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Schroders
,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.
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.
.&$,Schroders
INTRODUCTION
1.
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
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
g,Schroders
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.
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
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
-31.
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.
,ffi,Schroders
-5
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.
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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Gros s borrowing
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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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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.
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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.
42.
43.
44.
'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.
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.
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.
,H,Schroders
Attachment I
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:
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
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.
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61
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Volume
to
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
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"-
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
$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
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
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
l3
l5 l6
Project highlights
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
Hilis transporta-
from Wilbur
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
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
the polilical risk of that equation feli through a ferv project development to be greater years ago when new residenLial de-
\ elopme
rt slowed to a
unit have
Lrickle in
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.
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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
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-
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.
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
Toll colleclion and revenue managemenb will be handied under a $ 12.9-miliion turnkey contracl
awarded on Mar. 5
Co., Teaneck, N.J.
Lo
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-
In addition to financing the installation and slartup ofils toll system, the defense contractor has agreed to provide a lO}Vo perfor-
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
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,
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
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
Sl,0'18,629,421 90,947,437
Advancc Fundcd Dcvdopmcat Impct Fcca(l) Fcdcrs.l and Starc Fundiag(2) . ... Intcrcst Earning{3)
106,353,055 Intercst(f
SI,4l7 ,66g,j
289,50!.,725 75,000,000
Total Sourcrs
Fund
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
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.
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
trad in
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
risks."
AlLhough il's still noL clear ri'here the yield has to be lor lhe next projects, "San Joaquin shows rhere
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
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."
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
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
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
,'
do.,i'n somesays,
tl're
istration and Finance. and the Ieacler olthe San Joaquin fi nanbing effori. 4!ong rhe other key players are;
TCA
:)a1: , ..:,.::
:,.'::r.
,;-,
;',;1;;.:..;.-i:;:..
..:.i.
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.
.:
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
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.
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
'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
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.
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
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
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
endangered, il was a greab victory for the forces of reason-and flexibility-in the national environmentai debate.
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
expensive-drive
kels.
Lo
Both moves are typical of TCA's "no-holds-barred" approach to project development, namely:
'o
PWFinancinglMarch
1993
.:
:'
E#,
Schroders
Attachment II
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
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
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
ion_a
cIo3s codc
shaie
rrorni na Pl
va I ue
AC/-iP 6CF.P
n)h
qllda c $
vr\vt(^rt.
Sha
res
lot6t
cI
ats co{ie
.rerber i ssued
1
I
(
-^iJ poi!
,1
SsLance
G
Auiii;
!r^.
qilvv,rr ^h^,'^.
of
shaae
t
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
Ld
nuttDr'
L^r lctu i
^L^^^^ silEr c5
1525
YY
NSt]
ZCTJO
CO}$Cli'iJEAtIH giNK 0F
vaorrr Dr AFc SYUI1EY NSH 20UU
ArJS I
RAL:A
Ii
SgUTI{ TO!]EP
TI]!
5.1u4
IilTERCi.I,lIIGE
67 ALBERI ST
(;I{ATS.JOoD
NSII 2067
.i
HC.USE
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
t{5H 2000
dJh
z Uuf
Pale laI of
t_t
r-
L3!'E
l7 -'ige 14 of 3C rxld:
tr
ffi
ffi
},NVTI I T4AU L\JUD I\UL,L'Uft I b FOR THE YEriR ENDED 30 JUNE, 1g3
ffi
&T
1ss3
Cirief Entity
1gS2
ffi
ffi *uunnu"
{i
3 43
22
16,33i ,e6B
_=====?_=
H!
