PPP – Part II
THE U.S. PPP MARKET DEVELOPMENT PERSPECTIVES
2017 was a year of big expectations and debates for the U.S. infrastructure industry. Deteriorating public facilities (“D+” rating according to the March 2017 ASCE Report), accumulated funding gap, and ambitious pre-election commitment to “rebuild American infrastructure” by allowing the private sector to take care of the problem…all these factors promised big changes in the way infrastructure projects will be planned and delivered in the U.S., but none of them happened. Too many questions are left unanswered: what funding sources and revenue mechanisms to use, and how to distribute the risk.
Thus, we decided to dedicate the second part of the research on identifying the reasons why some projects failed while the others succeeded despite all the challenges and how to find the perfect formula to make both public and private sector to benefit from each project. The research project questions common misconceptions about the way PPP should function.
The paper posits that the difficulties governments and PPP sponsors alike have encountered is the result of the confluence of two broad misunderstandings:
the first is that PPP is a financing vehicle that will unlock the global capital markets for cash strapped governments at all levels when the reality is that PPP is not a financing vehicle at all and, instead, is a project delivery method that has a proven track record of producing better quality projects in less time than project delivery methods like design-bid-build.
the second misunderstanding is that PPP is only appropriate when every aspect of a project is part of a concession granted to the private sector for an extended period of 20 years or more. The research finds however that PPP in the US works best when scope of the concession is tailored to the needs of a particular project. This kind of concession has proven useful in a number of recent projects like the LaGuardia Central Terminal Project, where the procurement was structured to maximize the use of municipal bonds with their lower interest rates and some of the demand risk associated with airport services was retained by the granting agency.
We have found that the U.S. simply has its own PPP project delivery and finance scheme, neither better, nor worse, than those of jurisdictions where the full concession model has gained acceptance. Our research was focused on the multifaceted nature of public-private partnerships. It proves through real examples and case studies that maximized value and benefits of P3 are achieved through a proper mix of parties’ skills and assets, supported by balanced risks and interests.
In short, what we found unexpectedly is that the US is a unique market for PPP that has an emphasis on “partnership.“ The delivery system works best when risks are analyzed at the conception of the project and then allocated among the public and private parties, rather than simply transferred.