Ripping Canada's $550M DRIC/P3 Deal To Shreds
I have had enough. I am going to rip apart in this BLOG Canada's Transport Minister, the Michigan P3 Bill and the DRIC project by reviewing Minister Baird's Senate comments in great detail.
Let's take Transport Minister Baird's speech that was crafted by a group of Bureaucrats in Ottawa. They are part of the legacy of civil servants who have been working on the real project--- to take over the Ambassador Bridge---for a generation or two according to the Minister, especially hard in the last decade.
Let's demonstrate that it is so confusing that the Minister had no clue what he was saying OR there is another hidden gotcha in what he says that we have to try and figure out.
Let's demonstrate that the project is NOT financially viable, that it will likely go broke and that Michigan IS at risk.
Let's show that there is no legally enforceable deal now and that Terms and Conditions still have to be negotiated. And that it is all talk, talk, talk.
Let's then conclude that Canada is suckering Michigan, not putting up a cent and will get extra-ordinary and unheard of sovereignty over Michaigan assets even if no P3 for the DRIC Bridge is ever signed
I will give the Minister credit. He is at least admitting that the $550 million offer is a scam. It cannot be anything else.
Canada will never put up a penny. The money comes from the US Government or the P3 partner. It is to be used for project components only, nothing else.
And what are project components. Here is what the 3-page Summary handout said.
Canada does not care. It puts nothing up! The whole thing is financial make-believe and the DRIC-ites want us to fall for it. No wonder they don't want anyone asking questions.
Canada gets whatever it wants for Nothing, Nada, Zippo, Zilch. They get the "Canada provisions" for free.
Oh come on Minister. You called it a loan in Ottawa. You are caught on video. They were your words. Call it whatever you want it has to be paid back.
Future toll revenues. If that was true, then MDOT would have shown the financial data including costs.
Hey I just figured it out. There is no financial data. Your 2008 report is not an investment grade traffic survey either. There is probably no financial information that is relevant in that report.
In fact, you don't need it. That is because the DRIC project is never going to be built. It was never going to be built. The object of Canada's lust is the Ambassador Bridge as we know from the secret mandate letter of the Prime Minister. Accordingly, who needs financial numbers on a project that is never going to see the light of day!
I am fascinated by the concept of the Bridge Authority that someone just threw in. Clearly, somebody got a brain wave and figured out that the Authority could be a shield to protect Michigan taxpayers from liability. And it is true, it could be in certain cases.
So taxpayers would not have to spend any money to pay the tolls if there was a deficiency but they would lose the asset when the bankers took over, or the Canadian Government, because of the default. I wonder why no one has talked about this. Probably too embarrassing
Of course the reality is that no one would invest in the project in the first place. We found that out from the RFPOI proponents who mostly wanted availability payments because there is not enough money in toll revenues.
The most likely approach would be that Canada and/or Michigan would have to guarantee payments to the P3 partner. If there was a deficiency, then the payment would be made on the guarantee and not on the toll revenues.
Do you see how easy it is to get around what the Minister said!
In any event, there is no deal that is legally binding now anyway and once the P3 bill is passed, then MDOT, Canada and the private partner can do anything they want including the section 7(B) 14 “availability payments” to minimize losses.
Note again that Canada's payments are for components only. No money would be used for toll shortfalls.
This is a very interesting provision. It is interesting because it does not include the word “financing.”
I must admit I cannot figure out why it was dropped unless it is sheer sloppiness because it is added in later.
There may well be some kind of the financing trick that someone will try and pull down the road but right now, I am not sure what it is. Here is what should trouble everyone. “The specific nature of the transaction has not yet been determined.”
So what is Michigan being asked to do now? Pass the P3 Pill without knowing anything and with nothing legally binding in the two-page letter and the words of the Minister. Why not just sign over a blank check and make it easy.
This is not something that anyone would do with even the simplest of transactions and yet the Legislature is being asked to do this on a $5.3 billion project. Is someone mad?
Note again the word “financing” is not used.
I am so happy that the Minister gave us a lesson on “availability payments” since the MDOT Director was so positive that everyone would follow a toll revenues regime. It is just not going to happen.
Just so that everybody understands, the Minister told us that the payments have no relationship to what the tolls are whatsoever. Now the word “financing” is thrown in. Bizarre.
Why was it omitted before and inserted now? As I wrote above, either it is sheer sloppiness or a different kind of financing that somehow will be used to reduce toll payments but perhaps result in that big balloon or "blimp" payment at the end that our grndchildren will have to pay.
Responsibility is put on the Bridge Authority to make the fixed payments i.e. the availability payments. While it keeps the revenues, all of the traffic risks are on it.
Someone needs to explain how the Authority will find the cash to pay the P3 partner if there is a total revenue deficiency since it has no other significant source of revenue.
Aren't you pleased to know that the financial transaction is so well considered that the Minister does not know what the term of the agreement will be" 30 or 50 years. It will probably be a lot more as the P3 Bill allows.
Again the Minister keeps throwing in the Bridge Authority to make everyone feel better. In the normal case it might.
