Financial close on 80 year concession for $1.52b of toll lanes on Capital Beltway N Virginia

Virginia DOT, Transurban and Fluor have signed the contracts and gone to financial close for the construction of four toll lanes plus direct connector ramps on 23km (14 miles) of the Capital Beltway (I-495) in northern Virginia between the Springfield interchange and just short of the Maryland line at the Potomac River. The $1.52 billion project involves a fixed price design-build contract with Fluor for completion by spring 2013 and a toll concession with Capital Beltway Express LLC (Transurban 90%, Fluor 10%) which gives them responsibility and reward of the toll enterprise over 75 years from opening.

They have to make money providing a superior service in their central four lanes to the service in eight free lanes straddling them on either side of what becomes a 12 lane highway.

The contracts provide 60 months for construction from notice to proceed, and for 75 years of operations and tolling from time of opening.

The project went to financial close and contract signing this afternoon between VDOT, Transurban, Fluor and lenders. Capital Beltway Express LLC is the legal concessionaire. Financial transfers were done simultaneously in Richmond and New York with the signing of final documents and verification of funds movements by wire.

Transurban, the Melbourne Australia based toll operator has 90% of Capital Beltway Express LLC, the concessionaire company and Fluor of Dallas TX 10%. Transurban will operate the facility and build the toll and enforcement system. They have nearly ten years experience on a fully automated inner city tollway in Australia's second city Melbourne, called CityLink.

Fluor will do the civil works which are quite challenging with all works to be done while maintaining traffic flows of nearly 300k vehicles a day on the existing eight lanes.

Statements

Virginia transportation commissioner David S Ekern said in a statement: "I am pleased to announce that we have completed all the needed agreements, secured all financial commitments and we are now ready for action. With this partnership, we will deliver the first-ever dedicated HOV and transit services to the Capital Beltway and address congestion on Virginia’s busiest highway. Even as the world’s financial markets are struggling with financial uncertainties, financial close has been accomplished with our federal and private funding partners. This agreement will serve as a national model."

Virginia DOT will provide $409m covering work on general purpose lanes and other improvements deemed not to generate revenues.

Transurban exec-VP North America Michael Kulper said his company is accepting "significant risk" to demonstrate that these "partnerships" do have a role: "We have been asked to undertake this financing because the Commonwealth (of Virginia) does not have the funding or debt capacity to finance a project of this magnitude given its other unmet transportation needs. We have negotiated an agreement that balances the public needs with the private sector’s ability to deliver high quality construction and operations."

Fluor VP Herb Morgan said everyone is "ready to go." Construction is expected to begin in the spring.

Transurban/Fluor in a 90/10 joint venture called Capital Beltway Express LLC will have the right to toll all vehicles with fewer than three occupants without restriction on toll rates charged. It will use dynamic pricing under which toll rates are varied to prevent overloading and the breakdown of free flow conditions - as in use on toll lanes on I-394 in Minneapolis and I-15 in San Diego.

There will be compensation of HOV vehicles encorach on tollable capacity beyond a certain threshold.

Dynamic market based pricing

The statement today issued by VDOT says that tolls are expected to be $5 to $6 in rush hours or 36c to 43c/mile (22c to 27c/km). But with a compulsion to maintain free flow and uncertain supply (from unpredictable HOV use) and demand, the market will dictate actual toll rates. Toll rates will be displayed on variable message signs on the approaches to the toll lane ramps.

All users of the lanes will have to have a transponder to enter the lanes. Transponders will be able to be set to TOLL or HOV. Enforcement will be by concessionaire-funded state troopers in police cruisers.

Virginia DOT will retain ownership and oversight of the HOT lanes to ensure that the Transurban-Fluor concession meets daily and hourly operational standards set in the concession contracts. The Beltway's general purpose lanes will continue to operate as now - four in each direction - benefitting a little by traffic transferred to the tolled lanes - two in each direction.

The concessionaire has to operate and maintain the roadway and provide police and emergency services.

The contract provides for the state of Virginia to share in project revenues and refinancing gains when they exceed a total return on investment of 8.1 percent.

Revenue will be shared at equity internal rate of returns:

- over 12.98% EIRR 5% of gross revenue
- over 14.5% EIRR 15% of gross revenue
- over 16% EIRR 30% of gross revenue

This profit sharing is in line with concessions in California and Texas.

Downside risk of traffic and toll revenue not meeting projections is carried by the concessionaire. If the concessionaire goes broke or otherwise defaults on operational obligations the concession may be prematurely ended and toll rights go to the state.

VDOT does not give away any right to add free capacity.

The project concession has been under negotiation for five years. Initially VDOT wanted all financing to come from the concessionaire. The concessionaires said the revenue stream would not support more than $800m of construction yet VDOT wanted the project to include reconstruction of general purpose lanes, upgrade of general purpose lane interchanges, and direct connector ramps including Phase 8 of the Springfield interchange at the southern end of the project. Extended negotiations resulted in the investors taking on some extra risk and the state agreeing to pay 29% of capital costs.

