Building Puerto Rico’s Successful Infrastructure PPP Program

Puerto Rico Governor Luis Fortuño’s administration has taken bold actions to address the territory’s chronic deficits and unsustainable debt, including dramatic spending cuts, optimizing government operations and passing a broad-ranging new law in 2009 inviting private investors to modernize or develop new public infrastructure across a variety of sectors. (see the Governor discuss Puerto Rico’s fiscal situation and his reform efforts in this video.)

Puerto Rico enacted Act No. 29 in 2009, authorizing government agencies to enter into public-private partnerships (PPPs) with private firms for the design, construction, financing, maintenance and/or operation of public facilities, with a set of priority projects that include toll roads, transit, energy, water/wastewater facilities, solid waste management and ports. The law also established a new Public Private Partnership Authority (PPPA), a new center of excellence within the Government Development Bank responsible for identifying, evaluating and selecting PPP projects and for monitoring and enforcing the terms of PPP contracts.

Getting a program enacted is one thing, but implementation is where the hard work really happens. And in two short years, the PPPA has built a world-class PPP program and has already seen some major successes that other states can learn from. For example:

  • To help modernize aging K-12 school facilities and improve academic performance, the PPPA developed the “Schools for the 21st Century” program as their first PPP endeavor, where the Commonwealth is contracting with with private operators to design, build and maintain approximately 100 schools across Puerto Rico; over 60 of these contracts were already in place by July 2011.
  • In June 2011, the PPPA selected a winning bidder for a 40-year, $1.08 billion concession to operate the PR-22 and PR-5 toll roads.
  • PPPA officials have more recently launched a procurement for a long-term lease of San Juan’s international airport, and a dozen potential bidders recently submitted statements of qualification.

For some must-read, innovator insights on what it takes to build a successful PPP program, check out my new interview with PPPA executive director David Alvarez, where he discusses the development of Puerto Rico’s PPP program, the benefits of having a centralized PPP program with a broad scope across infrastructure sectors, and the central role of the PPP program in Puerto Rico’s economic development strategy. Here’s an excerpt:

Gilroy: Up to this point, most states have taken piecemeal approaches to PPPs, with a heavy focus on transportation projects. However, Puerto Rico’s PPP program goes much further than most states, extending beyond transportation to other types of infrastructure. Can you describe the scope of the Commonwealth’s PPP program?

Alvarez: The scope of the program is very broad. We decided to include in the legislation—not the projects themselves, but the areas that we can pursue, the different infrastructure types. We actually have nine areas listed in the PPP legislation in Puerto Rico. We can go from transportation to energy to water. We can do schools, social infrastructure, corrections, information technology—so it’s a very broad scope.

We decided to start the program with the projects that were most ready to go into the pipeline and out to the market. For example, we focused first on “brownfield” projects [Editor’s note: “brownfield” PPPs cover the operation and/or capital investment in existing public assets]. The schools project [Schools for the 21st Century] was one where the need was high for investment in school infrastructure, so we knew that this was a priority project. A lot of these are renovations of existing schools, so this is not like a “greenfield” project where you need a lot of permitting, etc. [Editor’s note: “greenfield” PPPs cover the private sector construction, operation and/or financing of new public assets.] All of the greenfield PPP opportunities that Puerto Rico has need a lot of permits and environmental work to be completed.

So we started with something that we could manage well. Then we moved into the toll roads project with another brownfield transaction. And that’s how we started to move across different asset classes.

We can do a variety of different projects, which is fascinating and gives the opportunity to talk to the public about the PPP concept without attaching it to a project—a toll road or an airport. So you can do a lot of education about the PPP concept itself, which is very useful. Then when you get to a particular project, you can relate to your concept again and how it applies to a toll road or a school or a correctional facility. So that gives us a lot of room for action.

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