put anyone out of business, regardless of who owns the bridge. The intent of this bill is to ensure that the government fulfills its constitutional obligation and that it has the tools to do so.The Ambassador Bridge is very important to the economy of our country, and it is important for trade between the United States and Canada. No one has any intention to hurt the Ambassador Bridge."
Someone needs to explain how taking away "80 percent of the truck traffic and 60 percent of all traffic" from the Ambassador Bridge would not hurt them. Obviously, if one talked only about "future traffic" that could be one explanation.
So let's do some simple math dealing with "future growth." Let us assume that truck traffic continues to grow at the Ambassador Bridge even though the reality is that it is declining. Let us assume that in the year 2013, when a new DRIC bridge is built, the total truck traffic 4 million trucks. Let us also assume that truck traffic increases 3% a year. That means that the new growth would be 120,000 trucks by the end of 2014, the first year of operation of the DRIC bridge.
Taking away 80% of that business means that the volume on the DRIC bridge is at 96,000 trucks. Let us assume that the average toll at that time is $25 per truck. The total revenue for the DRIC bridge is $2,400,000. Let's double that to take into account car traffic for the sake of argument. And let's round it up to $5 million.
I have no idea what it cost to operate a bridge, even a new one, but I would assume that it would take a good chunk out of that $5 million.
If there is a P3 operator involved, that company would expect to make a profit on that investment. This seems to me to be an obvious difficulty when that company has invested about $1 billion into building the bridge by the time everything is finished. Assuming a 75 year term at an interest rate of 5% a year, the cost of the billion-dollar investment would be over $50 million a year.
Now I don't know about you but I don't understand how the cost of the DRIC Bridge could be covered by revenue of slightly over $5 million less operating expenses, never mind making a profit.
Anyway that you look at it then, the DRIC bridge is a financial disaster. If one looks at "future growth," the new DRIC bridge would be bankrupt from day one. If we are dealing with "total traffic," then the other crossings are in financial jeopardy and one could see very quickly that the Ambassador Bridge could be bankrupted. (Oh my, another reason why the Owner of the Ambassador Bridge might want to sell out right away and at a cheap price.)
I'm sure that you understand now why issues such as security, bridge redundancy and now plaza redundancy have become major concerns with DRIC. They are all non-financial and one therefore does not need to look at the economics in order to justify spending all of this money on a new bridge. That is the US DRIC "business case."
Do you see now what I mean about Eddie Francis. Our Mayor talks about a "business case" for the Tunnel but never tells us what that means. He talks about protecting 5,000 commuters instead. We have never seen the math about how borrowing $75 million makes sense when one cannot figure out how the loan will be paid back when traffic is declining and the dividend on the Canadian side of the least is zero dollars.
Clearly, DRIC has learned how to create a "business case" based now it seems on plaza redundancy in the hope that everyone else is stupid enough to fall for it!