Transcript Public Private Partnerships Introduction to PPPs Frederick J. Werner FHWA Resource Center Innovative Finance Team Federal Highway Administration-National Resource Center.

Public Private Partnerships
Introduction to PPPs
Frederick J. Werner
FHWA Resource Center Innovative Finance Team
Federal Highway Administration-National Resource Center
Presentation Outline
 What are PPPs?
 Working definition
 PPPs for existing, new and improved facilities
 PPPs: Pros and Cons
 Myths and facts about PPPs
 The evolving US federal role
 SAFETEA-LU innovative finance tools
 Summary
2
Federal Highway Administration-National Resource Center
What are PPPs?
 Would anyone like to venture a guess?
 Public component
 Private component
 Partnership component
3
Federal Highway Administration-National Resource Center
Working Definition

PPPs are a legally-enforceable contractual agreement

Between a public sector and a private sector entity

Designed to develop and deliver a surface transportation
project

Specific terms/provisions of contractual agreement can
and do vary widely
4
Federal Highway Administration-National Resource Center
Public Partner
 Most commonly, the public partner is a state or provincial DOT
 However, public partners can also include:
 Local governments; highway and toll authorities
 Port or bridge authorities; transit districts
 Bi-state, multi-state or bi-national districts
5
Federal Highway Administration-National Resource Center
Private Partner

Most commonly, large engineering or investment
companies

However, private partners can also include:
• Combinations of firms (joint ventures or consortia)
• Individuals; groups of individuals
• Quasi-public corporations
6
Federal Highway Administration-National Resource Center
Partnership Arrangement

Can be structured as a simple contract; concession
agreement; letter of intent; memorandum of
understanding; hand-shake agreement (uncommon; for
small value transactions)

Can address one-time events such as donation of land for
ROW

Can address very long-term agreements whereby the
private sector builds and/or operates a transportation
facility
7
Federal Highway Administration-National Resource Center
Partnership Arrangement

Arrangement may specify a minimum of private sector
involvement, such as donation of land, a guaranty of public
sector debt, or a willingness to self-assess to finance an
improvement.

Arrangement may specify significant private sector
involvement, whereby private sector invests its equity capital –
cash on hand or borrowed funds – and agrees to design, build,
finance, operate and maintain a given facility.

Many variations on private involvement for existing and new
(“greenfield”) facilities, as well as significant improvements to
existing facilities.
8
Federal Highway Administration-National Resource Center
PPPs for Existing Facilities

Long-term concession for Chicago Skyway, late 2004:

$1.83 billion payment for 99 year lease

Long-term concession for Indiana Toll Road, early 2006:

$3.85 billion payment for 75 year lease
9
Federal Highway Administration-National Resource Center
PPPs for New Facilities
 108 kilometer 407 ETR in Toronto
 $630 million South Bay Expressway in San Diego
 $3.2 billion Texas SH 130 in Austin
 $2.5 billion Texas SH 121 in Dallas/Ft. Worth area (currently being
negotiated)
 Mexico City North Bypass
10
Federal Highway Administration-National Resource Center
PPPs for Significant Improvements
 Significant improvements to rail infrastructure:
 Dakota, Minnesota & Eastern (DM&E) replaced rail on portion of 1100
mile system with $233 million US federal loan
 DM&E plans to extend line 820 miles into Powder River Basin with
$2.5 billion US federal loan
 Texas Mexico replaced several hundred miles of rail with $50 million
loan
11
Federal Highway Administration-National Resource Center
PPP and Federal Credit

Many PPPs are supported through US federal credit programs:

TIFIA (Transportation Infrastructure Finance and Innovation
Act)

RRIF (Railroad Rehabilitation and Improvement Financing
program)

PABs (Private Activity Bonds)

SIBs (State Infrastructure Banks)
12
Federal Highway Administration-National Resource Center
PPPs: Pros and Cons

Deep pools of investment capital looking to invest in
assets for a very long period; funds looking for long-term
income to match long-term liabilities (Tim Romer,
Goldman Sachs).

Injection of equity capital to invest in other assets and
access to funding outside municipal bond market (Trent
Vichie, Macquarie Securities).
 Transfer of project risk to private sector (Trent Vichie,
Macquarie Securities).
13
Federal Highway Administration-National Resource Center
PPPs: Pros and Cons

Public perception that critical “public” assets are controlled by private sector,
often for very long periods, with related public safety and asset performance
concerns.

Need to charge user fees in environments and/or markets unaccustomed to
such charges (Caltrans).

Concern that PPP projects - especially those involving railroads and dedicated
truck lanes - properly protect the environment. “The real obstacle to many
PPP projects is not the politics, but environmental clearance” (Southern
California Association of Governments).

Need to fit PPP projects into coherent long-term state plans (Caltrans).
14
Federal Highway Administration-National Resource Center
Myths About PPPs
 PPPs can solve all the nation’s infrastructure problems

Every project is a potential PPP

All PPPs will generate big financial rewards

The US is losing control of critical transportation assets

PPPs will replace the traditional federal-aid grant program
15
Federal Highway Administration-National Resource Center
Facts About PPPs


State/local governments face challenges:
•
Fiscal stress and budget deficits
•
Growing need for new infrastructure
•
Need to rehabilitate decaying existing infrastructure
Public and private sector can share benefits:
•

16
Project delivery vs. concession income
Public and private sector can share
(environmental, financing, construction)
project
risks
Federal Highway Administration-National Resource Center
The Evolving Federal Role
 Traditionally, the US federal
government has financed highways
through 80% grant programs
 Pay-as-you-go approach
 However, ISTEA, TEA-21 and SAFETEALU have provided alternative or
“innovative” forms of non-grant
assistance to advance projects
 Goal is to leverage limited federal
resources from:
• Co-investment
• Revenue expansion
17
Federal Highway Administration-National Resource Center
SAFETEA-LU Facilitates PPPs

Innovative Finance initiatives:
• Enhanced TIFIA credit program
–
Available for refinancings
–
Available for projects costing $50 million or more
• Continued RRIF credit program
• $15 billion in Private Activity Bond authority
• Expanded SIB authority
• Broader tolling authority on Interstates
• Expanded use of design-build provisions
18
Federal Highway Administration-National Resource Center
FHWA Initiatives

Secretary Mineta’s National Congestion Strategy
• “Unleashing private-sector investment resources”
 Use of SEP 15 waiving most federal-aid requirements on
a trial basis
 Use of SEP 15 coupled with a streamlined TIFIA credit
application process
19
Federal Highway Administration-National Resource Center
Revolutionary Change in PPPs


PPPs have been successful for wide variety of projects
Increases in equity market capacity and competition;
domestic equity investors are joining international
investors in PPP market
 Electronic toll technology is facilitating public’s acceptance
of user fees

GASB 34 (asset management) is changing traditional view
of highway construction from an “expense” to an
“investment”

PPPs are another important tool in our toolbox - if the
right conditions are met!
20
Federal Highway Administration-National Resource Center
In Summary ………
 Take advantage of changing US federal regulatory landscape
 Leverage expertise of FHWA National Resource Center,
Innovative Finance Team
• Subject matter experts and solution providers
• Expansive view – across FHWA and other modal programs
• Broad view of needs – states, regions, nation, bi-national
projects

Contact Information: Prabhat Diksit 720-963-3202; Frederick
Werner 404-562-3680

Additional Information
• www.fhwa.dot.gov/innovative
• www.fhwa.dot.gov/ppp
21
Federal Highway Administration-National Resource Center
Conclusion
22
Federal Highway Administration-National Resource Center