3,408,877
. ,
Efi
12
3,408,ri77
ffi
7,761
losses)
{15,2s0,360) (11,671,442)
3.416,e41
ffi
ffi H
-ffi
ffi
ffi ffi
ffi ffi
tH
accdirfird
ffi r+:
),r:r::C3 Sl:5?3
AF.{
D ECIT{TROLLED EF.JTITIES
ffi
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
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 /
5,8S2,269 14,093,833
r^;
5,297,3i8
$ no*-"uRRENr AssErs
Receivables
10
it
nia I .A 4.1
I to
7,85)6,42-2
15,842,875
av.JJ
12
13
154,334,878
1
ffi
ffi
62,23 1 ,300
174,277,963
185,502,402
1ii3,6ii?l 7is3
ffi
CURRENT UA.BILITIES
El
Provisions
14 15
2,725)eB
609,348
.J,JJU,5 Ib
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
26
(15,830,i08)
(lr,211,isr)
ffi ffi
SHAnEHOLDER6' EOUnY (DEFICtT)
ffi
sn"ru Capiial
at ll
i Q,
a,'-ll
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
=====-====
ffi
cccclirAtd
19 of 30 D*Ic:
CC15t491l
5'li
Fd
{i.i
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
trrlttry
I
993
VYZ
H Charging as e.Ypenses: e
trE
ffi ffi
$$
3.689,227
653,6C4 .) ..na
16
ta
U.OJZ
. a AAA r .r I rv.)c,++ /
rf<1,/OO
&d
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
bsb,549
j r{9,716
e71
\,,/VV
-ra
tfl
ffi H
ffi ffi
H
b;
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
'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
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
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
.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
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+/! -^,
^.^^<1!]V,?'{
t |J.l,lJrJu
4,ii), E6 j
^'--
n..t. J
6a c/ta J I.JT.J
^l
4;tlJ I,<LtV
2,72S,1 68
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
aiiiiicnai
5'1.555
Ir, Ir ln /1n^ rv,wwv
1
rcad
gvttJ ^^.tc
t:q
,ir-:o'r#i
I'et
,161 .5$5
(, a,1\ oa 4t c J.!\rv
ffi
H
r{a
H
Ei NOTE 16 , Fa Fq
186,5i
9,555
178,3i 5,000
178
tlrl,rlr)0
17t,3't l;,(tao
= = = = == ==:.:=:
6:[
F.T
=:i =
i$ 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
th..:
f&
Ld
11
tit
ffi
ffi
accdiv'ltd
17
ffi
\at:2t1 t r.i
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
Chief Eniit.y
9S2 i 993
g,
06/-
S1AFE EiFiTAL
I
l3o,ooo,ooo shares oi
$i
each
IVTJ,IJUU,UUU
100,0c0,0c0
ffi
&
gur
$lsru"o
ffi
1.250 ordinary shares of $1 acfi fully paid m 1 class 'A" cumula'rjvg reductiiabie prelerence
Capii;il
redaurrrable preit-.:'ence
share share
16,250
1 1
<c ocn
1
I O,
Z?tJ
1
16,250
l
I
H H
i6,252
16,251
a6
r
Ad6 u.zJz
o,zb
========
At a timc '*fien S'etewidc Rca'is (Fa) Ply Lirrrited has r.:tained profits, the hcicier of th Claas 'A'cumulaiive rsrlee,rnable pariicipite irr dividends eqr.rai io 12.59o of rhc prolit. The sha,-o is redsamable at ffi arctcrenc shai'e has he iigi,t to 5,ar at a ffi cate alrseaDl ',o iha holcer oi the stiare arid the conrpany not b'eing mcre than 6o days after the explralion oi soone, termina'.ion of the hl.i Moioi-way it'ase.
Ct,e class 'B' cumulative r-edsan-rabie prerlorence sh"re was issued at per ouring the t-ear. Ai a iime whan S'1JF Pr.cporlios ffi EPt, Lrmited hai raiained pi'-,iils, ihc hrrid*r oi ihis sirare has ihe righi io parricipatc in drvidendc equal io I1.5",6 of ihat profii l-ne snare is radeemable at par a" a ciat agroeatr!e iq lire hoider cl the share and the ccmpan./ nct being more tlran 60 da,vs --F f,{ afier tne expiratroil or sccnr t;rrniiiation of liie M4 Mr.riorway iease.
ffi
NOTE 18
: RESENVES
reseryo
H
d
444,00C
444,000
444,C00
4.[4,00c
E{
ffi ss
E$
s
a 9rl
[fr
s
ffi
H
accdir/itd
JB
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-
8y VAIIRE UWS0ll
Hilr-
completed next yeai, will pro-i vide 15 years worth of landi supply for only 80,000 people. i manager
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.
