The Pocahontas Parkway is a 9-mile toll road bypassing the southeast side of Richmond, Virginia, connecting I-95 south of the city with I-295 to the east. Virginia planned, constructed and financed the Pocahontas Parkway through the Pocahontas Parkway Association ("PPA"), a non-profit entity created to issue and repay construction bonds. The Pocahontas Parkway opened in 2002, but traffic volumes did not generate sufficient toll revenues to service the PPA's debt. As a result, Virginia decided to convert the project from a non-profit structure to a long-term, concession-based PPP.
In 2006, Virginia entered into an innovative 99-year concession for the operation and maintenance of the Pocahontas Parkway with Transurban, a private toll road operator from Australia. The purchase price paid by Transurban for the concession was used to pay off all of the existing PPA debt and to pay for all of the accrued expenses paid by the Virginia Department of Transportation ("VDOT") for the maintenance and repair of the facility. The concessionaire also paid all of PPA's and VDOT's costs associated with the transaction. Transurban assumed the risk that the toll revenues generated by the Pocahontas Parkway, which are capped by the concession agreement, would be sufficient to provide the necessary returns on its investment. To the extent Transurban does realize returns, excess revenues are subject to a revenue sharing arrangement with Virginia.
Transurban also agreed to construct a 1.6-mile toll road (the "Richmond Airport Connector" or "RAC") connecting the Pocahontas Parkway to the Richmond International Airport. Transurban will use a $150 million loan from USDOT's TIFIA program to finance the RAC's approximately $50 million construction. TIFIA, The Transportation Infrastructure Finance and Innovation Act of 1998, established a Federal credit program under which USDOT may provide secured loans, loan guarantees, and standby lines of credit for eligible transportation projects. Approximately $92.5 million of the TIFIA loan is being used to refinance a portion of the bank debt extended to Transurban for the concession of the facility and defeasance of the PPA bonds. Construction of the RAC is expected to begin in early 2008 and to be complete by 2010.
Virginia is accruing significant benefits from this PPP, which reached financial close on the same day as the ITR concession, June 29, 2006. The RAC is being financed and built by Transurban, all of the PPA's debt was repaid, and the costs and responsibilities for operation and maintenance of the Pocahontas Parkway were transferred to the private sector. This deal demonstrates that PPPs are an innovative way to tackle a variety of transportation challenges, not just a tool for attracting private capital.