NTR entitled to return on risky investment

Business Opinion: A solution to the congestion on the M50 may now be sight, but this drama still has some way to run. The villain of the piece has, however, been firmly identified as National Toll Roads (NTR), the private company that built the West-Link bridge.

It stands to get €600 million or more from the Government in return for giving up its right to collect tolls. Further monies will also come NTR's way via the deal that has to be done over its interest in a 3.2km strip of the M50.

NTR has been extremely lucky. The West-Link has turned into a money spinner that nobody could have imagined when it was conceived back in the 1980s.

A flick through the business pages of The Irish Times from those days is enlightening. What is clear is that the original investors in NTR had very limited ambitions back in 1987.

Des Doran, then a fund manager with Standard Life, described the West-Link project as something akin to a long-dated gilt, but not without significant risk. "It's a very good long-term investment as long as the projections prove true," he said.

Given that the projections that underlay the only toll bridge in the country at that time had proven to be incorrect, Doran was not just making conversation.

The East-Link toll bridge had opened in 1984, built at a cost of £8 million by Conor Holdings, the Roche family investment vehicle, with a £6.5 million loan from AIB and the Industrial Credit Corporation (now Bank of Scotland). The project was based around traffic projections drawn up by a company called Wilbur Smith Associates, (which apparently had connections to the eponymous author of African pot boilers).

Whilst Wilbur Smith correctly guessed the number of vehicles that would use the bridge, it got the mix between cars and trucks wrong. As a result the pricing structure had to be changed in order to shore up the business.

Despite the teething problems with the East-Link , Standard Life invested £2.5 million into the newly formed NTR in return for a 17 per cent stake. Conor Holdings put its interest in the East-Link Toll Bridge into the new company in return for 45 per cent of the equity.

Other pension and investment funds, including Irish Life, Bank of Ireland, AIB, Scottish Provident and Norwich Union put up the rest of the equity, which was reported to be around £12 million. The company then borrowed around £24 million, half of which came from the European Investment Bank.

As it turned out Wilbur Smith got its projections wrong once again. It predicted 20,000 vehicles a day would use the West-Link bridge once it was up and running in 1990, and that this would rise to 30,000 vehicles a day after 15 years.

Five months after the bridge's March 1990 opening traffic was only 7,500 vehicles a day. The break-even point of 12,000 cars a day was not reached until the middle of 1991 and by the middle of the following year fewer than 15,000 vehicles were using the bridge.

But the rest as they say is history. Traffic on the bridge is now something approaching 100,000 vehicles a day and the company earned accumulated profits of €80 million from the bridge between 1990 and 2005, according to a report from DKM Economic Consultants commissioned by NTR in the middle of last year.

The same report predicted that NTR's share of the toll revenue between now and 2020, when the bridge reverts back to the State, will be €600 million. Hence the figure that is being bandied about for what it will cost to buy out the company's interest.

It's a massive figure and not surprisingly it has generated outrage among taxpayers - or at least among those who deem to speak on their behalf. With hindsight the decision to proceed down the toll bridge route looks like monumental folly and what has emerged at the planning tribunal about the wider activities of Tom Roche has cast something of a shadow over the decision. But to date nothing has emerged to suggest that the decision to award NTR the rights to build and toll the West Link was corrupt.

If anything, the reports from the time paint a different picture. Rather than falling over themselves to get into bed with Tom Roche in a sure-fire money spinner, the Dublin financial community appears to have been extremely cautious about the project. The view at the time was that the institutions were very wary indeed and only jumped after Standard Life led the way. It may seem hard to believe now, but that is because it is easy to forget how different the economic backdrop was in 1987.

The caution of the original investors was certainly justified by the disappointing traffic numbers when the bridge first opened. But in the end the risk they took was rewarded in a spectacular fashion when the economy began to grow in ways that nobody could have predicted back in 1980s. Many of them have since sold out and been replaced by new investors, but the Roche family and Standard Life are still involved.

It might make sense to get rid of the toll barriers on the M50. But it does not really make any sense to deny NTR and its investors the financial reward for the risk they took back in 1987. Equally, the investors who have come on board since have a right to their money.