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'&di

Schroders

PUBLIC EQUITY, PRIVATE DEBT

THE EFFICIENT FINANCING OF ROADS

PRESENTATION TO AUSTRALIAN AUTOMOBILE ASSOCIATION LAND TRANSPORT INFRASTRUCTURE SYMPOSIUM


CANBERR A,22 MARCH 1994

,ffit'Schroders

ABSTRACT
1.

The risks facing lenders and investors in the toll road industry are quite unlike the risks facing lenders and investors in other industries. The involvement of government in roads - even privately owned roads - is much greater than in other utilities. The most efficient form of private sector involvement in roads is different from that in other utilities.

z.

The spectrum of possible private sector involvement in roads may be considered in three zones: public ownership with public debt finance, public ownership with private debt finance, and private ownership with private debt finance. Public ownership with private debt finance achieves private sector efficiencies with the lowest long term cost of finance and without problems of monopolisation.
The conventional view is that private tolling concessions will run their term and that the roads will revert to govemment. This view is comrnercially naive. Having established a private taxing monopoly, govemment cannot gain access to the tax flow without either waiting for the concession to expire or negotiating (without the possibility of tender) with the incumbent monopolist. Incumbents use such renegotiations to progressively extend tolling concessions creating permanent private monopolies.

4.

One such untendered renegotiation has already occurred in Australia.

5.

At present Loan Council rules discourage the cornbination of public ownership and private debt, thereby forcing State governments to establish private tolling monopolies. If Loan Council rules are not changed, it may be possible to work around them by using motoring clubs as private sector owners of convenience.

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INTRODUCTION
1.

It is an undeniable fact of life that the process of government is often


conducted through buzzwords and catchy slogans. In the mid-1940s we were told that government had to capture the "high ground of economic activity" in order to create a socialist utopia. Forty years later we were told that this was all a terrible mistake and that all government activities had to be sold in order to secure "private sector efficiencies". For those of us who have no particular financial interest in the outcome of these affairs, the challenge is to steer between these exffeme views and diligently seek the policy which will best deliver services to the public at least cost to them and to the taxpayer. This involves not just promoting private sector efficiencies, but capturing those efficiencies for the benefit of the public. Nowhere is this challenge gleator than in the provision of road infrasffucture.

2.

J.

PECULIARITIES OF ROADS
4.

Roads are extraordinary candidates for privatisation. Consider the following: any particular toll road is almost always competing with free roads. This is particularly so in the urban road network. Yet consider how Amotts would behave if it were govemment policy to have a free biscuit maker. Consider how BHP would behave if it were government policy to have a free steel or oil producer;

whether roads are public or private, the government still has detailed involvement in their planning, including control over the timing of their consffuction, the route which they must take, and the standard to which they are built;
once the road is built there is little a private owner can do to increase its traffic. Traffic volumes depend largely on development of access roads and altemative free roads;

motorists drive their own cars, so (unlike, say, private railways) there is

little a private owner can do to improve the quality of service on board


the vehicle;

are charged, they are usually set in advance with an indexation formula so there is little scope for improving ailocative efficiency by changing prices to match demand. (Indeed, any toll road which is operating at less than capacity is a living example of allocative inefficiency. The scarce resources which were sunk into building it are not being used to full benefit); and

if tolls

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in developed counffies, roads are never funded privately without government subsidy -: grants, subordinated "loans", tolling monopolies on existing roads, traffrc underwriting agreements, or gmnts of public
land.

SPECTRUM OF PRIVATE SECTOR INVOLVEMENT

5.

What then does the private sector have to offer in the area of road provision? To answer this we consider the spectrum of private sector involvement. This is shown below, roughly in order of increasing risk transfer to the private sector. Three zones are shown. The first involves only project delivery, the second project delivery and financing, and the third private ownership.
Cost-plus construction contract

Irast private

sector

risk and profit


Fixed-price consffuction contract

Fixed-price, lump sum construction contract

Build, frnance, ffansfer

Build, finance, and transfer to independent


agency S.evenue bonds)

BUILD, TRANSFER, OPERATE

Build, own, operate (transfer)

Most private sector risk and profit

6.

Under the traditional cost-plus contract, the contractor works at unit rates. Provided that such a contract is well project managed, it may be quite cost effective. However, there is clearly no incentive on the contractor to innovate and reduce costs. If the contract is not well managed, costs can blow out.

ffi,Schroders
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The fixed price contract gives the conffactor that incentive. If he can bring the project in below his tendered price, he profits. While attractive in theory, lump sum conffacts run into practical difficulties with "variations". If unforeseen circumstances arise, the additional costs must be met on a cost-plus basis. Especially on large projects for government clients, there may be a temptation to profit from variations. The responsibility for variations may be in doubt, and the conffactor may prefer to delay or to litigate, knowing that the government has a deep pocket and would prefer to see the facility completed rather than face an embarrassing delay. It is sometimes said in the consffuction indusEy that "you make your money on the variations". The fixed-price lump sum contract removes some of the incentive to haggle over variations, and provides the contractor with an additional incentive to bring the work in ahead of schedule. Because it is the contractor rather than the government who bears the cost of capitalised interest during delay there is an incentive to complete on time or earlier. The fixed price lump sum contract can be elaborated to strengthen the incentive and reward for early completion. In build-finance-transfer contracts a consortium may be established to build and finance the facility and then to transfer it for a lump sum after, say, a year of successful operation. The consortium may receive the income of the facility in the period before it is transferred. Schroders used a variation of the build-finance-ffansfer contract for the Manchester Light Rapid Transit. The project developer was required to build the facility and to hold it for a minimum of three years before it could be transferred back to the public sector. The build-finance-ffansfer contract also captures the private sector's flexibility in project delivery. There is a story (possibly apocryphal) of the private road developer who discovered that an additional few metres of corridor was required at one spot. Rather than going through the delay of public sector land valuation and resumption procedures, the matter was resolved within days with a generous payment to the landowner. The developer was able to weigh up the relative benefits of saving money on land resumption and saving time on completion. None of the contract forms mentioned so far requires ongoing private financing or ownership. They are project delivery options, and it is in project delivery that almost all of the private sector efficiencies are obtained. There may still be a risk, even with build-finance-transfer, that govemment will succumb to delaying tactics by the developrnent consortiurn seeking to renegotiate the lurnp sum transfer price. Alternatively, government may simply not wish to undertake the borrowing needed to pay for the facility. It may be concerned about its credit rating. It rnay wish to ensure that toll income is dedicated to repaying road construction loans.

8.

9.

10.

11.

t2.

13.

In any of these cases it may be very effective to arrange for the developer to enter into a lump sum conffact or a build-firnance-transfer contract with an independent non-guaranteed agency. This is the essence of the "revenue bond" widely used in the United States. The agency can only pay out what it can borrow, and it can only draw down loans when the facility is up and working.

se'w:
414.

,rejl'Schroders

An added feature of this approach is that govemment can present the transaction as a "private" undertaking (even though it remains the beneficial owner of the facility). Any delays can be atributed to the private developers.
Revenue bonds are also used on a massive scale on the French toll road system. Individual toll roads are owned by soci6t6s d'economie mixte ("SEMs") whose shareholders are central, regional and local government together with chambers of commerce or chambers of agriculture. The SEMs borrow from a central borrowing agency - the Caisse Nationale des Autoroutes ("CNA"). CNA in turn issues non-guaranteed bonds to institutional investors. Because of the broad spread of traffic risk, CNA has achieved an AAA credit rating despite the
absence of a government guarantee.

15.

16.

Throughout the world, revenue bonds, or a variation thereon, are the most common form of road finance. They may be pure revenue bonds in the United States, the French public-private system, or the Autostrade in Italy. The coffrmon feature is private debt, but beneficial ownership retained in the public
sector.

17.

The revenue bond approach may also incorporate an operating and maintenance contract with a private firm. This has sometimes been described as the "build-transfer-operate" approach. It transfers to the private sector all the risks which the private sector can manage without transferring unmanageable risks and without creating unregulated private monopolies.

18.

In our view, build-transfer-operate represents the optirnurn level of risk transfer to the private sector. The private sector provides design, construction, project management, operation and debt finance. A description of the build-transferoperate model applied to the San Joaquin toll road is set out at Attachment I.

19.

It is possible to go further and to transfer equity ownership and control to the private sector. This is the essence of the build-own-operate-transfer ("BOOT") and build-own-operate models which have been ernbraced by Australian governments. lraving aside for the moment the issue of Loan Council (which is discussed below), it is our view that these models do not give taxpayers or motorists the same value for money as the build-transfer-operate model.

DISADVANTAGES OF THE BOOT MODEL lnappropriate risk transfer


20. As noted earlier, one of the peculiarities of roads is that the rnain postconstruction risk - traffic risk - is one which a private sector owner is powerless to manage. Typically, government is in a much better position to manage traffic risk through its road planning and traffic management functions.

,ffi,Schroders
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2r.
This is the very reason why successful toll road programs around the world rely on private debt financing rather than on private equity and ownership. With private debt financing the rate of return to investors is fixed. Government may subsidise the project, or give it more traffic than it needs for the construction being undertaken, in the knowledge that all excess income will be recaptured.

22.

If there is private equity in the road, government may get away with a lower initial subsidy. But it (or the motorists) will pay in the long run as the private
equity investors demand a high rate of return for taking unmanageable risks.

23.

In some cases it appea-rs that private investors contribute very little equity. Attachment II seeks to estimate the value of risk capital in the M4 project in Sydney. The accounts suggest only $460,000 of ordinary equity in the $180 million project. Even ascribing a value to the preference capital (determined from recent share transfers) puts the total equity at only $11 million, or 6Vo of the project cost. The contribution of an additional 6Vo pivate equity, which will demand a high rate of return, does not seem to justify the difficulties associated with private ownership.

Permanent unregulated private monopolies

24.

In theory, the BOOT model gives the private owner a "temporary" concession to collect tolls from a particular stretch of road. Indeed, it is AAA policy that roads should become toll-free when the tolling concessions expire. In practice, the temporary concession may turn into a perrnanent unregulated private monopoly. The reason for this can be seen in Figure 1.

-6Figure

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I

Gros s borrowing

copocily ond originol debt

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14

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25.

Figure 1 shows the gross and net borrowing capacity of a public toll road financed with revenue bonds over a 20 year concession expressed as a percentage of the original construction cost. (A full list of assumptions is set out at Attachment IV.)

,ffii

Schroders

26.

In the pre-opening phase the gross borrowing capacity is equal to the consffuction cost. The net borrowing capacity is zero.
Before opening, lenders are relying on uncertain traffic forecasts. Shortly after opening, lenders can ascertain the actual traffic flows. In the analysis underlying Figure 1, it is assumed that the required loan life cover ratio falls from 2.0 times to 1.4 times and concession life cover falls from 2.5 times to 1.75 times as the risk of traffic flow falls away. Assuming that the projected traffic flows are achieved, the gross borrowing capacity of the roadtses by about 1007o. Thereafter, gross borrowing capacity slowly falls. However, the original loan is also being repaid so the net borrowing capacity rises sharply. Figure 2 shows the net capital raising capacity of the road.

27.

28.

-8Figure 2

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Net borrowing copocity

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o
d
U
(u
EN

Bff/O

Netrrewdebt

trL ffi/" q
fr
Erl

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t-a'l -c{v(o-c{v(5CO-

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29.

This additional capital raising capacity is a valuable asset. ff the road is publicly owned, the government may raise further debt finance to build more facilities without drawing on government guarantees or subsidies.

,&i

Schroders

-9-

30.

However, if the facility is privately owned under a Boor arrangement, then it is clear what is going to happen. Sometime in the first five or sii years of operation the owner, who may have conffibuted negligible original equity and who can now borrow against the established traffic flows, will approachgovernment and offer to build some "free" road in return for an eitension of the concession or a renegotiation of the maximum toii. Of course the extra road is not free at all. It is paid for by motorists in the form of a longer toliing period, higher tolls, some more government subsidy taken from the ioads budget, or all three. Moreover, such an extension conffact is not subject to tendering either in the construction or in the financing. Government is placed in the invidious position of either dealing with the incumbent monopolist or waiting 15 years forlhe concession to expire before it can gain access to the cash flow.
The incumbent monopolist may have another advantage. The originat financing will usually have been based on the existing road configuration. If the new work is an extension of the original, and increases traffic flows above the original projections, this flows as a superprofit to the incumbent. The incumbent may agree to contribute part of this superprofit towards the new road (keeping the other part) provided that the extension conffact is not put out to tender. (Sometimes there may be a notional superprofit cap. However, as shown below, this is generally ineffective.) The progressive extension of toll road concessions is not necessarily a bad thing. The French tolled motorway system was developed by progressively extending the concessions of the SEMs and borrowing against their established traffic flows to finance new works. However, uniike privately owned toll roads, the SEMs are not seeking to profit from their monopoly position. Their role is to develop the road system, and they let out construction to tender so as to maintain competition and to capture the benefits of private sector efficiency.

31.

32.

JJ.

34.

Nor are private monopolies necessarily a bad thing. Private natural monopolies occur in the gas, water and electricity distribution industries. But, where competitive tendering is not practicable, they are invariably subject to some form of independent profit regulation.
The most worrying aspect of the BOOT model is that it rnay be creating permanent, unregulated, private monopolies. This is likely to increase rather than decrease the costs faced by motorists over time.

35.

36.

Appendix III sets out press coverage of the M5 extension contract which was awarded without tender.

H Schroders
10-

Superprofit recovery
37.

