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Australian Company Sees Big Profit On US Roads
Rising toll rates on Virginia roads bring profitability to Australian tolling giant.

Gov Terry McAuliffe
Transurban on Tuesday told Australian Securities Exchange investors that its tolling revenue jumped 17 percent to $1.9 billion during fiscal year 2016. A growing chunk of that revenue is coming from motorists traveling on Virginia highway lanes that were once free to use.

Last week, Governor Terry McAuliffe (D) "broke ground" on the project to add tolls to existing Interstate 66 freeway lanes during rush hour, though no actual road construction will take place. The winner of the 50-year contract will take home a deal worth $3 billion to install toll gantries and collect revenue. Transurban has the inside track on the project, as it has already won new deals to collect tolls on Interstate 395 and extend the existing toll lanes farther south on Interstate 95.

In fiscal 2016, the Interstate 495 toll lanes collected $76 million from drivers, but the project lost $50 million overall. The Interstate 95 toll lanes fared much better, collecting $98 million from drivers for a profit of $11 million. The Melbourne-based firm is betting that the dynamic "uncapped" pricing scheme that allows drivers to be charged any amount will bring substantial profit in the future. On Monday, a two-way rush hour trip on the 495 lanes cost $22.90. That means a regular commuter using the lanes would pay Transurban $5500 per year, with the rates steadily rising beyond the rate of traffic growth.

"[The] average dynamic toll price increased 25.6 percent for 495 Express Lanes and 20.8 percent for 95 Express Lanes compared to the prior period," Transurban told investors.

While the deals are lucrative for Transurban, they are less attractive for taxpayers who have been footing the bill for projects that put tolling rates outside the control of voters. Federal and state financing covers the bulk of the cost of the projects with Transurban's cash contribution covering little more than the cost of interest.

Despite substantial revenue growth, Transurban is barely profitable. The company reported a $373 million loss last year. This year, thanks to $69 million in tax benefits, the company ended the fiscal year $22 million in the black. Transurban is carrying $12.9 billion in debt that eats into the revenue collected from motorists. Tolling companies worldwide frequently go bankrupt after failing to meet their obligations to creditors.

The turn to profitability cheered Transurban executives like CEO Scott Charlton, who pocketed $6,279,037 this year. Jennifer Aument, who runs the US operation, collected $2,324,596. All of Transurban's top ten executives enjoyed seven-figure compensation packages.

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