Availability extends its grip

There is a pre-financial crisis reality and a post-financial crisis reality – not to mention a massively discernible difference between living in one or the other. While the impact of that unpleasant fact has been especially felt in project finance, it’s also interesting to take note of the role the crisis had in bringing the availability payment structure, APS for short, into vogue in the US. From the look of it, it’s not going to be replaced any time soon—particularly with regard to the transportation sector.

A project in a state with decent credit fundamentals – such as Alaska with its envisioned billion-dollar Knik Arm Crossing project – can reward a private partner for making an asset available in good condition, offsetting traffic risk in a way akin to tolling. Whereas Chicago in 2004 entered a long-term toll concession with its Chicago Skyway, Florida in 2009 – during the thick of the crisis – opted for availability payments. Most open or expected Requests for Proposals (RFPs) in the US today are similarly structured (for its part, the Knik Arm Bridge and Tolling Authority, overseeing the divisive Anchorage-area highway project, is expected to publish an RFP this year.) 

“It [the availability payment] will be around well into the next decade,” says Joel Moser, a partner with law firm Kaye Scholer. Bob Poole, director of transportation for the Washington, D.C. non-profit think tank the Reason Foundation, agrees.

“There’s definitely a trend in that direction. There’s definitely been a proliferation,” asserts Poole, who helped start the foundation in 1978. “But I hope it’s short-lived.”

FLORIDA BREAKTHROUGH

Availability payment is as old as modern-day privatisation itself, rooted in the Private Finance Initiative (PFI) model largely established by former UK Prime Minister Margaret Thatcher in the 1980s. Until now, its use in the US has been synonymous with the struggle to encourage a market for public-private partnerships (PPPs) in America: hard-fought, and wanting for a discernible template.  In fact, it took a mega-project by US standards (actually two of them) before APS could gain traction in a country reeling from the finance sector meltdown.

In Miami, the Florida Department of Transportation (FDOT) installed availability payments for its Interstate 595 (I-595) managed lane concession and Port of Miami Tunnel project. In the case of I-595, all-out reconstruction and reorganisation was involved. Tolling simply would not have let the Sunshine State recover the cost of the project.  With the $1 billion Port of Miami Tunnel, on the other hand, the state wanted to divert truck traffic to and from the port off a main highway. Tolling would have defeated the purpose.  

“You’ve really got to give them [FDOT] credit,” says Moser. “It’s a sensible way to structure privatisation. The state was unwilling to take on utilisation risk [the risk of not maximising its use] or toll road risk. With APS, utilisation risk is taken off the table”.

And to the private sector, “it’s certainly attractive,” Poole says. “They don’t have to take traffic revenue risk, which is the hardest to quantify. If the private sector is offered a choice, they’d want to go with APS rather than tolling. 

That said, and even though Poole recognises the “political concern over tolling,” he is set in his opinion that APS is “strategically, not a very sustainable policy”.

That’s because of a much larger, harder-to-solve problem that APS can’t fix.

“Ours is a massive shortfall in funding, and transportation funding,” says Poole. “There’s a lack of actual money. APS is just financing. It doesn’t add to any new net investment, really. So to me, the challenge is how do we bring tolling to be a much bigger part of transportation funding?

“The best bet is that we increase gas tax and toll,” Poole states.

But that’s a hard sell in 2012. And so the US is only scratching the surface of the financing that’s required.

“The fundamental issue right now isn’t political will, the issue is public will,” stresses Moser. “The public is in no position to be made to spend money now for the long-term good. Infrastructure is nation-building. None of it is free. None of it is commercially viable”.

So the availability payment structure is here to stay. For now at least.