Ontario province "to own" 407-East extension, but private proposals sought

The eastern extension to the 407-ETR tollroad will be "a tolled highway with the province
retaining control and ownership of the extension," according to an Ontario Ministry of Transportation announcement today. However the province will issue a request for proposals (RFP) later this year, so some kind of public-private contract seems to be envisaged.  It may be design-build-operate, or a highly regulated concession. That remains to be seen closer to the issuance of the RFP.

Route selection and environmental reviews are due to be completed by this summer with final permits coming in the fall. The RFP would probably come out in the last months of the year.

407 East involves an approximate 45km (28 mile) extension of the existing 407ETR from its present eastern terminus at Brock Road, in the Brougham/Pickering area to Highway 115 at the 115/35 split near Clarington, along with two north-south links of about 10km and 13km (6 and 8 miles) between 407 East and H401, the main freeway between Toronto and Montreal.

The 407-East highway will be of 2x2 or 2x3 lanes for a total of about 68km (42 miles) with five major expressway-to-expressway interchanges about 16 simpler expressway-to-arterial junctions.  The highway would be designed to accommodate widening into the middle and possibly a transit line.

The extension east has to cross many creeks and rivers most of which flow south into Lake Ontario, and it must cross many wetlands.

Project cost is somewhere around $2 billion.

The area is the less developed end of the 407ETR but it is a potential growth corridor for the eastern side of the greater Toronto area (pop 5.7m) which has been growing rapidly through immigration. 407 East will also provide a more direct connection to Toronto Pearson airport and northern suburbs from Ottawa and other parts of northeastern Ontario.

Transportation Minister Jim Bradley is quoted: "Motorists who use the 407 eastern extension will pay for the highway, freeing up provincial investment dollars for other priorities such as public transit. Our approach to extend the 407 eastward will allow us to maintain public ownership of this stretch of highway and regulate the tolls."

407 East will be a cashless all-electronic tollroad like 407ETR.

407ETR is probably the most successful new tollroad in North America in recent times having grown in eleven years to 375k transactions per day and a toll revenue of close to $500m/year. It is ten lanes at its busiest.

The announcement on 407 East is headed "Province to own Highway 407 Extension".

A backgrounder reads:

"LESSONS LEARNED

"The McGuinty Government has learned important lessons over more than a decade of tolled highway driving in Ontario:

-   The province needs to retain public ownership of the highway

-   The length of any operating contract must be significantly less than 99 years

-   Toll rates must be regulated by the province

-   Customer service expectations must be set out from the star" END QUOTES

The Liberals came to power toward the end of 2003 after a campaign focussed on mismanagement of health facilities by a conservative government which had arranged the privatization of 407ETR to a concession in 1999.  The concession is held by Cintra, Macquarie and two Canadian groups. Cintra is operator.

During the campaign McGuinty promised to "roll back" 407ETR toll increases although this was clearly in breach of the province's contract with the concessionaire - as established by subsequent litigation. Courts at every level rejected the McGuinty government attempts to take control of the toll road as illegal. Mostly at issue was a claim that the Government should have toll setting powers.

The 1999 concession only controls toll rates on 407ETR indirectly via system of prohibitive penalties if toll rates on the pike divert traffic onto parallel free routes.

The statement today on 407 East says: "The province will be responsible for regulating tolls on the (407 East) highway and meeting customer service needs. Revenues generated from the highway will go towards the construction costs and maintenance of the road, freeing up provincial funds for transit infrastructure projects."

This could mean they will set maximum tolls by a formula laid out in the concession contract as is quite common in the US, Australia and other countries. If however it means unfettered power to set toll rates as the McGuinty Government claimed unsuccessfully for 407ETR, then the RFP would be unlikely to get any serious bidders.

environmental assessment see:

http://www.407eastea.com/

Ministry of Transportation Ontario

http://www.mto.gov.on.ca/english/

COMMENT: The press announcement is a concoction of political point scoring against an earlier government, misrepresentations, and wishful thinking.

A "THEN/NOW" box (see nearby) is thoroughly misleading on 407ETR. Taxpayers never paid initial construction costs as claimed under 'THEN.'

A small fraction of initial costs were paid by taxpayers - less than a  tenth - but the great bulk of initial costs were bond financed. The province's costs and its debt obligation were recouped more than twice over in the upfront concession fee. The concessionaire also more than doubled the lane-miles of the original construction and added interchanges at the expense of investors.

Contrary to the Ministry propaganda here Ontario taxpayers did extremely well out of 407ETR. It is more debatable whether the tollpayers do. They pay rather high tolls. But they have choices so presumably those who use the pike find the benefits worth the costs.

Contrary to the claim that 407ETR was  "sold to the private sector" it is leased under a 99 year concession. The concession contract has many provisions for public control, though not directly over toll rates.

Public control of course sounds nice. "Public control in the public interest." Yeah! Public control is a euphemism for political control, and politics often generates opportunistic, irrational and short-sighted decisions.

The ability of an Ontario government to get the private sector to pay the costs of the Eastern Extension as stated under 'NOW'  remains to be tested. There are no traffic and revenue studies for 407 East yet and no financing projections. There is therefore no basis for the claim in the NOW box that the private sector will pay all the costs of 407 East.

There are trade-offs, the Ministry should acknowledge. The more power the provincial government retains over toll rates, customer service and other aspects of operation the less will investors be prepared to advance as risk capital. They will accept controls and limits but there's a price to pay for "public control" by politicians in reduced bids.

Also the shorter the term of a concession and the less time they will have to collect tolls the less investors will invest - another trade-off.

If the province retains arbitrary power to set tolls it will only get design-build-operate proposals and the taxpayers will be left with the risks. 

TOLLROADSnews 2009-01-27