Smaller, shorter and slower will be the key factors governing U.S. public-private partnerships going forward after recent proposed deals imploded due to political or financing troubles.
Speakers at the Reuters Infrastructure Summit in New York this week said long-term lease deals involving publicly owned assets have hit a speed bump, but will rev up during the next 12 to 18 months, hopefully as an improving economy frees up cash for investments.
High-profile deals have stumbled, including Chicago's $2.52 billion Midway Airport lease, due to the unavailability of financing. A $12.8 billion turnpike deal in Pennsylvania was defeated by political opposition.
But with states and local governments facing huge budget deficits and crumbling infrastructure, their need for a cash infusion will keep these so-called P3s percolating, although maybe not with such high-profile assets.
Governments look at the experiences of Pennsylvania and some of the other areas where a lot of attention was attracted and say, 'I don't need to sell the most important asset in the state,' said George Bilicic, chairman of Lazard's power, utilities and infrastructure groups.
Instead governments should be looking at more modest assets, such as a lone toll bridge or parking garages, he added.
The downsizing of assets will also reduce the amount of money private operators will have to raise to come up with the upfront payment to a government.
Tom Osborne, a UBS managing director, said deals were more likely to total between $1 billion and $5 billion.
You're going to see a more incremental approach, both in the private and public sectors in order to prove out the concept that (privatizations) can be an essential tool, he said.
Bilicic said while some consummated leases will last 99 years, durations going forward could be shorter, like 30 years with renewal available if performance standards were met by the private operator. That, he added, may be more palatable from a political standpoint.
Summit speakers also suggested that future privatizations may involve only part of an asset, allowing the government to retain some of the revenue stream. Or deals could be structured to give the government a share of revenue if the value of the asset grows above a certain point.
Meanwhile, public pension funds could be a growing source of financing for P3s as they look for ways to diversify beyond stocks and bonds.
I believe that if enough state plans invest in infrastructure, that most of that money will find its way back into the U.S. economy. said Mark Weisdorf, global chief investment officer of infrastructure investments at J.P. Morgan Asset Management.
One high-profile speaker played down the role of P3s, arguing the partnerships provide few advantages that publicly funded construction cannot accomplish on their own.
Felix Rohatyn, architect of the 1970s financial rescue of New York City and a former investment banker and diplomat, instead favors the creation of a National Infrastructure Bank, as a way to coordinate and finance projects, while weeding out wasteful spending.
I've never been sold on this idea of public-private partnerships, because I don't see anything here that is unique to the project, so all of the things you're looking at, you can get out of the private sector or out of the public sector, Rohatyn told the Summit.
One shouldn't have the illusion that you can get miracles by these things, he said.