Europe subdued

A new “Global P3 Landscape” report by rating agency Moody’s states that the US has “the potential to become the largest public-private partnership (PPP; P3) market in the world, given the sheer size of its infrastructure”.

The report classifies the US as an “expanding” PPP market along with Brazil, Peru, Mexico and Colombia. “Mature” PPP markets identified by the report are the UK, Canada, Australia, India and Chile (see table).

The report notes that more availability-payment P3 projects are now reaching financial close or are in procurement in the US than ever before. While almost all these availability-based projects have been in the transportation sector (roads, bridges, tunnels and rail), the report notes that social infrastructure projects are gaining momentum and could “propel the next wave of US P3 availability-payment projects”.

Many building blocks for a sustainable US P3 market are being put in place. For example: bankers and sponsors are building specialised P3 procurement teams to form relationships with state financing agencies, transportation departments, and large multinational developers; public policy is supportive, with governments wanting more for every dollar invested; and the pace of adoption of P3-authorising legislation is gathering pace (39 states now have some kind of authorising legislation).

In Europe, meanwhile, a “backdrop of austerity measures” means that the PPP pipeline in the region “remains subdued”. The report notes ideology as a “big part” of the debate, with “concerns growing in the public sector that P3s represent an increasing privatisation of public services” – particularly in the UK.

In the UK, Europe’s most mature PPP market, the pipeline shrank from 61 projects in procurement in March 2011 to 39 in March 2012 and 21 in March 2013. Social infrastructure projects in particular have dried up as the government has put the emphasis more on economic infrastructure. Having been easily Europe’s largest PPP market pre-Crisis, the UK has been on a par with France in terms of project numbers over the last few years.

The report notes “pockets of activity” around Europe, with the Netherlands and Belgium bright spots thanks to deals such as the A1/A6 Schiphol-Amsterdam-Almere road PPP (phase 1), the Via A11 road PPP, and the Zaanstad Prison project.

In other parts of the world, the picture is mixed. The report says that “with so many projects” investors in South America can be more selective than in the past. But while some projects have been a success – such as Brazil’s demand-risk airport concessions – others have run into trouble.

In Asia Pacific, meanwhile, PPPs have been slow to develop outside of Australia and India. The report points out that emerging regulatory frameworks may be subject to an “elevated risk” of political interference and strong legislative frameworks to enforce contracts are lacking in some countries.