SALE:Province legislates to allow sale of 407 pike

The Ontario government is now moving quickly to get bids for sale of its successful 407 toll road and to get work underway on extensions east and west. Oct 19 the minister in charge of privatization, Rob Sampson, introduced legislation into the provincial parliament for the franchise arrangements. They call for the successful bidder to take over the operating 67km (2km is built but not operating) with its 200k tolls/weekday and to immediately begin work on the extensions.

Sampson said the government planned to get construction underway by the spring of 1999, an astonishing timetable as it would seem that full bids and a contract will be needed by then. The province announced its intention to offer the road for sale last February but nothing much further seemed to happen until the appointment of financial advisers to the government Aug 28.

On Oct 23 the government issued an official notice requesting expressions of interest, the text of which reads:

“The Province of Ontario invites expressions of interest relating to the Highway 407 Express Toll Route from those interested in:

(1) purchasing the right to own, operate, and toll Highway 407, including the design and construction of Highway 407 west, east partial, and east completion sections; or (2) the design and construction of the Highway 407 west and east partial sections.

“The current section of Highway 407 runs 69 kilometres from Highway 403 in Oakville, Ontario to Highway 48 in Markham, Ontario. It provides a key alternate east-west route around the Greater Toronto Area. As currently planned, Highway 407 will extend 174 kilometres from the Queen Elizabeth Way / Highway 403 junction in Burlington, Ontario, ultimately to the junction of highways 35/115 in Clarington, Ontario.

“Potential bidders interested in receiving further information and in attending a bidder information session should contact: Eugenio Mendoza Merrill Lynch or Duncan McCallum RBC Dominion Securities tel 416 369-8787. The first information session is scheduled to take place in Toronto, Ontario, the first week in November. Participants will be required to enter into a confidentiality agreement and pay a non-refundable fee in order to receive further information.”

Transport Minister Tony Clement said: “Highway 407 has received tremendous acceptance by the driving public. The extensions to Highway 407 will be an important boost to our transp infrastructure, will provide a competitive advantage for Ontario industry, and will ensure that GTA residents can get home to their families faster at the end of the day.”

Sampson said: “Completion of Highway 407 is key to ensuring the continued

economic growth and prosperity of our province.”

At the same time provincial officials made clear they may not accept the highest bid. If they aren’t offered enough the province may keep the road. It has debt of about $1 billion (C$1.42b) and is listed by the province as an sset worth $1.3b (C$1.87b) but it is unclear what relation these numbers have to what it expects to get. Sampson did say to a reporter that “clearly” any bidder has to commit to more than the province’s debt of $1.0 billion (C$1.4b.) He said the province had got “ballpark prices” but wouldn’t reveal them.

In another interview he said: “The taxpayers are entitled to make sure that we get a deal that returns money that we invested, and to make sure that we have the extensions built at no additional cost to taxpayers.”

Though the toll road operates successfully and has an impressive 200k tolls/day the provincial government strangely has not yet published any financial accounts, even though it has been tolling for a year.

Dave Garner, president of Ontario Transp Capital Corp, the provincial agency that owns the road, said at the end of the first year of tolling Oct 14 that drivers had made 44m trips with an average trip length of 17km for a total of 748m km of travel. That 44m is 120k trips/day. Weekday trips are now up to 210k, and assuming the weekend represents another day, the average daily trips are 180k for a annual trip total of 66m. At 17km/trip that’s 1.1b veh-km. The trips are heavily concentrated in the rush hours so they may be getting 6c (C8.5c)/km which suggests $67m (C$95m) toll revenues/year.

The second option of bidding for design and construction of the extensions is a backup for the province in case it decides the bids for buying the road are not sufficient to justify sale. Elections are said to be likely in the province during 1999. Opposition candidates support privatization too in principle but this won’t stop them questioning the details of any deal especially if the price seems low.

Background: Sampson said last Feb 20: “We have also reached the conclusion that there is no need for the provincial government to own a toll road to provide Ontarians with efficient transportation routes. Hard-earned taxpayers’ dollars can be better spent on other things — like health care, classroom education and community safety. We have therefore determined that the option which will deliver the best service and value to taxpayers is divestiture or sale. The Highway will be sold through a fair, open and competitive process. We want to see what the private sector can offer in the way of financing, building and operating the two extensions, as well as in financing the central portion. Our intention is to have the private sector complete Highway 407 at no cost to taxpayers.” (See www.gov.on.ca/privatiz)