BACKGROUND

Private sector involvement in the provision of transportation infrastructure and services has been evolving for the last twenty-five years by nations overseas which realized early on that the lack of a dedicated transportation funding source required different approaches to financing and delivering transportation infrastructure, both highway and passenger rail. Hence there were early attempts at PPP arrangements in the late 1970s with highway concessions in France and the mid-to-late 1980s in places like Spain and England.  The strongest impetus for transportation PPPs overseas occurred in England, where economic reforms encouraged a number of efforts to privatize major elements of the nation's transportation systems. These early efforts focused primarily on the most developed transportation systems, including railroads, public transportation, and aviation. These initiatives included to efforts to more significantly involve private sector resources to help finance and deliver projects in various sectors of the economy, including health care, accommodations, defense, and transportation.

The major impetus for using PPPs in infrastructure projects occurred in England in 1992 when legislative and regulatory reforms were put in place under the name of Private Finance Initiative (PFI). PFIs are a subset of PPPs typically referred to as concessions or franchises, whereby the private sector assumes responsibility for the public asset through a long-term contract. Since that time, other countries in the British Commonwealth of nations have instituted their own PPP initiatives, including Australia, New Zealand, Scotland, and Canada.

With the creation of the European Union, its expansion after the collapse of the Soviet Union, and the revitalization of the European economy in the last decade, the interest and application of PPP approaches to transportation infrastructure delivery has spread across the world, with countries in Central and Eastern Europe, Asia, and Latin America seeking private partners to expedite the financing and delivery of major transportation projects aimed at addressing the opportunities presented by global changes in trade, mobility, and standards of living.

Since the mid 1980s, both public and private sectors in countries around the world have gained significant experience and confidence in using PPPs to get particularly large and complex infrastructure projects built. In addition, local urban governments are outsourcing maintenance of their road networks to lower costs and improve performance. Growing from a cottage industry to just under $0.5 trillion dollar mega-industry investing in all kinds of infrastructure worldwide, including roads, railroads, airports, seaports, water/wastewater, and building, with almost $0.8 trillion dollars in PPP financing for planned project yet to be completed. Exhibit 2.1 shows the extent of PPP investment in infrastructure projects worldwide between 1985 and 2004. In the past two years, the level of investment has grown to almost $2 trillion when counting all forms of infrastructure.

Exhibit 2.1 Worldwide PPP Infrastructure Projects since 1985 by Project Type*

* Based on total Public Works Financing database, including projects with partial information

Source: AECOM Consult, Inc. "Synthesis of Public-Private Partnership Projects for Roads, Bridges & Tunnels from Around the World - 1985-2004", prepared at the request of the Federal Highway Administration, August 30, 2005, p. 4.

The predominant types of infrastructure financed or delivered through some form of PPP arrangement varies by global region based on the level of development and relative modal share of travel in each region. The largest proportion of funding is generally for road projects, with rail passenger projects the second largest user of PPP-based financing or project delivery. This is true for each region of the world, except for Africa and the Middle East, where water projects dominate. Countries in this region are generally less developed economically and in greater need of basic water delivery and treatment resources. However, even in Africa and the Middle East, road projects are the second largest proportion of PPP-financed or delivered infrastructure projects.

The use of PPPs for road infrastructure projects support continued economic growth in the more developed parts of the world while fostering economic development in the less developed parts of the world. In the latter case, various international funding organizations like the World Bank, the Asian Development Bank, or the Inter-American Development Bank, stimulate the use of various financial and asset management tools and techniques to promote the development of needed infrastructure projects around the world, particularly road and rail projects.