It is often claimed that BOOT contracts contain superprofit "sharing" clauses. traving aside the question of why superprofits should be shared at all, it is unlikely that such limits on superprofis will work.
Superprofit caps and sharing arrangements require the owner to achieve a cumulative rate of return before they are activated. Moreover, they are usually subordinate to the repayment of debt. Just as the owner can renegotiate the length of the concession period long before it terminates, so the owner is likely to renegotiate the superprofit cap away long before it becomes effective.

38.

39.

It should also be remembered that the most effective form of superprofit cap is the fixed rate loan. Superprofit caps only become an issue because the BOOT
approach uses private equity and ownership.

lncome tax

40.

Federal income tax is payable on the profits earned by investors in BOOT arrangements. This further increases the cost of the equity component of the

financing.

LOAN COUNCIL AND TOLL ROADS


4r.
Given the disadvantages of the BOOT approach, one might well ask why Australian governments don't use revenue bonds and build-transfer-operate schemes. The reason is Loan Council, which forces the States into unnecessarily expensive transactions with the private sector in order to bypass the Global Borrowing Limits. flVhy a State which is not constrained by Global Borrowing Limits would enter into a BOOT contract is a complete mystery.)
Under the "old" Loan Council rules, borrowings were included in Global Borrowing Limits if they were undertaken by entities which were "owned or controlled" by a State or Territory. It made no difference that the borrowings were not guaranteed by the State. On the other hand, borrowings by other entities fell outside the Global Limits, regardless of whether the project was subsidised or otherwise assisted by the State. The definition of "conffol" was a not fixed. For the Sydney Harbour Tunnel project it was decided that the entity was not controlled by the State, even though its income was guaranteed by the State. However, this view was then suddenly reversed and it was decided that any further "private" toll roads could not rely on income streams guaranteed by the State.
some order to the apparently arbitrary application of Loan Council rules, a new set of guidelines was released. These were based on the concept of actual and contingent liabilities incurred by the States. Specifically, paragraph 39 of the new guidelines states:

42.

43.

44.

In 1993, in an attempt to bring

'ffi,Schroders
- 1139.

Any attempt to draw a public/private boundary line based on the underlying economic anangements would simply take us back to the original problem of trying to allocate risk between the public and private sectors. The best approach is to adopt a boundary line that is readily identified and admit that it is an arbitrary line determined only by considerations of simplicity.

The boundary proposed is to only apply the risk weightings to any public sector infrastructure prqect with private sector involvement which operate for 10 years or longer (including options for renewal) and which involve the provision of services direct to a public sector entity or the underwriting tly the public sector (that is,

the generation ofany financial exposure by the public sector, whether actual or contingent) of services provided directly to consumer:s.

45.

one might reasonably have interpreted this to mean that a build-transferoperate project with revenue bond finance, providing services directly to motorists, would not have its borrowings included in the Global Borrowing Limits.
Unfortunately, this is not so. Our discussions with State Treasury officials in December 1993, revealed a hitherto undisclosed aspect of the new guidelines: that they operate in conjunction with the old guidelines. In other words, the old rules concerning "control" still apply and presumably are as arbitrary as
ever.

46.

AN ALTERNATIVE TO BOOT TOLL ROADS


47.

unhappy with private toll road monopolies, we have sought to devise a better alternative.

48.

Council insists that there be a profit maximising private owner of the toll road monopolies, then let that owner be an organisation which will reinvest the profits for the benefit of motorists.
49.

If Loan Council will not permit build-transfer-operate projects; if Loan

In France this role is filled by the sEMs with their chamber of commerce sharehoiders. In Australia, we are fortunate in having organisations such as AAA, and its motoring club members, who can fill this role. Moreover, such organisations have a long history of running successful commercial businesses. Most have a commercially run insurance business.
There are a number of ways in which motoring club participation could be implemented. One such structure is illustrated below:

50.

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12

lrnders' Representative
Trustee
I

Trustee

Tnst
Ownerof
C-onces s ion

Road Concession

C-onces s ion

Govemrnent

Agreernent

51.

In this model, the concession is owned by a profirseeking trust whose trustees are the State motoring club and a representative of the lenders to the project. Important features include the following:
the ffust would be required under its deed, under its concession agreement, and under its borrowing covenants, to put out to competitive tender all aspects of design, consffuction and operation; the motoring club trustees would seek competitive financing; and

(in order to avoid the creation ofan unaccountable and cash rich it would be a requirement of the trust deed that surplus income be reinvested in roadworks, or placed on deposit until suitable works are approved by government. It is proposed that the trust should be a financing and administrative agency with minimal staff and with all significant functions conffacted-out to the private sector.
agency) 52.

A further feafure of note is that such a trust is likely to be tax exempt.

,H,Schroders
Attachment I

UILD-TRANS FER-O PERATE

TI{E SAN JOAQUIN TOLL ROAD

td,Schroders
This attachrnent describes tlie San Joaquin toll road in Califonria which is being developed on a build-transfer-operate basis.
Interesting features include the following:
the facility is publicly owned initially by San Joaquin Hills Transporlation Corridor Agency ("TCA") cornprising Orange County and 10 southern Californian cities, and later by California Departrnent of Transportation;

1.

2.

total constnrction cost before capitalised interest is about $914 rniliion; financing inclucles:

$1079 rnillion BBB rated revenue bonds, $91 rnilliorr urrrated subordinated zero coLrpon bonds; $111 rnillion State and Federal grants;

facility is pLrblicly owned, under United States law the bonds tax-free. The tax-exernpt yield of 1.597o per annLtm is equivalent to about Il.4Vo per Annunr to tlxpaying irrvestors;
since the
a-re

TCA will insure the "rarnp-Lrp" risk by guaranreeing rhe first two years of debt service after cornpletion;
consnuction is on a fixecl price, fixed tirne basis with incentives and
penalties:

liqLridated darnages of $192,2-50 per day are payable for up ro


4-55

days. The contractors' total potenrial liability for all

penalties is $107 rnillion; and

there is a bonus equal to7}Vo of net toll reverrues collected for every day the road is pLlt in service ahead of scliedule; and

toll systern supply is on a turrrkey basis which gLlaranrees99To accuracy in toll collection. Toll collectictn is conn-acrecl out for five years with
extension
Lrp

to 2-5 years iit TCA's option.

3.

The use of revenue boncls provides the State with access to off-bucigetcapital without establishing a privately owned and conrrolled tolling rronopoly. Private sector efficierrcies in construction arrd operation are realisecl throLrgh co ntrac tillg-oLtt.

, / 1.

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61

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Volume
to

flrc interrratiunal brisinc-s guidc


pu biic-privatc partrlcrships arrrl in novativc fln:lnce

EWCFruffi
By )Yilliant
G.

SAN JOAQUIN TOLL ROAD FUNDING BUILDS A STRONG BASE FOR NEW, URBAN INFRASTRUCTURE IN THE [J.S.
Reinltardt
tl-ie project sponsors Lo cover.ome of the trafTic risk ciuring the ramp-up pe:iod. '1'he successlul fundrng and order lo

\':te11' financed infrastrucLure pr^..cls irr tirp U.S .


-'r--iier five

ploceed rviLh consiruction ol rhe g1 .i billion San Joaquin Hills toll roai in Orange CounL-r', Ca)i1., earl-v iiris rronllr represents a major adl,ance in the de velopmenl ol p1i-

ing floor at Firsr Boston Corp., the lead underw,rirer, which had been marketing the gl.i7-billion in senior anci junior Iien debt lor months.
A geographically diverse gr-oup of about 25 sophisricaled institutional

Based on the need lor t]'ie rcad, the se- iir debt u'as gi,,'en a BBB invesl-

years ol strenuous and :osil)' ellorls by public and private inleresls in soutl-rern California, a ncar-record tax-exempl bond issue for r. startrrlr toll roaci sold oub in trvo hc,urs on NIarch 3. As the dus1" sett led, a cheer rvent up on the trad-

investors bought lhe revenue bonds, despite lasl-minute questions raised by Standard f: Poor's aboul the hearlg reliance on senior debt and coverage ol construction risk. The issue rvas ciouded lurlhel by uncertaint-v over Lhe ia-r implications ola federal letler ol credit obrained bv

glade ralingon Feb. 26 by Fitch ]nvestors Sen'icc Inc., rvhich provcd lo be enough to unlock the Ccor on a
me-rr"-

tax-exentpL markeL star-v-ed ior rated,

high-yield securities.

The issuer, San Joaqutn Hills Tr-ansportation Corridor -\gency (TCA), a Soint aclion agenc\. ol Orange Countl'and 10 southern Caiilornia cit ies. ;.supd e notic" ro pro-

\ t\ \

IN TTIS ISSUE
Special Report
San

Joaquin Hills Toll Road

$i.4-billion San Joaquin funding builds a strong base lor other urban infrastruclure
deals

to Kiewil Pacific and Granite Construclion on March 11. Barring any unforeseen problems with environmental litigation or construction, the high-speed, heavily automated road will be the firsl new highway buili in Orange County in decades and the first major toll road ever attempted in California.
ceed

rhan in many developing countries.


TCA and its aggressive environmen-xJ compliance team have found a

rray through the project-permitiing gzuntlet in congested, smog-ridden.

politically fickle-and

verl'

rrealthy-southern Caiifornia. THE HISTORY Orange County's population has iripled during the past 40 years and rncreased by 60Vo since 1970. Yel
'oeen

Franklin Fuud was


big believer

Banks or bonds? It came dorvn to who believed the trafllc studies

The 15-mile corridor is the f-rrst higliservice roads conceived almost 20 years ago and financially supported by private landowners and Orange County governleg of a 67-mile system of new

only four miles of new highway har-e

buill in the region during the past 20 years.


The San Joaquin

Toll roads will become lhe nation's new high-service


highways
San Joaquin team is rich in lalent 10 Aggressive environmenlal strategy, strong friends made San Joaquin go

l3

Preventing endangered species

train wrecks is expensive

14 Aggressive compliance s'orks


(when you're rich)

l5 l6

Project highlights

Kiewil team up for private infrastructure


BechLel and

tion corridor rvas ment has agreed "Since the early 7980s, to contribube I'ue seen an aLDfuI lot of added lo Orange County's master $110.7 million in aision by the public plan in 1976 afdemonstration working with Ieadership ter transportagr:anbs for the San tion, land-use Joaquin segment. the priuate deuelopers and environmenAndthe Calilornia out there to bring about tal sludies indiDept. ofTransporof a neu.) system cafed a pressing talion will mainfor need a new tain the completed transportati.on freeway. road. improuernerlts." There was no But the San Bradshaw, money for a free-Thomas Joaquin Hills revManaging Director wdy, hon'ever. enue bonds are and head of Starting in 19E4, secured primarily First Boston's Orange County by future toll revtransportation group voters turned enues based on down two attraffic projections

ments ever since. The state govern-

Hilis transporta-

from Wilbur

18 A modest proposai for

Smith Associates CWSA), New Haven, Conn.


The sale ofthe bonds proves that construction and traffrc risks can be

leveraging federal dollars

tempts before finally agreeing to increase the local sales tax to pay for transportation improvements in 1990. It didn't look
Iike Sacramento orWashington rvas going to donate funds to one of che weallhiesl counties in the counEry

The New Paradigm Why private infrastrucfu re is real and how to sell iL to
government

shared in new ways between the public and private sectors-and in ways that satisfy credit-rating agencies and investors.

either.

24 Public-Private Serr.rces

Directory

It proves that there is a market for well-structured revenue-bond


financings ofcostly, startup toll road

Public Works Financing is published monthiy

for $327 a year (government), $42? a year


{private secLor) and $447 a year (ouiside North America) by RCC's Public Works Financing, 154 Harrison Ave., Westfield, NJ 0?00'2433. Second class postage pending at Westfield, NJ.

projects in urban areas, especially lhose thal relieve existing congestion. And it proves that there is a successful financing path for a projecb hotly pursued by environmentalisls and their lawyers in a state where
some consider

Instead, the local governments and Orange County's private developers agreed to try to buiid a major new transportation system using only developmenl-impacb fees, private lanci proffers and in-kind services as local equity.
The plan was to pay 48.5Vo of the cost of construcLion from impact lees and borrow lhe rest based on future

Postmaster: Send address changes to PWF, 15{ Hurlson Ave', Westfield, NJ


07090-24 33.

the polilical risk of that equation feli through a ferv project development to be greater years ago when new residenLial de-

toli revenues. The real estate side of

PWT it nncing / It{arch 199 3

\ elopme

rt slowed to a
unit have

Lrickle in

Orange County. Impact fees as high as $2,823 per


new residential
been coi-

Iected since 1986, however. Those

million spent gebting lhe


lors.

fees are TCA's only source of funds and have allowed it to raise the $84

Unitedffi
A Partnership of Bechtel and Kiewit
flringing together the best in development, engineering
and

San

Joaquin Hills projecL to the point rvhere it could be pul belore inves"Since the early 1980s, I've seen an awful lot of vision by the public
Ieadership working with the privale developers oul there to bring about a new sysLem of transportation im-

construction, the United lnfrastructure Company plans. finances builds and operates transportation and environmenta I facilities in partnership with public agencies.
For more information please call: Ul5) 768-1994 or (402) 271-2960

provements," says

Thomas Managing Direclor and Bradshaw, First transportaBoston's head ol bion group.

