Privatization: Canada

The Ontario government has formally announced its decision to sell Highway 407, Toronto’s first toll road and the rights to extend it both east and west beyond the 69km presently in operation or near completion.

Rob Sampson, Minister for Privatization said in a press release Feb 20: “After a thorough and careful review, we have decided to sell Highway 407. The Highway will be sold through a fair, open and competitive process designed to gain maximum value for the province — we will proceed with the sale only if certain conditions are met."

The conditions are not spelled out. An official in the Ptriatization office told us these conditions will probably relate to price, financial strength and tolls, but details will be worked out “in the next few months.” She said there is unlikely to be any restriction on foreign involvement because any favoritism for Ontario or Canadian companies would be bound to reduce bids and the value obtained by Ontario taxpayers. The Office is keen to get bids from all over the world.

Sampson said the province wants the highway extended at no cost to taxpayers. Tony Clement the provincial transport minister said the extensions would provide “much needed east-west road capacity,” creating jobs, enhancing economic debvelopment and providing infrastructure to attract and support new investment. Sale of the highway and the right to complete and toll the remainder is seen as the best way to complete the highway in a timely fashion while minimizing taxpayer risk.

The provincial government wants 407-West built from the interchange with H-403 in Mississauga to the QEW in Burlington, a 24km section for which planning permits and clearances are nearly ready and some design and property acquired and some major interchange work done in anticipation. Extension eastward is to follow in two stages, 407 Eastern Partial Extension would extend the road east from its present planned terminus at H-48 to H-7. Hooking it back down into H-401 is thought desirable both to reduce local traffic problems and to attract traffic from H-401. A possible later extension (more controversial environmentally) is to Clarington H-115/H-35 — where there is an existing motorway to Peterborough. In total the highway Burlington-Clarington would be 154km.

407 completed would serve to enhance mobility throughout the greater Toronto area which is stretched east-west by its lake frontage, adding a second continuous motorway standard east-west route supplementary to H-401 the notoriously overcrowded single existing continuous route. And it would greatly enhance transport links with the US.

The provincial office of privatization was only created last year and 407 is by far its largest state asset put on the auction block. The only other assets previously announced for sale are 3 forestry tree nurseries.

An official told us the Office now has to hire an official consultant as financial adviser and produce an Offering Memorandum which will lay out the assets for purchase, the responsibilities of the buyer and the procedures for bidding. Canadian Highways International Corp, the Toronto based company which designed and built 407-ETR and has an operating contract with the province, announced it will be bidding within hours of the government saying it will sell the highway.

John Beck CHIC president said his company (a partnership of 4 major construction companies AGRA-Monenco, Armbro, BFC and Dufferin) welcomed the government offer, expected interest from around the world and looked forward to competing, adding: “We expect the competition will be extremely tough.”

CHIC originally sponsored the 407 project as the Toronto area’s first toll road and was prepared to finance and own the highway in the first place but the provincial governmnent of the time decided to raise the capital itself and take the fiancnial risk of ownership through the Ontario Transportation Capital Corp (OTCC), the fully owned provincial company. OTCC however negotiated a design-build contract with CHIC and CHIC manages operations also under contracts. OTCC has a staff of about 20 and the president Dennis Galange told us 10 months ago (TRnl#15 May 97 p1) that he expected the government would privatize the highway at some time.

Background: 407 is the world’s first multi-interchange automated tollway. It tolls at highway speed by using shortrange radio communications with transponders issued to account-holders for fixing to their windshields, and by imaging license plates of non-account customers and billing them monthly by mail. Trip lengths are computed by identifying each vehicle at entry and exit ramps, and the toll schedule is 7c/km in rush hours, 4.5c other times of the day and just under 3c evenings. The toll technology while unique is solid and efficient by all accounts. It is readily extended at reasonable cost and gives the operator flexibility to alter toll rates during the day to optimize traffic flows and revenues. Motorists appreciate the free flow conditions and revenues above projections.

The toll road on the latest released numbers is doing 107k toll trips/day, so with an average trip of about 16km, the annual gross must be $30m to $40m — making it likely the project will break even within a year or two. The first 69km is costing about $800m to build. The Toronto area is growing in population and traffic quite strongly and no enhancement of parallel capacity is on the cards so 407’s prospects look good. The highway was described in some detail in an earlier issue (TRnl#15 May 97). (Contacts Deborah Reid 416 325 6153 privatiz@gov.on.ca www.gov.on.ca/privatiz)