$1.4B highway PPP contract awarded to Goldman Sachs/Abertis consortium
The Gov. Luis Fortuño administration announced Monday its decision to turn over the management and upkeep of two island highways, PR-22 and PR-5, to the consortium of Goldman Sachs and Abertis, through a 40-year contract worth more than $1.4 billion.
The agreement requires Goldman/Abertis, which will operate in Puerto Rico as Autopistas Metropolitanas de Puerto Rico LLC, to make an up-front payment of $1.08 billion and make another $356.1 million in investments during the life of the agreement. The latter figure includes $56.1 million in immediate investments and $300 million recurring expenses over 25 years.
“The highways we want and that our people deserve — free of potholes, safe, with good lighting, and with better technology — will no longer be a thing of the future,” Gov. Fortuño said upon making the announcement. “This project will not only benefit hundreds of thousands of drivers that transit along those roads every day, but will also have an extraordinarily positive effect on the economy of 12 towns through which the roads run and for Puerto Rico’s economy in general.”
Goldman/Abertis beat out the $960.4 million offer presented by Morgan Stanley/OHL Concesiones, David Álvarez, executive director of the Public Private Alliance Authority, said, adding the winning group’s offer was 20 percent above the government’s internal value estimates assigned to the administrative concession.
The Goldman/Abertis offer also came with the backing of 12 bank that will guarantee the funds are available to comply with the terms of the contract that requires, among other things, that the new managers begin road improvement projects during the fourth quarter of this year.
During 2012, Autopistas Metropolitanas de Puerto Rico will invest the first $11.4 million to improve toll plazas and repair lighting systems along the two highways, as well as repair concrete barriers and other safety elements, Álvarez said. During the second and third year, Goldman/Abertis has agreed to invest another $44.7 million to repair pavement, and rehabilitate bridges and overpasses.
The government official said about 90 percent of the up-front payment will be used to cover the Puerto Rico Highway and Transportation Authority’s staggering debt, currently pegged at more than $6.2 billion. The agency, he said, has had to turn to the Government Development Bank for credit to cover its cash flow needs.
“This PPP will give the government the ability to address the Puerto Rico Highway and Transportation Authority’s financial condition. It represents an immediate investment of more than $56 million that could reach $75 million, if necessary and subsequent private investment of some $300 million,” which the government is not in the financial position to make, Álvarez said, noting that the contract requires Goldman/Abertis to make an annual $450,000 payment to the Puerto Rico Police Department for additional patroling along the two highways.
With the influx of capital, the PRHTA will be in a better position to issue new debt with which to finance projects needed for other roads, agency chief Rubén Hernández Gregorat said.
PR-22, is a 52-mile stretch of highway that runs from the entrance of the Minillas Tunnel in Santurce to the western town of Hatillo, and PR-5, a 2.5-mile road that begins at the intersection with PR-2 in Bayamón through PR-199.
Both are toll roads, generating $85.1 million and about $4 million in annual revenue, respectively. The combined toll collections represent about 50 percent of the PRHTA’s annual toll revenue, according to a document posted on the P3 Authority’s website.
Regarding the toll issue, Álvarez confirmed Autopistas Metropolitanas de Puerto Rico will not be allowed to raise fees until 2014, when it will be required to stick to the U.S. inflation rate plus 1.5 percent to determine the increases.
In addition to the fees and investments imposed in the PPP, Autopistas Metropolitanas de Puerto Rico will also have to pay the utilities along the highways, as well as pay central and municipal taxes to the 12 towns the highways cross, he said.
“We’re honored to have been part of such a high-level process and, even more, to have been chosen to pave the way, along with the government, for the first highway PPP in the U.S. sine 2006,” said Luis Palazzi, representative of the Goldman Sachs/Abertis consortium.
Other required improvements
Autopistas Metropolitanas de Puerto Rico will be reponsible for providing maintenance service to the Urban Metro transportation system being built on PR-22 from Bayamón to Toa Alta, as well as the future reversible lane that will be built parallel to the mass transit system. The private operator and the government will evenly split the revenue generated from the toll for that special lane.
Meanwhile, Autopistas Metropolitanas de Puerto Rico will have to comply with world-class operating standard requirements based on the specifications of the PRHTA, the Federal Highway Administration and the American Association of State Highways and Transportation Officials. Among other things, the new operator will have to abide by specific performance timeframes set to fix potholes, dispose of roadkill, clean the roads and green areas, eliminate graffiti and respond to traffic-related incidents.
The new highway operator is expected to generate 1,000 new direct, indirect and induced jobs, Fortuño said.