Governor Rendell renews effort to concession Pennsylvania Turnpike - RFQ Oct 1

September 5, 2007
By Peter Samuel
Governor Edward Rendell is renewing his effort to do a longterm lease/concession of the Pennsylvania Turnpike. Potential bidders must respond to a Request for Qualifications (RFQ) by October 1. In a statement today Rendell said that Act 44 is looking fragile. Act 44 was seen as defeat for the Governor's concession plans and provides for the existing Turnpike Commission to retain the Turnpike and expand its sphere of operations by tolling I-80 as well.

Rendell said today in his statement that "opponents are lining up to fight tolls on I-80" and moves at the federal level "could destroy a significant portion of Act 44's financial foundation."

The governor is also quoted: "There's a good chance this (concessioning) process will yield a sizeable bid for the right to operate and manage the Pennsylvania Turnpike. If the high bid is large enough, I will take it to the General Assembly to consider whether it makes sense to adopt the required legislation needed to accept a bid and generate the extra revenue we still need to address bridge and other transportation needs."

Rendell concludes: "I ask members (of the legislature) to keep an open mind on the public-private partnership idea and to be prepared to consider that option again if we receive a bid that would greatly enhance our ability to fix our bridges and roads and support public transit systems. We owe it to tax payers to find out if more can be done to sure up (shore up?) our transportation infrastructure."

Website for the concessioning

The Pennsylvania Department of Transportation has established a website for pursuing the concession process:

http://www.dot.pa.state.us/paturnpikelease


The most substantial item there is a 34 page Request for Pennsylvania Turnpike Concession Quaifications. We have this on our website too here.

The RFQ responses will require:

- detailed information about the team
- the team's tollroad operations experience and capabilities
- customer service record
- experience with safety
- financial capabilities

The RFQ responses will, be reviewed by Morgan Stanley, the state's financial adviser. No state officials are to be contacted.

RFQs will be made public.

 Timetable still to come

Teams accepted after the RFQ will be announced and at that time there will be a more detailed timetable for bids.

It seems the state does not want different proposals but will have a draft concession contract ready. There will be an opportunity for discussion of this draft contract, but the materials suggest basically that bids will be sought on the draft contract.

Those passing the RFQ - the short-listed groups will be able to do their research ("due diligence") with:

- access to a data room
- bidder meetings
- presentations
- a review and discussion of the state's proposed Turnpike Concession and Lease Agreement

Following this - at an as-yet-unspecified date - final bids will be submitted.

The state reserves the right to reject any and all bids, to accept parts of bids, and the right to postpone dates "or take any other action it may deem in its best interest."

Value?

Morgan Stanley, the state's adviser, has said that the intrinsic value of a concession is in the range $12b to $18b, although it could be more.

Toll revenue on the Turnpike is currently $607m/year. Act 44 authorizes a 25% increase in toll rates, which should increase revenue by about 20% to perhaps $730m. Applying the Chicago Skyway and Indiana Toll Road concession price/toll revenue multiple of 40 would indicate $29b.

But that x40 multiple may be unrealistic because the Pennsylvania Turnpike toll rates will start off close to their market rates with little opportunity for the increases available in the mid-west. On the other hand the Pennsylvania Turnpike would offer huge opportunities to reduce operating costs - being presently more a political patronage machine than a business.

This spring the Governor's plan was to gain legislative authority first, and then complete a concession. However he got no legislative support.

He now seems to be operating on the basis that he can get concession bids first. Then take those bids to the legislature, and get authority to execute the best.

COMMENT: It remains to be seen whether the state can get good bids with legislative support so uncertain. Bidders will wonder whether the process will go anywhere after the lack of a sponsor for enabling legislation in the spring and summer.

However the state's decision to present bidders with a draft concession contract reduces the effort required of bidders and the expense of bidding - and so helps offset the discouraging effect of legislative uncertainties.

TOLLROADSnews 2007-09-05

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