It’s an unwritten rule that any roundtable discussion always has to have a good joke. At New York’s Plaza Hotel earlier this week, five participants gathered to discuss conditions in the US market with Infrastructure Investor. One of them offered the opinion that his clients favoured emerging markets over the US because there was less political risk in emerging markets. Cue laughter? Well, no. This was the joke that wasn’t a joke.
When people think of private capital investment in US infrastructure, they think of opportunity and disappointment in more or less equal measure. Opportunity because of the $2.2 trillion five-year spending need identified by the American Society of Civil Engineers in its famous 2009 report card. For disappointment, just one example would be the series of long-term parking concessions that have failed ultimately to get the green-light from state and city governments over the last year or two.
This was probably not the first gathering of influential US infrastructure professionals to ponder the issue of vested political interests and their tendency to scupper much-needed infrastructure projects at the 11th hour after millions of dollars has been spent by bidders on due diligence. But it may have been one of the first to ponder the issue and conclude on a positive note.
One of the problems is that, while the benefits of greenfield projects can easily be sold to the public (the new stretch of road that cuts commute times by half, for example), privatisations tend be seen as selling off the prized family silver.
Nor has it historically been in politicians’ best interests to challenge less than flattering preconceived notions about private capital. In the past, given a choice between either privatising assets or borrowing more money, the easiest option was almost invariably the latter.
In today’s harsh economic climate, however, borrowing is much harder to obtain and justify – and this is why the roundtable discussion ended on a positive note. Those present saw the potential for a new dialogue to open up in which government officials might be more prepared, with certain provisos, to consider the merits of the private sector case more often – and maybe even advance that case to a sceptical general public. There are, of course, already encouraging signs of this in states like Puerto Rico and Ohio.
One development that would greatly assist any new spirit of conciliation would be for some of the proceeds of much-needed privatisations to be channelled into new projects. The image of the private sector would be aided by the establishment of a virtuous circle whereby payment for existing assets gets recycled into new ones. And that in turn would help the politicians. After all, the easy option is no longer available. It’s time to think more often about the harder one.
*The November 2011 issue of Infrastructure Investor includes our US roundtable, featuring: Rob Collins (Greenhill & Co); Andrew Fraiser (Allen & Overy); Marc Lipschultz (Kohlberg Kravis Roberts); Alec Montgomery (Industry Funds Management); and Peter Taylor (Hastings Funds Management).