Congressional Panel Explores International Experience with Public-Private Partnerships

by Nossaman LLP
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On Tuesday, April 8th, the House Transportation and Infrastructure Panel on Public-Private Partnerships held a hearing on "The International Experience with Public-Private Partnerships".  The Panel focused in particular on the Canadian experience, observing that over the past two decades Canada has become one of the most advanced and active markets for P3s. The witness list and links to their testimony are as follows:

The Honorable John Delaney, United States Representative, Maryland

Dr. Larry Blain, Chairman of the Board of Directors, Partnerships British Columbia | Written Testimony

Mr. David Morley, Vice President, Business and Government Strategy, Infrastructure Ontario | Written Testimony

Cherian George, Managing Director – Americas, Global Infrastructure & Project Finance, Fitch Ratings | Written Testimony

Dr. Matti Siemiatycki, Associate Professor, Program in Planning, University of Toronto | Written Testimony

Congressman John Delaney began by describing the magnitude of the nation’s infrastructure deficit.  Referring to an estimate made by the American Society for Civil Engineers, he explained that close to $4 trillion needs to be invested to bring infrastructure in the US up to world class standards.  As governments are cash strapped, he advocated that private sector capital be engaged to increase investment in infrastructure to fill the gap, and he noted the importance of smart P3 frameworks to meet this infrastructure challenge.  Congressman Delaney referred to The Partnerships to Build America Act (H.R. 2084), which he introduced to the House on May 2013.  He explained that The Partnerships to Build America Act would provide for the financing of state and local government transportation, energy, communications, water, and education infrastructure projects through the creation of an infrastructure fund.

The Panel did not put questions to Congressman Delaney, leaving that for the House. The Panel did, however, engage in a lively discussion with the remaining witnesses about the Canadian experience with P3s and explored the suitability of the Canadian approach for infrastructure projects in the US.

Witnesses outlined various factors that have resulted in successful P3 projects in Canada.  The creation of specialized provincial agencies staffed with experts skilled with both evaluating projects for P3 delivery and negotiating with the private sector was noted as a significant factor contributing to successful P3 deals. Further, the development by these agencies of consistent and predictable procurement processes and standardized documentation has facilitated the delivery of P3 projects and encouraged the development of the P3 market in Canada.

Mr. George of Fitch Ratings, discussing P3s from a global perspective, pointed out that P3s can provide public value, but these transactions need to be appropriately designed and carefully crafted to address all stakeholder concerns.  He indicated that projects that have a defined scope where performance can be measured are better suited to P3 delivery.  He noted that lessons can be learned from past P3 projects undertaken around the world.  He spoke to a few examples including the 407 toll road in Ontario and Chicago’s Skyway toll concessions, each of which came under considerable criticism and involved legal disputes.

Witnesses pointed out that in Canada P3s are not typically used to raise new money to pay for infrastructure through user fees or tolls.  Instead, P3s are viewed in Canada as a way to finance a project using private capital that is repaid overtime by the government through availability payments.  Congressman Sean Patrick Maloney (D-NY) indicated that while P3s are not viewed as a funding solution in Canada, P3s are being considered for that purpose in the US.

Dr. Siemiatycki of the University of Toronto indicated that the leading motivation in Canada for P3 delivery is achieving value for money, as opposed to finding new funding sources. Dr. Blain indicated that while their approaches and methodologies do vary, the various agencies developing infrastructure through P3s in Canada undertake value for money assessments that compare the relative cost of P3 delivery to the cost of traditional delivery. While noting the strengths of Canadian P3s, Dr. Siemiatycki described the challenges associated with determining whether P3s actually deliver better value for money when compared to traditional project delivery using government financing.

The Panel had many questions for the witnesses about the concept of value for money and whether a P3 delivery is actually cheaper than traditional delivery. The Members posed questions about expected rates of return and profit to the private party, risk transfer and associated risk premiums paid to the private party, and the disclosure of data relating to the assessment of a project for P3 delivery.

Witnesses did not all agree on whether construction, operations and maintenance costs are cheaper in a P3 delivery compared to a traditional delivery. However, the witnesses were generally aligned in noting the benefits of P3 delivery for the right projects including budget and schedule certainty, lifecycle asset management, risk transfer and innovation.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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