Monday, 25 April 2011

Ohio Turnpike lease under further discussion

On 4 December 2010 I reported on how the new Governor of Ohio had proposed privatisation of the Ohio Turnpike, as he sought to realise some value from the asset to improve the state's fiscal position.  It was seen as at least being able to realise US$1 billion.

Ohio Turnpike map from website
Now Associated Press is quoted on Trucker.com as saying that it is more likely to be leased than sold and the Governor has said he is unlikely to approve of any deal worth less than US$2.5 billion.  There is also concern for tolls not to increase at a rate that would encourage traffic to divert onto parallel routes.  One early step mooted is conversion to electronic free flow tolling to reduce operating costs.    It is reported by the Ohio Transportation Director Jerry Wray that any net proceeds from a lease would be used to pay for highway improvements and "harbor dredging". 

Certainly I'd encourage Ohio to proceed with any form of privatisation it wishes, as long as it can get a good price and that the terms and conditions do not hinder the use and development of other assets.   There are great potential benefits in having such roads privately owned, as they can emphasise efficiencies and ensure a core piece of infrastructure is well run.  Concerns over monopoly profits can either be addressed by having price cap formulae and avoiding restrictions on parallel route development (although no subsidised parallel routes).   Obviously there are risks beyond getting a poor price and getting an owner interested in making money with minimal expenditure on service, but these can be managed. 

The bigger issue is whether the current investment climate will be keen to put so much money into one asset.  There are good reasons to consider a very long lease on such a strategic and potentially profitable asset, but the toll road concession sector has been burned badly in some cases with the recession.  It will take some convincing and advertising to show investors that this is a far better deal that relatively new toll roads in countries like Spain and Ireland (and yes, it does mean any residual xenophobia about foreign buyers will have to disappear if Ohio wants a good price).

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