NY Summit: Tide rising for water investment?

The sector may see a surge of infra investment, even if it stretches the definition of the asset class.

Private investment in US water infrastructure is likely to surge in the coming years as the need for maintenance and growth drives opportunities.

That was the consensus of a five-person panel on water investments at Infrastructure Investor’s New York Summit this week, as participants saw ample opportunity for public-private partnerships in the water space.

“Out of any of the regulated utility sectors, [water] is by far the fastest growing from a capex perspective,” one panellist noted, speaking under Chatham House rules. “But also the most stable from the end user perspective as well.”

Another compared the water sector with the airport space two years ago, with many interested parties but few transactions.

“There were not a huge number of airport deals in the market, per se,” he explained. “But then once LaGuardia got done, it now seems like there are a dozen or more potential transactions in the airport sector,” he added, referring to a $4 billion PPP to modernise the New York airport.

While pipelines and treatment plants match traditional infrastructure assets, the sector has seen investors stretch the definition of infrastructure in the search for deals.

“Where we really do see a lot of infrastructure and quasi-infrastructure investors getting more comfortable recently is on the service side of the business, where they have direct access to the end customer,” one participant said. “Investors that historically would only invest in hard assets are now investing in services around it in the hope that they can leverage that relationship into something more tangible.”

The private sector must overcome some challenges, including the perception that municipal governments have a cost advantage over the private sector. PPPs, one panellist countered, bring their own range of benefits.

“You bring faster construction,” he said. “You bring better operations, thinking through lifecycle operating costs, because if you are on the hook for it, then you are trying to squeeze every dollar out of it that you can.”

Perhaps harder to overcome, he added, is American resistance to privatising water assets.

“We think of ourselves as the land of capitalism and enterprise,” he said, “but not when it comes to water”.