The US has outstripped Britain for the first time to become the global leader in privately financed public sector infrastructure projects such as roads, airports, railways and bridges.
Although the UK created the model for public/private sector partnership schemes in the 1990s, 30 new-build projects with a value of just $4.85bn were launched in the year to December 2016, according to InfraDeals, the data provider.
This was much lower than in the US, where nine new-build public/private sector projects worth $10.14bn were signed — the largest of which was a $3.91bn deal to build a terminal at New York’s LaGuardia Airport. Other projects included the “purple line” — a $2bn light railway service in Washington DC, and a $1bn campus expansion at the University of California, Merced.
The figures underscore the buoyant PPP market that Donald Trump, the US president, is inheriting following his campaign pledge to spend $1tn on repairing the US’s crumbling highways, bridges and tunnels. In his “America’s Infrastructure First” policy, Mr Trump pledged to use “public-private partnerships, and other prudent funding opportunities” to deliver economic and jobs growth.
Under PPP schemes the private sector enters into long-term deals to design and build roads, hospitals and schools, with essential maintenance such as roofing included in the contracts. They will continue to be financed by private debt, with equity paid for by a revenue stream from government rather than users.
Although critics argue that PPPs are more expensive for taxpayers than public funding over the long term, supporters say that the contractors are incentivised to deliver better schemes because they are responsible for the upkeep. Their popularity has increased during the past decade as cash-strapped governments seek to achieve better value for money out of construction contracts, at least in the short term, and keep infrastructure projects off balance sheet.
Karl Reichelt, senior managing director at the investment arm of the construction company Aecom, said Mr Trump has delivered a “lightning bolt of optimism” to the US PPP market. He said the industry “sensed broad support” across the new administration for using PPPs and the challenge was to get Congress, and the government bureaucracy, to co-operate.
The industry’s hopes have been spurred by comments from Elaine Chao, US transportation secretary, who suggested during her January 11 confirmation that a “bold new vision’’ was needed to “take full advantage of the estimated trillions in capital that equity firms, pension funds, and endowments can invest” in infrastructure.
But Daniel Davies, co-head of research at InfraDeals, said Mr Trump may struggle, if he believes that launching PPP schemes is as “easy as flicking a switch”. Most infrastructure deals are approved by the state and municipalities in the US, presenting myriad political, environmental and legal hurdles.
These obstacles add to one of the biggest problems faced by politicians worldwide — the comparatively long time it takes to get large-scale infrastructure projects off the ground compared with the short political cycle.
“I don’t think even an executive order from the president could kick-start this because there are so many obstacles to get through,” said Mr Davies.
Despite high-profile ventures, such as the Chicago Skyway Toll Bridge, PPPs are far from the “go-to” option for infrastructure in the US.
Historically, the US has funded large-scale projects through cheap long-term credit via TIFIA, a federal loan programme for transport projects, as well as municipal or private activity bonds, which are tax-free if the project is deemed to be in the public interest. Both could also be expanded, either as an alternative to PPP or alongside it under Mr Trump, say experts.
John Dionisio, senior investment director at Meridiam, an infrastructure fund manager that has been involved in a number of PPP projects in the US, is confident that PPPs are “gaining in popularity” because they deliver “complex projects on time and on budget compared with traditional delivery”.
But, even Mr Dionisio admits PPP is “no panacea”. In Britain, where the scheme is called the private finance initiative, deal numbers have plunged since 2010 after it emerged that many hospitals are struggling to keep up with payments, raising questions as to whether taxpayers are getting value for money.
Such reputational and value for money issues have not had such an impact in the US, in part because PPPs are still a relatively new concept with only 44 completed in the past decade. “This means it’s difficult to fully analyse the value for money and affordability of these projects, compared with the more mature western European markets,” said Mr Davies.
But Mr Reichelt remained confident that Mr Trump would not be afraid to drive the PPP agenda forward and “generate badly needed” deal flow, when he announces his infrastructure strategy later this year.
“Trump seems well suited to go on the offensive to refute the demagoguery and politics against private investment in public infrastructure which has stunted the market,” said Mr Reichelt.