However with the control of the Government over the Authority, I wonder if the Court in certain cases would pierce the corporate veil.
In any event, forget the Bridge Authority. It would be in default within one year because tolls would be insufficient to pay the financing costs, never mind the operating costs and profits expected by the P3 partner.
Perhaps accurate but narrow. No one talks about the other billion dollars that has to be financed for the P3 bridge. No one talks about what happens once the US side defaults and the bankers take over.
No risks... how about these as just a few examples
- The big risk is what happens if the P3 project goes broke as in California or South Carolina. Michigan may have to take it over when they had no intention of doing so and could be in a big jam if it has NOT been completed. eg Port Mann bridge.
- The DRIC-ites claim that if there is a default then the bankers will take it over and complete the project or operate it. Yup, I sure would want a banker to run the most important border crossing in North America. Heck their interest in getting their money out may NOT be the same as the Governments or the users. What would ultimately be the biggest irony, as Toll Road News once wrote, is that Matty might buy the crossing from the banks at pennies on the dollar!
- Usually P3 operators want a monopoly and prevent the Government from building or improving competitive facilities. Now you know why Windsor tried so hard to buy the Detroit/Windsor Tunnel at such a high price or why Canada may want to P3 the Blue Water Bridge. There is a need to control pricing at all border points to protect DRIC's financial position.
- What if tolls were increased to levels that the public could not tolerate---MDOT might have to buy out the project at a premium.
- Re Section 7f, the reason the State has to do it is that the private operator cannot raise the money theses days eg Macquarie's Port Mann bridge in British Columbia or $200M for the service centres on Highway 401. Private investment was the reason for P3s in the first place...who needs them when the State can borrow at a lower cost and use the same contractors to build the road----that is exactly what happened in BC where the Government was forced to take over the project and actually saved a billion dollars!
- If the P3 contractor went broke and MDOT raised money under Sec 7f, then it would be a horrific mess---MDOT would have to pay back the money but may NOT be able to do so if revenues were less than the financing costs. It might not be able to afford to pay back the financing so that a third party takes control of a State asset.
- There was a provision to make the separate P3s into a private entities. We have that experience in Windsor where our airport and the Tunnel were "privatized" into City-owned private companies. Our Mayor kicked out reporters and the public from meetings that were previously open to the public but now were not since it was a "corporate" matter. That means there is NO legislative control at all just like with the Peace Bridge Authority in Buffalo. Check out as well the stories about public authorities and corruption http://windsorcityon.blogspot.com/2006/06/more-on-public-authorities.html
- "Contract default by government could result in substantial cash payment to concessionaire and stress to government rating
A default by the government on the terms of the concession, on the other hand, could result in a substantial termination payment equal to the fair market value of the concession at the time of the termination. In the case of the Chicago and Indiana concessions, events of default by the government include a failure to abide by the terms of the concession, payments due from an encumbrance on the toll road created or incurred by the government, or an inability of the government to pay its debt or a filing for bankruptcy protection—a remote risk in Moody’s opinion. Termination payments could necessitate a use of reserves, a bond sale or both; and these actions could have a negative impact on a government’s credit rating."
This may turn into an accounting mess as well if the components are all dealt with by different P3 partners separately. How will costs and toll revenues be allocated? That should take a roomful of accountants to figure out.
Do not feel too sorry for Canada that comes at the end of the chain for getting revenues for its $550 million offer. Canada isn't putting up a penny anyway.
Note again the word "financing" is thrown in.
Excess revenues... my calculation shows about $12 billion owing at the end of 50 years on the $550 million transaction due to all the shortfalls being capitalized.
"Belief"...how about facts. Be careful here Minister. You don't want your nose to grow. If you "believe" that the project would be financially viable, where the numbers? Produce them or admit that this is make-believe finance.
If those figures are available, then why weren't they included as part of the WSA report. The only inference that can be drawn, since everybody has been asking for them for months, is that either they don't exist or they are so bad that no one would ever put them forward because the project would die.
Please Minister, you offered nothing but pretended to offer something. You said it yourself. The money was offered to help influence the House members to pass the P3 Bill. And you said that it helped achieve that task.
It's a shame for you that the Governor could not do her job and have the Bill passed in the House without the offer. We all suspect now that the offer was meant to be put later for the Senators, to put pressure on them. How disappointing it was to see you in front of the Senate Committee with nothing to give to them to help influence their vote either.
Here is the reality about what this is all about. Baird's job was to make it happen. That was his mandate from the PM as he told us:
CANADA NEEDS THE P3 BILL PASSED SO THAT IT CAN PRESSURE MOROUN TO TRY TO TAKE OVER HIS BRIDGE CHEAPLY.
If you want further proof that there is no deal. Here it is. There are so many key matters that still have to be negotiated.
In all good conscience, how could anyone approve a P3 Bill and a multibillion-dollar DRIC project on this basis? How could anyone give over sovereignty to a foreign jurisdiction and control over their most important border crossing and not even receive one cent in return.
At least with Manhattan, $24 was paid.