Public-Private Partnerships Flourish Internationally

The World Bank has released a new report which describes the resurgence of private activity in international road projects over the last four years.

Investment commitments to road projects with private participation grew from US$7 billion in 2005 to US$16.7 billion in 2008, reaching a new peak. Yet while investment grew every year in the period, the number of road projects with private participation declined after peaking in 2006. Large projects (US$500 million or more) clearly drove the investment growth in 2007 and 2008. With these projects excluded, investment would have fallen from a peak of US$8.6 billion in 2006 to US$7.8 billion in 2007 and US$3 billion in 2008.

The growth in private investment was concentrated in a few countries.

Brazil, Mexico, and India saw their share of the total investment rising from around 20% in 2005 to 50% in 2006, 66% in 2007, and more than 80% in 2008. With these countries excluded, annual investment in road projects with private participation would have remained around US$5 billion a year in 2005—07, then dropped to US$2.9 billion in 2008. In all three countries new models and frameworks for private participation helped attract investment in road infrastructure.

A summary includes:

Brazil. After having no new road projects with private participation in 2002—06, Brazil implemented one project in 2007 and eight in 2008. In 2007 the state of Minas Gerais signed a 25-year concession to operate and expand highway MG-050.1 In 2008 seven of the eight projects reaching closure were 25-year concessions for federal highways in the Mercosul corridor, which connects Brazil’s southern Atlantic coast to Argentina, Paraguay, and Uruguay. These formed part of the second phase of the federal highway concession program, whose first phase, in 1995—2000, covered 13,780 kilometers under concessions granted by the federal and state governments. The seven federal concessions awarded in 2008 were tendered on the basis of the lowest tariff requested and involve 2,600 kilometers and US$6.4 billion in investment to expand and modernize highways. The eighth project reaching closure in 2008 is a 30-year concession awarded by the state of São Paulo to operate and expand the 32-kilometer Rodoanel Mario Covas Western Beltway, with US$1.6 billion to be invested over the concession period.

India. In India private activity in roads rose steadily from 2002 on, with annual investment reaching levels of US$3.2—4.8 billion in 2006—08, far higher than in previous years. India awarded 83 projects in 2006—08, involving investment of US$12.6 billion and almost 6,100 kilometers. Of these projects, 74 are concessions (61 for federal roads and 13 for state roads). These involve investment of US$11.6 billion, 80% of it for federal roads. The other nine projects are BOT (build, operate, and transfer) contracts (two for federal roads and seven for state roads), accounting for 290 kilometers and the remaining US$1 billion in investment.

Mexico.After a hiatus in new private activity in roads from 1996 to 2002, the Mexican government again began to attract private investment to road projects with the financial closure of three BOT (Build, Operate Transfer) contracts (for two federal roads and one state road) in 2003—04. Since then private activity in roads has increased. In 2005—08 Mexico awarded 17 federal road projects (seven concessions and 10 BOT contracts), involving US$8.3 billion and 2,040 kilometers. By far the largest was the first highway concession package awarded by Farac (Fondo de Apoyo al Rescate Carretero), a trust fund managing federal highways “rescued” from private concessionaires.4 This concession package involves US$4.2 billion in investment (of which US$4 billion is concession fees to the government) and 558 kilometers. Besides the federal projects, Mexico awarded three state road projects in 2005—08.

The amount of world investment and interest in private funding for road projects is enormous. While the US wrings it hands regarding private investment the rest of the world is moving forward and embracing the opportunity.

The report is here.