Fisking MDOT
- "Infrastructure funds struggle to attract investors
AMSTERDAM - Global infrastructure fundraising dropped by more than half in 2009 from the year before as investors moved to more liquid assets, according to data sent to Reuters by placement agent Probitas Partners.
Just $US10.7 billion ($11.85 billion) was raised by infrastructure funds in 2009, 57 per cent less than the $US24.7 billion raised in 2008, according to figures compiled by Probitas.
The contrast is even greater when compared to the $US34.3 billion raised in 2007.
There are currently 119 funds on the road worldwide seeking an aggregate $US115 billion according to market research and consultancy firm Prequin, making this a very competitive environment for fundraising.
Infrastructure assets such as roads, airports and power grids are notoriously illiquid, making them less appealing to investors during a liquidity crunch.
This is exacerbated by the scarcity of debt to support projects, Probitas said.
"Investors began to come back to the market in the fourth quarter, with fundraising topping $US10 billion for the full year after only hitting $US6 billion over the first nine months," partner at Probitas Kelly DePonte said.
"The likelihood is that fundraising will increase in 2010, though it is unlikely it will surge dramatically as a number of investors still have liquidity concerns."
OMG, this project alone could take almost all of the money raised in 2009 by the time the real numbers for construction are factored in!
This comment made by Transport Canada's Mark Butler proved to be correct as I shall explain:
- "Butler said the Canadian government would prefer that the new cable-stayed or suspension bridge be undertaken on the basis of a public-private partnership. But he said this approach is not yet set in stone.
“One of the reasons is that the U.S. side of the bridge would be owned by the state of Michigan. But the state does not have P3 legislation in effect. Until that legislation is passed, Michigan would not be able to enter into a P3 agreement.”
This line seems inaccurate if you accept what I believe that MDOT has done with its co-partner, Canada
- “Essentially, once a decision has been made and Michigan has the legislative authority to go ahead with a P3, we could then be able to go out to the marketplace and issue requests for qualifications,”
MDOT could not wait never mind what the Legislature said and issued in partnership with Canada a "Request for Proposal of Interest for the development of the Detroit River International Crossing Project under one or more Public-Private Partnerships"
Let's take a look at the relevant part of the Press Release MDOT issued and fisk it so that we can understand what is going on:
- FOR IMMEDIATE RELEASE WEDNESDAY, JANUARY 27, 2010
MDOT issues Request for Proposal of Interest in Detroit-Windsor border crossing system [Strange, no mention of Transport Canada]
January 27, 2010 -- The Michigan Department of Transportation (MDOT) is asking individual firms and teams to respond to a Request for Proposal of Interest in partnering on the Detroit River International Crossing (DRIC) project. [Again, no mention of Transport Canada. Oh I forgot, MDOT has to pretend that it is complying with its Budget provision imposed by the Legislature]
The Request for Proposal of Interest follows a series of informal interviews that MDOT and Transport Canada, in cooperation with the Federal Highway Administration (FHWA) and the Ontario Ministry of Transportation, conducted with major developers, contractors and lenders who had previously been involved in similar large privately-financed transportation infrastructure projects. [Oh my, who are these selected so-called major organizations. Clearly, Macquarie has to be one. I wonder if the MDOT people met with them on their junket to Australia. Didn't a Macquarie rep testify in Lansing? Did Macquarie tell them why they could not raise money for the Port Mann bridge? How about OMERS since they are involved with DRTP and the rail tunnel. Perhaps Alinda was contacted since they have an interest in the Detroit/Windsor Tunnel.
Has the process been prejudiced by the appearance of favouritism already?]
This step involves a solicitation of market interest in the project that would provide the Michigan Legislature and the Canadian government with more information to formulate governmental policy and develop a procurement and transaction schedule. [Oh please, they have been working on structure and governance for years]
The deadline for individual firms or teams to submit responses to the Request for Proposal of Interest is March 17. [In the end, Matty Moroun will be able to use this document as part of his case to stop MDOT. The 17th---luck of the Irish for him. I think he went to school at Notre Dame]
Responses will be used by MDOT in a required report to the Michigan Legislature that MDOT will submit by May 1. State Transportation Director Kirk T. Steudle says the stage is being set to form a public-private partnership that will move the DRIC project forward. [Is MDOT doing indirectly what it cannot do directly? I think the Director is rather presumptuous since there is no P3 legislation and no guarantee of it]
"At this point, we are considering a model that would incorporate some participation by the private sector in financing, design, construction, engineering and maintenance," Steudle said. "Although we have not yet finalized what that model will eventually look like, we know there are a number of teams out there eagerly anticipating the start of work on this historic project that will create jobs and keep international trade flowing across the border as efficiently as possible." [And who would those parties be? And only "some" private participation when governments on both sides of the border have fiscal problems. It will have to be virtually ALL Government money considering the article above re lack of private interest and dificulty in obtaining money. Just think of the failed Port Mann Bridge project where Macquarie could not raise the required funds.]
According to MDOT, preliminary feedback indicates there is extensive interest and experience in the market for projects of this type and that, aside from some geotechnical engineering issues, there are no substantial construction complexities involved. [Oh, like the bridge collapsing because of salt mines. And these days who has money for a project that competes with the Bridge Company when there are other projects that have no such problems]
Given the anticipated tolled nature of the border crossing, MDOT says there are several public-private partnership models ranging from real tolls to availability payments that could be applied to the DRIC under current market conditions. [Oh, oh. Michigan taxpayers may have to subsidize the tolls using availabilty payments or shadow tolls since the project cannot pay for itself with Bridge Company competition. So much for the MDOT budget for existing roads and bridges. All this time MDOT had been telling us that tolls would pay for this project. Was that misinformation?]
One other interesting point which makes all of this ludicrous. From the RFPOI:
Of course those costs are phony since they are mere estimates and nothing will happen on the bridge for years. But let us accept them as accurate.
If we look just at toll revenues, the amount needed is $1.43B. If we add in "other revenue" which is not defined, then the total to be financed jumps to $2.261B.
Figure out the cost of financing this alone at 5% for only 50% of the traffic considering that he Bridge Company will be competing with much lower tolls. (never mind that P3 companies want a 13-20% rate of return on toll road type operations). Forget about adding in maintenance, operations costs and profits.
If the Bridge Company is estimated by Forbes to make $60M per year on their operations, and traffic volumes are down now, how will the DRIC Bridge be paid for if the new revenue is $30M and finance costs are more than double that and possibly up to quadruple that?
Is the hatred of Moroun that much or rather of any private person who owns the Bridge? Will Canada spend anything, even if it hurts Michigan and the US who will have to subsidize the project to gain control of this and the other Central North American crossings?
Are the Americans that dumb not to see what is going on?
posted by JoeBlog at 12:05 a.m.
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