Confronting reality

A senior US politician has shone a spotlight on the need for more private investment in his country’s infrastructure. But, as the US market opens up, fund managers must stay level headed

John Mica – love him or hate him. If your main interest is in seeing vast sums of federal money poured into the US’ transport infrastructure, you’ll probably hate him. If your main interest is seeing this infrastructure opened up to the private sector, you’ll probably love him. Infrastructure fund managers, frustrated as they wait in the slow lane for opportunities in the US market to flow freely, will have reason to view him with affection.

A few weeks back, Mica, chairman of the House Transportation and Infrastructure Committee, introduced a bill that would translate to $230 billion of federal spending over the next six years on US highway and transit projects. As the LA Times pointed out in a recent article, this is around about half of what the Obama administration had sought last year.

The motive of Mica is clear – to get the private sector involved in transport infrastructure funding on a scale that has not previously been dreamt of. The House Transportation and Infrastructure Committee website said the bill will remove “current barriers that prevent the private sector from offering public transportation services”. Moreover, Mica has backed up his words with action.  In June he risked upsetting staunch vested interests with a plan to allow the private sector to bid on services currently run by national passenger rail carrier Amtrak, for example.

It could be argued that Mica is quite simply acknowledging a basic truth and is doing everyone a favour by getting it out in the open – the government has nowhere near enough money even to maintain  and repair existing infrastructure to acceptable levels, never mind build new stuff. After the US government’s debt ceiling was lifted earlier this week, US national debt rose to 100 percent of GDP (a higher percentage than Ireland or Portugal). If this has not focused minds on the issue, what will?

A conversation with a leading infrastructure investment professional earlier this week, however, was informative in two respects. Firstly, he pointed out that the infrastructure public-private partnership is still not an advanced concept in the US, but that good progress has been made in sectors such as ports, electricity, gas and even water. Secondly, it was his view that to lobby too hard for private capital involvement in infrastructure would be a mistake. Private capital is well suited to some scenarios but not to others, and all options always need to be explored to the full before a particular course is taken.

These are both worrying and exciting times that will almost certainly open up a wider swathe of opportunities for private infrastructure investors. But the wrong assumptions should not be drawn. It would not be a private capital revolution in US infrastructure, only the further development of an existing process. And, to safeguard that development, private investors should tread carefully and act humbly. A heightened demand for your services should not be confused with an invitation to a free-for-all.