Stephen Rees's blog

Thoughts about the relationships between transport and the urban area it serves

Highway 1 partners blow deal deadline

with 8 comments

The story I mentioned in this morning’s post gets more interesting. Jeff Nagel in the Surrey Leader now has  more information and Kevin Falcon has issued a statement.  Interestingly that has not yet hit the Ministry’s web page

Transportation minister Kevin Falcon, in a statement issued Wednesday, said the province has agreed to Macquarie’s request for a one-month extension to complete the loan.

“This is in response to the current challenges facing capital markets,” Falcon said.

“Macquarie advised government that they remain confident that they will be successful in completing lending syndication. The Province of B.C. will wait and see the results of the proponents’ effort, but regardless remain committed to the Port Mann project utilizing alternative means of financing should that be necessary.”

Falcon wasn’t available for an interview and ministry staff say he’s not speculating on whether the province might borrow money directly and terminate the financing component of the project.

The concept was for the partners to finance, design, build and then maintain the twinned bridge and widened 37-kilometre highway corridor.

It would be repaid and make a profit from tolls charged to cross the bridge over the next 35 years.

There are also indications the cost of the project has ballooned again – from $1.7 billion to as much as $2.3 billion.

That’s the amount of financing sought by the partners, according to British industry journal Project Finance, which reported the failure to finalize.

Now that hike in price is also worth noticing – because one of the things that is supposed to happen when the construction industry cools off and oil prices fall is that projects like this were supposed to cost less, not more. Certainly any property that might be needed would have dropped in price recently. Since blacktop (asphalt) is an oil based product and cement takes lots of energy to make that makes those two components sheaper too. One can only assume that either the project has “crept” – an oft seen phenomenon that P3s were supposed to put a stop too – or the original estimates were lowballed. $600 million is not pocket change either – and a 35% hike in costs is going to need to be explained.

Of course one thing you know won’t happen is that they will go back to the Cost Benefit Analysis to see if it is still worth doing.

“Utilizing alternative means of financing” needs parsing too. Is that a hint that the P3 itself might be canned and the Province will revert to a more conventional contract? And the timing is going to be really awkward, because if the current deal does collapse, it will take a while to sort out a new one – and that will fall right into the election period. So the whole issue could become a real political issue again.

And to think that only a couple of days ago two journalists (on spearate occassions) were telling me that the on going Gateway saga was of doubtful news value.

And Jeff is continuing to update the story and noew (5:30) has a good quote from my good freind Eric Doherty

Doherty says the reported loan cost of $2.3 billion also raises big questions, noting the project was originally was based on a $1.3-billion price tag.

“It seemed at that time like it was a stretch for the tolls to cover a $1.3-billion project,” he said. “Now you’re looking at a $2.3-billion project and you’re looking at lower expected traffic volumes in the first few years because of the economic downturn.

“You add those two things up and there’s no way they could possibly pay for this whole project with tolls.”

UPDATE

The Sun has the story this morning (January 15). The only additonal infromation that adds to what is above is about Macquarie’s troubles

Macquarie, which operates more than 30 roads worldwide, has been hit hard by the financial meltdown.

The value of the company’s toll-road portfolio fell by a third in the last four months of 2008. In a statement issued by Macquarie, it blamed “the recessionary environment” and “higher assumed financing costs.”

And the NDP’s finance critic Bruce Ralston questioning the need for a P3. But not, note, the need for the bridge and highway expansion.

Written by Stephen Rees

January 14, 2009 at 4:49 pm

Posted in Gateway

8 Responses

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  1. Just a little simple math —If 50.000 thousand cars a day went over the bridge and were charged a toll of 10.00 … 10.00 $ X 50.000 cars = 500.000.00 per day X 365 days = about 180 million a year

    10 years X 180 million = 1.8 billion

    so it will take about 13 years to get the money back,now of course there are interest charges and people wanting big profits,so realisticly it would take 20 years to break even.

    Makes you wonder Mr. Rees—That photo-op with Harper and Campbell the other day announcing 300 plus million for the south fraser perimeter road(SFPR) –Without the port mann twinning isn`t the SFPR a “Road to Nowhere”

    Grant G

    January 14, 2009 at 6:44 pm

  2. “Of course one thing you know won’t happen is that they will go back to the Cost Benefit Analysis to see if it is still worth doing.”

