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PPPs: Pipe dream or panacea?

An easy political target, PPPs have slipped off the radar in the markets where they were first popularised. Yet they remain a big part of the answer to plugging the world’s infrastructure gaps.

Xi Jinping, the Chinese president, has a passion for football. His desire to see China become a bigger player of the beautiful game has fed a ravenous demand for players, sporting gear and training facilities – and ultimately, stadiums. Whether this is the main driver behind the creation of the country's (and probably the world's) first sports-focused PPP fund this autumn is not known. But the $10 billion yuan ($1.4 billion; €1.3 billion) vehicle, seeded by Everbright Securities and Zhejiang Kunlun Holdings Group, attests to the attractiveness of the PPP structure in surprising places.

That was not a given. In Europe, the land where they first came to fame, PPPs have arguably been eclipsed by the rise of renewables and used as a political football by those intending to single out their costs and their alleged mishaps. Industry insiders admit that primary opportunities have largely dried out and that dealflow is now mainly to be found in the secondary market. Our data shows that $105 billion of PPPs were closed globally in the first three quarters of this year, compared to $110 billion over the same period last year.

Yet advocates of the framework should not despair. Firstly, PPP projects are still being closed in Europe, even if the numbers are lower. In October, for instance, a consortium led by 3i Infrastructure secured the backing of five banks to drive the Netherlands' €220m A27/A1 motorway project forward; Ireland's N25 New Ross Bypass Scheme hit financial close in January thanks to €146 million of bonds privately placed with AllianzGI. The Baltics, led by Lithuania, also offer a refreshing perspective on the PPP market. Meanwhile, some interesting secondary transactions are taking place, such as Infracapital Partners' acquisition of a €700 million pool of operational and greenfield Italian assets in May.

But PPPs are also gathering steam in a place where they have long been held back: the US. Consider Washington DC's first pipeline of projects, unveiled in October. The city lauded the framework as an “innovative solution” that could “create jobs, broaden prosperity, and serve residents and visitors alike”. Two other examples: the $4 billion revamp of LaGuardia Airport, the US' largest PPP, reached financial close in June; the five-part, $5.5 billion modernisation of Los Angeles Airport also includes two portions that will be procured as PPPs. While it is not yet clear whether President-elect Donald Trump's mooted infrastructure boost will result in a sustained pipeline, there are reasons to be optimistic about the US regardless. At the same time, neighbouring Canada remains a champion of the scheme.

And then there are the emerging markets. Colombia has been forging ahead with its 4G roads programme, last month approving the 279km Caribe 2 project. In October, Sacyr won Paraguay's first PPP, a $520 million project that involves widening federal motorways that are part of the Pan-American Highway. Good news is also coming from the Philippines, which last month allowed its PPP project companies to float. In Africa, DFIs are striving to roll out plug-and-play programmes that make PPPs easier to use and replicate. And this week, Meridiam reached financial close on its third Turkish hospital, despite political turmoil in the country, after the facility's sponsors issued Turkey's first green and social project bond, a €288 million security credit-enhanced by the EBRD and MIGA.

Significant obstacles remain. PPPs are not always well understood, with confusion as to who should shoulder their risks and liabilities. The lack of standardisation in markets ranging from Africa to the US also acts as a drag on projects, as does insufficient transparency in some procurement processes. And not every project can fit into a PPP framework. But at a time when the public purse is tight and vast demand for infrastructure remains unmet, private expertise and money are precious assets. 

Perhaps the PPP game is only getting started after all. 

Write to the author at matthieu.f@peimedia.com and don't forget to check our In Focus on PPPs in the December/January issue of Infrastructure Investor.