Puerto Rico doing P3 on their major tollroad PR22 but is it a toll concession?

The government of Puerto Rico has a major public-private partnership (P3) procurement under way for the island state's major toll road - PR22 - but investors are asking what it is: a real toll concession or just a longterm operations contract?

It is a "hybrid" according to Camille Toro Toruella, senior VP Infrastructure at the Government Development Bank (GDB) and the details of how it will work are still being worked out and written into a draft contract. Toro says that compensation for the concessionaire will be related to the revenues and profitability of the tollroad but tolls will continue to belong to the PR state toll authority ACT (in the Spanish acronym) or Puerto Rico Highways and Transportation Authority. They are calling it a Longterm Operations and Maintenance Agreement (LTO&MA).

The PR administration there has no special legislative framework for doing a full lease/concession so they are are working within the terms of an Attorney General's written opinion of their powers.

A normal operations and maintenance agreement has a compensation formula unrelated to any revenues. But the Bank's Ms Toro says the successful bidder's earnings will be related to the tollroad's profitability. Also making the contract more than just O&M is the concessionaire's commitment to perform all the capital expenditures on the pike, although not an extension to the far west of the island.

It is not clear how existing operations contracts on all the ACT tollroads would be affected. At present maintenance of cash systems is done by InTrans though United Toll Systems has been selected for a new contract - fiercely contested by TransCore. TransCore already operates the electronic tolling system AutoExpreso.

Either the O&M winner would have to use TransCore and UTS, or their contracts would have to be shrunk to delete PR22 from their duties?

Request for qualifications are through but the request for proposals isn't yet out because details of the terms are still being worked on. Nothing yet on toll rate controls, the concession term or revenue sharing. However the plan is to generate a final concession contract this summer and the choice will be strictly price, according to Camille Toro Toruella of the government bank GDB conducting the procurement. She told us told us: "we are extremely encouraged by the outcome (of the RFQ) and excited about how our process is moving along."

Ms Toro said the qualified companies won't be disclosed.

One of them Globalvia issued a press release saying they had been notified they were on the short list. Globalvia has a head office in downtown Madrid Spain, and offices in Miami FL, Mexico City and Dublin Ireland. They operate nine tollroads and manage 12 more motorways.

Globalvia told us they didn't know who else had been qualified.

No others have made statements. We asked a couple of the usual suspects, but they declined to say.

Ms Toro said they expect to formally call for bids about August after the concession/LTO&M contract is finalized, and they hope to select a concessionaire/contractor by November.

BACKGROUND: PR22 officially the Jose de Diego Highway opened in stages between 1971 and the early 1980s. It is 2x3 and 2x2 lanes and runs along the northern coast from the San Juan metro area (pop 1.5m) to Arecibo. The first of the state's tollroads it is a corridor that has attracted much of the island state's modern industry including pharmaceutical plants of companies like Merck, Pfizer, Schering Plough and Abbot.

84km (52 miles) in length it has seven mainline toll plazas. In FY2007 they collected $91m based on average daily transactions of 430k. The Buchanan toll plaza on the western side of San Juan, the most easterly of the seven on PR22 does 148k transactions a day making it a major toll plaza by stateside and international standards.

Tolls work out at 4c/km (6.5c/mile) for a car. The present toll rates have been in effect since Sept 2005 when tolls were raised 45% the first toll increase since since 1991.

Traffic dropped 5.9% on the toll increase when without it traffic would have risen about 1.9% - the average annual increase. The combination of a 7.8% decline in traffic on a 45% increase in toll is a price elasticity of demand of -0.17.

The parallel free road PR2 has a time handicap of as much as 45 minutes for the 84km, GDB says in a presentation.

Electronic tolling using TransCore eGo sticker tags began in March 2004 and has improved traffic flow through the toll plazas. Usage is approaching 40% of transactions.

PR22 has operating expenses of about $30m so with revenue of $91m EBITDA is around $61m for a margin of 67%.

There is a proposed 45km (28mile) western extension of the PR22 from Arecibo to Aguqdilla but this is not part of the LTO&MA.

PR's other concession - Teodoro Moscoso Bridge

Puerto Rico was one of the first US territories to do a toll concession in the modern era - taking advantage of their close cultural and language link to the pioneers in Spain. The Teodoro Moscoso Bridge built in 1994 over a lagoon provides a quick link between San Juan airport area and the downtown. 2.3km (7550ft) in length 2x2 lanes it cost about $200m.

The bridge was built by Dragados ACS now Seopan (75%) and Supra (25%) under the corporate entity Autopistas Puerto Rico (APR) under a 35 year concession 1992 to 2027 from theg state toll agency ACT. The government stood behind traffic forecasts and contracted to give the concessionaire the right to cancel the concession if traffic were less than 80% of forecast in the first 3 years, less than 85% in years 4 to 6, rising to 100% years 9 through the end of the contract, assuming the downside risks - except that after five consecutive years when traffic exceeds forecast the concessionaire's option to cancel expires.

Traffic is presently about 21k/day. The operator is GCO, an Argentina-based toll operator that is a subsidiary of Abertis.

The concessionaire APR has the right to all profits up to 19% rate of return on capital. 19% to 22% returns are shared 40% APR, 60% ACT. Beyond 22% return the concessionaire gets 15% and the state's ACT gets 85%.

As it turned out the traffic didn't reach the threshold in the first years but the concessionaire chose not to exercise the option to bail out, and a third of the way through the concession period the bridge in is now moderately successful financially.

TOLLROADSnews 2008-06-23