ITR Concession Co. CEO Fernando Redondo sat down with a Times reporter in mid-December at the Westin Hotel Starbucks, in Indianapolis, immediately after a meeting of the Indiana Toll Road Oversight Board.
The Spanish CEO spent half an hour answering questions and expanding on his company's role in operating the Toll Road, which is the longest privately run stretch of interstate highway in the United States.
In June 2006, ITR Concession signed a lease with the state of Indiana that gives it the right to operate and collect tolls on the Indiana Toll Road for the next 75 years. The Spanish-Australian consortium backing the company paid $3.8 billion for that privilege.
Q: How much has ITR Concession Co. invested in the Toll Road in terms of electronic tolling, roadway construction and other capital improvements?
A: We have invested around $300 million in the road -- $175 million has been for the mandatory expansion work; $25 million on maintenance projects we do every year; about $45 million on IT; that would cover the implementation of the electronic tolling, the replacement of the manual system, the new equipment. Around $35 million would be the rehabilitation of the structures, the bridges and such, and the other $20 million would be the work on the (toll) plazas, which we've expanded over the last three years.
Q: You've put a lot of investment into the Toll Road with electronic tolling and the expansions -- so what effect has that all had on traffic and operating the Toll Road up to this point?
A: It is really a couple of things. As we improve the road and resurface it and take care of the structures, obviously we are making the road better. It was needed, and it's something we have to do, but it doesn't necessarily have an effect on traffic (counts). Normally, you expand to what's necessary for the level of traffic. But the investments that we think have been more fruitful have been the expansions of the toll plazas, the implementation of electronic tolling, all those things that have helped us alleviate some of the traffic congestion we found at the plazas when we arrived.
Q: Have there been any significant disagreements between ITR Concession Co. and the state of Indiana over operating standards or other requirements of the lease -- or any other bumps on the road?
A: We haven't had, I'd say, any major disagreements and very few small disagreements. Our relationship with the state to date has been quite good.
Q: We are in a pretty deep recession, and I see from Macquarie reports that truck traffic is down quite significantly, while light vehicle traffic continues to gain. What has the overall effect of the recession been on operations. How does it affect you?
A: (Redondo first noted only the company's investors, Cintra and Macquarie, can release specific traffic and revenue data. That is generally done on a quarterly basis.) From our point of view, revenue and traffic has been a little lower than expected -- not so much light traffic as heavy traffic -- at both the barrier and the ticket system. But the heavy traffic on the ticket system has a higher impact on our total revenues, and we believe that is linked to the economy. Therefore, that traffic has been down as we have seen from the reports they (Macquarie and Cintra) are releasing.
This business of ours, we believe it is fairly resilient to the economy. You can see it in light traffic. Light traffic on both ticket and barrier systems has been consistently up. But with truck traffic that is related to spending on consumer goods and stocks and all those things, we have seen decline, and it's difficult to know when that will recover.
Q: There will be a "catch-up" in toll increases this year under the terms of the lease. How big an increase should motorists expect? I mean, it won't be like price shock? People won't see tolls double or anything?
A: It will be relatively small, I would say between 8 and 10 percent. And remember, the people that are using transponders will not see any increases. They will see the prices they have been paying since 1985, which is the last time the tolls were increased.
Q: The tolls did go up (for trucks) before the lease was signed. And then they went up significantly for trucks. So people say it's privatization -- that's what's causing that. That's something I hear from a lot of people.
A: I think in the end what people have to understand is the contract establishes how the rates will go up over the next years. And you know what we do under the concession agreement is based on the traffic studies over the next 75 years ... That is how the payment of $3.8 billion we paid to the state was based on traffic revenues -- that today are not what we hoped they would be. But in the long run, we feel that we will recover.
Q: It's a very unusual business. Your business is unusual the way it's financed, because you have this huge up-front payment.
A: It's like buying a house.
Q: Well ... It's a sure money-maker year after year, but it's not a sure money-maker based on the (up-front) payment. You're going to make money on operations year after year, but that huge initial payment plus the construction?
A: I think it's a good buy. You are paying through a loan ... The whole trick at the end is how is traffic going to be as compared to what it was estimated initially. But I think the good news about this is in 75 years you have a lot of time to recover.
Q: The Toll Road lease was very controversial in this part of the state when it was enacted. Critics said everything from, tolls will go up, to, foreigners will be in control of a vital U.S. trade route. What answers to those critics have you provided through your operation of the Toll Road? How do you think the public is perceiving it now?
A: We get input from surveys and basically our customers, the users, are quite happy with the way we are operating the road. And I believe that with the $300 million we invested at the beginning, some of that has had a very big impact on improving the way the road is. The introduction of electronic tolling, the expansion of the plazas, all those things. We purchased a new fleet of trucks to maintain our roadway. And every year we are buying more equipment. All those things are making the operation smoother, and we see very little criticism today with things we are doing. We are running the road efficiently. Remember, many of the people that are working for us were working for the state. So when they say, oh those foreigners are going to come here -- in this company today, we have 350 employees or 375, and it's only two guys are coming from another country. ... And the rest are all from around here. So these are the people who are running your road and have been running it for a long time.
Fernando Redondo
Home: Chicago
Occupation: CEO ITR Concession Co. and Skyway Concession Co.
Family: Wife, Maria, and two children
Education: Madrid University, masters of science in architecture
Prior Experience: Project developer and manager for major construction around the world
Source: ITR Concession Co.
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