,,,,_,,)',.iij:,,':,

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:i a J.r- si !:i:ii:Ji:141.r:::\:lili_iii:i:,=%l:!,i1!i'

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,r:ini2030 ;and;$60;milliod';of'rthe"cbn;:'r,;:.1howi 11 : d-* a1::r:ii:f i::: -:

::.: :l

-L:1::':I Jt !L.djo

L\ :4'ad*.-J:-'^-'l::;,.,,,,.,,',rSb
-11)

lir:

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:r

iv|1 rtllvi+.{an-e,.Yr.a.yJ.:.4.:

. .-

-...a

,i:

PWTinnncinglltf:rch

1993

"This project wouidn't have gotten off the ground without Lhe private secLor's money and Lhe solid support from The Irvine Company on the legislative front in Sacramento and Washington," he says. '1lhe private sector was a major facLor in this project's success." THE PROJECT The San Joaquin Hills toll road will be the first modern toll road in California and the first ofthree toll roads totaiing 67 miles planned byTCA in Orange County. It is scheduled lo open afler four years of construction in March 1997 between Interstate 405, near John Wayne Airport, and I-5 to the south, near San Juan Capistrano.

by the toll
road. Norihbound travel on I-5 peaks

al about 6 a.m. and back


doesn't drop into
free-flow con-

ditions until 72 hours


later.

The toll
road also will

connect

Irvine's large centrai business disLricL to wealthy residenlial areas in the parts of Orange County farthesl from Los Angeles. Develop-

Based on those projections, TCA

Sludies by WSA's Senior Vice President Edward Regan predict an average of 71,800 vehicles per day will use the heavily automated road in 1997, at an opening-day passenger-car to11 of $2 ai the main barrier. (That's the equivalent of 13.8 cents per mile in 1997 or 11.3 cents today, assuming a 4Vo inflaLion rate, making it the second most expensive toll road in ihe U.S. afler the Orlando East-West Bxpressway in Florida). Most of the earlytraffrc will be weekday commuLers. WSA predicts that only 25Vo will be through trips; the rest wiil be local traffrc.
The capacity of the completed six-

menl and job growth have nearly stopped in the service area. High land values, greaL personal weallh and a large economic base still underpin the traffic projections, however.

is seeking federal and stale funds now to start construcbion of the reversible HOV lanes as soon as possible. In addition to increasing the service delivered by the normal traffic lanes, the tolled HOV system would shorten the ramp-up period to full traffic and revenue potential. Toll revenue in 2010 from the HOV lanes alone are estimated by WSA at $25 million a year.

'"They did it right. They disclo sed euerything and Ieft it up to the buyers to decide whether they were ad,equately comp ens at ed

The desiga is about 35Vo comA11 but aboub SVo of Lhe rightof-way is in TCA's hands and the remaining 19 parcels are commerplete.
cial property subject to 90-day takes by the joint powers agency.

lane limited-access highway wili be 5,600 vehicles per hour in each direction. WSA estimates 5,000 rph will use the road duringpeak travel periods during the first year.

for tahing the risks." Mahon, -Laurie Senior Vice President of


Kidder Peabody Inc.
Construcbion involves ?8 bridges and 10 interchanges over 19.4 miles of road improvements. Of that, 14.5 miles is new construclion,4.2 miles

The totai project cost is $1.4 biliion. About $830 million of that is needed to complete the right-of-way, desigrr and conslruction. Including the $84 million already spent by TCA, direct project costs will total about $914 million.

WSA's data indicate that only the projected north-south traffic in the region will use lhe new, premium-service route in 1997. Time savings, assuming the competing routes are operating at optimum, are eslimated at 10-15 minutes for a typical 10-mile lrip.
71.9Vo of

is widening work on Interstale 5, and 0.7 miles is improvements to


State RouLe ?3, which connecLs the toll road to I-405, Lhe San Diego Freeway.

TURNKEY TOLL COLLECTION

Toll colleclion and revenue managemenb will be handied under a $ 12.9-miliion turnkey contracl
awarded on Mar. 5
Co., Teaneck, N.J.
Lo

The road is designed to relieve

the exlreme congestion on the


region's freeways and secondary roads. In 1991, the average lraffic
was 242,000 vehicles per day on the

seclions of i-5 that


P'WFinanc

will be alfected
inglMarch 1993

Three lanes will be built in each direction with room left in lhe BB-ft median for two reversible high-occupancy-vehicle (HO\D lanes. The norlh-bound traffic on Lhe toll road is expected to reach capacity during peak travei periods in 2001.

Lockheed In-

formalion Management Services

In addition to financing the installation and slartup ofils toll system, the defense contractor has agreed to provide a lO}Vo perfor-

mance bond, a $10-million fidelity

similar instrument as a perlormance guarantee, and a subordinated $9-million Iine of credit to TCA in case the road doesn't generate enough net cash flow during ramp-up to pay debt service and administrative costs. The contract also includes a guaranLee of 99Vo accuracy backed by Lockheed's pledge to reimburse TCA for any
bond or

TCA's option. TCA eslimates the value of fhe contract over the full 25year term will be $600 million to $800 million depending on the volume of traffic. Those figures are based on Lockheed's monthly management fee which includes a fixed,

plazas will be used. Collection will be handled manually, by coin machines and using automatic vehicle

idenbilicalion (AVI) systems.

minimum fee and a per-transaction fee for Lraffic volumes beyond an annual base. The variable fee musl be less than lhe annual fixed fee.
Increases in the fixed fee are capped
aL 6Vo a year for the

Lockheed IMS willprovide systems integralion and operations managemenl. Ils subcontractor, AT&T MS Comm unications System s,

difference between lrafTic counls and

Bridgewater, N.J., will supply the smarl card transponders, communicalions infrasLructure and customer services for toll colleclions.
l,ockheed has agreed to share a small percentage of its incremenlal gross income wilh TCA for its help

revenues collected. An initi al 5-year operating agreement may be exlended four times at

firsl five years.

closed system comprising a mainline barrier and 14 ramp Loil

Sct forth bciow is 8 sunmary of thc estimatcd sourccs and uses of funds in conncction with thc financiag for thc finql d6ig1 aad construction of thc Toll Road. For a more completc dcscription of such es 'mrted sourcs of funding and cstimated costs of fiaal desig:r and constmction, sec 'THE TOLL ROAD-tost Componcnts and Sourccs sf punding" hcrcin.
Sorrctr
Urcr

Bonda Junior Lico Bonds


Scoior Lica

Sl,0'18,629,421 90,947,437

Dcsig1/Build Contract Costs(4) . Agcncy Costs(5)


Projecd Contingcncy

Advancc Fundcd Dcvdopmcat Impct Fcca(l) Fcdcrs.l and Starc Fundiag(2) . ... Intcrcst Earning{3)

702,922,250 127,606,123 100,000,000


18,340,627

31,00O,0O0 Loan Repaymsot(O . 110,738,850 Senior Lien Capit"lized

106,353,055 Intercst(f
SI,4l7 ,66g,j

289,50!.,725 75,000,000

Total Sourcrs

Scnior Lien Dcbt Scrvicc Reservc

Junior Lien Debt Servicc Rescrvc

Fund

Financing Costs(8) Original Issue Dircount .. . . ... . .

10,000,000 24,125,113
70,169,E56

Total Uscs
(1)

sr,417,668,7 54

(t

Rcpresantr ccrtain advancc finded dcvelopment impact fees. Sec "DEVELOPMENT IMPACT FEE PRO GRAM-Mission Vi cjo Compaay A grecmcnt " h crcin. (2) Rcprcscnts ${Q rnillisrg allocet d to thc Toll Road by the California Transportation Com-rrission tbroug! thc Statc Transportatis,n Improvemcnt Progrem and $70.? million allocated to the Toll Road undcr the Statc and Local Transportation Partncrship Progra-. Sec "THE TOLL ROAD--4ost Componcnts and Sourccs of Funding-Sourccs of Funding" hcrein. (3) Assumcs an intcrcst ratc of 4.OVo on moneys ia thc Consfruction Fund, 6.0Vo on moneys in the Rescrvc Fu]lds, and 4.9Vo on rnoDcys in thc Capitalizcd Intercst Arcouat. (4) Rcdccts amounts payablc to thc Contrsctor undcr tbe Dcsign/Build Contract rcduccd by pricc adjustments for rcschedulcd work and smounts previously paid to the Contractor as well as the dcferral of a portion of thc coatract Paymsnts. Sec "THE TOLL ROA-D-The Dcsigrr,rBuiJd Contract." Includcs right-of-way costs, construction cnginccring and design managcment, toll collection facilities and administrativc costs-

of loaru to the Orange County Traruportation Authorify and Morgan Guara.nry Trust Company of Ncw York. (7) Rcpreseots intcrcst on thc Senior Lisn Bonds tfuough March 1999, which date is approximately two years bcyond the schedu-led compietion date of the Toll Road. (8) Includcs undcrxritrng costs, lcgal, firranciai and consulting fees, pnnting costs.and other misccllaneous
crPcftst.

(o Indudes r?symsnt

PVFinortcing / March 1993

in markeling Lockheed's smart card transponders for use in parking lots, buses, and other transportation services in the region.

a rating from all three agencies. But KreuLzen and his advisors figured that all the Lax Lalk in Washington would creaLe a lerrific opporbunity

THE FINANCING In working with the credil-raLing agencies last fall, TCA had asked Standard & Poor's for a private opinion on a transacLion Lhat soughl to balance TCA's needs with S&P's
bhe senior and junior Iien bonds. Once Firch issued its investment,grade BBB rating last month, S&P moved quickly to market, according bo Walier D. Kreutzen, TCA's Executive Vice President for Finance
and Administration.
concerns abouL the balance beLrveen

in the tax-exempt markets for any kind of rated bonds with above-average yields. They were right. 'lVe
hiL a great market," says Kreutzen.

"I'd rather be lucky than good any


day."

junior lien bonds were issued on

Various lranches of senior and

TCA rvould have preferred to gel

March 3. Accordingto KreuLzen, the $1.08 billion in senior lien bonds were oversubscribed by at Ieasl two and as much as five times the amounls oflered, depending on lhe types of bonds and terms. The high demand aliowed TCA to reprice at the final hour and drop the interest rates by anlnvhere from 2.5 Lo 7.5

A little over $91 million in unrated, junior lien zero-coupon bonds were also sold. There was slrong interesl in bolh the senior and junior Iien debt, says Brad-shar.v. Investor interesl in lhe current-interest senior debt was so great, he says, that TCA was abie to reduce lhe amounl ol junior lien ciebt by about $10 million, which lowered lhe overall cosl of capiLal. As the markets shifted in the final week, First Boston shonened lhe maturities of the junior bonds and lengthened the malurities on the current-interesl senior ciebt. It also sought Lo avoid some of the
g voI af i I ity for TCA's delerredinteresl capital appreciaLion bonds by adding more currenl-interesl

basis poinls, he says.

trad in

PWFinancing / March 1993

PWTinancinglMarch 1993

:,:
:.:i

':ti

-:4

says Matron, wilh all lhe risks disclosed and discussed. "They did it right," she says. 'They disclosed every4hing and left il up to Lhe buYers to decide wheLher they were adequalely compensaled for taking the

President. Clinton a 367o tax bracket

risks."
AlLhough il's still noL clear ri'here the yield has to be lor lhe next projects, "San Joaquin shows rhere

is a markel for private loll-road


financings, and we're very encouraged by that," says Mahon.

and a 107o surcharge for the very wealLhy, the laxable equivalent works out to a 1,l.4Vo on lhe currenlinterest se"ioi6o"as, which make up the bulk of the securities issued. "I think we paid a penalLy for being the first, for being big, for Lhe fact lhat we didn't have ail Lhree raling agencies rate us, for being a sbartup toll road in California and for polential litigalion," says
Kreutzen. Though expensive by some stan-

be a great success. 'No one ever envisioned that we'd be able to do this at these attractive inLeresL rates" on purely speculalive bonds, says Bradshaw. TCA earlier had proposed to issue variable-rate bonds secured by

a bank letter of credit whose term exlended through consfruction and Lhree years past sLarLup. The esti-

mated cost of capital in that plan was 7.SVo, but subjected TCA and the banks to refinancing risk. Market conditions helped to lower key, Bradshaw says, is that the institutional investors who iooked at the project all know the transportation indusbry well. Then in meetings, conference calis and helicopter tours of the region during the past year, he says, 'We got lhern comfortable that the projecl does work, thal there is a strong ulderlying need for the road."

COST OF CAPITAL

TCA's overali cost of-capital_qn San U SlFl-rj!:=+lypr4ieclfinancJoa-quin Hiils was ?.59%,-l,a-r.ex- i@skJhat

dards-TCA's rated, senior bonds sold at about 100 basis-poi+ts-over


c6ffie-s rn undql t%,is-lonsideredJo

fhe interest rate. The real

empt. Assuming Congress giv,es

x
1
1

!
i|

c
1

On that score, 'Ed Regan lof WSAI did a tremendous job for the TCA on this project," says Bradshaw. "Heknew all lhe numbers and was abie to explain what he was doing and answer al] the questions posed by lhe analysts."

After lhat, he says, il was a matter of convincing them that


there was enough money to cover unanlicipated delays from envj-

ronmental suits or construction


problems.

RAMP.UP RISK Investors derived greal comfort from the fact thal Caltrans will take ownership of the road at completion, assume ail tort liabiliLy, use its best efforts to maintain a S-mile noncompetition zone on eibher side of the toll road and pay all costs for its maintenance and repair for the
Lerm of Lhe bonds.

