WSJ says two bids submitted for Penn Pike - Rendell effort a flop?

The Wall Street Journal reports that two bids have been submitted for the 75 year toll concession on the Pennsylvania Turnpike. It says the bids have been made by Abertis and a Cintra-Macquarie partnership.

We don't have any confirmation or refutation of this report.

If false of course it means nothing. If true it means the Rendell administration's effort to lease the Turnpike has failed to generate aggressive bids and it is unlikely to have a bid in the $12b to $18b range expected.

If two bids have been submitted, as the WSJ reports, that means there was a deadline set and there are only two bids. It means the state is most unlikely to get any more bids than the two reported.

Abertis has a history of making conservative bids in North America. Abertis officials have said that Cintra and Macquarie have overpaid for the concessions they have gained in Illinois, Indiana and Texas.

We have an impression any Cintra/Macquarie bid is going to be a modest one relative to the $12b to $18b range mentioned by state officials. The days of bidding 40 times annual revenue as in Illinois and Indiana are past. Also the concession contract being bid in Pennsylvania is significantly tougher in its restrictions on the concessionaire than those of Illinois and Indiana.

A ratio about 15 times annual revenue is more likely which suggests a bid of $9.1b ($608mx15).

That would still be a major advance on the implicit bid by the Turnpike Commission of $5.3b as calculated by the Commonwealth Foundation thinktank in Harrisburg. The thinktankers based their $5.3b calculation on the upfront sum required to generate the $450m/year - the amount the Commission is paying the state under the Commission sponsored Act 44 in the absence of authority to toll I-80 - ($450m/0.085) based on average earnings of 8.5%, the rate of return historically achieved by the state's pension funds.

A $9.1b fee paid by Abertis or Cintra/Macquarie invested on the same basis would generate $774m/year ($9100x0.085). That's $324m a year or 72% more than the $450m that the Turnpike Commission will pay the state under their Act 44 agreement with the state in the absence of a right to toll I-80.

Tolling I-80 is highly improbable since federal law doesn't allow tolling free interstates unless all the revenues are plowed back into the road as opposed to being taken as surpluses for other projects as required by Act 44.

The question would be whether with a bid 30% below expectation Gov Rendell could persuade legislators to pass the needed enabling legislation.

TOLLROADSnews 2008-05-11