Concession agreements are available here: http://www.virginiadot.org/projects/HOT_495_Agreements.asp

Staged construction

Fluor will begin by building new travel lanes and shoulder each direction on the outside of the Beltway and making necessary modifications to the many on and off ramps and collector-distributor lanes - all under traffic. Eleven interchanges will see entry and exit ramps for free lanes rebuilt and improved. 58 bridge structures will be rehabbed or rebuilt during the project.

When the outside lanes work is complete and traffic moved onto the new lanes they will be able to close off lanes in the middle to resurface and restripe the central 2+2 lanes for tolling.

Tolling will be all electronic highway speed using transponder readers on cantilevered gantry arms. The concessionaire does not envisage any video tolling but there will be license plate reading cameras for enforcement.

Pavement will be continuous across six lanes each direction with painted buffer and possibly soft delineator posts dividing tolled and untolled lanes. In addition to 12 travel lanes there will six full width shoulder lanes, on both sides of the general purpose lanes each direction and a leftside breakdown shoulder for the HOT lanes each direction. The leftside shoulder lane in the general purpose roadway will add to the sense of separation between toll and GP roadways.

Without auxiliary or merge/diverge lanes the mainline roadway will be around 70m (230ft) wide to provide for 18 x 3.65m (12ft) lanes plus three roadway separations. It has to become wider where there are internal ramps for the entry/exit points for the central lanes.

Access/egress

Most difficult has been agreement on the design of access and egress points. Fluor initially proposed a staging so that in the initial construct half of the intermediate access/egress would be by transitional zones or gaps in the buffer. HOT lanes traffic weaving across the free lanes.

VDOT insisted on direct connector ramps from cross streets in and out of the HOT lanes, making them a self contained expressway system - no weaving across the general purpose lanes. Some movements are missing at the lower volume southern interchanges - Gallows Rd and Braddock Rd. But extra direct connector ramps have been added to Tysons Corner as compared to early plans.

There are now eight intermediate interchange points in the project - three with both north and south facing ramps and five with either north or south facing access/egress.

The access/egress points are shown in this one page VDOT download.

Tysons alone now has three HOT Lanes interchange points - VA7 Leesburg Pike, Westpark Bridge VA123 and Jones Branch Rd. Plus there are the nearby Dulles Toll Road ramps.

One of the engineers told us this is a "Tysons Corner driven project."

Details of the Tysons interchanges are downloadable here.

Megan Fletcher New York based spokesman for Transurban in North America said everyone was "thrilled" to have finally achieved close on the deal but somewhat awed about the challenges ahead.

Many of the Australians involved have privately expressed frustration over the slow speed of the concession process in the US as compared to what they are accustomed to. Deals here take about several times as long, they have said.

I-95/395 next HOT lane concession

The same team of Fluor and Transurban have reached interim agreement with VDOT for a toll collection to widen and lengthen existing HOV lanes on I-95/395 between the Pentagon and Fredericksburg in a two stage project. This is still in environmental permitting.

Fletcher says Transurban expect to go to financial close on the 95/395 toll lanes project a year from now - end 2008. The I-95/395 project involves special arrangements for bus rapid transit, widening the present 2 lanes facility to 3 lanes, adding many new access/egress points and almost doubling the length of the facility southward.

I-95/395 has established longdistance travelers but problems of a pinchpoint for several miles south of the Springfield interchange. The two projects will be directly connected at that interchange with a spectacular set of dedicated ramps being built as part of the Beltway HOT lanes project. They will form a 113km (70 mile) network of HOT lanes in the most heavily trafficked roads on the Virginia side of the Washington DC metro area.

Transurban presentation to investors

Transurban in Australia released a presentation to investors on the Beltway project. It says the total project is $1524m (construction $1347m) with an equity commitment of $350, $88m at close (today) and $262m provided during construction. Transurban through its US subsidiary Transurban DRIVe has 90% of the equity, Fluor 10%.

The project close today involved the $350m of equity commitment by Transurban $315m and Fluor $35m, $587m of senior debt Private Activity Bonds hedged for 20 years at 3.6% with a margin of 1.75% for 7 years and $587m of 4.45% 40 year TIFIA loans for a total of $1524m.

Transurban project average daily revenue of $335k by 2015 after two years of operations, or $101m, based on 300 days a year. Value of time saved they assume is $14/hour for Washington area motorists.

They project an equity internal rate of return of 13% on the project.

Transurban have a nice powerpoint presentation here if you go to investors: http://www.transurban.com.au

Virginia DOT have material here http://www.virginiadot.org/projects/HOT_495.asp

TERMINOLOGY: we call any lane where a toll is collected a toll lane. HOT lanes are a subset of toll lanes in that High Occupancy vehicles may go free or discounted and others are tolled. Sometimes these lanes are called toll express lanes or express toll lanes, to advertise that they will be managed for an express or quicker ride. In Texas they call them managed lanes - in the hope motorists won't notice the tolls?

TOLLROADSnews 2007-12-21