Agreement reached on terms for investor financing of 3/4ths of cost of Virginia's Capital Beltway HOT lanes

Virginia has reached agreement with Transurban DRIVe and Fluor on most of the details of a 75-year toll concession to build 22.5km (14 miles) of 2+2 HOT lanes on the Capital Beltway between the Springfield Interchange at I-95 through the Tysons Corner/Dulles Toll Road area. The project has grown in scope and cost to $1.4b for the design-build portion and $1.7b including financing and planning.

Under the agreement now reached the state will provide $409m or 24% of the estimated project cost of $1.7b. Investors will have to come up with around $1,291m. Any cost over-runs will be borne by Transurban DRIVe/Fluor.

Virginia DOT commissioner David S Ekern says in a statement released this morning the agreement will be finalized in the coming months with final signatures and a financial close before the end of the year.

A business terms memorandum says that the only remaining work is for Transurban to submit "final operational models" demonstrating that the project will address congestion adequately.

Schedule

It says all final documents will be executed between Oct 31 and Dec 31.

Construction, they say, will begin in spring 2008 and the lanes will open in 2013.

Scope of the project has increased considerably with:

- three new sets of direct access ramps planned for the heart of the project in the Tysons Corner complex

- big high direct connector ramps between I-95/395 toll lanes and the Beltway toll lanes known as Phase 8 of the Springfield Interchange

- improvements to the I-66/Beltway interchange

- $260m of repairs and reconstruction of existing free lanes segments of which are 40 years old

Barbara Reese, Virginia deputy commissioner of transportation and the lead state negotiator said that inflation also played a major role. Costs of steel, concrete and asphalt have increased enormously in the past couple of years.

No text of the agreement is yet available because details of federal loan support (TIFIA and PABs) remain to be negotiated. An April 2005 agreement is available here.

  Reese said other aspects of the agreement will be:

- the HOT lanes will be free for vehicles carrying 3 or more persons, the rest will be tolled

- if free high occupancy vehicles go above 24% of traffic in the HOT lanes the concessionaire will be entitled to revenue from VDOT for the surplus amounting to 70% of the prevailing toll rates for the first 40 years of the concession or until the project rate of return exceeds a threshold level of 10%

- there are no restrictions on VDOT's right to add free lanes alongside, although the concessionaire can seek compensation for lost toll revenues

- for ten years the concessionaire cannot reassign (sell) the concession to another operator

- there are no caps on toll rates

In toll lanes alongside free lanes toll rates have to be free of concession caps so price can be set sufficiently high to prevent traffic overload. If they aren't set high enough overload will occur, traffic flow will break down, and the HOT lanes will become worthless, offering no advantage over the free lanes alongside.

The concession contract will require Transurban to maintain free flow traffic conditions by preventing overload although the profit motive will also drive that.

Expected tolls

A memorandum to the state transport commissioner on business terms says that toll rates are expected to vary between 10c and $1.00/mile (6c to 60c/km) and the average trip on the facility is expected to cost between $5 and $6 during rush hours. Michael Kulper of Transurban said in a conference call with journalists that there will be nine segments for tolling purposes between the Springfield Interchange and the end north of Tysons Corner and that the pricing will be designed to keep traffic in the toll lanes for the length of their journeys - suggesting lower per-mile tolls on the long trips.

The state will have the right to suspend tolling in emergencies and the option to take over the lanes and operate them toll-free to relieve unusual congestion elsewhere. Transurban will then be entitled to compensation for lost toll revenues.

Operating standards will be specified and penalties imposed on the concessionaire if they are not met.

If traffic warrants additional toll lanes the concessionaire will have the first right to build them.

Fluor is in the project mainly for the construction phase and will get a fixed price $1.4b design-build project with Capital Beltway Express LLC (CABEL), the concessionaire and subsidiary of Transurban DRIVe. CABEL will invest an as-yet-undetermined mix of equity capital and borrowing. The borrowing component with a 40 year term will take advantage of the federal government's deferred interest and subordinated TIFIA loans and the tax exempt Private Activity Bonds (PABs).

State sharing of revenues

The state will share toll revenue if the project earns more than a threshold rate of return on investment - the share ranging between 5 and 30%. Any profitable project refinancing will trigger a similar sharing deal. The state's share money will be dedicated to projects and programs benefitting users of the HOT lanes.

Traffic expected

Barbara Reese said in a conference call with journalists that traffic in the HOT lanes is expected to be 66k trips/day in the first year rising quickly to 125k after ramp up and growing more slowly thereafter. She said the investment grade traffic and revenue study is the property of Transurban. A Transurban rep said it will be made public at financial close.

The existing Beltway is 4+4 travel lanes with a couple of short stretches with collector distributor lanes. The Transurban/Fluor project will convert the 22.5km (14 miles) into 12 travel lanes (4/2/2/4). The project is seen as the key component of a larger regional network of managed lanes since it will connect radials to Washington DC including I-95, I-66 and the Dulles Greenway/Toll Road.

The same Transurban/Fluor team has a similar in-principle agreement to build a HOT lanes system on I-95/395 90km (56 miles) from south of Fredericksburg to the Pentagon in two stages. First stage will convert an existing 2 lanes reversible HOV facility into 3 HOT lanes while adding new access points over about 45km (28 miles) and the second stage will extend the facility south in the empty grass median of I-95 with three and two lanes.

This is referred to as a 70 mile (113km) HOT lanes network.

http://www.virginiadot.org/projects/HOT_495.asp

Fluor is a major US construction company based in Irving Texas and Transurban based in Melbourne Australia is that country's largest toll operator and operates the Pocahontas Parkway tollroad in Richmond VA under a longterm concession.

The agreement got strong words of support from State governor Timothy Kaine. He called it "a major accomplishment" saying it was "time for action to bring additional congestion relief to residents, visitors and businesses in the region."

Business terms document here

TOLLROADSnews 2007-09-10 v2 18:45 v3 2007-09-11 06:00