“No one is turned on by reports touting trillions of dollars of anything any more,” a senior member of a large infrastructure investment firm told us last month, regarding the $4 trillion the US stands to lose if it fails to invest $1.4 trillion in infrastructure by 2025, according to the American Society of Civil Engineers.
A month later in June, the McKinsey Global Institute came out with an update to its 2013 report, estimating that at current levels of underinvestment, the world could face a $49 trillion investment gap by 2030. McKinsey also made recommendations to address the issue, such as developing bankable project pipelines, modifying restrictive regulations and establishing cross-border investment principles.
These are all valuable recommendations but in our opinion one needs to start with something much more basic – educating end-users.
As infrastructure investors have repeatedly stated, most recently PSP’s Guthrie Stewart in our p. 32 keynote interview, there is a political reticence, particularly in North America, when it comes to privatisation. “There’s always that concern – amongst the electorate – about paying fees to private institutions,” Stewart said.
The current brouhaha surrounding North Carolina’s I-77 Express Lanes project is an excellent example.
In April 2014, roughly two years after launching the procurement process, the North Carolina Department of Transportation selected I-77 Mobility Partners as the preferred bidder for the project. A year later, it reached financial close and last November construction began.
Yet, earlier this month, the state’s House of Representatives voted 80-28 in favour of a bill that would cancel the contract. One of the bill’s primary sponsors, Representative Charles Jeter, reportedly said: “The reality is this contract is inherently flawed. I’d be derelict not to try to cancel it on behalf of my constituents.”
But the contract, signed in June 2014, protects NCDOT and state taxpayers from any damages should the project underperform financially, leading to the private consortium’s default. Furthermore, under the current agreement, the project will cost NCDOT $94.7 million, or about 15 percent of the overall $655 million cost. On the other hand, cancelling the contract at this stage will cost the state around $300 million.
It is therefore difficult to see the flaws Jeter refers to. We asked him, but neither he nor the bill’s two other co-sponsors, Mike Hager and John Bradford, responded to requests for comment.
Given this information and taking into consideration that the project will add 25.9 miles of dynamically-priced high occupancy toll lanes to existing toll-free road capacity, it seems HB954 is more about political posturing than anything else. But political posturing can only be successful if it finds an audience. Apparently it does.
In our opinion then, it is imperative to dispel all the misconceptions surrounding privatisations and P3s. That’s where the mainstream media can play a role, as our source suggested.
Of course, there have been bad agreements and P3s that did not serve the public interest as well as they should have. That burden of responsibility falls on both the public and private sector. The public sector needs to ensure that the public interest is served and protected first and foremost – after all these are assets that provide essential services; and the private sector, which seeks to serve and protect the interests of investors, needs to act in good faith.
There have been cases in the US where the private sector negotiated deals that were excessively skewed in its favour. While in the short-term that may have seemed beneficial to the private players involved, in reality, they not only did a disservice to the community directly affected, but gave privatisations and P3s a bad name.
There are states with chequered histories that investors have told us they wouldn’t touch with a 10-foot pole. North Carolina, or any other state for that matter, would not want to be added to that list. The cost for them, and for the US in general, would be too much to bear.