The Indiana Toll Road, Once Again

Daniel Gross, writing in Slate, discusses the Indiana Toll Road lease. He is, as usual, insightful. I still have my doubts, however, about analyses such as this:

"What's in it for the foreign companies? Huge potential profits. Gigantic, steady profits. Toll roads are an incredible asset class. They're often monopolies. They can support debt, since they provide a recurring guaranteed revenue stream that is likely to rise over time, as more people take to the roads and tolls increase. According to Cintra, the Indiana Toll Road generated $96 million in revenues in 2005, and Cintra expects a 12.5 percent internal rate of return on its investment."

Cintra is paying $3.85 BILLION up front for this lease. And they expect a 12.5% internal rate of return. If I can still do arithmetic, that's more than $400 MILLION per year in net income from the lease.. From a toll road currently generating only $96 MILLION in REVENUE (before any costs). And Cintra will be responsible for the operating costs, maintenance, and at least some expansion costs. The more I look at the numbers, the more I think it's a better deal for the state of Indiana than I originally thought.