PROJECT SUMMARY
Pocahontas Parkway, an 8.8 mile stretch of highway south of Richmond, Virginia, opened to motorists in 2002 after a four-year construction period. Originally designed and built by Fluor Daniel/Morrison Knudsen, the parkway was repackaged and leased to Transurban in June 2006 for 99 years. Due to serious overestimates in traffic and revenue generation, the parkway was in danger of defaulting on upcoming debt service payments in 2005. In recognition of the parkway’s difficulties, Transurban submitted an unsolicited proposal under the Commonwealth’s Public-Private Transportation Act (PPTA) for the concession of the parkway. After completion of the competitive process outlined by the PPTA, Transurban assumed the rights and obligations to manage, operate, maintain and collect tolls on the Pocahontas Parkway and build a much needed airport connector.

PROJECT OBJECTIVES
Richmond is a city of 200,000 in central Virginia. The James River runs through the center of the City and cuts directly south along Interstate 95. The Richmond International Airport is located east of the City and along the southern branch of the James River. The Pocahontas Parkway was built to be the only crossing over the southern branch of the River, in order to connect I-95 and Interstate 295 as a southern bypass. Transurban’s contract includes the construction of an airport connector from the bypass.

PROJECT DESCRIPTION
Partners
The public sector partner is the Virginia Department of Transportation. The Pocahontas Parkway (or Route 895) had been planned for many years but funding constraints prevented VDOT from pursuing it in the near future. An interested private investor, the original private sector partner for this project, provided the means for VDOT to move forward with the project ahead of schedule.

The original private sector partner was Fluor Daniel/Morrsion Knudsen. To issue debt for the project, a non-profit corporation, the Pocahontas Parkway Association (PPA), was formed to issue tax-exempt debt on behalf of the private developer. This particular corporation is classified as a 63-20 by the IRS. Much of the risk was on PPA, and the contract included limited liability provisions if the corporation defaulted.

When it became clear the Parkway would not be able to continue to meet its debt payments, VDOT chose to end its contract with Fluor Daniel/Morrison Knudsen and begin negotiations with Transurban LLC. Transurban LLC is an Australian toll road manager and developer with operations in Australia and the United States. The company operates eight road systems, including the Pocahontas Parkway and the Capital Beltway HOT Lanes. The remaining six are located in Sydney and Melborne, Australia.

Legislative Environment
In 1995, the Virginia General Assembly passed the Public-Private Transportation Act. The PPTA allows private companies to enter into agreements with public entities to develop and/or operate qualifying transportation facilities.

The PPTA provides alternate procurement procedures in order to facilitate these partnerships. Provisions for competitive sealed bidding and competitive negotiation are detailed as well as procedures for accepting solicited and unsolicited proposals. Proposals must share the cost and risk beyond those commonly obtained through competitive bidding/negotiation processes and should avoid state-supported debt.

Proposals are evaluated according to a six-phase process:

1. Quality Control – VDOT’s quality control evaluation consists of whether the proposal addresses public needs that may not be wholly satisfied with existing methods of procurement. The review identifies if the proposal will result in a timely and efficient delivery and provide for cost and/or risk-sharing with private entities.
2. Independent Review Panel (IRB) – A review panel consisting of public sector stakeholders reviews and evaluates the proposal. The IRP makes its recommendation to VDOT and Commonwealth Transportation Board (CTB). Public participation is a part of this phase.
3. CTB Recommendation – The CTB reviews the conceptual proposals and IRP recommendations to recommend whether to advance to a detailed proposal. Public funding, if applicable, is reviewed.
4. Submission and Selection of Detailed Proposals – Based on recommendations, VDOT reviews the proposal and either rejects it or advances it for competitive negotiation.
5. Negotiations – If VDOT, upon review of the detailed proposal determines that (1) the proposal meets the selection criteria and (2) the negotiation stage is in the public interest, VDOT may initiate the negotiation stage.
6. Interim and/or Comprehensive Agreement – The draft agreement is forwarded to the Office of the Attorney General and Secretary of Transportation for review. The Commissioner has the statutory authority to enter into an agreement upon written approval.

Financial Agreement
Under the original VDOT-PPA agreement, the project value was $318 million dollars, with $300 million financed privately through the issuance of bonds.

When Transurban took over the Pocahontas Parkway in 2006, it entered into a 99-year lease agreement with VDOT for $611 million. The contract included the establishment of toll levels and increases, which were capped at $0.50 a year through 2010 and $0.25 a year through 2016. If revenues exceed expectations, a revenue share mechanism between Transurban and VDOT applies.

More specifically, Transurban’s contract states that it is to take over all the cost and management of operations and maintenance of the Pocahontas Parkway, which includes upgrades to electronic tolling and the construction of an airport connector. The contract provides for the repayment of PPA and VDOT’s debt and incurred operational costs.

Contract Provisions
The Pocahontas Parkway’s pair of contracts includes the total operation and maintenance of the facility and the formation of a 63-20, though they vary in the placement of financial liabilities. As it became obvious the first contract would fail because of estimate inaccuracies, the remaining debt would become a state obligation. In order to avoid the significant tax burden on Virginia residents in the future, VDOT’s contract with Transurban includes non-recourse financing, which protects the Commonwealth.

More specifically, Transurban’s contract states that it is to take over all the cost and management of operations and maintenance of the Pocahontas Parkway, which includes upgrades to electronic tolling and the construction of an airport connector. The contract provides for the repayment of PPA and VDOT’s debt and incurred operational costs.

Implementation Metrics
The new partnership, which will construct the airport connector, upgrade to electronic tolling and establish toll increases, provided a cost-effective solution to the Parkway’s financial difficulties.

Commentary
The project’s first contract lacked proper planning and revenue estimates. Traffic along the Pocahontas Parkway was severely overestimated by Fluor Daniel/Morrison Knudsen and lead to devastating revenue shortfalls. At the time that Transurban took over operations, average daily traffic was generated only 60 percent of projected traffic in the adopted business model. The contract also neglected to include the airport connector, which would have made the Parkway much more attractive to those traveling to the Richmond International Airport. Transurban’s contract includes the connector and planned toll increases, and Transurban has overtaken VDOT and PPA’s issued debt.