PPP round-up


PFI, and a new way of doing things

A total of 50 public and private organisations at the end of last week signed up to a new voluntary code of conduct that will help define how savings are made from public-private partnership (PPP) and Private Finance Initiative (PFI) deals. 

The code, produced by HM Treasury, is effectively a new ‘best practice’ guide for the likes of investors, lenders, construction firms and facilities management providers. 

Among those private organisations to have endorsed the initiative are Balfour Beatty Investments, Equitix Group, HSBC Bank and Serco. From the public side, the Cabinet Office, Department for Education, the Home Office and the Ministry of Defence are among those to have put pen to paper. 

The code sets out eight key commitments for private sector parties and another eight for public bodies to encourage a better relationship between the two sides. Pledges include having a single point of contact for all parties on a project and setting out how efficiency savings will be driven from the top to bottom of organisations. 

Heading for the exit 

Engineering and services group Bilfinger is giving up on PPPs in favour of reemphasising its core business of industrial services, amid a companywide shift out of construction.

Bilfinger cited “the declining strategic role” of Bilfinger Project Investments (Bilfinger PI), labelled “the public-private partnership division of Bilfinger”. The company noted financial advisory Rothschild Group has been instructed to “divest” Bilfinger PI.

Publicly traded Bilfinger rose 4 percent to €81 per share on the Frankfurt Stock Exchange after announcing that Bilfinger PI was up for sale. Bilfinger PI earned €41 million in 2012, compared with the €486 million Bilfinger netted.

Dedicated to social and transportation infrastructure, Bilfinger PI has a market presence in Australia, Europe as well as North America. It currently holds a portfolio of 16 PPP projects in which it has invested €254 million of equity.

Macquarie set to cross Mersey

A consortium of Macquarie Capital, FCC and Bilfinger Project Investments has been named preferred bidder for one of the UK’s remaining large-scale PFI projects – the £2 billion (€2.3 billion; $3.1 billion) Mersey Gateway bridge.

The frontrunner beat competition from consortia comprising Balfour Beatty, Bouygues and Egis as well as Galliford Try Investments, Hochtief and Iridium.

Procuring authority Halton Borough Council and the consortium announced in a press conference that they have “jointly identified savings amounting to ‘tens of millions of pounds’ on the public sector contribution to the £2 billion project budget”. Commercial and financial close is earmarked for later this year.


Tolling and Capitol Hill

Brisk deal flow in surface transportation and political will are combining to produce a compelling narrative for the asset class in the US heading into summer.

Road and bridge privatisation in particular is hallmarking the US public-private partnership (PPP; P3) market. Ohio, which in 2013 embarked on its first-ever P3 — a bridge project — has begun procurement on a $330 million ‘greenfield’ design, build, finance, operate and maintain (DBFOM) project for 16-mile road.

The month of June also saw Florida, Los Angeles and Texas in procurement. Florida is in the middle of its $2 billion ‘I-4 Ultimate Project’ for Interstate 4, while Los Angeles has opened bidding on a six-part toll road lease worth $730 million.

Texas, however, can stake a claim to the most interesting P3. The fully funded and project-rich Texas Department of Transportation (TxDOT) has put a ‘pure’ toll road concession out to bid: State Highway 288 (SH 288) will be the first toll road structured with revenue rather than availability payment risk following the Port of Miami Tunnel (POMT).

Like Ohio, Colorado also chose a toll road concession for its debut PPP with a managed lane project involving US Route 36. Virginia, meanwhile, has continued to reinforce its position as a leading P3 adopter Stateside, reaching financial close for its US Route 460 PPP while preparing to open procurement for a P3 for Interstate 66 (I-66).  

In a bridge privatisation, a rebuild of the Goethals Bridge in New York is being hailed as a precedent-setting project for private investment in public infrastructure in the US. A consortium teaming Kiewit Corporation and Macquarie Group secured the $1.5 billion P3.

Meanwhile, a $2.6 billion bridge ‘mega-project’ incorporating private investment is moving ahead. The Ohio River Bridges Project, in which Indiana will use availability pay tolling for its half of the bridge, called the East End Crossing,’ is the culmination of a long-gestating, joint venture.

Political will  

The abovementioned POMT made an ideal location for President Barack Obama to hold a press conference in April to talk up his ‘Partnership to Rebuild America,’ infrastructure agenda.

But Obama, who in 2013 began mentioning partnering with the private sector as a solution to address the US infrastructure deficit, is now one of a growing chorus on Capitol Hill. Maryland Congressman John Delany, a Democrat, and Pennsylvania Representative Bill Shuster, also want private involvement.