Analysls for the funds were sbill concerned about the rampup risk, however. To assure them
thaL there

will be enough Loll

revenue bo support the debt service duling the traffic ramP-up


PWTinancingl March 1993

cornpleLion lrom thal fund Sen ior and subordinate debt-service reserves extend the rantp-up risk cov, erage for anolher lB n-ionrhs, says

Deriod, TCA agreed to fund six years capitalized inLerest and io pay lhe firsl lrvo 1,'e:irs of debl service afler
of

CONSTRUCTION RtSK
JoinL venLure parLners Kiewit Pacific Co. and Granite Construction

Kreulzen.
Finall-v, 'I'CA

Co hold a g786 7-rnil)ion design build contracl in which lhey share responsibilities on a 70-30 basis. Their joinL venlure, Calilornia Corridor Conslruclors, has subcon-

plele the desigl. 'I'he turnkey contract was reduced to 9702.9 nrillion, main ly by reschedu ling work, delerring progress payrnents and through value engineering.

tr-acLed ri'iLh Parsons DeLeuiv Ir-rc a subsidiary ol'lhe Parsons Corp and Greiner Engineering Inc. lo com-

in lgg2 u as able to
l

secure a projecl-specific lederal line ol crediL ol up t.o 924 million a year

for fir'e years afler the capitalized inleresl is exhausled.'fhe agency was not abie to get a ruline from iLs bond counsel that the implied federal guarantee rvouldn't affecl the lederal tax-exemption on iis bonds, hoq,ever. So it has asked rhe iRS lor a private ruling lhat its bonds rvill
not be considered federal I,r' guaranteed il TCA taps the federal credit
facilit-r'.

"You have to be llexrble, creati'e and you have lo believe. This lhingrvas like a chameleon. it could ciiange rrvo or three times in a week, and I irea.n significanL changes. You also ha'e ro be a counter-puncher. you get hit and you have to hii back lasr and keep going. \\?ren problems .orn" .'rp, you har.e

forward."

to.esrructure around them. Thar's r'hy you need u g-,..u| investment bankrng team and a strong group olartoineys, financial advisors and st:iff that's going Lo jusr keep pushing and beiieving rhai there is a.waj,ro mo'e
,'

time next monih, Kreutzen


implied guarant,ee question

Il the IRS turns it

do.,i'n somesays,
tl're

TCA will consider new lederal legrs-

istration and Finance. and the Ieacler olthe San Joaquin fi nanbing effori. 4!ong rhe other key players are;
TCA

So says WalLer D. Kreutzen, TCA's Executive Vice President for Adm i n

:)a1: , ..:,.::

:,.'::r.

,;-,

;',;1;;.:..;.-i:;:..

..:.i.

lation ro specifically address

The Inlermodal Surlace Transportation Elficrency Act ol 1991 alLorvs staies to commit lederal lunds or credit Lo public or prlvaie loil projecls lhrough state revolving lunds. That approach mav run up againsl similar interesl exclusion quesLions at IRS, says IGeutzen, so someone is going to I'iave lo seek clarilying legrslalion from Congress.

John cox and rhomas Riley, chair and vice chair ol rhe san Joaquin Board olDirectors; CEO BitiWoolletr: Colteen Ct;;;, ;l;;;;;ef ^11.., andGr9sHenk,trxecuiive\PDesig1.andconsriuciion...,].....'.. Nossaman, Guthner, Xr,ox a Elliott, Iead counsel Robert Thornton, general counsel: John Flynn, litigator; Bu.n.y Alliso:r. fi na rci n g speci alist ; Geoffrey yarem a, caltran. n.gofiut i...; Nun.y ; ii},, a design-build contract.
.:

Thai ellort may soon be under,


rvay by a new group, the Inflrastructure Aiiiance, which hopes to get

lederal loan guaranLees for sLarlup tollprojecls ir-rserted inlo the Clinton st.imulus package. 'The new CIin ton Adm i n isrr:rlior-r has focused on private infrastrucLure developmenl," says Kreutzen, "so I think that kind of legrslalion ,,'"'ill be possible 'liier-e are a loL ol oLher startup toll roads anci other ki nds ol in lrastrucLr: re proJect.s lhat *'on't nrove unless rhey deal w.ilh ihis, either Lhr-ough a change in the Lax larvs or a clar-ificalion lrorrr lhe IRS that supports" lederal credit being available for Lax-eren'rpl project financir-rgs.

iqiing

agency

12 Dire"ror: and Dan BuLler, design approval ol cooperati\ e agreemenL. ..:


:

Fitch tnvestors Service ,.-.'^:, San Joa,Qu!n Andrea Bozzo, Senior Vice Presideni, coordrnated lqting revieu'.

)\4;'inanc

inglMarrh

9g3

ii:l:::::s<\:)inii,i::i:lj.r, :s.:: .:a "' " '':':::::1..::::: a: :..:,.:..a..:.: -, .. a -_a: '-. , t'. ; ,, ,,t' - :' .

::.a:t::t:-.:.:a

:'

Ailhough the San Joaquin bonds we.. ,tot insured or issued behind a IeLter of credit, Kreutzen saYs the markefs viewed TCA's design-build contract with two of the largest, best managed highway contractors in lhe U.S. as a form of credit enhancemenl. The deep-pocket contractors assumed some of the risks typically taken by owners in a conventional, uniL-price contracf.

Group, had gro'ss revenues in calen-

dar 1991 of $1.4 billion and stockholders' equity of $552 million. In addrtion, Graniie grossed $564 million in 1991 and holds $155 million in equity.
Finally, Kiewit-Granile agreed lo deler $3 7.8 million in payments unlil lhe compleLed road was generaLing net revenue, after debt service. 'Thal

that would nol restrict thal elforl or the financing of any other slarlup
Lo11

projects.

meant a

lol to investors,"

says

'lile're changing lhe way business has been done," Kreutzen says. 'This is thewayof the future. You've got to have a fixed-lerm and fixedprice contracl with strong guarantees lo finance large projects."

Bradshaw. "Kiewit and Granite beIieved so slrongly in their capability Lo deiiver, that theywould put some of their profit in a subordinate posi-

tion."
On a pass-through basis, the design-build conlractors have acquired a $200-million builder's

The contract, written by Los An-

'IVe were very sensiLive lhaf if that nobody else could ever clear lhe hurdle, including us on the Foothili/ Easlern project," says Kreutzen. "The crediL rating agencies collectively worked very hard ,,vith us to iook at lots of options," he says. 'We finally chose the Fitch capital structure because it worked best for TCA when you included ali Lhe things we had to look at." The seniorbonds were issued with a coverage 011.3 on net loll revenues only. Including the subordinaled
we set coverage levels too high,

geles altorney Nancy Smith of Nossaman, Guthner, Knox & Elliott, gives the constructors 7}Vo of Lhe
nel loll revenues collecLedevery day

risk policy

debl, Lhe focal coverage for ail bonds

any segment of the road is put in service ahead of the 1,460-day completion schedule. It penalizes them with liquidaLed damages of $195,250 per day for up to 455 days pasf the startup deadline in March 1997. Including stipulated damages, lhe joint venture's total potential liability is $107.2 million.
KiewitPacific, made a powerful case for the contractors' ability to assess the conslruclion risks in meelings with the credit agencies. Most of Kiewif's sfock is held by its senior employees, and they were the ones who decided to sign the TCA con-

lrom Allianz Insurance Co. to cover debL-service def-rciencies due to late completion because of earthquakes, mudslides or obher natural calamities. The road is being built to 1.5 iimes the current Caltrans seismic standards even though most of it is lounded on bedrock and is not in a high-seismic zone.

al the time of issuance is

1.15.

Kreutzen says the post-redemption coverage ri'ill be 1.35 for all debt and about 1.5 lor Lhe senior debt alone.
Projected gross toll revenues for the first fuli year of operation in
1998 are $? 1.? million. The nel after

STRONG START
bodes

IVa LolI evasion, toll colleclion and revenue managemenl cosls plus administrative expenses is $59.3 million.

all accounts, the San Joaquin Richard Geary, President of By success well for
the half dozen

olher toll projects moving toward


financing now.

David Sellzer, Senior Vice President of Lehman Brolhers, says, 'The wind and ride were clearly in TCA's favor. Bur I don'L see iL being a oneshoL deal riding on favorable market conditions." IJnanticipaled environmental litigalion or construclion problems could still sour the markeL. But right now, he says, the success of the San Joaquin financing "is a slrong posilive." I

tract. Kiewit Pacific's parent,


Omaha-based

Kiewit Construction

TCA plans to be back into the markels this summer to fund a segmenf of its Foobhill projecl. By design, it was carefui to keep its debtservice coverage ratios on the San Joaquin securities within a range

JOBS TRUMP ENVIRONMENTAL ACE IN SAN JOAQUIN ROAD'S END GAME


When InLerior Secretary Bruce B ab-

bilt announced on March 25 that


the California gnatcatcher would be

endangered, il was a greab victory for the forces of reason-and flexibility-in the national environmentai debate.

lisled as threatened rather lhan

Meanwhile, at ground zero, Lhe TransporLation Corridor Agencies (TCA) had already fixed its gnatcalcher problem, arranged financing and slarled conslruclion on ils $1.4-billion San Joaquin Hills toll road. In addition, TCA's environmental compliance slralegist had

already mel with Babbitt so he


wouldn'L gel caught offguard by the foll road agency's aggressive-and

expensive-drive
kels.

Lo

the bond mar-

Both moves are typical of TCA's "no-holds-barred" approach to project development, namely:

'o

PWFinancinglMarch

1993

.:

:'

E#,

Schroders

Attachment II

ESTTN{ATION OF RISK CAPITAL IN PRTVATE TOLL ROADS

THE M4 PROJECT

td,Schroders
The arnount of equity corrtribLrted by the owner of BOOT toll roads is often very srnall. Tliis attachlnent sets olltexnacts frorn the latest annual return of Statewide Roads Lirnited ("SWR"), owner of the M4 concession, together with press coverage of the sale to AIDC of l}Vo of the ordinary sltares in SWR, and seeks to estirnate the proporrion of true equity in a private toll road.
Features of interest in the M4 project include the following: the ordinary share capital of SWR is $460,252;

2.

in addition, the cornpany has on issue one class "A" cutnulative redeemable preference share entitling the owner (the Cornmonwealth Bank) to 12.5Vo of any retained profit. (A class "B" curnulative preference share was issued during the 1992193 year entitling the owner to l2.5Vo of the profit of SWR Properties Pty Ltcl);
as at 30 June 1992, shortly after the opening of the M4 toll road, the cornpany had total assets of $176 rnillion arrd bomowings of $179

rnillion (rnostly secured loans frorn the Corntnonwealth Bank);


in tlre 1992193 year the cornpany recorded earnings before interest and tax of $ 13 rnillion, representing a retllrn on total assets of 1 .4Vo. However, dLre to interest expense on its loatrs, it recorded a net loss,
dr,rrirrg the 1992193 year, AIDC Lirrrited pr-rrchased l)Vo of the ordinary sha.res frorn an existing shareholder. The purchase price has not been

disclosed, but uncon{irmed reports in the Australian Financial Review suggest that it was $7.7 Inillion. This would value tlie ordinary shares at $77 rnillion; assuming that the $7.7 rnillion is conect, this woLrld value the Comrnonwealth Barrk's par-ticipating preference shale at $ l l million as follows:

Entitlement to Profit Vo
Cornrnonwealtlt Bartk AIDC (ljVo of rernaincie r) Other (907o of rerttairtder)
12.50

Current Valuation $ million


1

1.00

8.15 18.15

7.70 69.30

-T00o-o

--88T0-

As the Cornrnonwealth Bank was lender to the project, and at risk for the project's failure, its preference share rnight be regarded as the true risk capitel in the pro.iect:

,[d,
1

Schroders

'

the total original equity at risk in the project rnay therefore be estirnatecl at$11.46 rnillion, being the Corrrnonwealth Bank's $11 rnillion and the other sharelrolc'lers'$460,000. This is only 6.5vo of trre cosr of the facility.

lalSr;

i'*!c 4 c:30

kldr

C:4:949I1 r:.: :UC:5:J 5:3

15 I ssrred si.nres enC upt

ion_a

cIo3s codc

description, fult titl. cf


A E

shaie

rrorni na Pl

va I ue

AC/-iP 6CF.P
n)h

qllda c $

CTASS REDEEt,lAgtE PREFERENCE CLASS RF)EEfiiSLF PREFEREiiCE


oni\cr

vr\vt(^rt.

.00 .00 1 .00


1 1

Sha

res

lot6t
cI

ats co{ie

.rerber i ssued
1
I

Iois nofiinet veluc


1
I

(
-^iJ poi!
,1

SsLance
G

Auiii;
!r^.

qilvv,rr ^h^,'^.

'- cglvur ^^^-:. Hr' I qil Pr

of

shaae
t

nr:,tpr of shaces ev_erer

I I

entittd to

p:-,

pef sharc

0?D
17

1e25C

l0L)u

16250

4/+ C

tJr_J

List of

14crbers (sharehoIoers)
ru
vr ^{ .errr6F SYOHEY
ORD

rnf$cr's f ui i hlnre end eddrcss


AIDC L]I'{ITEO
, \/l zl uAol?tur

Ld

nuttDr'
L^r lctu i

^L^^^^ silEr c5

Are sheres ts mccsec fuLLy paid? ben. oiirrer

1525

YY

201 KENI STREET

NSt]

ZCTJO

CO}$Cli'iJEAtIH giNK 0F
vaorrr Dr AFc SYUI1EY NSH 20UU

ArJS I

RAL:A

CC{.II{CNIIEALT[i BAHK OT AUSTRAL UADTIU OI A^E

Ii

SY0NEY Nstr 2000


lilrQql rl i LlflrliU

SgUTI{ TO!]EP

TI]!

