Public-Private Partnerships, Seaports, And The New Normal

by Bilzin Sumberg

A recent article in the PPP Bulletin, “Change we can believe in?”, explains that “PPPs are the new normal” for infrastructure projects in the United States, and public-private partnerships are being relied upon for responses to Hurricane Sandy, transportation projects, water recycling facilities, airports, and everything in between.  For the same reasons that P3s are proliferating throughout the United States, we should be seeing more of them in South Florida in the coming years, resulting in a substantial increase and improvement in public facilities without a corresponding increase in public investment.

Seaports using PPPs to Do More with Less 

We recently wrote about the major developments taking place at the Miami Seaport, and the opportunities for public-private partnerships that these developments will bring.  Because port construction is capital intensive, and because local governments are increasingly short on capital, seaports throughout the country are turning to PPPs in order to, in a nutshell, do more with less.  The ongoing expansion work at the Port of Baltimore provides a good example of what a properly designed P3 can accomplish.

Port of Baltimore P3 between Maryland Port Administration and Highstar Capital 

Just as PortMiami is preparing for the 2014 expansion of the Panama Canal, which will result in larger, “Post-Panamax” ships reaching the eastern seaboard, so too is the Port of Baltimore.  Bigger ships require bigger berths, bigger cranes, and deeper water, and these are all costly upgrades.  In addition, more cargo requires better land transportation to efficiently move that cargo away from the seaport and to its final destination.  PortMiami, for example, is currently acquiring (through a public-private partnership) a tunnel to connect the port to I-95.

Although the Port of Baltimore requires similar upgrades in order to compete with other east coast ports (such as the Port of Miami), the government authorities lacked the capital to pay for them and, further, were not in a position to issue additional public debt.  And so the Port of Baltimore turned to a P3 between the Maryland Port Administration and Highstar Capital, a private entity.  Under the terms of the agreement, the private developer will

(1) construct a new, deep-water berth and purchase new cranes to accommodate the post-Panamax ships,

(2) pay $140 million to improve the two highways serving the port,

(3) operate and maintain the Seagirt marine terminal, which will remain under state ownership, and

(4) pay an annual lease payment to the state.

Altogether, the state will receive a total of $1.8 billion in benefits, and without spending a dime of its own money, will have an updated, competitive port facility, new tax revenues, and 5,700 new jobs. The developer, in turn, benefits by earning revenues from its operation of the terminal during the 50-year term of the lease.

The result is that new, state-owned infrastructure is constructed at no cost to the public and directly benefits the private partner, the government, and the public as a whole.  It is exactly such a “win-win-win” result that a properly designed P3 is meant to achieve.

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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