Change we can believe in?

16 November 2012 Infrastructure projects are popping up in various parts of the States of late, and after President Obama’s re-election, many believe this is just the tip of the iceberg. But where do the opportunities exist in the United States’ P3 market? And more importantly, what are the drawbacks of investing in the country at the moment, asks Aaron Weinman
As the dust settles from election euphoria, it’s back to business for the world’s biggest superpower. With soaring debt levels, privately financed infrastructure has grown in popularity.

“PPPs are taking centre stage,” Michael Likosky, director for the Centre of Law and Public Finance at New York University, says. “They’re the cornerstone of the bipartisan consensus emerging to address the fiscal cliff.” 

“PPPs are the new normal on the electoral map,” he continues, citing the damage from Hurricane Sandy as one way P3s look set to move centre-stage. 

But the model remains controversial in some quarters, and opposition continues to frustrate the potential growth of P3 across the country. 

In Texas for example, anti-P3 lobbyists are preparing for a bitter struggle with the Texan Department of Transportation (TxDOT) after the SH 130 highway commenced its toll operations through Spanish toll operator, Cintra.

Two groups, the San Antonio-based Texans Uniting for Reform and Freedom (TURF) and Austin’s Texans for Accountable Government (TAG) have launched campaigns objecting to the privately-operated toll road, labelling it a “multi-generational theft of public assets” the local Examiner newspaper reports. 

Jason Radford, partner at law firm Ashurst’s New York practice, says that in the past Texas has caused “discontent” among private sector partners and investors because of its tendency to prevaricate over the use of P3.

“Texas had these two projects [Grand Parkway and Interstate Highway 35] initially as P3s but eventually procured them under a design-build framework,” he says. “TxDOT wanted firms to bid on the project based on both models, P3 and design-build, and this caused some discontent because of the amount of work involved.”  Nonetheless, many state governments remain keen to employ the private sector for design, build, finance and maintenance contracts. A recent study into two of California’s P3 projects found that the P3 route could offer substantial savings – if authorities follow industry best practice.

The California Legislative Analysts Office (LAO) report looked into the completed Presidio Parkway in San Francisco and Long Beach’s courthouse P3.

The report found several benefits in the pursuit of P3 frameworks, namely the schedule certainty, benefits in lower prices, the transfer of different risks to the private sector and most importantly, being able to utilise the expertise of private entities.

However, it added that the Presidio Parkway and Long Beach courthouse projects weren’t “aligned with the P3 best practices identified in research”, outlining four specific points to further maximise benefits when deciding to procure a state infrastructure project as a P3. 

Firstly, it recommended that the legislature specifies P3 project selection criteria in statutory law, then perform a comparative analysis, outlining a range of procurement options which best fit. Thirdly, it should involve the Public Infrastructure Advisory Commission (PIAC) to approve P3 projects. Finally, the structure and responsibilities of the PIAC should be modified to increase state expertise on P3s.

Despite its criticisms, California has continued to move forward with its ambitious P3 plans. Government transport authority Caltrans has procured, in addition to the Presidio Parkway, the State Route (SR) 91 and SR 125, while the state’s High Speed Rail Authority has developed plans for a new train system. 

Indeed, the pipeline continues to improve on a “month-by-month basis” says Radford. This year has seen more talk of P3s than ever before, mainly because of the public sector’s tightened budget. 

“There is an ongoing desire to boost the economy with activity, so naturally there has been an increased awareness of P3s as a procurement tool,” he says. “The opportunities which are coming through seem to be a lot more thought through than previously, so like a virtuous cycle, it’s generating more discussion.” 

California’s State Teachers Retirement System (CalSTRS) earlier this year invested approximately $43m across four state projects – the gas-fired Crockett Power Plant in Oakland, the solar-electric Sun Edison Plant in Sacramento as well as the Presidio Parkway and Long Beach courthouse. 

It is initially investing indirectly, through specialised investment funds. But it eventually intends to become more involved with direct investments and individual projects. 

In addition to roads and tollways, the States’ water infrastructure is beginning to harbour great promise. Recently, the Texas-based Tomlinson Infrastructure Group signed an agreement with the government, acquiring 47% of exclusive water rights to Lake Columbia in East Texas. 

Water utility leaders from the country’s Midwest recently met in Milwaukee to conjure up creative means of financing the improvement of US drinking water infrastructure. The event also featured the Environmental Protection Agency, which alongside industry leaders has pledged in excess of $330bn to improving water infrastructure. Many will no doubt aim to bring a P3 framework into the industry, with the California-based Santa Paula water recycling facility as a successful example of PPP. 

It’s no surprise that investors from around the world are looking at the States, given its pipeline of infrastructure across myriad industries. Radford points out several projects worth watching over the coming months, particularly LaGuardia Airport in New York, which has requests for qualifications (RFQ) due in December for its second terminal. 

In addition, Florida’s Interstate Highway 4 will move forward in January when it publishes the results of an RFQ, while Virginia has seen a flurry of activity with developments due next year on its I 95 Highway and Hampton Road Bridge P3s. 

This page was last updated on:
12 April 2013.

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