5.1u4

IilTERCi.I,lIIGE

67 ALBERI ST

(;I{ATS.JOoD

NSII 2067

DAIGRAI{)O PTY. LTD-

11TII fLOC]R ALTGH

.i

HC.USE

BLI6H sT sY['HEY tiS,t 2000


oTy I lurrcn JZ)IJ

na\/lA!

i 1TH FL BLIGH Hr)rJ:-E { oLlun }r 51UNct NJH zLru! DEVG'i! PIY.LI;,IIIED 11TH FL TL]GH IIi{JSF / hr i^rr x oLruil -Y er trurct nrx ?300
CRAIiDA,qI CO PIY. L IHI TEO

4 BLlcti sT silii;Y
11iLL8i. PIY,LTO.
1O UILOHA NVE
rr unLL(KiL.l ^u ^Deerrl

r r I tt r LKiK trL iqh ljLc tijt

t{5H 2000

dJh

z Uuf

SIATEHIDE R'J.405 LIHITEO

A,C.H. OO] 5rJ 57]

Pale laI of
t_t

r-

L3!'E

l7 -'ige 14 of 3C rxld:

tr

ffi
ffi

STATEWIDE ROADS tlililTED AND CO${TROLLED Et.lTlTiES

},NVTI I T4AU L\JUD I\UL,L'Uft I b FOR THE YEriR ENDED 30 JUNE, 1g3

ffi

&T

Consolidatod 1993 1992


.!s
IYIJ I E

1ss3

Cirief Entity
1gS2

ffi
ffi *uunnu"

{i

3 43
22

3.1,903,361 5,595,493 20,537,036


(4,618,918) {8,2i5,069) (190,301)

16,33i ,e6B
_=====?_=

H!

oo.r.",ing protiV(toss) berore incom lax

3,408,877

kx attributabls to ffi Er ,n"o*u operating protrv(toss)


ffi

. ,

Efi

operating proflV(lcss) aftor inccme tax


beginning of the year

12

(4,61e.918) {8,215,069) (190,301)


(1
1

3,408,ri77

ffi

Sl Retaineti profiv(eccumulated iosses) at the


,671

,442) (3,456,373) 3,416,641 3,22e,34C

7,761

R"i.in*O profitV(accumulalcd ffi sl ai rho end of Ute year

losses)

{15,2s0,360) (11,671,442)

3.416,e41

ffi
ffi H

=====-======== ==;sE======= ===========

Tne accornpanying nctes form pert of these financiel slaiements

-ffi
ffi
ffi ffi

ffi ffi

tH

accdirfird

Ia39?a ..r:Jc 15 cf 3C L',-lCr 0!.:5t,lgll

ffi r+:

),r:r::C3 Sl:5?3

STATESJIDE ROAOS LIMIT*D


ffi

AF.{

D ECIT{TROLLED EF.JTITIES

ffi

^ltAF U'ALI+t\Ltr, }Nl:E I 5 A.S AT 30 JUN[:, 1Sg3

n4t

nraFFeA

1Sg3
ffi
f..roTE
c6 9O

^^^^^ll)^t^)

UUr to(JilqdtUU

Chief Entiry
1932 i 99-1
i

s92

.geURREl^lT ASSETS

ffi

* Cash ff Receivabtes
S
g

lnventory

Other

6 7 I I

5,865,738 647,310 5,526,960


12,04s,663 6,555

7.8E5,975
325,5S

3,5'13,633
ahl D1 a t 4 r.(J I I 4 EO4 ano 4,JU.J,Qd.O

I .rJ I
f

r-t.Jl /

+^F ("r,tl, ^4,1 / {J !)

5,8S2,269 14,093,833

^ ^r^ / tJlr orl-c+o,

r^;

$ ror,rl cuRRENT A.ssETS

e o ( o o?4 Q.Lt Q.a t a-

5,297,3i8

$ no*-"uRRENr AssErs
Receivables
10

ffi Propeny, piant and equipment E! lnvestmenis


Oltrer

it

l?o <no l/o,rD9,vaJ

nia I .A 4.1

I to

di L O.d ^^^ t:r,UQU { n /\l I I J it I I .) .t c'.9

7,85)6,42-2

15,842,875

av.JJ

12
13

154,334,878
1

154,918,774 161,761,649 175,855,482 '179,283,530


47Q 42 A n.)t I r e,991..7J9

ffi
ffi

El TOTAL NOi.i-C URRENT ASSETS TOTAL ASSETS

62,23 1 ,300

174,277,963

185,502,402

1ii3,6ii?l 7is3

ffi
CURRENT UA.BILITIES

El

crecJittrr's anc borrowirigs

Provisions

14 15

2,725)eB
609,348
.J,JJU,5 Ib

7,590,108 1 ,16 r,565


8,751 ,673

2,670,810 275,000 2,94s,810

1,0.1'l,t!0 i

{L'-,cOc

ffi

,oro. .,RREN*ABTL*ES
xor'r-cuFRENr uABrurrcs
Creditors and bonowings
Provisions
16

44r,861

$[
ffil

186,51 9,555

178,31 5,000

t78,870,0C0

178,3 { 5,0C0

2s0,000
Oi.t-C URREi.IT LIABiLITI ES 186,769,55s
178,315,0C0

TOTAL

I.I

178,870,000

178,3i

5,ACC

EI
ffi[

rorat

LTAETLTTES

rs0,106,07i

167,066,673

181,8i5,810
$,686,5:]2 3,.q7d,iis2

,,i, (DEFtClEl.lCY tN) l..lAT ASSETS

26

(15,830,i08)

(lr,211,isr)

ffi ffi
SHAnEHOLDER6' EOUnY (DEFICtT)

ffi

sn"ru Capiial

at ll

i Q,

a,'-ll

Reservas tq! Retained Profits/

Id

444,000 (16,2S0,360)

16,251 444.C0C

16,2i2
444,000
3,22_6,340

I r:',11

444,0c0

$l
Hl

{n..ut,,larrrd Losses)
EOUTTY

(r 1 ,671 ,4.42)

3,1i 6.e41
J,6lo't::)1
^ ^/\^ r\{?r

TOTALST-{AREHCLDERS', E liE

(DEFTCTT) {i5'830'1CS)
===::====a===

(11,2r1,r91)

3,6E6.532

=====-====

1-n" acconrparrying rrots form part of these finarrcial staterrtortls

ffi

cccclirAtd

19 of 30 D*Ic:

CC15t491l

|.a11 .aC3 5,a3

5'li

Fd

{i.i

ST.IITEW!DE ROADS LIF-rilTED AttD CONTT-IO LLED

T.ITETI

ES

_ffi
gs

&
NQTES TO AND FOF?I#1I.{G PART C]F Ti{E FiNAi{CiAL STATEE{Ei.JI'S FOE THE YEAFI E'..iDED 30 JUriE 1993

lzl

ffi
R*

*NOTE 2 H
Eti E

OPERATIf.IG PneFrT

(LCSS)

&ITne operating prcfit / (ir:ss} 5n1or" income tax has been arriveci at atier:
r'it Hq
r\aaanlir-+^l vvt rovIvdtEu
1

\_.{ t{ ^L:^r I OO4 I.JJA I l'J,)

trrlttry
I

993

VYZ

H Charging as e.Ypenses: e

trE

ffi ffi
$$

Depreciaiicn - piant & equipment lnrerest e;(pense- crher per.scnS/ corpcralllrns


Qanteic lnqc larcoc wts v, eV, - nnoralinn en c;ia ni fivori a<.:<rlc

1,300,610 17,618,6s3 2,632,793


45,80S

3.689,227
653,6C4 .) ..na

lL.*t + {? c--{ a? l/,JJ1.4,/V

16

ta

U.OJZ
. a AAA r .r I rv.)c,++ /

rf<1,/OO

&d

Fornnaiion e,Ypnses wriiten orf

Provision fcr erirpioyeo eniltiemnis


Arnoriisaiiorr

20o,182
40,531

.- --:

'l,ti84
147

322

ffi

sl

B f.4
EI

- M4 Service Centro projeci cosis - lri4 i"joi,rnvay prciect cosis - Capiiaiised finarrce costs
Goodrviii writierr,rfi Bad ciebts

4,777,122 i,506,842 3,i01


rJ
,

bsb,549
j r{9,716
e71

Frovision ioi dr-rui-rifrl debi.s

\,,/VV

-ra
tfl

ffi H
ffi ffi

NLrtC J - Vt-El.1AllNtr Ilc.VtrNU.:


foilcrwing
!r--^t lI6rTrS OI

ffi lnclirdetl in the cperaiirig prciiV(lcss) are Uiu


Op[alrng lGvur'iue:

H
b;

Salos l^.ivdriuri lrr(erasi Receiveci & Finance Charges


h
hirl

34,369,950

4,837,855

12,u.15

tliit

r:.r(J(

ffi ET
d

Coritroiled eniity
Oihe r prs,Jn-si':orllcratiil
ivi n

'rt i 'f 'l'I

'f {i(

1,S3?,447

328,65;

290,2N2

39,8;r.)

4.i,853
'3,$89,65 i

Adntirtiulration ancj

anagerr:ent Fees

(-oilrjuililtu
Arr, .JU+JUrt
-

- L/\)lrtfuils(i etii:(lG3
tro{3s r

oil tizlrJ ()l n.\oo a:isrils


1

g4,70;
i0.063

454,S 1 7 i 2,525
51 ,1
r, \q:\ au' I :i

454,917

Lrllter

C;
Itr,-{.' I,6qlt
=--=1=====:3=

G'

H
F?l

34,903 364

20,5r17,035
=--=====:

s
g
accdirr'1icl

13

ffi

STA,'T"EWIDE NCF.DS
ffi

Lit"liTtrD AFiD COFJTFICLLED EI+TII'|f;S

g
44
eq CURRENT

tst

Attn FAlaarrfr^ AF -r rr ri\-tii: iu A.niii ruHn*iFiu h^^y i-iAiii uF IHE Fli{.tF{ciA.L ST.&.TEMENTS FOn THE yEAn EiiD'Cp 30 JiittE 1sc3 F!4\'!-E fn

g$

UABIUTIES
-^-_--1:J^t_ uuIlsuiludiriu )

NCTE 't4
t13

CREDITCRS AND BORRCWIi'lcS

.n^t' I JJJ 6

Ciiief i:r-iiiry
I

ngz
+
$

tYv.1
A a

t:l

r9g2
$

Bank overdrafl
q EEA <.dr.4Jv acfl

H ti^r^^r,^^ I lutur rllvr


rl'h6 /

I /-A^ -^^r',,^lI I rrga !r cuttvr J or ru ov\,r uqlo ^r^A,t^.. ^^A .1,{ a i !vur rl9 At t^ ,^ (w vuq r{l vlluu '^t6 vvr ^^t;t;^^ ur rtlL(br ^^^tr^ll^A L+/! -^,

?n^ n ln tv:trJl< r 4 0_? 4At ulJar.rJJI

^.^^<1!]V,?'{

t |J.l,lJrJu
4,ii), E6 j

^'--

au^,.,.^^^ r alturrqr iuu

n..t. J

6a c/ta J I.JT.J

atJtt/_u ^. ^ ?a a-n / J.Lr/ s

^l

4;tlJ I,<LtV

2,72S,1 68

7 CCn ino . .JJv, I VO =J=5=======

z.or u.o

114l\

a,J

tl

/\

t(J'lti,t15

t;"; F:i J

# :4
-!iNOTES 15
li
f

PROVISIONS
aG 1 Q Q 49 I,vao^ c t\^ ')EvJa,JVU

;mninrr,ra

nniiilomonlc

;fr Provisiori for


as
t::

aiiiiicnai

5'1.555
Ir, Ir ln /1n^ rv,wwv
1

rcad

nnnclzr r^{i^^ vvrrvttevrtvrr

gvttJ ^^.tc

t:q

nnil nna: rln n tvv.uuv

,ir-:o'r#i

I'et

,161 .5$5

(, a,1\ oa 4t c J.!\rv

ffi

H
r{a
H

Noi.i -ciJ RRcNT LlABlLtn L,s

Ei NOTE 16 , Fa Fq

CRE0|TORS A,ND BORRO\ritNcS

Cornmonwealth Bank of Ausiralia SeCUred lcerls

186,5i

9,555

178,3i 5,000

178

tlrl,rlr)0

17t,3't l;,(tao
= = = = == ==:.:=:

6:[
F.T

=:i =

i$ Thcse losns a'e secureC by a registereC equieble mc,.1gagc over aii rhe as.sets of Urs conircllei erttities, State,r;iie (f.r) Fty L-lniiecj and SWR Properries Fq, UmiteJ raspecliviy.

l-roaas

ffi

m The Faciiiry Agreoment


Fq

v'4ih Ccnmcnweaiiir Eank

proiect is to be used to reiire oebt.

cf Australls proviCes'.hat excese cesn generater.t br- :.lrc cperaiicn cf

th..:

f&
Ld

11

tit

ffi
ffi
accdiv'ltd
17

ffi

\at:2t1 t r.i

STATtrV{IDE FiGADS IIMITED A.FiD CSITTfiOtLED EF{TITIES

tE! lllt:

H
NI
SE

ffi

NOTE TO AND FART,'!IFiG PART OF T?iE FINANCIA.L STATERIENTS FOR TI.IE YEAR ENDSD 30 JUi,IE 1983

ffi
I{OTE 17
ESi

993 sc e

iouil(JdtsLl ^l vvl ^^^^^l:/^r1

Chief Eniit.y
9S2 i 993
g,

06/-

S1AFE EiFiTAL
I

Hi A',:thoi'i sed Ca;ii'ia qd

l3o,ooo,ooo shares oi

$i

each

IVTJ,IJUU,UUU

100,0c0,0c0

ffi

&
gur

$lsru"o
ffi

1.250 ordinary shares of $1 acfi fully paid m 1 class 'A" cumula'rjvg reductiiabie prelerence

