Not a shockwave, but another blow

In December ‘West by Northwest’ went from being a once-vaunted toll road project to a future case study of what can go wrong.

In the US, no public-private partnership (PPP) – or hopeful PPP – is 100 percent alike. By the same token, every failed project has a different story to tell, even though many display the same ideological narrative: private investment in public infrastructure is a questionable venture, possibly designed to fleece people.

DERIDED

That ideological narrative was present again in Georgia, when ‘West by Northwest’, or WxNW for short, was cancelled. No explanation was given until Nathan Deal, Governor of Georgia, derided the project in his “state of the state” address.

“Recently, we called a halt to the P-3 project for the Northwest Corridor,” Deal announced, before stressing the “most important” reason for his decision: he was “opposed to, contracting away…sovereignty” for a 60-to-70-year stretch. 

Conceived in 2009, WxNW was a 40-mile-long expansion in Atlanta along Interstate 75 and Interstate 575. As a managed lane project, it was not a major undertaking. Other managed lane projects, such as the PR-22 concession in Puerto Rico, have covered a longer distance. But the project held a symbolic significance that was bigger than its physical length. WxNW, at the head of a burgeoning PPP programme in Georgia, was supposed be cause for optimism that the state – and others like it – could embrace a privatisation model.

The model, used in context and appropriate in its execution, can spur job creation, provide an investable asset uncorrelated to the broader market, and buttress future economic growth. That model can also provide an up-front infusion of capital to a cash-strapped state government.

Georgia under Governor Deal did not agree. Statewide, the model never garnered public support. Political grandstanding and a fear-mongering press helped guide public perception in the same manner that was seen with the Chicago on-street parking concession and meter privatisation. Other past cases are also informative: in Pittsburgh as well as Los Angeles, a suddenly unpopular mayor battled a city council, and in each case a potentially lucrative parking concession was voted down.

Despite the undeniably different characteristics of tolling and parking, (a road is pure transportation infrastructure, while parking can be depicted as peripheral), each above-referenced doomed privatisation lacked sound arguments for being rejected. But the public never bought in, and even when it did, it was easily dissuaded by political will.

Noteworthy in each respective abandoned concession was that the private side had made a resource-heavy commitment to each project. Georgia had issued a request for proposal (RFP); Pittsburgh had received a $450 million offer for a parking concession; in Los Angeles, interest from Starwood Capital Group, Bainbridge ZKS and Kohlberg Kravis Roberts emerged, with JPMorgan advising on a would-be deal. 

The infrastructure investment industry, however disappointed or frustrated with failed privatisations in the US, appears to be remaining stubbornly committed.

This is despite an increasing sense of resignation among some market observers.

“I would not characterise it [the termination of WxNX] as a shockwave, the industry is already punch-drunk after Texas cancelling its major toll road concession in 2009,” Joel Moser, a partner at law firm Bingham McCutchen, told Infrastructure Investor.

For infrastructure investors, the ideological narrative at the heart of US privatisation rejections continues to be an irrepressible foe. The well-capitalised, larger foreign infrastructure businesses that have set up shop in the US will, in all likelihood, not retreat. The smaller, more niche-oriented firms might be feeling the heat. 

In Georgia in particular, privatisation appears to have a bleak future. The Georgia Department of Transportation has voiced doubts and an air of desperation is hanging over its would-be PPP efforts, even though no official decision has been reached on other prospective PPPs within the state.

Deal, for his part, said he remained “committed to improving the Northwest Corridor, but there is a better way forward”. In his speech, he never said what that was.