Future of Texas Highway P3s Hinges on Next Two Deals

By Mick Bowen

The future of P3s to develop highway projects in Texas depends on the shape the next two deals will take, namely the SH 99 Grand Parkway in Houston and IH-35E Managed Lanes project in Denton, market sources told InfraAmericas.

Texas Governor Rick Perry signed Senate Bill 1420 (SB 1420), also known as the Sunset Bill, into law in mid-June and cleared the way for the Texas Department of Transportation (TxDOT) and regional mobility authorities to develop 11 highway projects through P3s. Days before Gov. Perry signed the bill, TxDOT issued request for information (RFI) documents for the Grand Parkway and IH-35E projects. Responses to the Grand Parkway RFI are due Jul. 6 and responses to the IH-35E RFI are due Jul. 20.

Certainty in the Process
“TxDOT needs to focus on getting the first project up and away successfully and demonstrate that it can bring millions of dollars in investments to Texas,” said D.J. Gribbin, a managing director at Macquarie Capital. “The question is not if they can develop all 11 projects, but if they can get the first one going.”

Meanwhile, the US P3 market is seeking clear proof that Texas is now fully engaged in the P3 process after the stops and starts of a few years ago. The market also wants to see a degree of certainty in the process, with projects that make sense commercially and have reasonable procurement timelines, Gribbin added.

“At this point, TxDOT is doing what it can,” he said.

According to José Luis Vittor, a partner at the law firm Hogan Lovells, TxDOT chose to start with the Grand Parkway and IH-35E because they were more likely to be developed, which could trigger a chain reaction for other projects.

“Instead of thinking about how we can get all 11 projects done, let’s think about how we can get these two done. Once the procurement process starts for these two projects, there will probably be others,” Vittor said.

“Showing the market a good track record and proving that Texas is open for business is an important step,” he added.

Transaction Timeline
Once TxDOT gets responses to the RFIs next month, it plans to issue RFQs before the end of August, with responses due before the end of October. The department will then draw up a shortlist of potential bidders and issue RFPs in early December, with responses due in mid-February 2012. TxDOT plans to announce a preferred bidder for the Grand Parkway in June 2012 and a preferred bidder for the IH-35E project in July 2012.

“We think we can get through the process in about 12-14 months and do it in an orderly fashion,” said TxDOT chief financial officer James Bass.

The environmental impact studies for the 11 projects included in the Sunset Bill must be completed by Aug. 1, 2013, and the contracts must be enacted by Aug. 31, 2015. However, the state legislature will review the projects in 2013 and 2015 and could extend the deadlines, Bass said. The Texas state legislature meets for 140 days every other year.

Next up in the RFI queue will be the SH 183 managed lanes project in the Dallas-Fort Worth area, although Bass could not say when the process would start.

No Preferred Solution
During the RFI stage, TxDOT has provided the private sector with some hints about funding, but it has not directly told developers which alternative it would most like to pursue. “We’re open to almost anything. We want to make sure we have robust competition in the final procurement stage. We will decide one-by-one because each project needs to be looked at financially on its own. There is no preferred solution,” Bass said.

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