Capii;il

t .iass '8* cumulaiive

redaurrrable preit-.:'ence

share share

16,250
1 1

<c ocn
1

I O,

Z?tJ
1

16,250

l
I

H H

i6,252

16,251

a6
r

Ad6 u.zJz

o,zb

========

At a timc '*fien S'etewidc Rca'is (Fa) Ply Lirrrited has r.:tained profits, the hcicier of th Claas 'A'cumulaiive rsrlee,rnable pariicipite irr dividends eqr.rai io 12.59o of rhc prolit. The sha,-o is redsamable at ffi arctcrenc shai'e has he iigi,t to 5,ar at a ffi cate alrseaDl ',o iha holcer oi the stiare arid the conrpany not b'eing mcre than 6o days after the explralion oi soone, termina'.ion of the hl.i Moioi-way it'ase.
Ct,e class 'B' cumulative r-edsan-rabie prerlorence sh"re was issued at per ouring the t-ear. Ai a iime whan S'1JF Pr.cporlios ffi EPt, Lrmited hai raiained pi'-,iils, ihc hrrid*r oi ihis sirare has ihe righi io parricipatc in drvidendc equal io I1.5",6 of ihat profii l-ne snare is radeemable at par a" a ciat agroeatr!e iq lire hoider cl the share and the ccmpan./ nct being more tlran 60 da,vs --F f,{ afier tne expiratroil or sccnr t;rrniiiation of liie M4 Mr.riorway iease.
ffi

NOTE 18

: RESENVES
reseryo

H
d

ffi Snare prernium


ffi trt
m ff

444,00C

444,000

444,C00

4.[4,00c

E{

ffi ss
E$

s
a 9rl

[fr

s
ffi

H
accdir/itd
JB

Friday, October tS, 1993 FINANCIAL REVIEW

yesterdayls men on $2hn Sydney proj ect


LIKE
bees around the honey-

Qr*stions for

swarming over $2 billion worth of projects in the north-west of Sydney. They include maoy meo best krown for roles in the
1980s - Nick Greiner, former NSW premier; Frank Conroy, former managing director of Westpac; Gerry-,van der Merwe, former depufy manag-

pot, a who's who of business is

8y VAIIRE UWS0ll

repeatedly that the M2 is


people to be housed i-o the growiag Rouse Hill area. Yet there are strong indications now tlat the NSW Depart. i ment of Housing is sloning I phnned expansion ia Rouse i
needed to serve up to 250,000
,

Hilr-

director ol the AMP Society; Barry Glover, former manag-

ing director of Citibaok; Ian Stanwell, former managing

completed next yeai, will pro-i vide 15 years worth of landi supply for only 80,000 people. i manager

which infrastrucfiire wiil

Suge

l, a l,200ha

area,

forl
be;

ing director of Hooker Corporation; and Peter Dransfield, former director of housiag of the NSW Housing Department.

Mr Peter Olive, divisional. in charge of Rouse. Hill at the Department ofi


Plenning, said there were noi
r

these projects

Rouse Hill residential development in the centre of Sydney's nortl-west sector. The potential returns in

The projects are the $500 million private M2 toliway and the $1.5 billion million

at other ways to supply al captive market for tle M2


operator.

plans to progress to stage 2 for 15 years. Therefore, the Gov-l ernment must now be looking;

IJSW Government has a major role are difficuit to


gauge, particularly as the M2

in

which

the

Mr Gerry van der Merwe, now managing director ol AIDC Ltd, is another player with bis eye on the area. AIDC's just released 1993
annual report devotes a page to its purchase this year of 10 per cent in Statewide Roads

is shrouded in confidentiality
agreements.

Mr Bob Morris, the regional director of the NSW Roads and Traffic Authority

which has just called for expressions of .interest in the M2, did Dot want to discuss the tollway, due to open in 1997. Nor did Mr van der Merwe, Mr Frank Coruoy, or
NSW Minister for Transport,

Norwest Motorway Co. Norwest is preparing a bid for the tollway. llr van der

Ltd which is involved in the M2 through an offshoot,

i I

conlidentiality clause

Merwe said he- could not i discuss the price becausc o[ a

Mr

purchase agreement with the seller of the stake, consulting

in

the

;
:

Baird.

engineers and projeA manag-

The winning tenderer will


finance, build and operate t}te

2lkm tollway from North


Ryde to west Baulkham Hills
period.

ers, CMPS and F. He would not comment on suggestions that this was $7.7

i I
:

on land leased from the Government for an agreed


The Government has said

joincd the board of Statewide Roads last April. Norwest Motorway is a $2 company cstablished last

million- Mr van der Merwe

u
6l

&

Mr

ffiw
COHROY

Mr VAH DER MIRWE

Mr SIA|{WFI I

Mr DRAllSFlttD

Mr

GL0VER

MT GRflHER

Stage

No*est

B6lness Parl

Prcposed M2 tollway from Paclfic Hwy to Old Wlndsor Rd M4 tollway

,j.l .' ; I \1.:.,.\rr,j,. R ,.r J., ;rnrj (jr.rlrrrrnc ('.rmpbrll, cir.rrrnrlrr of stetcrvide Rileds r.rrr,;I. Jl i, .,1,. rn.tn.j[,tJ]1. dire.rtrr Lrf tht'nrr jttritr shtrri ltrrl.icr irr St.rtc*rLir. (-\.1 1,.\ rn!i I: I\\'[-td N\)r,.\r'st \4rttOrw;r1. thi: nirrnth $dre Chairntan Frank ( ()nro\, (ie rr1. \'an dcr lrftr*c. Ian Stnnrr.rll, Jolrrr I) rt.r.'rnzrJcir, mdnJtrni drrrclor of Ilauldcrsronc l{orI pvlrl''eI I:rrginccring, liiJ
director ol fhie

mLrntlt \\tlh t\\o dircctor:, '\ll.i'r I t.,r..' .1 ri(, nlJnr(tn),

Jtlnrng llrcilt

JS dis1q1o1_r 1rl

Nl.rrtrrr'\ih11.. 51, rnrn.lFrnil


ss

Conrracrors

sliarchtrldings in r.\rtrrvt:t u ill h,. St.:i. u rJc 4(l f ,,r , crrr. Il.r.rl l, rr'.rn,. I{,,11111.',,,,f .r,r I

I1-rhc brd rs succcssful, rhc

Ilrrr'"

l() J)(.r !c11

(..1.11

.,\ll)(. l0 L)cr !r'11. .r1Ll !n.iir.]it.ntcn{, l0 ltcr .cnt \ttrtruirJe i\.r\ Ri,.ril. 1-or ntcti rn I (lSS t() t.ll.a .rri,..ln t.iut ()l !lrr: ( ircintr (i,-rr 1 Ill('irl \ clrirc l(r\\.tiJ\ plir.rti:ltlion ()f lnl-r:i\lrur li,ra ll tr rrrr ti:t. \1J ten.jcr ln l,r:,), l(.'.rrnB un,.ul Ii, ,.. . l\,'l.1l r , l .i Irit,r l,il., toil\\:r) (in Svtlnr\ \ \\e.,tl rrhicir 1ormcr I)rcrrircl (ironcr s:ritl ntu5l bc tturlt .r\ .l prt\ ille l\ O\\'r'rcd !)pCl-.tll!rr) .tr r)!)t bt)il( ut:i1l lvlr (irelltci l.i:l yciir jr)ined thc boarrl ol (. ir'1 I)S and Ir. llrr' lrlJ ,, ntrJ. t i, t r ll ilcntral. includrng rjci:tijs,rl rl.c kI4. :rrrJng(rr..rrl :., Itn,tl :l.rt, *i,l..m,,tr: j: :.\ \r\(' I)r(rllt\ tlulinll il. ir.,... (Lr:rill .llrl() I i)r I'l()l .taL()u1i\ r,l Sl.ttr.
1
11
1

Norbrik's chairman is wide.Roads show a loss of $8 million. However, tle com- Barry Glover and general pany is clearly sufficientlY matrager, properfy; Alan Zammit, who was a former director attractive long-term for AIDC to pay a substantial amount of Australian Housing and for its I 0 per cent share. [f the Land, the re-named former figure of $7.7 mil[on is cor. Hooker land devplopment rect, this would value the division. company at $77 million.'-Its Other member$ are a com1992 return shows t}re company o{ Barrlkharn Hills real pany has a paid up.capital of estate agent Bruce Lyon, and just $460,000. two joint veutuie compbnies Echoing Mr Greinerls of AHL and Fsanda - [aur, words, Mr Baird said last' iston Developments aad AHL month tle M2 could not be Property Developments, fully financed from toll reve- whose chief executive i5 Brepnue or from government dan Crotty, alother .former resourcs but that tle governsenior executive of Hooker ment would provide some Co.p. funding for ttre projecr last year, SBC Dominguez Critics are suggesting the Barry woo a beauty parade to governrueDt subsidy could be organise $285 miilioa worth of as hig! as 85 per cenl The funding by four lanks for tie RTA's Bob Morris has pub. coosortium's stage I water,
licly acknowledged it conld be 50 per cent A spokesman for could not discuss the level of
subsidy.

Mr Baird said yesterday

he

drainage and sewage treatmeoL Ald echoing once again ths privarc tollway story, the Water Board said it did not have the

funds

to

fi-nance the worL

Contributing $80 million towards the cost ol the M2 (in

The prime movers behiod


the consortium were the NSW

by the governmeot) is the Rouse Hill Infrastructure


Consortium, another group with a big interest in privatisstnrcture.

return for re-zoning of its land

Hooker Corporation which held about l50ha irr.tle aree,


the end
1990,

Department

of

Housing and

ation of government infra.

accord;ng to consortium chairmarr, Peter Dransheld. From

in partnership with the NSW Government's l:nd and Housing Corporation, includes
1988

The conrcrtium, formed in

of 1988 until December Mr Dra-nsFreld was direc!s1 ef fueuqing for the Department of Housing. He then rejoined his old company, Mr
I ^ng Walker's proprty com-

tle pany Walker Corporation land-holding subsidiary of which has a zub-lease to the
Stockland Coistructors,
Stockland Corp which las year

depufy chairman, and North


Sydney Brick and Trle, (knowu

appointed Nick Greiner

as

joint venture John Holland

head contraaor for the Rouse Hill water and sewage works,

as Norbrik, and 25 per ccnt owned by IEL) with 363ha incorporating the Bella Visa
residential sub-division and the Norwest Business Park.

not sit on tle tender committee which Last year chose Joh-o

Bilfinger and Berger. ' Mr Draosfield says he did

Holland with whom Walker Corp was already working.

,ffi,

Schroders
[II

Attachment

ROLLING CONCESSIONS

THE M5 EXTENSION CONTRACT

,&l,Schroders

This anachr.nent set-s oLrt sorre recelrt p|ess describing tlre erterrsion of the M5 toli road, both in tirne and in lerrgth.
Features of interest inclLrde the following:

the concessiorr agreernent with the govenrrneltt wAS renegotiated; the tenn of tlre concession was extended frorn an original 22 yea.rs to 30
years;

the maxirnurn toll escalation was reduced frorn 9Vo per annurn to a rate linked to the consumer price index. (However, given the traffic levels on the existing road, it appeared Lrnlikely that a 9Vo per annurn toll escalation would ltave irtcreased overall revenue for tlie concessionaire); the concessioniiire agreed to unclertake additiorral works to help draw more traffic onto the existing toll road;

although the extension works ciicl rrot go to tender, they were notionally costed at $65 rr.rilliorr:
the govenrrnent assistecl the rrew works by advancing a loan of $50 million at conl.nercial rates, bLrt suborciinated to the other debts of the concessionaire:

the concessionaire agreed to refunci to the governrnelttl}Vo of any savings which broLrght construction costs below the notional $65

rrillion figure;

the concessiorraire entered irrto a new sLlperprofits agreernent under which it woLrld reirnburse 957o of profits when, and if, ir achieved an agreed curnulative rate of retLlnt. The new concessiorr agTeer.nent irrdicates that the sLrperp|ofit rate of retultt is lgVo per annLlln after-tax, calcLrlated on the consn-Lrction cost of the origirral toll road plus the notional $65 rnilliorr cost of the extension. and

the sLrperprofits cap cAnltot cotne into effect urrtil repayrnent of loans. It is conceivable, therefore, thar it rnay be extendecl before the currulative rate of retLlnt is achieved.

dney Morning Herald ^rluraday L7 June 1993 Page 4

Road link gives clear run to Yass


By KARIN BISHOP
Tnnspon Wdttr

Work is erpected to start Dert month on a-o ertrn-doo to tle Iv15 tollway to link Cesula to tle south-western freeway near Prestons,'provldlng a non-stop run from'
Syd:rey'r rcuthern suburbs af most to' Yass. The Minlster for Transport Mr BaIr4

Dlsputed sectlon

SYD'N EY

.,9*\rn."*!
LIVERPOOL

sald yesterday that the llnk would provlde freeway conditions for 230 kilometres to the towa of GunnJng. The project wlll be carrled out by the

/Ch' ..or'oot"

....t'o /

recoup the cost of the new link by attracting more traffic onto the M5. The announcement has concerned eoyiroumentallsts tnd resldentr of the Wolll Creek areq who believe the Roads and TraJTic Authorify (RTA) may now went to complete the other "mlssing llnk't h the M5, whlch ls planned to connect Beverly_stlt..to Alerandria, and niblg[
passes througb the environmentally ren-

road buiJdi-og company, Interlink, which bullt the eristhg stretch of the M5 from Bcverly }Till3 fe Casula. Mr Balrd sald the cost of bulldlng the 6J kilometre link was esdmated at about 565 milllon. Interlink had agreed not to lncrease the exlsting 52 toll on the IV15, at least until 1996. Instead, lt erpected to

URSTVIL

Sydney reglon, Mr Bob Morrls, sald no declsiou had been made about the llnk through Wolll Creek and that a separate

However, the director of the RTA's

Mr Balrd sald the construcdon of the Casula-Prestonr llnk ivas erpected to be completed by Septeinber neit year, and
Llverpool area, whlch has au unemployment level of about 17 per cent south-west reglon lr grow^ "Sydneyts Ing rapldly and the proposed llnk b

Envlronmental Impact Statement was


belng prepared.

would create about 200 Jobs

in

the

ve Woll.l sldve WoIU Creel( Creek

reservereserye.

