May 25, 2007

The situation regarding the Texas toll road program looks incredibly messy right now.

Not only have the House and Senate overwhelmingly passed bills which would enact a two-year moratorium on the privatization of state toll roads but the NTTA, a regional tollway authority, is being permitted to make a proposal on a project which has already been awarded, as well as on others which are currently in procurement.

It’s this type of musical chairs late in the game that really irritates the private sector – not least because it has invested a considerable amount of time and money developing its business in Texas.

Reading between the lines, TxDOT’s decision to delay the signing of a contract with Cintra for the SH-121 is a clever way of demonstrating to the legislature (and the public) that it is carefully considering the implications of a tolling arrangement with the private sector. It is also hard to see how the NTTA can raise the required funds by May 25 to finance a competitive bid.

However, both the toll road moratorium and the situation with the NTTA have created enormous uncertainty for the private sector.

As soon as SB 1267 was passed in the Senate last week, Infra Blogger heard that at least one of Cintra’s lenders had been on the telephone to Texas legislators to find out what was happening.

All Politics is Local
What is going on in Texas is unfortunate – and one must have a degree of sympathy for the TxDOT staff who have worked hard to bring P3 projects to the market – but it is not entirely surprising.

Political risk at the US state level has always been a factor. As one project financier recently told Infra Blogger, every power plant in the US has to be approved at the state level and there have always been regular issues and delays. The same is going to be true of toll roads.

Put yourself in the shoes of a politician or local authority for a moment. The private sector is a threat to your influence. The spice in the soup is that many of the private companies that have bid in Texas are foreign. They don’t vote, pay taxes, or employ lots of local people. In short, they are an easy target for organized political opposition.

Will what is happening in Texas have an impact on private toll road projects elsewhere? The answer is probably no, because in the words of former Speaker of the House Tip O’Neill, all politics is local. What works for one state might not work in another. The private sector miscalculates this at its peril.

Texas is the Loser
The biggest loser in all of this is Texas. Traffic congestion in the state isn’t going to go away, but sponsors and developers are. Word on the street right now is that a number of players have already shifted their interest to Florida.

Perhaps the lesson for other DOTs that are watching is that toll road opponents are highly organised and getting P3s done in this challenging environment is not going to be easy.

One criticism of the TxDOT is that it has been very quiet in the face of such opposition. With the lobbyists and professional public relations people on its side, getting the political stars in alignment should have been easier.

After all, is raising the gas tax to fund the state’s transportation needs really a credible alternative to P3s?