Thoughts and Opinions On Today's Important Issues

Thursday, May 28, 2009

Flying Bull





video


I hope that Detroit's Mayor Bing chooses never to deal with us on the Tunnel deal even though the Tunnel deal is still in his new budget! It looks as if he is not going to do so.

This BLOG was written a while back but I have not posted it until now waiting to see what Detroit's new Mayor wants to do.

However, the Tunnel file still bugs me and our Mayor's refusal to provide information is an insult to the electorate. If he will not give timely information to Councillors, what hope do mere citizens have? Because of that, I have to spend time preparing a brief for the Privacy Commission for my Appeal to get information from Infrastructure Ontario.

Check out the video and try and understand what our Mayor is saying re values. I am not sure that I understand what he is saying in this video. He had an appraisal done after all. The issue re annual revenues is important since after 2020, the City would get the money. I am shocked he did not have that number at his fingertips.

Here is another instance of the irony of life. On the same day that the ex-Mayor of Detroit left jail, the Star reported that it looks like the City of Detroit has no interest in dealing with Windsor on whatever it is the transaction was going to be with respect to the Tunnel revenues.

It looks as if Detroit wants to lump together the various revenue streams including the Tunnel into one package and to offer it to one private enterprise operator for $250 million. Presumably, although I do not know, that is not something that Eddie wants to do. Who knows though… with all of the infrastructure money pouring into Windsor, he might consider that we ought to invest in a P3 enterprise rather than fix roads and sewers.

I just do not understand why the Mayor cannot be happy and thank his lucky stars that he was able to get out of this deal, one that I have never yet understood. Take the bows for Red Bull and forget about this exercise in entrepreneurship with taxpayer money.

The Province may well be putting up the millions in sponsorship money for the Red Bull race as a back-stop anyway. Who says that Ontario is a have-not Province? Who says that there is an economic crisis in this Province? We have millions of dollars for frivolities.

It seems to me that it makes a mockery of the so-called feud between the City and the Province over Greenlink/DRIC Road. As my Federal Government friends may now be forced to concede, the feud was nothing more than an attempt to get more money out of the Federal Government. How else to explain our Mayor’s new love affair with the Federal Government?

What a hissy fit our Mayor threw when the price of the Tunnel deal increased by $25M to $100M. He probably finally figured out that he was used by Detroit to increase the price as I suggested before. I am certain that he has a good idea who the private party might be who is interested in Detroit’s assets and it really bothers him since he would have to work with them as the Chair of the Tunnel Commission.

No, it is not the Bridge Company I would bet. It would be fun if it was since I would love to watch him working with Dan Stamper. However, I cannot believe that the Bridge Company would be that foolish to sink in $100 million into a declining asset, about five times what they offered before.

Cliff Sutts made the comment:
  • “I don't know what monetizing the tunnel means," he said in a telephone interview. "I have no idea how they intend to monetize the U.S. portion of the tunnel."

Our Mayor knew it meant however. Just listen to the video.

To be fair to Mr. Sutts, I do expect that the quote was taken out of context. He probably means that he did not understand the terms of the transaction just from the brief mention in the news media.

What an arrogant person our Mayor is. He knows it all. He is smarter than everyone:

  • “Mayor Eddie Francis questioned how Detroit arrived at a $100-million price tag for control of the U.S. side of the tunnel.

    Windsor has gone through an "exhaustive process" to arrive last year at a $75-million value, he said.”

Gee, perhaps Detroit went through a similar process and got a different number. I know that this is not possible at all because no one is more brilliant than our Mayor in business transactions as we can tell from a number that he is responsible for in our City.

Perhaps now the Mayor can release the appraisal report on the Tunnel to show us his brilliance. He has refused to do so to date. Mind you, the appraisal is not worth very much because as the Mayor told us in the video:

  • “an asset is worth whatever a willing buyer is prepared to buy, to pay for. That’s the worth to whoever the buyer is. That is the worth to whoever the seller is”

We know that the Bridge Company offered significantly less than Eddie and Alinda offered less as well. I suspect that the Federal Government didn’t put up their cash because they did not think that the value of the Tunnel was as high as Eddie stated and I am reasonably certain from the wording of the letter that Infrastructure Ontario sent to Windsor thay it was not going to put out $75 million. Do you think that is the reason why the Mayor has not produced that letter?

