NCPPP Editors note: As part of our media partnership with InfraAmericas, NCPPP is republishing this article from the recent US P3 Forum.
Last week brought the sector’s best and brightest minds together to discuss the risks and opportunities inherent in an evolving market. The sector has and continues to expand beyond transportation to include social infrastructure, water and wastewater projects. Moreover, more procurement bodies are looking at P3s as a means to build much-needed infrastructure but the need for education remains.
- Communication with stakeholders is key to a successful P3 procurement.
Public outreach is a critical aspect of making P3s happen, said Douglas Koelemay, executive director for the Virginia Office of Transportation Public-Private Partnerships said.
The public comment portion of a project is a difficult process, but imperative for communicating benefits to users, Koelemay added.
Individuals must understand the personal benefits of P3s and it must be communicated to them how a P3 project will improve their lives, said Blair Anderson, acting chief financial officer and assistant secretary for finance and budget at the US Department of Transportation. Public opposition is a major speed bump keeping P3 projects from moving forward, he added.
- P3 experience needs to be shared.
The procurement timeline for P3 projects opens them up to a degree of political risk.
“A drawn-out procurement is likely to mean that a newly elected governor or mayor will inherit projects, and will start projects that others will inherit,” John Porcari, senior vice president and national director of strategic consulting at Parsons Brinckerhoff.
Porcari said that one solution could be a “boot camp” for government officials, perhaps sponsored by a nonprofit group, which would educate elected officials and key staff members on key aspects concerning P3s, which could help accelerate the P3 process.
- The P3 market is still taking shape.
Investors should be careful with states that are undertaking their first P3 project.
“A state may have instituted a legal framework for P3 procurement, but there is no track record, if you haven’t done one before,” Joseph Pavona, special advisor at the Michigan Office for Public Private Partnerships said.
Pavona noted that Michigan chose a consortium led by Star America for its freeway lighting P3 in May. He said that the state took 18 months to plan the P3 out and intentionally chose a smaller project for its first deal.
“We looked for a project that was well planned, and that filled a need,” Pavona said.
- Political risk is a very real threat.
Political risk is the most serious challenge to P3 procurements in the US.
Political risk is a bigger factor than even construction risk, which is something lenders and ratings agencies are beginning to recognize, Tariq Taherbhai, senior director at AON North America said.
Plenary Concessions’ Executive Chairman Dale Bonner noted that up to 40 percent of mayors and governors had been elected in the past six months, but none of them ran on infrastructure. “It’s going to take a little time for them to get settled and learn that they own the infrastructure issue,” he added.
“All we can do on the private side is look at the political players and other local stakeholders and see which way the winds are blowing,” David Sikorski, senior bid director at Parsons Enterprises said. “Some of it is a crapshoot.”
- The Indiana Toll Road was a success.
The Indiana Toll Road Concession Company (ITRCC) filed for bankruptcy in 2014 but, from the state’s perspective, the concession remains a “huge success,” Kendra York, director of planning services and economic development at American Structurepoint, said.
“When it filed for bankruptcy, people would say, ‘Oh my gosh, the deal was a failure,’ but that’s not the case,” York said, noting that the road is still in use and that the state was able to procure the asset at a reasonable cost. “Indiana Toll Road has proven to be an excellent example of moving forward.”
York added that, the deal was a “good story” for the industry as a whole.
- The air transport sector remains lively.
The recent announcement of a preferred bidder for the LaGuardia Airport Central Terminal P3 as well as reconfiguration of the Denver Airport’s Great Hall have invigorated the sector.
The Indianapolis Airport’s stormwater P3 is currently in procurement and the FAA’s negotiations with a private partner for the conversion of Hendry County Airport into a cargo hub are ongoing.
Randall Fiertz, Director of Airport Compliance & Management Analysis at the FAA said that the does not anticipate any changes to the Administration’s Pilot Program. However, it remains to be seen whether Congress will reauthorize the program when it expires on 30 September.
- Opportunities abound in California.
California is continuing to explore P3 possibilities for some major projects, according to Kome Ajise, chief deputy officer of the California State Department of Transportation (Caltrans.)
“There are significant opportunities in the L.A. basin,” Ajise, panelist that explored road and bridge P3s, said.
Ajise listed the SR-710 North Tunnel Extension, the I-710 South Freight Corridor, and the High Desert Corridor as possible P3 opportunities. Moving north, he mentioned the Route 152 Trade Corridor in Santa Clara County, and the Route 156 widening project in Monterey County as other potential P3s. The Route 156 project has been slowed by the need for a new Monterey County supervisor “to get up to speed on the project,” Ajise said.
Ajise also put the California High Speed Rail project on the opportunity list, a project that is strongly advocated by Gov. Jerry Brown.
- It helps to be “all in.”
Commitment to a project is critical for all parties involved in P3 projects, director of the Port Authority of New York and New Jersey Executive Director Pat Foye said. Backing out of a project could result in consequences for all P3 participants, he added.
“The P3 industry wants successes, having bluffs is as very lumpy business and having bluffs is financially expensive to everyone and a burden to getting transactions done in the long term,” Foye said.
- Infrastructure is a “long game.”
With six financial closes in the road sector, the last 12 months can quite rightly be described as an incredibly positive chapter in the US market.
John Laing North America head Anthony Phillips described the last 12 months as “the best and worst of times.” However, the recent failure of projects such as the Illiana Expressway and the Indiana Consolidated Justice Facility underscore the fact that the the acceptance of the model is far from widespread.
Many in the industry maintain that there will be fewer projects in the immediate future. However, a growing number of successful projects and federal initiatives to foster P3s signals a bright future.
- The next election will influence future P3 procurements.
American infrastructure development is more dependent on who wins the 2016 presidential election and which party wins control of Congress than any other factor, said Laurie Mahon, managing director at CIBC.
Lorne Potash, managing director at Assured Guaranty said that, as American’s infrastructure deteriorates, greater political pressure will exist to get the deals done and ultimately increase the number of transactions.