Denver to seek light-rail PPP proposals

The so-called ‘Eagle’ project will help the city's regional transit agency close a $2.2bn financing gap in its ambitious FasTracks plan by inviting private developers to build two of the plan's six new light-rail and commuter-rail lines.

With sales taxes dwindling and construction costs escalating, the Regional Transportation District (RTD) of Denver is looking to the private sector to help it turn an ambitious new $6.9 billion dollar metropolitan transit system into reality.

Denver: pushing ahead
with PPP for transit

The RTD said it will release a request for proposals for a public-private partnership (PPP) development of some of the transit system’s proposed light rail and commuter lines on 30 September, according to its website.

Unlike other large US cities, Denver, whose metropolitan area population tops 2.5 million, does not have an integrated rail transit system to serve its commuters.

The proposed transit system, known as Denver FasTracks, has been in development since 2004, when voters in the city’s eight county metropolitan region approved a 0.4 percent sales tax increase to build out 122 new miles of light rail and commuter rail for the region.

The 2004 sales tax funding proposal was based on a total project cost of $4.7 billion. But due to the economic downturn, sales taxes have not kept up with the RTD’s estimates and cost of construction materials have risen such that “the cost to build out this program is substantially more then what we anticipated,” said Pauletta Tonilas, a spokeswoman for the RTD. The most recent estimate for the completion of the FasTracks programme is about $2.2 billion more than the 2004 estimate, Tonilas said.

“We are currently working to close that $2.2 billion funding gap and one of the ways were doing that is though this PPP,” Tonilas said.

The PPP will involve the development of two of FasTracks’ six new rapid transit corridors: the 22.8 mile “East Corridor” and the 11.2 mile “Gold Corridor”. The East Corridor will connect downtown Denver’s Union Station with the busy Denver International Airport using commuter rail, while the Gold Corridor will connect commuters with the city’s nearby western suburbs using light rail.

Light rail is a passenger train powered by overhead electrical wires typically used for inter-city transit, whereas commuter rail is a passenger train that can be operated either by diesel fuel or electricity and is typically used for longer-distance local or regional service.

Combining the corridors’ “East” and “Gold” names, the RTD has nicknamed the project the “Eagle” PPP, which will also include the development of maintenance facilities for commuter rail and light rail vehicles.

Tonilas said the total cost of the Eagle PPP is estimated at between $2.2 billion and $2.3 billion. One billion of the cost will be met with grants from the Fedral Transit Administration – the government agency in charge of regional transit organisations such as the RTD. The RTD also plans to finance the project by issuing Private Activity Bonds, or municipal debt securities whose proceeds are used to finance qualifying projects backed by the private sector.

The remainder of the financing would come from private sources, Tonlias said.

The RTD, which has been pursuing the Eagle PPP for about two years, has already short-listed three groups of investors for the project. As of January, these consisted of the Denver Transit Partners, a partnership that included engineering firm Flouor and investment bank Macquarie Capital; Mile High Transit, a partnership that included UK construction firm John Laing and German concessionaire Hochtief PPP; Mountain-Air Transit Partners, a partnership that included investment bank Babcock & Brown and engineering firm Siemens.

Babcock & Brown, which went into administration in March, has since swapped out its interests in Mountain-Air Transit Partners with HSBC, Tonilas said, and there is some fluctuation in the other consortia’s teams members as well.

Due to the technical expertise required for such projects, consortia for these types of public procurements are frequently quite large and can sometimes change before final proposals are submitted. Between the three of them, for example, Denver Transit, Mile High and Mountain-Air had 30 team members as of January, according to an RTD board presentation. Tonilas said the RTD will have a better idea of who is bidding before the request for proposals is issued later this month.

After the request for proposals is released later this month, the three teams will have approximately six months to submit their final proposals to the RTD. The RTD then hopes to evaluate the proposals and name a winning partner by June 2010.

The winning consortium will be given a six year term to build the East and Gold corridors and maintenance facilities, during which the RTD will compensate the consortium with payments for the facilities’ construction, Tonilas said. Thereafter, the consortium will be compensated for a term of 40 years with availability payments, or periodic payments made to the private sector in exchange for meeting agreed-upon levels of service delivery.

Availability payments have been widely used in the UK for many years but are just now making their way to the US, where only one project, the $1.6 billion I-595 Express development in Florida, has reached financial close under such a payment mechanism.

Tonilas did not rule out the possibility of further PPPs for the FasTracks programme but added that such developments are more likely to resemble traditional procurements for firms to design and build infrastructure facilities, rather than the full scope of designing, building, financing, maintenance and operations envisioned by the Eagle PPP.

Some parts of the FasTracks system have already begun construction. In June, the contractor for the 12.1 mile West Corridor light rail project was given notice to move into full construction, according to an RTD press release.

Investment banks Goldman Sachs and JPMorgan are financial advisors to the RTD on the project. Law firm Freshfields is the agency's legal advisor.