Clearly our Mayor is smarter than all of these people and he should prove to us why he is so much more intelligent as a business person.

I am well aware of how P3 investors price out a number of these transactions. What the Mayor did not understand however is that successful P3 operators are monopolists. In this case, the Tunnel would be facing competition from the Bridge Company and the new DRIC bridge which claimed that it would take away 25% of his business. He would not be able to price the tolls as if he was a P3 Monopolist. I would be very interested to find out whether the economics of his proposal would lead to severe financial problems.

Here are some troubling concerns as well about the deal.

 The Mayor did not know if the Tunnel was worth $100 million without looking at Detroit’s numbers. He must have had Detroit’s numbers if he was going to do the deal for $75 million. Those numbers would not have changed, only the cost to buy the Tunnel revenues would have increased by $25 million. It should have been easy enough for him to do the calculations. Was he telling us something however that is very serious. Surely after spending almost $2 million of taxpayer money on this transaction the Mayor is not telling us that he has not yet done the due diligence on Detroit’s numbers at all.
 He made a big point about talking about the only amount that Detroit would get until 2020 was the amount of $800,000 under the existing lease with Alinda. That obviously was part of the transaction under Eddie’s deal. That revenue would only be a tiny fraction of what would have had to have been paid to Infrastructure Ontario until 2020 as repayment of principal plus interest. That meant that interest would have to be capitalized and added onto the principal amount. Accordingly in 2020, a huge amount of would have to be added on to the debt owing to Infrastructure Ontario, making it well over $75 million that had to be repaid. At that time, the tolls would have to be gigantic to repay that debt, especially because the time remaining on the transaction would not be the full 40 years but 32 years.
 When asked about the annual revenues, the point that he made was that the revenues are paid to a private company. The reporter suggested $4-$6 million but our Mayor said that he would have to get them for the reporter. Please oh please tell me that this was the amnesia disease that affected our Mayor just during the scrum. Surely, he must have done his due diligence and knew exactly how much Detroit was getting for revenues even if some of it had to be paid to a private company. If not, how would he know what the transaction made sense or not.
 Finally, some sense of economic reality has hit home in this transaction:

“"That was the number we were prepared to pay back then, but economic conditions have changed considerably and are very different than five or six months ago."

It is a shame that the Mayor did not say that traffic volumes were down at the Tunnel. If he had, then I could have said:

“SEAN O’DELL IS WRONG. SEAN O’DELL IS WRONG.”

I note that the Mayor did not talk about the 25% reduction that the Tunnel may face if there was a new DRIC bridge. If he did, then it might well mean that it made no sense to enter into this transaction in the first place.

Do you see the inherent conflict of interest that the Mayor is in? As Chair of the Tunnel Commission, he ought to be opposed to the DRIC bridge because it will take away a good chunk of his business. However as Mayor, he has said that he is in favor of it because the Plaza will be located at Brighton Beach which the Federal Government will have to purchase from the City.

Logically, this file ought not to be pursued any further with more legal fees incurred. It ought to be closed. But when has logic prevailed in this City, especially if our Mayor wants to do a deal. At the least, we can be assured that the deal will not go above $75 million because of what the Mayor said and it must go significantly below. How that fits in with Detroit's needs, I have no idea.

Can it be said that Eddie's hissy fit is designed to scare away other investors by making it appear as if $100 million is an excessive amount for the Tunnel? Why not? If no one makes a bid, does that mean that the City of Detroit will have to come crawling back to Eddie to do a deal so that he can buy the Tunnel revenues for significantly less money?

Who will finance it then? Since he is now on such goods terms with the Province, I am sure that whoever found him the money for Red Bull will be able to convince Infrastructure Ontario to open up their pocketbooks to do the deal.

One thing I know for certain. There is a lot of Red Bull flying around the City right now.