Infrastructure Investor Southeast: Public-Private Partnerships Alive and Well

I had the privilege of being the Chair of the PEI Media conference on June 3, 2010 entitled Infrastructure Southeast. The conference focused on Florida, Georgia and Puerto Rico. Senior officials from the federal government as well as each of the jurisdictions provided up-to-date insights on the public-private-partnerships (PPP) programs.

The key government speakers included Stephanie Kopelousos, Secretary, Florida Department of Transportation, Vance Smith, Jr. Commissioner Georgia Department of Transportation, David Alvarez Executive Director Puerto Rico Public Private Partnership Authority and Andrew Deye, Puerto Rico’s Undersecretary of Economic Development and Commerce. Joining us from US Department of Transportation was Regina McElroy, Director of the Office of Innovative Program Delivery. Several experts from the private sector not only attended but took part in the various panels and discussions.

Cezary Podkul Editor of the publication Infrastructure Investor has provided a great summary and insights in an article Ten Take-Aways from II Southeast.

He begins with:

“Anyone who has been watching the US market for public-private partnerships develop will have to admit it’s been a slow process. Legislation is still evolving, the first deals are just getting inked and politics remains as much as ever a part of the PPP process.

Against this backdrop, three new markets have recently opened up in the Southeast region of North America — Florida, Georgia and Puerto Rico — that give much hope to change this. Each has legislation on the books, a pipeline ready and, perhaps most importantly, the political will in place to make PPP a serious part of its project delivery method.”

The Top-10 take-aways have wonderful titles and I have listed with brief summaries below. (I am using the author’s European spellings)

1) The ‘F-word’ is ‘flexibility’: For those curious what senior transportation officials like Stephanie Kopelousos, the Florida Secretary of Transportation, want from Washington DC, we can summarise it in one word: flexibility

2) Think before you ‘Cadillac’: Florida’s also lucky enough to have a flexible PPP law that allows it to do all kinds of PPPs— including ones that use availability payments

3) Not quite debt: Of course the big reason why some US politicians want to avoid availability payments is because they do not want to incur debt to finance a stream of 30 years of service payments to a private investor. But the reality is a bit more complex. Availability payments “differ from straight debt obligations”, explained Mayer Brown’s George Miller, one of the lawyers who worked on the I-595 transaction, because they are subject to meeting performance criteria — and a corresponding reduction if those criteria aren’t met.

4) At death’s door: TIFIA, on the other hand — the infrastructure lending programme created by the 1998 Transportation Infrastructure Finance and Innovation Act — is very much a form of debt. And thanks to the credit crisis, it’s very much in short supply.

5) Get off the highways: But as important as TIFIA is, there is a need to think beyond just the headline-grabbing highway PPPs it’s helped enable.

6) Get with the programme: In case you’re wondering how to wean the US off of its propensity to associate PPPs with highways, the best solution could be for states to take a programmatic approach to fostering PPPs across various sectors of their economies. Or, to put it briefly, do “similar to what Puerto Rico has done,”

7) Start small: There’s another lesson to be drawn from Puerto Rico’s PPP programme: its phased approach. David Alvarez, the head of Puerto Rico’s Public-Private Partnership Authority, outlined the territory’s plans for tendering its toll road projects to the private sector in several steps.

8) And if you start big, get it right: Georgia, on the other hand, is taking the opposite approach. The state’s first PPP is a massive, $2.3 billion PPP, the West by Northwest project, aimed at relieving congestion in the metropolitan Atlanta area.

9) Package deal: But even if Georgia’s starting on the wrong side of the size spectrum, it’s got the right approach with regard to one controversial issue in the infrastructure investment community: PDAs. In everyday terms, the acronym stands for “public display of affection,” but in the world of PPPs it means “pre-development agreement” and not everyone has much affection for it

10) Transfer risk: As Puerto Rico, Florida and Georgia forge ahead with PPP, it’s important to keep in mind that, while it’s just one tool in the proverbial toolbox, it’s got an extra benefit that makes it more attractive in their region. All three are coastal regions prone to hurricanes. That can spell millions of dollars in damages, including to public infrastructure. But in a PPP, Cintra’s (Carlos) Ugarte rightfully pointed out, that risk gets transferred to the private sector. So it’s the private investor who will pay for damages in case of a hurricane — not the taxpayer.

I will leave it to the reader to look for more details in the article.

The bottom line is that the PPP is indeed alive and well in Florida, Georgia and Puerto Rico.