Beverly Bllls where the tollway ff;khed. Sbe caled on the Government t6 complete the Wolll Creek llnk as soon rs possible. help people dowu that end a-nd make it easler for .tra-filc to come from tbe touth

trrffic

The secretary of &e Berley Cbamber of Commercg Mrs Alison Edts& sald the Casula-Prestons lllk would create worse

problems around Berley aird

growth,t he sald.

to keep trafllc out of local roads and provlde for planned futnre
necessary

r.. ,{.

The chalrman of the Friendt of Wot lu ,,f,reel<, Mr Col Teylor, sald {he Governipcnt would be llkely to press rhead wlth

'The cbntinuadon of the

spme road rvlll

..tbc w'u 'ifi; Wolll Creek lf the M5 ended a';;k llnk u;f, ii tn, us cnded ln tr Fb4vcrly

llllh.

It

west through to Beverty HIlh But our malu concerD ls to get the other end completcd so

docsn't cnd Ia nld-alr," rbe rald.

He sald the proJect ivould reduce the congestlog on thc Eume Eighway from Llverpool to the Crossroadi. Mr Morrlr sald the tlnk war belng bullt ln roponre to pressurc from local councils ln the Cempbelltown areq which had been pushlng for dlrect access to tbc M5.

Sr1

14

\o -6-73

to extexjd V{b
By FTARIN BISHOp
Transpon Wrrter The State Government has lenr S50 mrllion ar low inre rcsr to a prir.'are company to exte nd the M5 tollway. It is understood that the interest rate on the loan is about 7 per cent i. year for ll years. The'current a,verage corporate loan rate is hetu'een ll and l6 per cenr . The money has been lent to InterluLk Roads Pr-v Ltd ro build a 565 mllllon exrension ro $e M5, from Casula to prestons, ro be completed by September nexr year. A spokesman for the Mrnister Prescons

State Eexeds $S{}r:r to frrnj

Roads and Transport, Mr Baird, said the Government had to give Interlink the loan ..so thev would build it". "This is one way ol gerrln. rhe.proJecr up and runnlng, ne satd. Earlier this month Mr Baird announced Interlink would begin
money lvould not be used "The taxpa;'er will not have to pay a cent for this road - rhere will be no toll on the nerv section,'. Mr Baird said nvo weeks ago A spokesman for Mr gaira defended the [oan. "lt is a good invesrmcnr. It means ttrey stiii gcr the road rvhich is neede d and'10 years quicker than would otherwise have bcen possible and rhe n t,',c !.et the rnoney back." N4r Baird said Interlink had agrce cl not to rncrcase the $2 roll orr Lhc M5 unrii ar leas( March 1996 Horvevcr, rt is understood tlrc nerv agrcemcnt u'ill allo*, Intcr_ link ro ntarntain the toll [or l0 yeil[s, irrstelrd of 2] r,ears. ils \\,irs originali;,planncd
spokesman, Mr LanEon, .said r,hc $50 million loan meant othcr urge nr roadrvorks rvould be delayed 'This is money which l-ras becn takcn lrom motorists and wlrrch
r()

[or

and promised that ta*pry.rr.

building the M5 exrension by

Ju"l1,,

parliamcnt.irl scn_rtiny. "I have never before seen a case u,here S50 million or for that

malnfatnrng our exrsting roads and fixing the rralfic blac[ spots," he said Mr Langron questioned the legality of the deal between the Governmenr and Interlink, saying that ir should have been op.o tJ

dtl

handled rhe y have deliberately tned to _keep rhe detaits secret.i' Interlink spcnr about $250 miliion burJdrng rhe M5 toUway. f rom Brverlr Ftills to Casula, which opened last August. The companY borrowed the moncy from tire Commonwcalth Bank.

ment," he sard " l think it's a scandal the \\,ay it has been

Treasurer making an announce-

to a private company without comperi.tire rcnders beingtcalled and withour rhe miniiter or

matter any amount has been lent

by Liverpool Council, on averagc only 22,25t) cars and 750 rrucks use thc tttllu'ay cach day, compared w,ith a projcctcd total ol
33,000 vr'hicles

HOrvcVer, acCording to a su[ve y

Thc Opposirion transporr

should have been dedic;rtcri

Alderman fu1ark Latham, said thc annual revenuc would bc Just $ i7 2 milUon, wirich would not service the S250 million loan. A spokesman for Interlink re[used (o comment.

Thc N,{ayor oI Liverpool,

Sn

t+

/t It -

q?
lJ

Spurned tollway needs another $65nt


By K.ARIN BISHOP
Tnnspon Wricer The operator ol SydneY's newest orivate toLlwav will be forced to btrrow a lurther $65 million in Government loan in order to keeP the project viable, it was revealed
yesterday.

to refinance a $230 million debt on the construction of the M5. The extra $65 million was
needed to finance lhe actual construction of a 6.5-kilometre section connecting the M5 to the

General and the Federal L,oans Council to examine the loan. "This is a Government guarantee for a supposedly private enterprise operation," he said.

But he did not reveal at the time either the Government loan or the lact that the RTA had renegoti-

average of just 32,000 cars a day were using the tollway, compared

with the anticipated


compensate

40,000.

addition to its $50 million State

because of lower than expected trafflc volumes on the M5 in the

Interlink Roads Pry Ltd admitted that tie money was needed ciry's
wept-

Southwest freeway at hestons. Mr Fisk conceded that under the terms of the $50 million loan, the Government would not receive

Interlink will operate the M5 for 30 vears and mav not even begin repaying the
$-1i0

ated its contract with Interlink as part of the extension agreement.

manager and director

Mr Rick Turchini, general of LeighCommonwealth

He said Interlink had proposed the $50 million loan to th'e RTA to

million,

tons

any repayments lrom Interlink

until after it had repaid the $230 million and $65 million loans.

plus 7 per cent per annum interest, until the end of that time. Mr Fisk defended the 7 per cent

link with the


Bank

which jointly owns Inter-

for the lower traffic flow and to build the extension,


which he hoped would generate
more traffic.

rate, saying: "Many people

- said that under the original agreement with the Government, it could increase the toll

get

loans at that rate; onJy short-term,

by 9 per cent a year on top of


inflation. Under the new agreement, the toll will remain at $2 for cars until March 1996 and thereafter will increase in line with inflation.

Truck numbers were down far more than car traffic, with drivers avoiding the $4.50 toll by taking

alternative routes along local


roads.

Roads and Traffic AuthoritY, Mr Bernard Fisk, revealed yesterday that the Government's $50 million loan to Interlink was to enable it

The chief executive of the

Interlink requiring it to begin repayments by any given date. The Opposition's spokesman on transport, Mr Brian Langton, called on the NSW Auditor-

He admitted that the Government had no alTangement with

high-risk loans have interest rates behveen I I and 16 per cent." Three weeks ago, the Minister for Transport, Mr Baird, promised that "the taxpayer would not pay a cent" for the 6.5-kilometre
extenslon.

the Government's

Mr Langton said he would

ask

Public

nearly

Mr Turchini said that after a year of operation, an

Accounts Comminee to look into the deal as part of its inquiry into

the private financing and management of public infrastructure.

Jtil,y |, 1993 W.@ndl ePftrl

RItiA \-.t
jt'Jnvs

Fslq

Questions about M5 link:NRMA


NRMA has expressed concern at the number of uranswered questions surrourding the Roads and Traffic Authority's funding of the M5 missing lirtlc
ITIRMA's Chief Traffic Engineer, Peter Steele said today the la& of information provided to the public about a $50 million loan to the tollway operabr, Interlinl, placed the credibility of privately funded roads at risk.

Rmmr
\atronal Roaos;.d
VO(Or,st9 ASScr:.a::On A C:r C@ 910 i,r6 l3l Ciarerce Street Syoney NSw 20@

'NRMA is on record as supporting construction of tlr.is essenrial link and the principle of private sdor funded toliways if it means getting
essential infrastmcrr.ue builr well ahead of when the Covernment could alford to build it.

"However, the apparent lack of public or parliamentary scrutinv of the new agreement stnrck berween the RTA and Inrerlink is cause ior concern
for taxpayers generaliy and motorists in particular.'

to the previous Road: Minister, Mr Munay, about the lack of public access to agreements beween the State Government artd private consortia. NR\'LA President.
expressed concerns

Mr Steele said NR.VA had

Don Mackay had suggested the organisation play a consumer watchdog role in future negotiations, but this had been rejected.
''We believe the public needs to be better informed about these issues and we have written today bo the Roads Mjnister, Mr Baird, seeking darification of a number of points about funding of the linl," Mr Steeie said.
These points induded:

I I

Media Enquiria
{oZ)

Rod Frall & S171r1

the statement by l'{r Baird in Ns June i5 media release that taxpayers ' would not pay any additional costs for the link, when it is not dear

(o?) 7r395g(h)

what effect the provision of 950 mjllion from the RTA's budget wili
have on other roadworks and what the reiative cost-benefit of such long term, Iow interest loan is.
a

Tony Hoban (o2) rc 81 75 1r1


ro2) 922 45r

I (hl

i-- _-9 i:9'a,

delays in construction of promrsed exit road ran)p> '' effect of rrapping motorists on the tollway

^r.'

:rz.j

/a

'The original agreement allowed Interlink to increase the toll by 9Vo plus inflation every yer.Thjs has now been limited to inflarion, but the toll period has been e.rtended for another 6 years to enable the compa-ny to recover the costs associated with the constmction of the new linl<.
a_vailable to guage whether advantage io all taxpayers or not," Mr Steele said.

'There is not enough in-forrration

tfus

is of any great

# ends #

'r1

FSARK COULTAN

On roads with no
dircction
IN FEBRUARY 199 I the Commonwealth Bank's head of structured financing, Mr John Talbot, wrote an article in a magazrne called Directbns in Governmenl. It was on the |44 tollway, which was the first of the Coatition Goveroment's totlw{ys, which provided thc missing link between Mays HiIi and Prospect-l

reluctance for commercia] inveiiors to 17 years to get a rcturn.on their money, so the Covernment is lending money to a company which is panowned by a bank. Fascinaring indeed. When Bruce Baird announced that

wait

extension of rhe M5 from Casula to the sout-h-western freeway at'the Cros.roads, hl said: *The taxpayers *ill not have to pay a cent lor this new road there will be no toll on the new section,' Baird's office maintains that it did not ilclude the loan in the press release because it was too complicated, and in any case, no-one asked. The other part of Baird's statement did not quite tetl rhe whole story about access to the new road. His statement said: *Mr Baird said provision would

lnterlink would build a $65 million

be made for motorists to leave the Motorway at Camden VaL.ley Way,


and Heathcote Road.'
Hume Highway, Moorebank Avenue
What it didnt say was thar the exits to the Hume Highway and Heathcote Road for city- bound traJllc will not be built for some time after t-he road is finished r\&'o years in the case of Hume Highway erit- In ottrer words, the new road rfrI air as a funnel for the tollway. Once you get

Talbot wrote that of all the tollw'ays contemplated arouod Ailstralia, .the
*F4

Bovernment could help privati:ly

[now called M4] possessed t]re rhost robust economics. The Commonwe4lth Bank believed the projecc eco-nom.ics were strong enougb to stand alont. I also believe it is probably the only toll road project in Australia that couldlbe undertaken on the basis on u,hich it*as finally negotiated.He then went on to discuss how

on it, there are limjted bptions io e]rit before paying Lhe tolL This week Interlink admitted lor the Frrst time that fewer than tlte expected number 6l vehicles werb using its
motorway. A back of the envelope calculation suggests that Interlink
need-s

sharing the risk. " U nderwriting a disaster scenario would still loave
management and conuol in the hands

lunded infrastructure like tollways by

justify spending another $65 million for

around 6,000 extra cars a day to

the new road.


Given that,

of the private sector and could be structured to leave significant financial risk in the private sector, It will.be
toll-road transaction - planned for Sydney's South West - finaUy ukes should it be succtssfully negotiated."
fascinating to rvatch what shape the'F5

it

wh.ich would allow motorists

Interlin-k would voluntarily provide exits


less useful thaLr

was hardly likely

r-hat

their toll. But it makes rhe


sip.ificantly

to avoid
road

called Interlink, a consortium made up

The contract for the M5 was eventually negotiated *'ith a company

Fascinating indeed

wouldn't ot-herwise b buil for many yean. Second, it has renegoriated the

good deal Fint, ir is geningla road ttrat

funded one. The RTA argues rhat it bas struck

a publicty
a

of Leightons and Mr Talbot's

I;;; , k";;;i,t
I

employer, the Commonwealth Barrk. The contract remains a secret, so we

of road which qill be an effective extension of the motorway, from

M5, unlike the M4. probably couldn't stand on its own finances This week it emerged that Interlink was being given a S50 million loan frbm the State Government as part of a deal to build anolher missrng link in the road network - a 6.5-kiiometre section

.'b*o--on*eatth Bank listened io Mr Talbor's *'arning that the

clause which govems the in&ease in the toll The old conraa said Inerlink could ra-ise the toll by CPI or by 9 pr cenr.a yeal - whichever is the geater. The new deal [ues the toll for three years, and

after

Given the current level of i-dflarion anb

While removing the 9 per cedt increase may be -to rhe l6ng-rerq adv-antage lor motorists, the three years ol $2 toll is a very small 'concessioh

it

can rise only by infiadon.

