SH121 bids debated - NTTA takes major hits from experts, Cintra looks better bet

 North Texas Tollway Authority (NTTA), the local public toll authority has won the PR and media battle over the right to build the SH121 tollroad hands down. Cintra/JPMorgan didn't even fight on that front - at least until now. But NTTA has taken a terrible battering at the hands of experts who have dissected their proposal and found it full of holes. By contrast the Cintra/JP Morgan Fund concession proposal has held up to scrutiny.

Independent analysts say Cintra/JPM's is the more solid proposal.

The most devastating hit on NTTA's proposal came Friday from PricewaterhouseCoopers (PwC) hired by the Dallas area Regional Transportation Council (RTC) to do an independent evaluation of the two proposals. They said in one of four major presentations at a five hour long workshop held by the RTC June 14 that the NTTA proposal greatly overstates benefits while the Cintra/JPM somewhat understates them.

Adjusting for misstatements PwC estimated that Cintra/JPM is worth $3.8b to NTTA's bid $3.2b to $3.4b.

NTTA considerably overstated the value of annual lease payments that it envisaged and public benefits by applying only a 5%/year discount rate to these uncertain and backend numbers, PwC said. It omitted various costs of the project by proposing to carry them in systemwide accounts, for example the cost of servicing commercial paper issued to fund construction of SH121. It also proposed to operate the road at a standard below that set in the concession.

Cintra understated its public value

Toll collection or "interoperability payments" set at well above market value in the Cintra concession were a public benefit (paid to a public agency) not accounted for by Cintra, the RTC consultants said.

Cintra also needed to present the public value of taxes it pays as a private company.

TxDOT's presentation also said the Cintra proposal was better value.

PwC said that in an upside scenario in which the tollroad did better than expected then he NTTA and Cintra proposals were about similar in value ($3.6b) although the Cintra benefit was more certain. In a downside scenario with revenues falling short Cintra was clearly the superior value, PwC said.

The weaknesses of the NTTA proposal are partly attributable to the speed with it was put together. But its greatest weakness lies in the inherent disadvantage of a traditional public authority system financing as opposed to the project financing and firm concession contract of Cintra.

Said PwC: "Cintra injects equity into its bid to allow SH121 to be self-financing on a standalone basis. In contrast NTTA bid on a corporate basis and provides its corporate balance sheet as recourse to finaanciers."

PwC says a major disadvantage of the NTTA would be that its borrowing capacity for other projects in the region would be reduced by the investment it would need to make in SH121, but they did not attempt to make a quantitative estimate of this downside.

The CDA or concession requirements met by Cintra are more demanding than the simple project proposal presented by NTTA. The concession puts risk on the private sector because if it defaults the state gets back the tollroad and investors bear the loss, whereas under a public authority the area's tollroads have to make up the losses.

NTTA bid might be firmed up but then different

PwC told the RTC that they cannot say "whether the NTTA's bid is ultimately deliverable or not," or how long it would take but said it is clear the NTTA bid is far less developed.  By the time the NTTA proposal was sharpened up it would likely be a different proposal with different public value.

TxDOT emphasized that the NTTA proposal lacked concession guarantees including:
- formal commitment to execute as agreed
- no detailed costing
- no firm lending commitments
- annual lease payments subordinated in bond that was unacceptable in the concession

TxDOT also said the operating standards proposed were below those of the concession, and costs of many items were omitted and cross-subsidies assumed fromt he rest of the  NTTA system:

- commercial paper interest
- toll collection and customer service costs
- toll equipment replacement and maintenance
- major roadway maintenance

TxDOT listed eight risks being assumed by the area with NTTA that do not apply with the concession, although on the upside in the event of stronger than forecast traffic the area would benefit by the public entity assuming those risks.

In question time a TxDOT official said he considered the Cintra proposal the better deal.

Cintra says worth 58% more

Cintra itself claimed a fair appraisal of value of the two bids was Cintra $3.365b, NTTA $2.13b, not allowing for the fact that the Cintra bid is firmer, and its annual payments guaranteed whereas in the case of NTTA they are subordinated.

Cintra suggested the best prospect for funding mobility would be NTTA and the private sector working together rather than NTTA going it alone.

They stressed the guarantees a concession provides as compared to the good intentions of a public toll authority. Concession toll caps are spelled out contractually whereas the NTTA explicitly tells the bond markets its toll rate setting powers are unconstrained.

Cintra has produced a website for their case http://www.mysh121.info/

NTTA's proposal was no more than its thin PR version, we've reported before. NTTA's massive 674 page formal proposal on a CD is bulked up with full copies of past annual reports and other routine materials. None of the traffic and revenue forecasting or financial modeling supposedly done by NTTA on SH121 is included, just sweeping claims about the viability of the project - a viability suddenly discovered by NTTA in the past year as local politics dictated.

We asked NTTA officials: why if SH121 is such a viable project, not do a project financing and insulate the rest of the area toll system from downside risk? They don't do that. Indeed.

For NTTA's case see http://www.ntta.org/

Questions

In questions both NTTA and Cintra were asked if they'd sue if the decision went against them. NTTA's chairman Wageman didn't answer clearly. Cintra's Jose Maria Lopez de Fuentes said no, they wouldn't. He also said in asnwer to questions that regardless of the result o n SH121, Cintra was committed to Texas and the US market more generally. He did say the financial world is watching what happens with SH121.

None of the participants seem to have adequately discussed the banana republic behavior implicit in aborting a procurement after selection of the concessionaire, and allowing a public sector authority to butt in and seize the project away at the last minute.

see http://www.nctcog.org/trans/committees/rtc/index.asp for the papers

TOLLROADSnews 2007-06-14 (ADDITIONS 2007-06-15 15:30)