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Thoughts about the relationships between transport and the urban area it serves

Archive for January 14th, 2009

Highway 1 partners blow deal deadline

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The story I mentioned in this morning’s post gets more interesting. Jeff Nagel in the Surrey Leader now has  more information and Kevin Falcon has issued a statement.  Interestingly that has not yet hit the Ministry’s web page

Transportation minister Kevin Falcon, in a statement issued Wednesday, said the province has agreed to Macquarie’s request for a one-month extension to complete the loan.

“This is in response to the current challenges facing capital markets,” Falcon said.

“Macquarie advised government that they remain confident that they will be successful in completing lending syndication. The Province of B.C. will wait and see the results of the proponents’ effort, but regardless remain committed to the Port Mann project utilizing alternative means of financing should that be necessary.”

Falcon wasn’t available for an interview and ministry staff say he’s not speculating on whether the province might borrow money directly and terminate the financing component of the project.

The concept was for the partners to finance, design, build and then maintain the twinned bridge and widened 37-kilometre highway corridor.

It would be repaid and make a profit from tolls charged to cross the bridge over the next 35 years.

There are also indications the cost of the project has ballooned again – from $1.7 billion to as much as $2.3 billion.

That’s the amount of financing sought by the partners, according to British industry journal Project Finance, which reported the failure to finalize.

Now that hike in price is also worth noticing – because one of the things that is supposed to happen when the construction industry cools off and oil prices fall is that projects like this were supposed to cost less, not more. Certainly any property that might be needed would have dropped in price recently. Since blacktop (asphalt) is an oil based product and cement takes lots of energy to make that makes those two components sheaper too. One can only assume that either the project has “crept” – an oft seen phenomenon that P3s were supposed to put a stop too – or the original estimates were lowballed. $600 million is not pocket change either – and a 35% hike in costs is going to need to be explained.

Of course one thing you know won’t happen is that they will go back to the Cost Benefit Analysis to see if it is still worth doing.

“Utilizing alternative means of financing” needs parsing too. Is that a hint that the P3 itself might be canned and the Province will revert to a more conventional contract? And the timing is going to be really awkward, because if the current deal does collapse, it will take a while to sort out a new one – and that will fall right into the election period. So the whole issue could become a real political issue again.

And to think that only a couple of days ago two journalists (on spearate occassions) were telling me that the on going Gateway saga was of doubtful news value.

And Jeff is continuing to update the story and noew (5:30) has a good quote from my good freind Eric Doherty

Doherty says the reported loan cost of $2.3 billion also raises big questions, noting the project was originally was based on a $1.3-billion price tag.

“It seemed at that time like it was a stretch for the tolls to cover a $1.3-billion project,” he said. “Now you’re looking at a $2.3-billion project and you’re looking at lower expected traffic volumes in the first few years because of the economic downturn.

“You add those two things up and there’s no way they could possibly pay for this whole project with tolls.”

UPDATE

The Sun has the story this morning (January 15). The only additonal infromation that adds to what is above is about Macquarie’s troubles

Macquarie, which operates more than 30 roads worldwide, has been hit hard by the financial meltdown.

The value of the company’s toll-road portfolio fell by a third in the last four months of 2008. In a statement issued by Macquarie, it blamed “the recessionary environment” and “higher assumed financing costs.”

And the NDP’s finance critic Bruce Ralston questioning the need for a P3. But not, note, the need for the bridge and highway expansion.

Written by Stephen Rees

January 14, 2009 at 4:49 pm

Posted in Gateway

Vancouver Olympic Village likely won’t be the only shock

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Charlie Smith on the Georgia Straight’s politics blog this morning (isn’t having a Twitter feed wonderful?) speculates on a number of Olympics related budget items which are also not performing as planned. He cites the Vancouver Convention Centre (the broadcasting centre for the games) the Sea to Sky Highway (which will not be quite the real estate boon Kack Poole hoped for) but mostly the Canada Line.

Urban-affairs writer Jane Jacobs once described the Canada Line as a “pork barrel” and “black hole” that will consume limited transit funds.

The Canada Line will result in rerouting of the bus system.

This will shock merchants on north-south streets such as Fraser, Oak, and Granville when they learn that they no longer have people using the bus to reach their stores.

Some might even cite this and ask for a break on property taxes.

But the biggest risk of all is if the Canada Line fails to attract more than 100,000 riders per day.

It will be a difficult challenge, given the cost of transit in this region and the percentage of households in Richmond that own cars.

If the line doesn’t generate sufficient ridership, TransLink will have to provide a whopping operating subsidy to the private operator.

How will that be financed? Probably by cutting back on bus service and jacking up fares.

Well he may be right about the impact on retailers but that is going to be hard to determine. Retail is in trouble already – everywhere – becuase of the recession. So the additonal impact of losing north south bus service is going to be hard to determine. The retailers that I had to deal with when the Richmond Rapid Bus proposal was working its way through public consultations were decidely unimpressed with buses and refused to accept then that people who ride the bus might have money to spend. Their main concerns then were about parking – and the visibility of their store fronts to passing motorists. That was one of the main reasons that the architect designed new bus shelters had to be all glass. And while I am not privy to the bus plans post Canada Line I would expect that there will be some service. After all there has been a long running campaign to try to get trolley buses reinstated on Cambie – so there is obviously going to be some local bus service on the these north-south routes. Probably much les frequent than they are now.

The threat of service cuts and fare hikes is already on the table due to major financing concerns. Either the region’s Mayors agree to a new source of funding for Translink or those cuts will be implemented in order to balance the books. And that happens whether or not the Canada Line hits its magic number of projected riders.

Actually my prediction right now is that the big shock may be the P3 financing for the Port Mann Twinning and Highway 1 expansion. Which, of course, is not Olympic related. BCTV last night passed along a story it had picked up from Project Finance Magazine – which is only available by subscription on line.  They are reporting that the deal that was supposed to have been signed by now  hasn’t been. The January 8 deadline has passed but there are still expectations that it will close by early February. Or not if market rumours about the banks’ credit retraints and doubts about the debt pricing structure are true. The deal is hideously complicated and discussed in language only understood by those with much financial expertise. Which in itself raises my eyebrows, since that has often the technique used in the past to get dubious deals through without too much scrutiny. Of course, with recent revelations about Ponzi schemes, everyone is being a lot more careful these days. Which translates to yet more risk transfer – back to the taxpayer, of course, who is always left holding the bag, just as is now happening with the athlete’s village.

Written by Stephen Rees

January 14, 2009 at 9:33 am