Macquarie Infrastructure Group, the Australian toll road operator that in 2005 signed a 99-year agreement to operate the Chicago Skyway, is exploring similar arrangements elsewhere in the country, including the Pennsylvania Turnpike and the Chesapeake Expressway in Virginia. Chicago picked up almost $2 billion for the deal. Not long afterward, Indiana leased its portion of the toll road that connects to the Skyway to Macquarie (which, as part of the $3.85 billion deal, also is going to help build Indiana's newest toll road).
If, as Macquarie contends, infrastructure is a new asset class, the firm is perfectly positioned to profit from it. Australia has privatized roads (and airports) and, since Europe doesn't have highway trust funds and gas taxes go to general funds, France, Italy, Spain, and Portugal awarded long-term franchises to private firms (including Macquarie) to build and operate roads after World War II.
Still, according to Macquarie's Web site, there are few firms playing in the toll-road market, and Macquarie's reaping the rewards: Since listing on the Australian stock market in 1996, the Macquarie Infrastructure Group returned a compound annual return of 19.4% in November 2004.
Here's what I don't get, though. Why aren't U.S. banks and investment firms taking advantage of this opportunity to expand their offerings?
Sure, diversified mutual funds include bonds as well as stocks, but those bonds represent new infrastructure construction. Why haven't we gotten past that model to cash in on what overseas banks believe is so obvious: In the United States, the supply of new roads can't keep up with demand. With demand continuing to rise (Macquarie posts quarterly traffic reports to prove the accuracy of this investment assumption) and drivers willing (or forced) to use certain roads, toll roads represent a never-ending supply of cash. Operating costs for “well-managed toll roads” are relatively low (20% of revenue or less). Voila: the recipe for a long-term low-risk investment.
We've seen this before: foreign companies relieving us of the nasty business of raising rates or taxes to fund public services like drinking water and wastewater treatment. If operating our infrastructure is so profitable, why aren't we making—and keeping—that money for ourselves? It can and is being done: The Illinois State Toll Highway Authority has been self-sustaining since its formation in 1953.
If you think privatization applies only to infrastructure that's generating revenue right now, you're forgetting how quickly technology moves. Witness the development of open-road tolling. By the time Macquarie's lease with Chicago is up for renewal in the year 2104, there may be intelligent vehicle-and-road systems capable of charging us for the use of any and all roads. There may come a day when we'll pay for the privilege of driving around our own neighborhoods. Who will own and operate that franchise?
And if operating public infrastructure makes good business sense, why are we getting out of the business?
Editor in Chief