Transportation agencies around the world face daunting fiscal challenges caused by the growing gap between the costs of preserving and expanding highway infrastructure and available highway program funding. The lack of dedicated public funding sources for transportation (in most other countries high motor fuel taxes are generally used non-transportation social programs) and the burdens placed on current transportation infrastructure (both highway and rail) by a growing global economy has long prompted transportation policymakers overseas, especially in Western Europe, to develop and apply alternative ways to finance and deliver needed transportation infrastructure. A number of countries have turned to the private sector for relief in the form of contractual public-private partnerships, representing a wide variety of project financing and delivery approaches to achieve the following outcomes:
• Lower project costs;
• Expedite project delivery;
• Expand access to capital markets;
• Implement new technologies; and
• More efficiently and effectively operate and maintain surface transportation assets and services.
The common element of a PPP is that the public sponsor of an infrastructure project engages the private sector to a greater degree in the performance of certain functions previously handled by the public sector to gain the benefits listed above. This can range from contracted maintenance services to full financing, development, operations, and preservation. Some countries have effectively turned over the responsibilities, risks, and rewards associated with performing these functions to private sector firms through long-term concessions or franchises, whose financing is supported by tolls, shadow tolls, or availability payments. PPP approaches to project financing and delivery have added another dimension and resource pool to the provision of transportation infrastructure and services in many countries, and the list of participating countries is rapidly expanding as the international financial investment community has come to realize the opportunities associated with this expanding market for transportation infrastructure financing.
The use of public-private partnerships overseas to expedite surface transportation is likely to grow as national and local jurisdictions address the challenges of rehabilitating their aging and often outdated transportation assets while adding necessary facilities and expanding services to support growing economies and populations. This is being prompted in part by major changes in the economic and political structures in places like Central and Eastern Europe, Asia, and Latin America. The collapse of the Soviet Union and the formation of the European Union have spurred the need for better linkages between the emerging economies that make up the expanding global economy. The explosive economic growth of the economies in China and India, plus the developing economies in Latin America, contribute to a worldwide need for additional transportation capabilities which most growing nations need but lack the internal financial resources to provide.
In recent years legislative and project initiatives in a number of developed and developing countries seeking to use PPP approaches to expedite their transportation infrastructure programs have drawn on the experience of other nations which have instituted PPPs and refined their structures over the years since the late 1980s and early 1990s, such as England, France, Spain, and Italy.
The experience gained by various countries which have used PPPs to expedite transportation projects shows that the structure and delivery methods selected are highly dependent on the following features:
• Enabling statutes and regulations;
• Capabilities of all members of the partnership to execute their roles and responsibilities;
• Flexibility and a proactive approach to identifying and resolving issues that arise during the project planning and development process;
• Underlying taxation arrangements; and
• Ability of capital markets to deliver financing structured to suit each PPP project.
The various case studies and cameos presented in this report illustrate how these issues vary by project and need to be addressed on a case-by-case basis. Particularly important are potential political risks arising from the implementation of PPP arrangements for specific projects where the local or national economy or political environment is unstable. The case studies highlight both the challenges and opportunities of various PPP approaches and strategies used to address impediments that arose as the international PPP projects evolved within the context of national legal, regulatory, and institutional frameworks.
As demonstrated in certain of the case studies and cameos, increased involvement by the private sector may not by itself prevent a project from experiencing difficulties that result in higher costs and/or schedule delays. Various circumstances may cause projects to experience problems beyond the ability of the private development team to mitigate or eliminate. This is why a careful analysis of potential risk factors should be performed before a public sponsor and private delivery team enter into a PPP arrangement, particularly where there are significant externalities or complexities to the project.
Prospective partners to a PPP should consider the following in assessing whether to proceed with a PPP approach:
• While the involvement of the private sector in a transportation capital project and its operations can help improve the cost-effectiveness and timeliness of project delivery and provide other benefits in terms of risk transfer and access to financial markets, it is not a guarantee of successful delivery or financial self-sufficiency.
• While the involvement of the private sector can enhance the prospects for a good project to be successfully delivered within budget and schedule limitations, greater involvement by the private sector may not make a project of dubious feasibility automatically become feasible.
• PPPs are not a strategy for turning bad projects into viable projects just because the private sector is involved to a greater extent, except in those cases where the private sector can gain significant value capture benefits that lower the public sponsor's responsibilities for project capital and O&M costs.
• The private sector is subject to ridership, development, and revenue risks since projections of material prices, ridership, revenues, and development activity are subject to future events or changing conditions that could affect these estimates and the assumptions upon which they are based that are beyond the control of either the private or public sectors.
• The private sector is capable of misjudging the feasibility of transportation infrastructure projects given the many factors that can influence the success or failure of a project to fulfill its contractual obligations in a cost-effective and timely manner. However, the private sector has greater incentive and due diligence techniques for minimizing the potential for these kinds of problems, particularly when it has an equity position in project financing which is at risk if the project does not achieve certain performance requirements.
A review of the available literature indicates that the number of successful PPP transportation projects is much larger than the number of projects involving the private sector which have experienced difficulties, typically for reasons not related to the increased involvement by the private sector. In many cases the involvement by private sector partners reduced the extent and consequences of these difficulties.
With many PPP approaches available, the kind of private sector involvement can vary by function, service, project, and agency. Some partnership approaches may not be appropriate or beneficial in certain cases while in other instances a PPP can turn a troubled project into a success. The essence of a PPP is that it is based on a true partnership, where both the public sponsor and private delivery team are involved in ways that maximize their contributions to the project based on their respective capabilities.
While not expected to fully overcome the fiscal, staffing, and technological shortages facing national and local transportation agencies, PPPs offer many potential advantages over more traditional approaches when conditions are conducive to successful project development, financing, and implementation involving the sharing of responsibilities, risks, and returns associated with transportation projects and services. The experiences and lessons learned from other countries with more experience than the United States in applying PPP approaches are intended to inform U.S. officials and transportation agencies about what others have done and are doing to develop and implement successful PPP projects and their results. Armed with this information, its is the purpose of this report to encourage consideration and broader application, where appropriate, of PPP approaches to leverage scarce public resources and expedite financing and delivery of essential transportation projects in the United States
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Several companion reports were also prepared as part of this project. One report presents case studies and cameos of recent surface transportation PPP projects from the United States. Another report serves as a guidebook for individuals, agencies, and companies interested in using PPP approaches to expedite transportation projects. The PPP Guidebook provides summary information regarding the background underlying the growing interest and use of PPPs for surface transportation projects, the various types of PPP approaches available, key impediments that face public agency sponsors and private delivery firms considering PPP approaches to deliver transportation infrastructure improvements, and various strategies to effectively address and overcome these impediments to a successful PPP project based on both domestic and international PPP projects.
These reports go beyond theoretical concepts to focus on pragmatic results of actual PPP projects. Each report draws significantly from the results of actual transportation PPP projects and the experiences of public and private partners involved in these projects. The products provide candid views of the challenges and opportunities that PPPs offer sponsors and deliverers of transportation infrastructure facilities and services.