Highway 1 partners blow deal deadline
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.”
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.