Is transport in trouble?

Even without taking into account the effect of stay-at-home orders on transit operators, the US transport sector is struggling.

No other sector highlights the fact that public-private partnerships are in trouble with greater clarity than transport. As the number of PPPs globally stagnates, at least two major US projects, both in transport, have faced the chopping block this year.

Air drop

In January, the mayor of St Louis cancelled the Missouri city’s plans to privatise Lambert International Airport.

The decision to end the nearly twoyear process came shortly before the working group exploring the plans was expected to vote on whether to issue a request for proposals. The mayor, Lyda Krewson, had been in favour of the project with its projected $2 billion in net proceeds and $600 million of cancelled debt. However, she noted that airport PPPs are not common in the US, and that “being ‘first’ at anything brings inherent risk and scepticism”.

At least 18 companies had submitted requests for qualifications, including private equity firms Global Infrastructure Partners and AMP Capital, Vantage Airport Group, and the Canadian pension fund Ontario Municipal Employees Retirement System.

Derailed

Transport PPPs have seen better days

In Maryland, another PPP faces its demise. The construction companies contracted to build the Purple Line light-rail project threatened to quit after the procuring authorities refused to allocate additional funds to cover cost overruns. In an open letter, Scott Risley, project manager for Purple Line Transit Constructors, said that without financial compensation, the developers “would be forced to absorb hundreds of millions of dollars in additional costs that are [the state’s] responsibility”.

Risley’s letter continued: “After six months of intense negotiations, all parties came to an agreement in principle on a settlement of certain issues, only to have [Maryland Transit Administration] refuse to move forward with that deal.”

It is possible the consortium and Maryland will be able to negotiate a resolution before PLTC withdraws. Regardless of the outcome, the upheaval appears to be another nail in the coffin for the US PPP market. Swedish construction firm Skanska announced at the end of 2018 that it would leave the market, having taken a $100 million writedown from two high-value projects. SNC-Lavalin also blamed fixed-price PPPs for $262 million of negative cashflows in Q2 2019.

Driving ahead

Despite this, some investors believe the post-pandemic US market could be primed for PPPs. After more than six months of shutdowns, state and local governments are adding up the immediate financial impact. This is leading some in infrastructure to ask if fiscal desperation might create opportunities. “Necessity is the mother of innovation,” says DJ Gribbin, president Donald Trump’s former lead infrastructure advisor, who now runs project consulting firm Madrus. “It will either create significantly more opportunities or significantly fewer opportunities.”