News & Analysis

Macquarie, Skanska cement Virginia tunnel PPP

The two companies reached commercial close on the $2.1bn project with the state, prompting Governor Robert McDonnell to credit Virginia as an ‘innovator’ capable of making ‘complex public transportation’ possible. Financial close is expected in early 2012.

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A consortium comprising Macquarie Group and Skanska Infrastructure Development reached commercial close Monday on the much vaunted Midtown Tunnel public-private partnership (PPP).

The project, conceived in 2007, is valued at $2.1 billion, with financing coming in the form of a $423 million TIFIA loan as well as $1.3 billion in debt and equity from the Macquarie-Skanska partnership, named East River Crossings (ERC).

TIFIA, short for Transportation Infrastructure Finance and Innovation Act, is a federal government scheme to help loan low cost, low credit funding for infrastructure. Tolling will also factor in funding the projects, with fares variously ranging from $0.50 to $1.84 and collected electronically.

ERC in July agreed to a 58-year concession on the tunnel project to upgrade the Midtown Tunnel along the Elizabeth River, a 10-kilometre tidal estuary flowing into the Chesapeake Bay in southeast Virginia.

The project will also involve building an entirely new two-lane tunnel. On a lesser scale, the deal will include shoring up the nearby Downtown Tunnel and extending a road in Portsmouth, Virginia.

A New York-based spokeswoman for Macquarie, a global infrastructure powerhouse originating in Australia, said ERC expected financial close in 2012. Skanska is a PPP-focused construction and development company based out of Sweden.

Economically, Virginia has diverse revenue generation, drawing on local government, military, farming and business. Its booming technology industry can boast a formidable, highly trained workforce with cable business news network CNBC christening Virginia the best state for business in 2007, 2009 and 2011.

As a PPP adopter, Virginia is also considered a pioneering state. Like the Public Private Partnership Authority (PPPA) in Puerto Rico, ‘Old Dominion’ has specifically created a PPP local government entity.

Political will has also bolstered Virginia as a PPP leader. The current governor has sought a multibillion dollar spending package on infrastructure, while former governor Tim Kaine also emerged as an early PPP advocate.