Delaney drafted a bill to urge corporate funding for infrastructure repair in America, while Shuster, head of the US House Transportation and Infrastructure Committee, called on the Northeast Corridor (NEC) rail line to be privatised.

Meanwhile, talking about infrastructure investment is in vogue on Capitol Hill. President Obama, who made infrastructure a campaign issue in his 2008 run for the White House, is being credited with reviving infrastructure as part of the national discussion.

The coming airport boom

While toll road privatisation is garnering attention, the US is viewed as a potential future market for air field privatisation. While Luis Munoz Marin International Airport (LMM) became the first air field to be privatised in a US territory, the market for airport privatisation had been dormant — until now.

A game-changing bid to operate Chicago Midway International Airport is open and attracting a wellspring of industry interest. The Windy City had tried to privatise Midway International in a lease to a consortium that included Citibank. The would-be P3 fell through when Citi, reeling amid the global financial crisis (GFC), failed to finance the deal.

But following the Midway International bid, Chicago has opted to use a P3 to add a third air field in the metropolitan area. Los Angeles International Airport is also said to be mulling a lease to a private operator.      


Popularity contest

Apparently, some PPP projects in the Philippines are more popular than others. In mid-May, just weeks after submitting their pre-qualifying offers for the PHP17.5 billion (€325 million; $425 million) Mactan-Cebu International Airport (MCIA) PPP in the Philippines, all seven domestic-international consortia were accepted as pre-qualifying bidders for the project.

The Department of Transportation and Communication (DOTC), the Philippine government department in charge of the project, said in a statement that seven was “a good number for ensuring optimal competition during the bid itself”.

Less than a month later, however, only one bidder – a consortium of Megawide Construction Corporation and World Citi – submitted a bid for the new Philippine Orthopedic Center project, after nine consortia had expressed interest. The P5.70-billion project involves the construction, operation and maintenance of a 700-bed facility that will be built inside the National Kidney Transplant Institute compound in Quezon City.

“We’re really very happy, we prepared so hard for this. It’s our first hospital project,” Megawide vice president for marketing Louie B. Ferrer told local media.

With just one bidder, this social project is expected to be conducted under a “one stage, three envelope system” where a prospective investor submits its qualification documents and its technical and financial proposals at the same time.

Hitting the bottom

About the only story coming out of India’s PPP projects is silence. With close to 250 projects reviewed and approved by either municipal or central governments, according to the Indian Ministry of Finance, it’s actually striking how little PPP news comes out of the country. There have even been media reports that some projects have received no bids, and the government plans to scrap the model for several highway projects given the low turnout.

The crippling problem for India, according to infrastructure fund manager IDFC Private Equity partner Raja Parthasarathy, is simply a lack of clarity. The government in India tends to follow a bidding process that makes it difficult for the private partner to assess how they will get their returns.

“There hasn’t been a common understanding of what returns need to be in place for the private sector partner,” Parthasarathy tells Infrastructure Investor. Parthasarathy adds that the Indian government eventually has to realise that “if you don’t get [the private sector] those returns, next time around you won’t get bids.”

Unfortunately, the misunderstanding has led to project after project being delayed in the past few months, with time still ticking on repayment of loans. Parthasarathy says that sentiment toward infrastructure today is at its lowest, and what is most needed now is a change of sentiment.

“All [India] needs is one or two small successes to start getting sentiment back up,” he says. Unfortunately, he knows of no projects that are on the path to becoming those successes.

Outbound drive

Japan and Japanese corporations have been using infrastructure as one of the primary modes of its outbound investment drive. As the country strives to keep its influence in the Asia-Pacific region strong, it has supported its domestic corporations in winning large infrastructure projects in several Southeast Asian nations.

In early May, two consortia of Japanese construction companies won the first phase of the Jakarta Mass Rapid Transit PPP, worth a combined IDR3.6 trillion (€283 million; $370 million), the Jakarta government confirmed. Although it is technically the Jakarta government paying the Japanese contractors for their services, the entire project is being funded by a JPY125 billion (€964 million; $1.3 billion) loan from the Japan International Cooperation Agency.

“[Japan] lent the money for this, so the Indonesian government would of course make an international decision,” a corporate spokesman told Infrastructure Investor earlier. The loan’s terms guaranteed that Japanese companies could at least attend the bidding process.

And in late May, three major Japanese communication technology companies decided to take advantage of Japan’s support of Myanmar to construct a communications network between three of its leading urban centres. It is the first infrastructure project to utilise the JPY 1.71 billion Official Development Assistance (ODA) grant from JICA to Myanmar.

“The development of this network aims to improve Myanmar’s communications infrastructure to a level that rivals that of developed markets,” the Japanese companies said in a joint statement.