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The Pocahontas Parkway Concession 15 months After the Ink is Dry Barbara W. Reese Deputy Secretary of Transportation Commonwealth of Virginia October 2007 Background • The Pocahontas Parkway was constructed as Virginia’s first P3 (non-utility) in the late 1990’s • The original P3 was financed using a IRS 63-20 structure, well before the breath of financial tools today were available • Actual traffic performance about 50% below projections – Revenue would likely be insufficient to meet growing debt service obligation – tolls had been increased twice to mitigate this risk but problems continued – Requirement to draw from the debt service reserve account – Two of the three main rating agencies have downgraded the project’s senior bonds to non investment grade status – The Commonwealth was paying the Parkway’s O&M expenses with those expenses growing over time • 8.8 miles long • Connects I-95 to I-295 southeast of Richmond • Major structure is a bridge that crosses the James River • Provides 10 to 15 minutes travel time savings for average user Transaction History Timeline: • October 2004 - Transurban and DEPFA made an unsolicited proposal to VDOT to acquire the rights to operate the Parkway • June 2005 - The offer led to the execution of the exclusive Memorandum of Understanding between the parties • May 2006 - Transurban & VDOT finalized the ARCA that governs their rights and obligations during the 99 year term; Transurban established a special purpose company (“T895”) for the Parkway • June 2006 – VDOT repaid all existing “loans” to the 63-20 entity and Commonwealth Transportation Board used payoff to finance other critical transportation projects that benefit the toll payers • Summer 2007 – TIFIA refinancing closed; design-build process to build the Richmond Airport Connector begins ARCA Summary Basic Rights: • 99-year concession from VDOT • T895 subject to tolling ceilings and conservative rate escalation • Revenue Share based on reaching a predefined Pretax IRR • Projects under the PPTA will be exempt from any State or local property tax ARCA Summary T895’s Duties: • Operate, maintain and repair the Project at its cost • Maintain certain reserves or letters of credit for O&M and major maintenance • Comply with local laws and regulations generally applicable to parties to construction and service contracts with VDOT VDOT’s Duties: • Provide (at T895’s cost) requested O&M services during 6-month transitional period • Cause police and emergency services to be provided to the Project • Cost of management & clean-up of pre-existing environmental contamination on the Right of Way ARCA Summary – Risk Sharing Obligations assumed by VDOT Obligations (risks) assumed by T895 Financing Text None Yes Traffic and Revenue None Yes Oversight Yes Risk O&M and Major Maintenance Insurance Change in Law (discriminatory) Operating Standards Permitting & Licensing Hand-back Toll Rate Setting Yes Yes Oversight Yes Reasonable assistance Yes Oversight Yes Based on a toll escalation formula ARCA Summary – Risk Sharing Risk Police and Emergency Services Environmental Construction of the RAC Competitive Transportation Facilities Obligations assumed by VDOT Obligations (risks) assumed by T895 Base service provided Additional services at cost Shared Shared Oversight & Excess of cap Yes – if TIFIA loan Within defined parameters Federal Requirements Reasonable assistance Yes Force Majeure Shared for uninsurable events (bridge) Shared Yes Risk Sharing to be negotiated Shared Shared Property & Receipts Taxes Revenue over an agreed return on total investment ARCA Summary - Toll Schedule • The maximum toll charged by the operator is not to exceed the following for the periods shown. Period Main Toll Plaza Laburnum Ave. 1 January 2006 up to and including 31 December 2007 $2.25 $0.75 1 January 2008 up to and including 31 December 2010 $2.75 $1.00 1 January 2011 up to and including 31 December 2012 $3.00 $1.25 1 January 2013 up to and including 31 December 2013 $3.25 $1.50 1 January 2014 up to and including 31 December 2014 $3.50 $1.75 1 January 2015 up to and including 31 December 2015 $3.75 $2.00 1 January 2016 up to and including 31 December 2016 $4.00 $2.25 Note: Toll levels are for 2 axle vehicles only. Multi axle vehicles are tolled on the basis of an additional $1.00 for each axle above 2. • The maximum toll increase in any year thereafter will be the greater of the increase in Real Gross Domestic Product per Capita from the preceding year, the increase in the Consumer Price Index from the preceding year, or 2.8%. Concession Performance – 15 months later • Successful transition from public to private operation • First TIFIA Refinancing – Richmond Airport Connector Will be Built – Richmond International Airport – 11.5% ridership growth in last year • Traffic on Pocahontas is Growing – 7% last quarter • Two major economic development announcements in Corridor will benefit the Project • Solid Working Relationship with the public and private partners – very few issues The Pocahontas Parkway Concession 15 months After the Ink is Dry Barbara W. Reese Deputy Secretary of Transportation Commonwealth of Virginia October 2007