One of the most misunderstood issues in the PPP debate is what is meant by the term "private equity." For the purposes of this report, we believe the term "private capital" is more appropriate, as our discussion focuses more on sources of additional private investment for the transportation system. The term "private equity" in the popular perception relates more closely to Wall Street leveraged buyouts - a different subject matter.
That being said, it is helpful to explore just who are the private entities that bid on public private partnership opportunities, and who are the parties to CDA contracts.
It is often cited that many of the leading private infrastructure companies are domiciled overseas. In fact, of the twenty leading firms who have the most experience delivering high
quality PPP projects, not one is based in the United States. However, while this is true, the primary reason is that the PPP structure has been in use in Europe and Australia for two decades but has only recently arrived in this country. It is therefore only natural that overseas companies would have had the opportunity to grow their PPP business in a way that American firms have not.
This is starting to change. A 2007 survey by Public Works Financing, an industry newsletter, identified 71 U.S. PPP highway projects - with an aggregate value of $104 billion - at some stage of the procurement process. More than a dozen of these projects have advanced to the RFQ/RFP stage in 2008.
As U.S. transportation procurement evolves, the number of U.S. companies involved in PPP procurements will surely grow. Already, well-known U.S. engineering names are partnering with overseas PPP houses to take on significant highway construction tasks. Examples include Fluor-Transurban, Kiewit-Macquarie as well as Texas's own Zachry-Cintra consortium that is currently building sections 5 & 6 of SH130. As the U.S. market matures, the emergence of a sizeable U.S.-based PPP industry is inevitable, and U.S. infrastructure funds such as those managed by Carlyle and Goldman Sachs will likely seek out opportunities worthy of investment.
Moreover, contrary to what is sometimes claimed, not one of the leading foreign PPP companies is state owned. Cintra, Macquarie, and Transurban, for example, are publicly traded companies subject to developed world reporting and shareholder governance standards. None enjoy sovereign ownership or are under any type of home country government control.109 The most important question is therefore not where the company signing a PPP contract is domiciled, but rather its financial strength and its track record for successful projects in both its home country and abroad.
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109 As a side note, we also point out that 150 years ago, much of the US rail network was financed by European capital, and that few suggest today that this did not result in a net long term benefit for this country.