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
plans to progress to stage 2 for 15 years. Therefore, the Gov-l ernment must now be looking;
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
i I
conlidentiality clause
Mr
in
the
;
:
Baird.
ers, CMPS and F. He would not comment on suggestions that this was $7.7
i I
:
joincd the board of Statewide Roads last April. Norwest Motorway is a $2 company cstablished last
u
6l
&
Mr
ffiw
COHROY
Mr SIA|{WFI I
Mr DRAllSFlttD
Mr
GL0VER
MT GRflHER
Stage
No*est
B6lness Parl
,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
Jtlnrng llrcilt
JS dis1q1o1_r 1rl
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
Ilrrr'"
(..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.
he
drainage and sewage treatmeoL Ald echoing once again ths privarc tollway story, the Water Board said it did not have the
funds
to
Department
of
Housing and
in partnership with the NSW Government's l:nd and Housing Corporation, includes
1988
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
as
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
,ffi,
Schroders
[II
Attachment
ROLLING CONCESSIONS
,&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.
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
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
in
the
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
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
..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
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
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
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
to a private company without comperi.tire rcnders beingtcalled and withour rhe miniiter or
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
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.
Sn
t+
/t It -
q?
lJ
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
40,000.
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
He said Interlink had proposed the $50 million loan to th'e RTA to
million,
tons
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
- said that under the original agreement with the Government, it could increase the toll
get
Truck numbers were down far more than car traffic, with drivers avoiding the $4.50 toll by taking
Roads and Traffic AuthoritY, Mr Bernard Fisk, revealed yesterday that the Government's $50 million loan to Interlink was to enable it
Interlink requiring it to begin repayments by any given date. The Opposition's spokesman on transport, Mr Brian Langton, called on the NSW Auditor-
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
ask
Public
nearly
Accounts Comminee to look into the deal as part of its inquiry into
RItiA \-.t
jt'Jnvs
Fslq
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
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)
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
I (hl
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.
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
Talbot wrote that of all the tollw'ays contemplated arouod Ailstralia, .the
*F4
[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
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
r-hat
to avoid
road
Fascinating indeed
wouldn't ot-herwise b buil for many yean. Second, it has renegoriated the
a publicty
a
I;;; , k";;;i,t
I
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
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
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
--
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
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
case, fot example, with the Sydney Harborjr Tunnel and Bridge.
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
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
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.
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".
Freedom
has received t-hree loans from lhe State Government to nefp filancc the consu-ucrion of tle'pfi toU-
the $50 million RTA loan, revealed a week ago, which formed part of tle rdnesotiated
to
Prestons.
extelqion
Casula
9*olu lo2ns
costs,
show that the original contract for ttre construcfion of the frst stretch
of
Informatioo
aii
other to cover
tle
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
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
for
comment
yesterday.
for
comrblish
ek.' and . . . it
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
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
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;: Higaigfigs::ii
i ! e#E il:393
a
cB
! =O od
;-
268 E.-
GI
; +!
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
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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
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E 5
Et;;
9';
?*Esif;s
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c E
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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 $85m over 17-22
! !; eEiE E; ilEs 4
returned, is susceptible to says, rather simplistically, that requests for more, especialiy the risl on traffic volumes for
the argument that without more the Harbour Tur:iel is borne by
F4 ;ilae Eii;
t:i; r; iff;;:
gff gig
fail the M5 is borne by Interlink The acting Minister for The Harbour Tunnel, of Roads, Mrs Cohen, says there is course, is a very bad example of
tro mystery about the flrna-ncial arangements for the M5 tollway, si-nce tlese were spelt out by
the Roads and Traffic Authority
rR
\J
5>
uE 6=
in a media release in February 1991. That may be so, though that media release appears to
the time. What
there has been
9EE
E*=.s!3i
g; =:
jointly owned by the Commonwealth Bank and the construction company lrighton Contractors - which built the M5. Two are mentioned in the RTA's F gh$: 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
'6e;
such
all'"
,ffi,Schroders
Attachment IV
,&S'Schroders
l.
The followirrg i'tssunrptions were used in the anrtlysis of toll road borrowing capacity.
. . . . .
traffic growth of
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
Loan Life
Cover: Cover:
2.0 tirnes
Concession Life
2.5 tirnes
Loan Lit'e
Cover: Cover:
1.4 tirries
Concession Life
1.75 tirnes