Macquarie, Skanska agree on terms for $1.9bn Virginia tunnel

A consortium comprised of Macquarie Group and Swedish developer Skanska has agreed to contribute $318m in equity toward Virginia’s Midtown Tunnel project. The contract will have a 58-year term beginning at financial close, which is expected to occur by the end of the year.

The Virginia Department of Transportation and a Skanska- and Macquarie-backed consortium have agreed on the major terms for the Midtown Tunnel project, bringing the $1.9 billion public-private partnership (PPP) one step closer to financial close.

Macquarie Group and Swedish developer Skanska Infrastructure are equal equity partners on the project, which involves upgrading the existing Midtown Tunnel under the Elizabeth River as well as construction of a new two-lane tunnel. The project also includes improvements to another crossing known as the Downtown Tunnel, and the extension of a road in Portsmouth, Virginia, according to a statement from the office of Republican Virginia Governor Robert McDonnell.

The Macquarie and Skanska consortium, called Elizabeth River Crossings, has agreed to commit $318 million in equity and $495 million in debt toward the project, according to a presentation on the business terms provided by Virginia’s Office of Transportation Public-Private Partnerships.  The private developers are expected to commit $1.2 billion of construction and financing costs at financial close, and $1.3 billion in operation and maintenance costs over the 58-year concession term.

The Midtown Tunnel project has also been invited to apply for a TIFIA loan, and expects that loan to contribute $422 million. TIFIA, short-form for Transportation Infrastructure Finance and Innovation Act, is a US federal government programme that provides long-term, low-cost credit to infrastructure projects.

The funding structure for the project also includes tolls on the Midtown and Downtown tunnels as well as the road extension.

Virginia said the state government will provide $395 million toward the project, and the government’s contribution will be used specifically to reduce toll rates.

Financial close for the project is expected by the end of 2011, according to the statement from the governor’s office. McDonnell emphasised that the project should “send a powerful message to those wanting to invest in the [state] that Virginia is open for business”.

A 1995 law governs Virginia's PPP process, but the state recently opened its Office of Transportation Public-Private Partnerships to coordinate PPPs across various transport agencies.

In a statement, Virginia Transportation Secretary Sean Connaughton said that the new agency has allowed the state “to focus its resources on the development“ of the Midtown Tunnel project. Now that the major points for Midtown Tunnel have been agreed upon, Connaughton said the state will “turn that focus” to other PPPs including the I-95 high occupancy lanes project and the extension to the Route 460 highway.