Dubai Ports World and the Chicago Skyway

By: Dan Keegan

Date: Thursday, 26. June 2008

The Dubai Ports World deal may have caught the American public by surprise, but it shouldn't have. It has much in common with the Chicago Skyway toll road concession and other infrastructure megaprojects.

Just a few years ago the Chicago Skyway, a 7.8 mile tollway, was the subject of the first privatization of an existing toll road anywhere in the United States - and the 99-year toll concession went to a company jointly owned by Spanish and Australian consortiums. The deal was part of a powerful trend of globalization in which the controversial Dubai Ports World deal was just another addition.

The reality of modern megaprojects such as the management of a major port, or of a highway that is crucial to the life of a major city, is that it takes highly sophisticated expertise and expansive financial resources to take them on.

When the City of Chicago invited bids on the Skyway there weren't all that many qualified bidders the city considered capable of handling such a critical transportation artery. The field was finally narrowed down to five.

All five bidders were international. Four were consortiums with partners as diverse as Cintra Concesiones de Infraestructuras de Transporte SA (Madrid), Macquarie Investment Holdings (Sydney, Australia), Bilfinger Berger BOT (Germany), American Bridge (New York), Cheung Kong Infrastructure Holdings (Hong Kong), and, interestingly, the Ontario Teachers Pension Plan.

The latter is reputedly Canada's second largest pension fund and has broadly diversified investments. The plan's private investment arm, Teachers' Private Capital, provides equity and mezzanine debt capital for large and mid-sized companies.

Also interesting was that one of the rejected bidding contenders was TransCore, an American company that has experience in toll collection dating back to the 1930s. TransCore's Web site describes it as a corporation with 1,800 employees and more than 80 locations throughout the United States and abroad, and as "the dominant system and service provider in the toll industry ... supplying AVI technology and/or the design, integration, or maintenance services in nearly 7400 lanes worldwide, including 60% of the toll lanes in the U.S."

The winning bidder for the Skyway concession was the Skyway Concession Company (SCC) which, for a little over USD 1.8 billion, purchased a 99-year lease to operate the Skyway. SCC is a consortium consisting of Cintra and Macquarie.

Macquarie bills itself as "the world's largest listed infrastructure fund, with assets in Australia, the UK, Germany and Portugal." Cintra is owned by Grupo Ferrovial, a Spanish company which also describes itself as one of the world's leading infrastructures groups, with a capitalization of over 9,000 billion Euros (about USD 10.5 Billion) and more than 70,000 employees.

The City of Chicago noted that Cintra and Macquarie had experience in operating and maintaining more than 30 toll roads spanning over 1,000 miles, including the Highway 407 Toll Road in Toronto; several in Sydney, Australia; and others in Spain, Chile, Portugal and Ireland.

The impact of megaprojects

A growing need to rehabilitate aging infrastructure made major projects part of the construction project mix in the United States in the 1990s. Some megaprojects have the potential for major impacts to the extent that they can fuel a local economic boom.

"As a project reaches completion and construction activity subsides, the local or regional economy may weaken," points out an article in Public Roads, a magazine published by the U.S. Federal Highway Administration. As well, the article adds, they can tax the capacity of a region's construction industry, affecting the bidding climate and cost of other projects.

Small wonder then that local administrations and politicians are fearful of the consequences of botched megaprojects and opt for conservative choices in selecting private partners. If the private partners happen to be foreign corporations then so be it.

"We must ensure that [project] mismanagement and oversight neglect is a thing of the past," U.S. Senator John McCain told an oversight hearing by the U.S. Committee on Commerce, Science, and Transportation a couple of years ago.

Perhaps this explains why Senator McCain did not join many of his fellow Republicans in condemning the Dubai Ports World deal.

In a globalized economy there will be many more of these kinds of deals to come.

The megadeal trend

The U. S. Federal Highway Administration (FHWA) defines megaprojects as "major infrastructure projects that cost more than $1 billion ... projects of a significant cost that attract a high level of public attention or political interest because of substantial direct and indirect impacts on the community, environment, and State budgets."

"Mega," says the FHWA, "also connotes the skill level and attention required to manage the project successfully." There are currently 17 projects on FHWA's active megaprojects list and the number is expected to double in the next 5 years.

The Dubai Ports World (DPW) deal and the Chicago Skyway concession indicate how international the participation in these projects is likely to be.

With its recent purchase of the Peninsular Oriental Steam Navigation Company, DPW became one of the top three global port operators, with 51 terminals in 30 countries. Rejection of the DPW deal by the American public was likely more about Arab participation and xenophobia than about security.

This will be a concern to the FHWA as it plans for upgrading transportation infrastructure and remedying its many deficiencies.

"Transportation megaprojects" says the FHWA, "are a different breed and should not be viewed as simply more expensive versions of normal transportation projects ... Project leaders and the management team must do more than just manage a project; they must manage a 'public journey'."

Related Links:

• Drivers.com on toll roads, road pricing

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