Could Public-Private Partnership in Infrastructure Development Build Resiliency?

September 16, 2020 Markkus Rovito

At a time when partisan gridlock characterizes almost every American political issue, infrastructure projects occupy a rare nonpartisan space of near-universal enthusiasm. Often the unbuilt bridge between infrastructure dreams and built reality is financial.

Now that the COVID-19 pandemic has crippled governmental budgets across the board, there’s a renewed sense of urgency to pursue public-private partnerships (P3s) in infrastructure development as a way to realize roads, bridges, transit and aviation systems, energy, water, broadband, and cybersecurity projects.

P3s are an option for offering a public service where the public sector takes advantage of the skills and expertise that the private sector can contribute. As part of a long-term deal often lasting about 10 to 30 years, the private-enterprise portion of a P3 typically takes on the financing, building, and servicing of the project. In return, the private entity earns back money over time from the users of the public infrastructure, whether that is a school, hospital, mass-transit system, toll bridge, airport, or otherwise.

Public–Private Partnership in Infrastructure Development construction workers pouring cement

While P3s can present win-win situations, they can also require complex agreements and a great deal of risk for all parties involved. However, P3 proponents frequently mention the value for money that the public sector receives when these agreements work well. And it’s not just America’s crumbling infrastructure that could use P3 synergy. With the financial shockwaves from the global pandemic spreading worldwide, P3s are gaining intercontinental momentum. Following are five articles and podcasts discussing how cities can use public-private partnership in infrastructure development to help build resiliency and economic growth.

1. States Can Do a Better Job Courting Private Partnerships to Spur the Economy

A virtual summit in late June between US governors and infrastructure company executives dealt with how public-private infrastructure partnerships could bring people back to work and assist a long-term economic recovery in the wake of the COVID-19 pandemic. Successful P3s such as Arizona’s South Mountain Freeway, which finished well ahead of schedule and under budget, and the Indiana Toll Road, which private investors improved and made safer after leasing it, served as positive examples. Hundreds of billions of private investment dollars could be brought in, but as summit attendees discussed, US states need to do a better job at understanding the valuation of their infrastructure assets and how to balance the risks among the government, private companies, and shared risks. Attendees suggested that infrastructure companies should be focused on innovation because the more that governments consider infrastructure P3s, the more innovation will occur. Other ideas were that states should also support legislation encouraging the leasing of existing infrastructure to raise funds for new projects, and multiple states could pool their infrastructure projects to increase private-investment interest. Read the article.

2. Crisis Is the Mother of Adaptation

The World Bank posits that healthy infrastructure P3s will be even more important now that so many countries are financially strapped and because governments often use infrastructure projects to stimulate the economy. However, existing infrastructure P3 contracts are under strain from disruptions to demand, operations, and revenue. The Public-Private Infrastructure Advisory Facility, supported by the World Bank, has launched a program to help governments monitor the financial risks to their P3 portfolios as a result of COVID-19 and to mitigate harmful impacts or project failures. Going forward, this is an opportunity for a mandate for infrastructure P3s to evolve quickly into more contractually resilient entities, while the infrastructure itself is also more resilient to climate change and other stresses. Read the article.

Public–Private Partnership in Infrastructure Development bridge under construction

3. Technical Expertise from P3s Can Help Asian Countries Build Back Better

The Asian Development Bank (ADB) has called upon Asian countries to step up their pursuit of public-private partnerships for infrastructure projects. With new infrastructure construction slowed and demand for existing infrastructure also down, an emphasis on P3s can bring not only a much-needed influx of capital to Asian infrastructure but also crucial technical expertise. Although the ADB noted that P3 projects have rapidly increased in Asia, the “Asian Crisis” of 1997–2001 and the global recession of 2008–2012 both resulted in a decrease of worldwide P3s. With declining GDPs amid the coronavirus pandemic, infrastructure P3s will become riskier and likely costlier if they need to be made “pandemic-proof.” That’s all the more reason to seek the technical expertise that private companies can bring to infrastructure P3s to find more efficient solutions and to ensure that infrastructure can contribute to meeting the UN’s Sustainable Development Goals. Read the article.

4. Time to Restructure Infrastructure Partnerships

Julia Kennedy of the European Investment Bank’s European PPP Expertise Centre discussed in an interview the fallout of the coronavirus pandemic for infrastructure P3s. Kennedy noted that both the public and private sides are concerned with being penalized for the resulting delays and costs, and each side needs to understand the other side’s challenges through clear communication—and there may be a slowing down of new P3s, as there was in 2008. She said that it remains to be seen how willing the private sector will be to take on the risks, how able banks and lenders will be to fund them, and how the insurance industry will deal with emergencies after the COVID-19 precedent. However, governments will continue to spend heavily on infrastructure, including in the areas of zero-carbon commitments and climate-change resilience. The inevitable future P3s, she said, will need to build into their contracts the agility and flexibility to adapt to unforeseen obstacles and lay out reasonable expectations for both the public and private sides when emergencies occur. Read the article.

Public–Private Partnership in Infrastructure Development planes at lax

5. States Won’t Give Up on Building Resilience

United for Infrastructure’s six-part webinar series called “Infrastructure, Resilience, and Recovery” explores innovations for infrastructure policy and funding in the new era of COVID-19 and intensifying climate conditions by talking to leaders in government and NGOs. The first episode touches on public-private partnerships as an attractive option in the face of plummeting state revenues due to the pandemic. Louisiana Governor John Bel Edwards talked about fighting with the state legislature to move infrastructure projects forward for their economic and public-good benefits. The state has its first infrastructure P3s in the works now, and he’s working with Deloitte to secure the funding and establish the strategies for working with those private providers. California Director of the Governor’s Office of Planning and Research Kate Gordon said that billions of dollars earmarked for infrastructure in January has dried up. However, she said more than 700 projects are still in the pipeline with private sector involvement and low- or no-interest loans. Later episodes in the series detail how governments can use P3s to fund rural broadband, wastewater facilities, and other infrastructure projects.

United for Infrastructure also posted a new podcast series on rebuilding America’s infrastructure better. Watch the video.

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