The Livable Blog

Jeff Nagel of the Surrey North Delta Leader has just reported that the Port Mann / Highway 1 project is now expected to cost $2.3 billion dollars, getting close to three times the original $800 million estimate from 2004. Or to be more precise, 288% the original estimate. That is about 1.5 Olympic villages over budget, even before the election after which further cost overruns will have lesser political consequences. The originally planned completion date was 2010.

Also consider that we don't know what the scope of the project is, remember the deep tunneling promised for the Canada Line light metro? That is what happens with 'on time - on budget' P3s, they are often 'off scope' because of the cost cutting measures the private companies use to maintain their profit margins.

As discussed here earlier, Macquarie Bank has been accused of artificially inflating the value of assets such as toll highways, basically a new version of the Ponzi scam. No wonder investors said NO. The exact wording used by Project Finance is "market rumour indicates that some banks have found it difficult to become comfortable with the debt's pricing structure." My prediction, this will get messier, Falcon will go cap in hand to Campbell for a few hundred more millions of your money and 100% public backing of any borrowing.

One of the messier questions is if Macquarie and co deliberately underbid the project on the assumption that they could squeeze more money out of the Campbell administration in the run-up to an election. We will never know unless the whole thing ends up with a messy court case.

Great time to write that letter to the editor you have been putting off!

PS. Isn't is interesting that the Sun, Province, CBC etc. all keep getting scooped by the local Surrey media on a story of provincial importance. So, can you get the Surrey North Delta Leader delivered in Vancouver?

PPS. Thanks to Stephen Rees for alerting me to this. His post on this is here.

Photo - Bruce Ralston, Surrey - Whalley MLA, Emphasized that the Macquarie group's financial problems may lead to further delays.

Highway 1 partners blow deal deadline

By Jeff Nagel - Surrey North Delta Leader

Published: January 14, 2009 3:00 PM
Updated: January 14, 2009 5:40 PM

A missed financing deadline has raised doubt over whether the twinning of the Port Mann Bridge and widening of Highway 1 will proceed as a full private-public partnership (P3).

[snip]

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.

Ministry officials say they can't comment on the cost of the project, adding that's part of the negotiations.

The other partners in the preferred bid group include Pieter Kiewit and Sons – which is upgrading the Sea-to-Sky Highway – as well as U.S.-based Transtoll Inc. and Flatiron Constructors Canada Ltd.

NDP finance critic Bruce Ralston said the turmoil around the project's financing means it almost certainly won't meet Falcon's previous target of having pilings rising from the river before this May's provincial election.

"This project is going to be delayed even further," he predicted.

Ralston noted partner Macquarie is itself embattled due to the global financial crunch, and has been forced to sell off assets to shore up its balance sheet.

The firm borrowed on the strength of rising infrastructure asset values and was able to attract investors by offering big dividends.

But some analysts have likened the model to a pyramid scheme that has now begun to collapse.

Ralston said the provincial government's P3 model for building infrastructure is now in jeopardy because it also failed to anticipate potential trouble.

Any major delay in the Port Mann/Highway 1 project could push back the flow of jobs that would provide a much-needed employment boost in the region to stimulate the economy.

Gateway program opponent Eric Doherty, of the Livable Region Coalition, said no details have been made public on the structure of the proposed deal or what kinds of guarantees the government offered to the partners.

He said Victoria's method of winnowing multiple bidders down to one final preferred group may be problematic.

"They've only got one bidder," Doherty said, adding Connect BC may have bid low to become the preferred group but now be seeking to renegotiate.

Such a scenario can put political pressure on the government to agree to steeper terms in order to get a deal done on deadline, he said, pointing to Vancouver's financing of the Olympic village construction as an example.

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."

[snip]

Critics of the project say the freeway expansion will fuel sprawl and undermine efforts to fight climate change.

Full text http://www.bclocalnews.com/surrey_area/surreyleader/news/37602249.html