World crisscrossed by private roads

There are no toll booths on 407 ETR, an all-electronic private toll road north of Toronto. Electronic sensors and video cameras log in cars and trucks as they zip on the 67-mile expressway. Tolls are paid later, online or by mail.

Advertised as the "world's smartest highway," the six-lane expressway just 500 miles from Northwest Indiana is a case study in both the promise and perils of toll road privatization.

407 ETR allows commuters to avoid one of North America's busiest truck routes and has seen $900 million in additional investment under private operation.

"Our reputation is still growing," said Dale Albers, a spokesman for operator 407 International Inc. "If you need to save time, go with us."

But the road has led to courtroom collisions between the Ontario provincial government and 407 International. The two have butted heads over toll increases and toll enforcement.

Originally built by the provincial government, and later expanded by 407 International, the toll road is one of dozens around the world that have been privatized since the mid-1990s.

In all, 359 roads worth $157.3 billion have been built by public/private partnerships in the past 20 years, according to a report from the Federal Highway Administration of the U.S. Department of Transportation.

As Indiana considers bids for leasing the Indiana Toll Road to a private operator, there are plenty of models around the world to emulate, according to Robert Poole, executive director of the Reason Foundation, a think tank that studies and promotes privatization efforts.

Trotting the globe

407 ETR International is operated by a consortium of three companies: one from Spain, one from Australia and one from Canada. They have a 99-year lease from the provincial government to run the road.

"It's important for people to understand it's not a total departure of the government," Poole said. "The government is still a player in protecting the public's interest."

Many attribute the public battles between provincial government and 407 ETR's private operator to the fact that the original 1999 contract to operate the toll road was kept under wraps. It was released in 2002 only because of a court order.

"The lesson is those things have to be negotiated in private, but once you finish those negotiations, all those things have to be public, and that wasn't done in Toronto," Poole said.

407 International says it learned a lesson.

"In hindsight, it would be better to present it (the contract) right away to the public, so the public would know how it's going to work," Albers said.

Indiana has not investigated overseas examples of expressway privatization, but instead has done its homework in the United States, according to state budget director Chuck Schalliol.

Indiana Toll Road next?

Staff from the Indiana departments of Transportation and Finance have visited private roads under construction in Texas, Schalliol said. But their primary investigation has been even closer to home.

"There is only one relevant transaction, anything that's even close to this, and that's the Skyway deal," Schalliol said. "We are talking about, how do you operate something that's already built?"

A subsidiary of the Cintra-Macquarie consortium operates the Chicago Skyway under a 99-year lease with Chicago. Cintra and Macquarie also make up two-thirds of the consortium running 407 ETR.

The eight-mile Skyway was the first existing toll road privatized in the United States when the deal was struck in early 2004.

The 157-mile Indiana Toll Road could be the second.

Schalliol knows a lot of eyes are on Indiana now, including those of government leaders in other states and Washington, D.C. Wall Street bankers and investors also are showing keen interest.

Public versus private

Pertinent examples of foreign privatizations for Indiana to examine would include 407 ETR, France, Italy and Australia, Poole said.

Particularly around Sydney, Australia, the situation is similar to what northern Indiana might experience, Poole said.

In and around Sydney, more than half a dozen private toll roads have been completed or are under construction. They complement and in some cases compete with public roads.

"They all mesh and run to similar high standards," Poole said.

A privately operated Indiana Toll Road also would compete against public expressways such as Interstate 94 in Indiana and Michigan and many public expressways in Illinois.

Transurban, an operator and partner in some of the Sydney projects, teamed with the Chicago/Gary International Airport two years ago to get into the running for the Chicago Skyway lease.

The government of France is in the process of completing a $17 billion deal that essentially will privatize all its main tolled expressways, Poole said.

Old Europe, new ideas

France and other countries in Europe have a long history of private/public partnerships for infrastructure. Many toll road operators started as entirely state-owned. They slowly took on private partners over the years, giving them time to fine-tune relationships.

In Italy, Autostrade SpA, a company founded by the state in the 1930s, became wholly private in 1999. It operates 2,079 toll roads in Italy, according to a report authored by Peter Samuel, a transportation expert and editor of Tollroadnews.

That's as many miles as the New Jersey Turnpike, New York State Thruway and the Pennsylvania Turnpike combined.

Along with the Cintra-Macquarie consortium, Australia-based Transurban Group and Autostrade reportedly have shown interest in bidding on the Indiana Toll Road. Seven other companies, all foreign, also are reported to be interested.

Poole said the fact that they are foreign companies does play into the politics of the situation in the United States. During the debate over the privatization of the Toll Road, many in northern Indiana have expressed alarm about selling such large chunks of infrastructure to foreign-owned companies.

In an apparent effort to overcome that resistance, some foreign-based firms teamed up with U.S.-based groups to prepare bids.

"This is where people really have to think though what it means," Poole said. "Point me to a U.S. company that runs toll roads. There is no such animal."