A senior executive of infrastructure manager Abertis today cautioned investors against categorising infrastructure assets as “brownfields” or “greenfields”, arguing that they often fall somewhere in between the two labels.
“We have to stop talking about ‘greenfield’ and ‘brownfield’ going forward,” Jordi Graells, president of the Spanish firm’s US operations, told about 200 delegates gathered at the 2009 Dow Jones Infrastructure Summit.
Existing infrastructure assets are typically referred to as brownfields, while those that have to be built are known as greenfields. Greenfields are therefore thought to require significantly more capital expenditures over the life of the project than brownfields.
Graells challenged this conventional wisdom. He said “there’s no such thing as a [pure] greenfield . . . there’s no such thing as a pure brownfield”. Assets regarded as brownfields often require significant amounts of capital expenditure that could match, or surpass, the amounts required for greenfield projects, he said.
As an example, he pointed to his firm’s ultimately unsuccessful bid to lease the Pennsylvania Turnpike for 75 years. The transaction was widely regarded by many industry observers as a “brownfield” transaction due to the 537-mile road’s fully operational status.
However, the lease agreement obligated Abertis’ consortium to significant capital expenditures over the life of the lease which, on a net present value basis amounted to about $6 billion dollars, Graells said.
“The road will be eaten up by weeds if you do not take care of it”, Graells added.
The $6 billion in capital expenditures was nearly half the $12.8 billion that the Abertis-Citi consortium offered the state of Pennsylvania for the lease. Approximately $7.5 billion of that was debt, the remainder equity, in which Abertis was an approximately 51 percent shareholder.
In similar vein, speakers gathered at the Terrapinn Infrastructure Investment World Americas conference in New York two weeks ago also challenged the conventional wisdom of the “brownfield” versus “greenfield” distinction. Their opposition to this distinction focused on the perception that the former is less risky than the latter due to its operational status.
“A greenfield could have lower risk than a brownfield project, so it’s not always correct to say that brownfield is less risky,” Barbara Weber, founder of advisory firm Bibs Capital, told delegates gathered at that conference.