Nova Scotia is one of the provinces – along with Prince Edward Island and Newfoundland – that Canadians have to pay to enter by road, unless they shunpike through the Wentworth Valley to get around the toll highway. Now the fee each vehicle pays for using the Cobequid Pass will be going to the United States. To ensure finance capital collects its pound of flesh, the government even levies high fines on truckers using adjacent roads to force them to use the toll road.
By TONY SEED
Shunpiking Magazine, 2001
IT WAS A MERE 15-second blip on the radar screen that the media calls “news,” but the paper on Nova Scotia’s toll highway – along with a private toll highway in Ontario – has passed into the hands of foreign capital.
CIT Group Inc. of New Jersey is to take over Newcourt Credit Group of Toronto, the world’s second-largest commercial finance company, in a $4.2-billion deal, creating North America’s largest non-bank lending company.
Newcourt underwrote some $51 million toll revenue bonds to finance the Cobequid Pass in Nova Scotia – part of the Trans-Canada Highway – at an estimated $2 million higher cost than had the provincial government borrowed the funds.
An estimated more than $300 million in tolls have been produced on the Cobequid Pass for a deal in which private financiers put up $66 million. According to a report by the Canadian Centre for Policy Alternatives, the Nova Scotia government is also paying an effective interest rate of 10 per cent for 30 years, twice its rate of borrowing.
Furthermore, Newcourt also owns 47 per cent of Agra, a co-owner of Canadian Highways International Corporation (CHIC) and the Atlantic Highways Corp., which built the Cobequid Pass and Highway 407 (the electronic toll highway that passes around Toronto to the north of highway 401), and which recently won the contract for the Cross Israel highway. All these are called “public-private partnerships” or P3 – a scheme for the state to pay the rich and transfer the socialized, public infrastructure to the private monopolies.
However, disastrous financial results posted by Newcourt have led analysts to question whether the deal with CIT will actually be consummated in September, the closing date. In May, some $1.5 billion was wiped off its stock market value by speculators after the rate of growth in its profits nosedived.
What will be the effect of the volatile financial speculations viz-a-viz CHIC and Newcourt, and its impending takeover by a US financial giant, on the operation and amount of tolls levied on the Cobequid Pass?
It is this question which the media is silent about.
Since last August, when Russia’s debt defaults undermined the bond market, Newcourt’s rate of growth has been affected by the higher cost of capital.
To underwrite the Cobequid Pass, Newcourt developed a new financing deal called “accreting debt.” By taking the projected rate of revenue growth into account, accreting debt allows for the repayment of bond principal and interest at a graduated rate. This differs from conventional bonds, which require a level amount of principal and interest to be paid out annually, regardless of the amount of revenue generated.
The increasing cost of capital can be rationalized as an operating cost of the toll highway, to be defrayed by higher tolls. CHIC’s omnibus agreement with Nova Scotia, kept secret for almost a year, provides four mechanisms for changing the level of tolls if profits are too low:
• automatic increases tied to inflation;
• six increases of 25 to 55 cents between 2001 and 2022;
• increases to allow “payment of required expenses”; and
• variance for “debt service coverage ratio increases.”
In other words, if revenue does not service the bond debt, the toll rates go up.
An easy way to illustrate what may happen is to look at the spiralling debt of the Halifax Bridge Commission and its debt and toll structure. The debt was originally borrowed from Germany; the rise of the Mark increased the rate of exchange. Today, tolls simply go towards paying interest, without end.
In early April, the Ontario Harris Government announced that it had sold Highway 407 – the biggest privatization in Canadian history – to a consortium composed of SNC-Lavalin, the Caisse de depot et placement du Quebec (the province’s pension fund), the Bank of Montreal and Grup Ferrovial (the second-largest construction company in Spain, with a 61 per cent share), for $3.1 billion – for a highway valued at $1.52 billion. A $2.5-billion bridge loan for the purchase is being provided by the US Citigroup, Bank of Montreal and Royal Bank.
The CHIC group (which included CBIC, Newcourt, Credit Suisse First Boston and Hong Kong capital) – despite having paid over $300,000 in political donations to the Harris Conservative party through a web of some 25 companies – dropped out of the bidding. It does, however, have a 30-year contract to operate the highway.
The consortia must extend this highway east and west in return for the right to tolls for the next 99 years.
“The apparently over cost price paid for the highway, and the roster of both winning and losing teams, suggests how valuable highways are to finance capital. The mathematics of increasing populations, rising tolls, security of a revenue stream guaranteed by the state and 99 years of control adds up to a fantastic sum of money,” says York University political scientist Robert McDermid.
“If sufficient information (projected revenues) becomes public to be able to judge this deal, it will be revealed as an enormous gift. The fact that such major national and international players took part in the bidding confirms the value of the revenue stream that will flow from Highway 407. Instead of the citizens of Ontario gaining back a toll-less highway after 20-30 years, they will now be forced to pay a tax to a private organization for longer than the lifetime of yet unborn citizens.”
That is, travellers will end up paying not just the cost of the road, but also the $1.6 billion profit Ontario made as well as any extra profits the consortium can make by jacking up the tolls in the future.
Meanwhile, provincial highways ministers and Transport Canada have put back on the table a plan to use tolls to finance new highway construction across Canada. This scheme was put on the back burner last fall in the wake of fierce opposition to privatizing the expanded Moncton-Fredericton section of the Trans-Canada Highway in New Brunswick, also by a foreign multinational, Maritimes Road Development Corp., headed by former federal Liberal Transport Minister Doug Young. In the first year that tolls were imposed, over 33,000 vehicles simply drove through toll booths without remitting the toll.
Tolls may also be jacked up by raising tolls to whatever level the traffic can bear.
But the enormous sums at play demonstrate the emptiness of the claims by the provincial governments that these highways were initially built for reasons of “safety” or that they made a good deal.
It also shows how the state infrastructure is being privatized with new taxes or so-called “user pay” fees being levied on Canadians. Strip away all the rhetoric about private-sector superiority and globalization and what we’re left with is not all that different from the government selling someone the right to hold Canadians to ransom.
Typically, foreign and native financiers are reaping the benefits from the sale of the nation by those with maple leafs tattoed to their forehead. For these monopolies, the actual operation of toll roads forms a backdrop to their secret agendas to make big scores and “unlock shareholder value” using the Canadian transportation sector and public and national assets such as highways as gambling bait and collateral.
Slightly revised by the author for this publication
Tony Seed, “Profits from the Promised Land,” Shunpiking Magazine, 1998, about the Cross-Israel highway