Port Tunnel Tolls Not A Dime
Written by Scott Blake on June 6, 2013
By Scott Blake
When the Port of Miami Tunnel opens under Biscayne Bay next year, motorists are going to get a free ride.
The twin tunnels won’t have any tolls, in accordance with the original agreement, which set up a unique financing system for the project pieced together several years ago through the financial crisis, according to project officials.
"It was a rarity," said Chris Hodgkins, vice president for MAT Concessionaire LLC, the contractor, also known as Miami Access Tunnel.
"The Port of Miami Tunnel is a first in the US — a technically challenging transport construction project implemented through a public-private partnership where no tolls are charged," Jeffrey Parker, an advisor on the project for the Florida Department of Transportation, wrote in the Public Works Financing newsletter.
In addition to designing and building the tunnels, MAT Concessionaire — a partnership between French industrial conglomerate Bouygues and Australian construction services firm Transfield Services — will operate and maintain the tunnels for 30 years after opening. During that time, MAT Concessionaire will collect no revenue from tolls. However, the company stands to receive $450 million in milestone payments — $100 million during construction and $350 million by the time the contract ends in 2044.
The state "will make a $350 million payment upon final acceptance and will begin making availability payments upon substantial completion," Mr. Parker wrote.
"Over the following 30-plus years," he added, "availability payments will be subject to deduction if there are unplanned lane closures or deficiencies in providing a safe, well-maintained facility, with higher deductions during peak periods."
The money behind the $1 billion tunnel project was also an innovative setup, according to Project Finance magazine, which dubbed the project the North American public-private partnership of the year in 2009.
"No deal came to close to death and survived, no deal dealt with such a complex set of risks, and no deal — in the end — had so few detractors in the bank market," the magazine wrote.
"If the [Florida Department of Transportation] wanted to move traffic out of downtown, it could not let a private operator set tolls in the tunnel," it added. "The record of financings for tolled urban tunnels has suggested it was right to do so."
The drilling of the two one-way tunnels — completed last month — also was unique, according to Mr. Parker.
The project introduced new tunnel boring technology to the US, he wrote. "Rather than 21-foot standard tunnels," he explained, Port of Miami Tunnel’s large-diameter [drilling] machine will permit highway lanes, or double-track [road] in a single, bored tunnel. These benefits have long been realized in European and Asian transport construction, and now the US is poised to start catching up."
Mr. Hodgkins said the tunnels are on schedule to open in May 2014. They will connect the county-owned seaport on Dodge Island to the MacArthur Causeway and thus to Miami’s highway system, traveling under a part of the bay known as Government Cut, which serves as the port’s cruise ship
Currently, the only road in and out of the port is the main entrance road off Biscayne Boulevard near American Airlines Arena, thus funneling all of the port’s traffic through downtown. Nearly 16,000 vehicles — including more than 4,000 trucks — travel to and from the port through downtown streets each weekday, according to the tunnel project’s website.
Port Miami spokeswoman Paula Musto confirmed this week that there will be no tolls for the tunnels.
The total cost of design and construction of the twin tunnels has been set at $663 million. The state has agreed to pay for half of the design and construction costs and for all of the operations and maintenance. The remaining 50% of the design and construction costs will be provided by Miami-Dade County and the City of Miami, according to the website.
But what really makes the arrangement unique is the "risk" transfer to the contractor, Mr. Hodgkins said.
Not only must MAT Concessionaire perform well in operating and maintaining the tunnels or risk financial penalties, it also shared some of the financial risks with the Florida Department of Transportation if any unforeseen problems cropped up during the drilling process through the porous and unpredictable soil under the bay, according to Mr. Parker.
Previously, the private sector backing for the project also was on shaky ground. The original financing team crumbled when Australian investment firm Babcock & Brown imploded during the financial crisis of 2008 and went into liquidation the following year, according to Project Finance magazine.
However, before drilling began in 2011, New York-based private equity firm Meridiam stepped in during the financing process to become a 90% equity investor along with Bouygues’ 10% equity contribution.
"Meridiam provided essential leadership to the team and efficiently assembled and managed a club of ten banks that ultimately delivered the senior debt," Mr. Parker wrote.
"Originally financed with $37 million of equity and $685 million in private activity bonds insured by two monolines," he added, the project emerged with "$80 million in equity commitments, $342 million in bank debt and a $340 million [federal transportation loan] at closing. Despite all this, the Port of Miami Tunnel was delivered at lower overall cost than the original bid."To read the entire issue of Miami Today online, subscribe to e-MIAMI TODAY, an exact digital replica of the printed edition.