DRIC finances revisited - comeback to the bridge company sponsored Conway report
The Conway report declaring a new Detroit River or DRIC bridge financially non-viable has a bunch of questionable assumptions, according to a thoughtful analyst in Detroit (Analyst) who follows this project closely, but can't be identified. The first Conway error he asserts is inflating the capital structure to be serviced by tolls with items never intended to be toll-financed - the biggest being the Windsor-Essex Parkway, a $1.6b, 7 mile, 11km approach road for the bridge on the Canadian side.
The Parkway's sole rationale is connecting the DRIC bridge plaza to the H401 and EC Row expressways. Its financing is something of a mystery but apparently Canadian taxpayers are footing the considerable Parkway bills under an availability payments contract quite independent of the bridge itself. That takes away about half of the capital liability that the Conway report attributed to the DRIC bridge project.
Our Analyst puts the concessionaire capital requirement at $501.6m for the US portion of the bridge plus the immediate approaches. That apparently leaves out the cost of the US Customs Plaza ($150m) and the GSA border inspection plaza ($236.6m) and the cost of the multi-level interchange with I-75 ($385.9m). The Canadians have said they will finance Michigan capital costs of $550m which they will also recover from the revenues of the bridge.
The Canadian portion of the bridge plus immediate approaches are costed by the Analyst at $447.5m omitting $387.6m for the Canadian toll plaza.
Our Analyst therefore puts the capital costs to be carried by the toll concession at $949.1m versus the Conway report's $3,536.2m. That $989.1m is just 27% of the total capital costs attributed by Conway to the project.
At a capitalization hardly more than a quarter of that assumed in the Conway report of course the financial viability of the project looks quite different.
The Analyst uses the Wilbur Smith Associates (WSA) traffic and revenue projections which start close to the Halcrow numbers used by Conway but grow at about half their pace. WSA tolls go from $70m in 2016 to $204m in 2036, whereas the Halcrow numbers go from $63m to $132m in 2035, almost the same 20 year period.
We've picked a couple of the scenarios he ran calculations with - both 100% longterm bond financing.
20% or 30% equity would obviously reduce risks in the early years and add flexibility. Instead the Analyst alleviates the burden in the early years a little with interest-only payments in the first ten years of the bond.
See table nearby for 2016, 2026 and 2036 $#s.
He writes: "Under this scenario, the NITC project would be financially viable in the first year of operation for any interest rate under 6.35% ."
Of course under the WSA projections it gets very profitable in future decades. With the Halcrow traffic and revenue projections it starts off in the red and slowly gets itself into the black.
The Analyst looks at how the Canadians might recover their upfront contribution of $550m they've offered to take MIichigan off the hook for the interchange and approach costs. He assumes their debt is "subordinated" - they only get paid once the primary lender is looked after. But in his scenarios there are no difficulties repaying the Canadian contribution - interest needs to be capitalized for only about the first five years.
COMMENT: the financial viability of the project depends on
- governments (taxpayers) carrying the costs of everything except the $0.99b of the bridge proper, some $2.55b or 73% of total costs of $3.54b
- the higher Wilbur Smith traffic and revenue forecasts being realized as opposed to the more modest Halcrow forecasts
It's the Canads who are "on the hook"
Actually the people paying most heavily for this project and those most at risk will be Canadian taxpayers. They'd be somewhat less badly treated if there were tolls on the Windsor Essex Parkway, the project's biggest extravagance.
Given the amounts of money the Canadians are putting up you have to wonder why the project even has Michigan as a partner. It would be a lot simpler if the US just let the Canadians do the whole project.
The Canadian consul in Detroit, Roy Norton keeps telling Michiganians they "don't have a penny at risk." The best way to ensure that result would be to let Canada handle the whole thing - all the way from the I-75 ramps to the H401.
TERMINOLOGY: Annoying has been a move by the new Michigan administration of Gov Snyder to change the official name of the DRIC for Detroit River International Crossing to NITC for New International Trade Crossing, substituting one blandly non-memorable acronym for another blandly non-memorable acronym.
The old term at least had the virtue of familiarity. Plus it had the location - Detroit River - in its title, whereas the NITC could be anywhere on a border.
We'll stick with the old familiar name DRIC for now.
As for the people of Michigan we're not sure if they are Michiganians, Michiganese, or Michiganites.
The Conway report was written up earlier here:
Windsor Essex Parkway:
Wilbur Smith traffic & revenue:
Halcrow study we don't have, yet.