    Did they do a proper Cost Benefit Analysis in the first place?😉

    Sungsu

    January 14, 2009 at 6:51 pm

  3. Not quite. Not only are there interest charges and profits to consider – there is also the not inconsiderable costs of actually collecting the tolls. Probably they would use the same infrastructure already in place (by the time PM2 opens) for the Golden Ears. But even so all the hardware – and the people to administer the system – does not come cheap. 20 years to break even seems a bit optimistic to me. And where did the 50k/day come from?

    SFPR does not really rely on PM2H1 – it is supposed to be about all those trucks leaving Deltaport and heading up to the CN Thornton Yard – except of course, there is a railway that connects the two already. What the SFPR really does is allow for the change of use of a lot of land to an industrial designation. That does not change if PM2H1 pancakes, but it is still very dubious in today’s market.

    Stephen Rees

    January 14, 2009 at 6:58 pm

  4. The river connects the two as well and some stuff could go by barge, for cost effectiveness. The thing is if they want to open up for development, industrial along the riverfront, waterfront is the most ridiculous, least sustainable kind. There are all kinds of recreational opportunities, eco-tourism, even sustainable travel – biking, hiking trails, and it could all easily be accessed by improving transit. These things would give them all kinds of “green” jobs with more bang for the buck. Bridgeview in North Surrey would be perfect for a Steveston or Granville Island type development, complementing Westminster Quay across the river. Construction jobs and then ongoing commercial employment, with money coming into Surrey, the Lower mainland and BC and staying, instead of just rolling on through, down that Trucking Freeway.
    Thing is Bridgeview needs infrastructure investment, for sanitary sewer and storm drainage, about $30,000,000 + , according to a recent City of Surrey Corporate report. Cheap at half the price, but no money for that, just billions for Freeways no one wants or needs to bring in poorly made and even harmful stuff that will end up in our overflowing landfills in a few months. It is a vicious cycle and instead of taking steps to stop it our current political leaders are just perpetuating the problem. Well as Stephen says that may change.

    Bernadette Keenan

    January 14, 2009 at 9:50 pm

  5. Is there a reason they didn’t just toll the present Port Mann? There is a Skytrain line there that apparently isn’t at capacity (at least I assume it’s not because they don’t run a lot of Mark II trains) so why not encourage transit use by tolling the bridge?

    Isn’t that its whole raison d’etre anyways? Why build a whole new bridge before you’ve even tolled the first one?

    If there’s a good reason, I’d love to hear it.

    Steve

    January 14, 2009 at 11:00 pm

  6. sorry, that should say “a lot of 4 car Mark II trains”

    Steve

    January 14, 2009 at 11:01 pm

  7. The theory is that only expanded or new bridges would be tolled – so it’s not viewed as a “cash grab”.

    That’s why the Lions Gate wasn’t tolled despite the multi-million dollar renovation a few years back – http://www.b-t.com/projects/liongate.htm – because there was no increae in capacity. North Shore residents balked at the prospect of a toll, and Vancouver balked at the prospect of additional traffic entering the city – so proposals to double deck the Lions Gate, twin it or replace it with a 5 or 6 lane span were shelved.

    Ron C.

    January 15, 2009 at 12:57 am

  8. Government policy is that tolls can only be applied to new bridges and roads not existing capacity. This, of course, prevents any kind of effective regional road pricing stragtegy.

    The reason there are not a lot of 4 car Mark II SkyTrains is that they do not have a lot of them. Capacity across the SkyBridge to and from Surrey halved the day the Millennium Line opened.

    The present government has no policy to encourage transit use. It is much more interested in expanding road capacity.The current “transit plan” is a hastily cobbled together assemblage of old projects that should have been built long ago – like the Evergreen Line and bus priority lanes on King George Highway. If the government had wanted to expand transit ridership there has been plenty of time and opportunity to do that during their mandate. The only major investment has been the Canada line which is a political, not a transportation, priority and which does very little to increase ridership system wide. It merely transfers existing users from buses to trains.

    Stephen Rees

    January 15, 2009 at 7:59 am


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