--

the resistance being shown to the preseht $2 each-way toll, it is unlikely that t}re company would have raised it to $2.50 in

the nert tlree years

south-wesrern freeway at' t-he Crossroads, he said:"The tixpayeis witl irot have to pay a cent for this new road there will be no toll on rhe new section." Baird's olflce maintains that it did not include the loan i:n rhe press release because it was too oomplicated, and in any case, no-one asked.

owned by a bank. Fascinating indeed. When Bruce Baird announced that Interlink would build a $65 million ex(ension of the M5 from Casula to the

on tie market and not bother the poor old RTA, *,h.ich has los of other things it could do wrth S50 million? There appears ro br an apparent reluctance for commercial investors to wait l7 years to ger a return on their money, so the Government .is lending money to a compa-oy which is part-

Casula to the start of the south-western freeway at The Crossroads. The Roads and TraJTlc Authority says tjre loan is commercial. but if that was t-he case, why doesn't the company borrow it

rules are followed. For examolc. there should be a viable, free alternative to a

il any casc. Privately-funded totlways are a peifectly sound concepq as long as certaln

toll road. This isn't the

case, fot example, with the Sydney Harborjr Tunnel and Bridge.

There should also be an open tendering process, which happened


witti the M5 but which hasn\ happened

with ttris extension. But one of the moit important rules is rhat rf it is privately funded, then the privare company bas to carry the majoriry of the risk. fusk k the crucial ele menr if the private secior

the privatisation process.

of t-he private tollways to fajl, in fact ir would be a resounding affiimation of

taxpayers. Without the element of risk, private enterprise is likely to be just as inelTicient as the public sector The ultimate risk for. the private sector js going broke. A-lthough it miglit scem like a polirical defeat to allow one

is to provide value for money qo

tollway loall
By IGRIN BISHOP
Tnnspon Wrirer

investiEate

Paxre1

smay/,:;:,,

The NSW Public Accounts Commiftee may investigate the terms of a $50 million low-interest Government loan to a private company to help it build a new finft-in the M5lollway.' The chairman of the committee, Mr Andrew Tink, said the loan made to Interlink Pry Ltd, which the Government had not disclosed to the public, fell within the terms of reference of the panel's present inqury into private funding and management of

through infrastructure bonds. The NRMA has caUed on the Government to explain tie reasons behind tle loan, saying that the lack of informatibn lro'uiaea to the public had put the credibility of privately funded roads at
risk.

of the new link, which is also being financed by the bank

additional $65 million for the cost

The NRMA's chief tralTic engineer, Mr Peter Steele, said tie association had been concerned for some time about the lack of public access to agreements publ-ic infrastructure. between the State Government "At the moment we are looking and private consortia. at issues which are relevant to the said the NRMA had written Interlink loan," Mr Tink said. to He the Minister for Roads, Mr These issues included confrdentiBaird, asking him to clarify why. ality of infrastructure contracts, he had originally told the publ,ic and keeping a balance between 'not one cnt of taxpayers' t-hat the public's right to know and the money" would be spent on the confidentiality granted to private new linl, and why the RTA had enterpnse. to allow Interlink to delay The Government and the agreed Roads and Traffic Authority building exit ramps at Heathcote Road and Hume Highway, effec(RTA) negotiated a deal with tively trapping motorists on the Interlink to build a $65 million road as far as the tollgates. extension to the M5 tollway, A spokesman for Mr Baird said without increasing the toll charge yesterday that the Government until 1996. In return, the RTA lent Inter- had not tried to hide the loan link $50 million at a fixed annual - agreement from the public. The spokesman blamed the media for. interest rate of 7 per cent to help the company refinance a $230 failing to ask about the funding million loan with the Common- arrangements when the Government announced the new link wealth Bank. This earlier loan was taken out to finance the existing wouid be built two weeks ago. stretch of the M5, which runs Yesterday, the Premier;'Mr from Beverlv Hills to CasulaFahey, said that both the'prb'b'6sal Under the agreement, Interlink ' and the agreement for the'toll. will not begin to repay the RTA way's 'missing link" was "run loan until after it has paid back its past ICAC flndependent Comentire loan from the Common- mission Against Cormptionl and wealth Bank, including the out- run past the Auditor-General standing $230 million and an before the contract was signed".

The bilirate rb,afl paved \


By KARIN BtSHOp
Transpon Wnter

Freedom

meant to be privarely funddd anl operated. _ Documents obtained under the

way, a road ttrat was orisinallv

has received t-hree loans from lhe State Government to nefp filancc the consu-ucrion of tle'pfi toU-

The company Interlink Roads

conrract to build a 6.5 kilometre

the $50 million RTA loan, revealed a week ago, which formed part of tle rdnesotiated
to
Prestons.

extelqion
Casula

of the tollway from

9*olu lo2ns
costs,

qf th-. M5 from Beverly Hilt i; provided for rwo RTA


one to cover construction ald the

show that the original contract for ttre construcfion of the frst stretch

of

Informatioo

aii

l:nd acquisition costs.

other to cover

tle

These loans are separate from

est rates. The contract sppcifies tlat .t!e RTA must lend the constmction

The ameqlts of the two original loans, and the interest ratEs were deleted from the documentsobtained under the FoI uA-by Liverpool Council h Jirly last year the . Hoy9ye5, tten Minister foi Roads, Mr Murray, revealed that Intdrtink had received a $tO mifiiea eqyernmentlObn at commercial inter-

ToII gates on the M5 . . . 'T,I" F"huyloan to the company and pay the constructron payments to the gompany . .. provided that the RTA is reasonably satisfied with

ErJilIti"up.,'

r.?91.6tffi

the progress of the design and construction of the tollroai . . . it being understood tnat tne company does not have to establish

with public Imoney


that any particular amount
has

The RTA reported last week


that the M5 was being used by an average of 32,000 cars a day. Tb,e Herald was unable to

been expended in respect of such

design and construction". I ike the $50 milliqq the earlier

said 'The RTA loans are like

'This is government waste and mismanagement at its worst " he


a

dog chasing its own tnil, with more

loans are subordinate to debts incurred by Interlink with the Com m eae7sa116 Bank Repayments to the RTA would not begin until afrcr the bank had becn repaidInterlink is jointly owned by the Commonwealth Bank md 15s construction company I*ighton

contact the RTA

for

comment

yesterday.

for

spokesman for the Minister Roads and Transport, Mr

comrblish

ek.' and . . . it

Contractors. The documents also show that

at the time of the agteement, in 1990, Interlink expe&ed average daily car traffic of 33,000 on the tollway aad fully accepted the project's commercial risks.

said he was 'unaware of the material at the moment'. The Mayor of Liverpool, Councillor Mark Latham, called on the Government to reveal immediately the full extent of its debt in the project and the likelihood of taxpayers' funds being used again to bale out
Interlinlc

Baird, referring to the documents,

leans sommitted to prop up the Government's original outlay." The Opposition spokesman on transpor! Mr I -qngtor\ said the Government now had no choice but to reveal the details of the M5
contracL

'This is developing into a fint-rate financial scandal - this will be Mr Fahey's Eastern Creek " he said. The Government was h.iding behind the excuse of commercial confidentiality to disguise its financial mismanagemenl

>)
I "Er{

ffi :;

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'o

ct

fd

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d
q

&srning Wevalt

F F{
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to

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i ! e#E il:393
a

$.:a:'s F;: : o k-l E-dA c ouq 5 do l-a> - OO

cB
! =O od
;-

268 E.-

GI

if i;Ei3q ffgf;; ;c;{$ Cost : s { $?c!; i? If; e Ei *:e


j*ffgffiEli3EiisjEili$
fl+ 5-e; a bi S.E'EF It= *t q.H .r;= -'.Y-!c d c 9J o
v C 6 E-c 3= o F > 6-:!-i

; +!

oo 'do o o o.: x

of gctting
notional loan
based on land acquhition costst'.

stuck on the M5
of
$22 millioil
at tbc favourable $50 mittion rate of 7 pcr cent interest h4s been confirmed by the,Gcivernment to enable the contractors to complete a $65 million extension

PRIVATISED public' ficitities provide the means to release scarce public resours for alternative'public works. A tollway is a good example. It can be attractive to private investors

H
d

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Fd F4

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a ^*d o-,..: =F<!

ro g=9

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d
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-+J

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ilcllZeo.:HdC d:3 o o o e.= .q: >.\ E c.q o k ue k

:I;i

"l**--!

99: PE q

r)=

:s:sP sE; g,E I E 3: f:


^ 95 o di'65

E;B EI_;

when it offers the promise of a secure return based on a steady cash flow even if. over a l,on! term. For government, the advantage is that with one fewer item of infrastructure gelling 6n public funds there is that much more moDey for other purposes. What is the point of privatisation, though, if the projea is to a significant extent, funded by goVernment loaru to the private contractor? Not only is the basic purpose of the exercise
freeing public money for other purposes : negated Also, tle relationship between the gov-

Both are repayable at commercial interest rates of '12 ner cerit following' the contrbctori' repay. ment,ef is ba-nk debt froo toll revenue. Ngw, a. third loan of

'

to the M5.

& F4
iEf
E 5

Et;;
9';

?*Esif;s
Hr I rE
c E
<

$;j;8EEiE

ernnent and the private contractor changes. The private conhctor no longeJ bears so
much of the risk that t-Ue project will return a profit; the govern-

!!bE5=sfie 6iEEle=:;A

ment, having committed its own years at current long-term comfunds and a-nxious to see them 'mersial rates." Mrs Cohen also
when zuch requests are based on

vatelpublic infrastructure projects" and says tleir associated cgqtrqcts compare . favourably with that made by the previous l.abor Government for the Sydney Harbour Tunnel' piojecl This project *saw: ths Sydney Harbour Junuel .Qompauy given a $223-million interestfree loan for 30 years', she said. "By comparison, the Government outlay to lnterlink for the M5 is a total of $85m over 17-22

M5 tollways are 'model pri-

Mrs Cohen says the M4 and

! !; eEiE E; ilEs 4

returned, is susceptible to says, rather simplistically, that requests for more, especialiy the risl on traffic volumes for
the argument that without more the Harbour Tur:iel is borne by

F4 ;ilae Eii;

t:i; r; iff;;:
gff gig

funds the project will

fail the M5 is borne by Interlink The acting Minister for The Harbour Tunnel, of Roads, Mrs Cohen, says there is course, is a very bad example of

the Government while that for

& i3l*g ii:ift I*iil;


oE Xo .. Cn -q -E F 55 S

tro mystery about the flrna-ncial arangements for the M5 tollway, si-nce tlese were spelt out by
the Roads and Traffic Authority

pnvate/public infrastructure projecq in terms of financial


arrangements. The Greiner Gov-

rR

\J

A t:;;=EE:;R;i:gg:i:s ili s:BEi:s i;!t I s;=i I E;*


5EE

5>

r{ b ;Z tEi:5! i EE. 2;4

uE 6=

in a media release in February 1991. That may be so, though that media release appears to
the time. What
there has been

a contract which was altogether too favourernment conhrmed

have passed largely nnnoticed at

to the contractors, The question 1g1a3ins whether the


able
Government has indecd got the best deal on the M5. The latest S50-milli6n loan raises a Yery real concern that the Govern-

by the State Government


lnterlink

is plain is that a series of loans

iF;f ii; g;ji ;: ifg;: ;E {l 2 2i i * ; eI.:u :. F; g EcE


* ag!
"
E

9EE

E*=.s!3i

g; =:

jointly owned by the Commonwealth Bank and the construction company lrighton Contractors - which built the M5. Two are mentioned in the RTA's F gh$: ury* t9.p_{*,4-eg i a. *construction lo'an release - a ol $13 million as a contribution to the project costs" and "a
contractor

Roads a

to private

ment has allowed itself to be


drawn into a process of rePeated iniections of loan funds to ProP and in the hoPe o-! uf t-ue project ^the contractors PaY off seeins their-S23O-milion bank debt as ouicklv .as possible'.,since only'

'6e;

can tixPaiirs' funds be r..o,lo.d- tf thai is so, !t is.n-o-1

such

perfea model at'

all'"

,ffi,Schroders

Attachment IV

ASSUMPTIONS USED TN FINANCIAL MODEL

,&S'Schroders

l.

The followirrg i'tssunrptions were used in the anrtlysis of toll road borrowing capacity.

. . . . .

traffic growth of

3Vo per annurn linear';

inflation of 37o per annum cornpound; toll increases in line with inflation;
2 year original construction period and 20 year tolling concession; tax depreciation:

. . .

807o

civil works

at 5Vo straight lirre

207o equiprnent at307o declining balance

tax rate of 337o:


interest rate of 8.357o per annllrn; pre-opening minimum acceptable cover ratios:

Loan Life

Cover: Cover:

2.0 tirnes

Concession Life

2.5 tirnes

Loan repaid on 2 times cash cover;

post-opening rninirnurn acceptable cover ratios:

Loan Lit'e

Cover: Cover:

1.4 tirries

Concession Life

1.75 tirnes

Loan repaid on 1.4 tirnes cash cover;

new lorins spent on new construction.

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