Bid to lease Pa. Turnpike might shrink

The $12.8 billion bid to operate the Pennsylvania Turnpike will shrink if interest rates rise, the winning bidders said yesterday.

And Gov. Rendell said he expects no legislative action on the proposed lease of the turnpike until at least the fall.

The private consortium that Rendell wants to operate the turnpike also said that any turnpike workers displaced by new technologies would be retrained and given new jobs on the toll road.

As they begin an uphill struggle to persuade the state legislature to approve the 75-year lease of the turnpike, top officials from Abertis Infraestructuras and Citi Infrastructure Investors yesterday portrayed their offer as more lucrative for the state and cheaper for drivers than a competing plan by the Pennsylvania Turnpike Commission that includes tolls on Interstate 80.

Rendell last month accepted the $12.8 billion bid from Abertis, a Spanish toll-road operator, and Citi Infrastructure, a division of Citigroup, the New York-headquartered bank. Rendell sent the proposal to the legislature, where the reception has been skeptical.

The Abertis/Citi consortium would lease the turnpike for 75 years with the right to raise tolls 25 percent next year and 2.5 percent, or the rate of inflation, every year after that.

The $12.8 billion offer to the state expires June 20, but Abertis/Citi officials said yesterday they were willing to extend the deadline.

"We're prepared to be flexible and work with them," Michael Froman, managing director and partner of Citi Infrastructure, said during a conference call with reporters.

Under the lease proposal, the $12.8 billion payment, minus about $2.3 billion to pay off existing turnpike debt, would be invested in the Pennsylvania State Employees' Retirement System, with the proceeds to be spent on road, bridge and mass-transit projects around the state.

Rendell estimates the payment would generate $1.1 billion a year, based on a 12 percent annual return, which he said is the 20-year average for SERS.

But the $12.8 billion figure is subject to changing interest rates. Until the deal closes, the offer will decrease by 0.10 percent for every 100th of a percentage-point uptick in a widely used benchmark, the London Interbank Offered Rate (LIBOR).

The bank rate yesterday was 5.095 percent, up from the reference rate of 4.838 percent on May 10, which would mean about a $300 million drop in the lease price.

The provision is designed to protect the consortium from increased costs for borrowing money, said Rob Collins, of Morgan Stanley & Co., the administration's financial adviser on the turnpike lease. He said similar clauses were included in the leases of the Chicago Skyway and the Indiana Toll Road.

Rendell, who earlier had called for legislative approval this month, said yesterday he expects no action on the lease until the fall. The legislature is grappling with the state budget, and Rendell said he wants it to take the summer to review the proposal.

"The lease provides more money for infrastructure, eliminates the need to toll I-80 and proposes smaller increases in tolls than the turnpike commission's schedule," Froman said. He said annual toll hikes would be less than the 3 percent annual hikes under the turnpike commission.

Under a transportation-funding law passed last year, the turnpike commission is to raise transportation money by placing tolls on I-80 and increasing tolls on the turnpike.

Turnpike commission spokesman Carl DeFebo disputed Froman's contention that tolls under the law, Act 44, would rise less with private operators.

"The turnpike commission will raise tolls only as necessary to support Act 44 obligations and fund our annual capital plan," DeFebo said. "Nothing in Act 44 requires the 3 percent annual increase; in fact, the turnpike commission has the discretion and flexibility not to increase tolls as much if conditions, economic or otherwise, warrant in any given year."

The lease proposal calls for the private operators to honor the existing labor agreements with turnpike workers. After the agreements expire, the unions would need to renegotiate their contracts.

Jordi Graells, managing director of Abertis, sought to allay concerns that workers would be laid off as technology replaces human toll takers.

"If there is any transition to any less labor-intensive scenario . . . we'll make sure these guys are retrained for new jobs in the company," Graells said yesterday.

And Graells said the Spanish firm had had no labor strikes in its 40-year history of operating toll roads in France, Spain and other countries.

"We are well-known to be very friendly to the workforce and to the unions," Graells said.

Officials for Teamsters Local 77, the union that represents turnpike workers and opposes the lease of the toll road, could not be immediately reached for comment.