Council of Project Finance Advisors Formed

Perhaps a kind of infrastructure tipping point has finally been reached ? one sparked by a number of highly visible incidents including a bridge collapse, a steam pipeline explosion, a major water pipe break less than 15 miles from the White House, and another dismal report card from the American Society of Civil Engineers (ASCE). ?

Along with a spate of special reports focused on infrastructure challenges such as the recent survey jointly published by KPMG International and The Economist Intelligence Unit titled ?The Changing Face of Infrastructure,? the report produced by NUCA?s Clean Water Council titled ?Sudden Impact,? and the Aspen Institute?s published dialogue on ?Sustainable Water Systems: Step One – Redefining the Nation?s Infrastructure Challenge, there have also been a number of congressional initiatives to increase both the focus and funding for the country?s growing infrastructure investment needs (a proposed Water Trust Fund, a proposed National Infrastructure Bank, a suggested Federal Water Infrastructure Bank, a renewed interest to modify the guidelines surrounding the use of the private activity bonds for water projects, etc.). Never before in recent history have there been so much talk about the potential expanding role of public-private partnerships (PPPs) when it comes to effectively addressing the aging infrastructure conditions in the United States. ?

To contribute to the evolving dialogue on the merits of PPPs for the provision of infrastructure services, former Vermont Governor Howard Dean and former Indianapolis Mayor Stephen Goldsmith recently announced the official launch of the Council of Project Finance Advisors (CPFA).

The Council will essentially serve as a working group to educate and provide advice to mayors and governors across the United States about the merits and benefits of PPPs. CPFA will attempt to raise the awareness of the various PPP business models and connect the government (federal, state and local) and private sector with the goal of identifying innovative approaches to meet the PPP needs within a wide range of sectors, including transportation, finance, energy, water/wastewater, education and utilities. According to a national survey by Halcrow/McGraw Hill released earlier this year, 61 percent of public officials have little or no experience with PPPs. In fact, the survey indicated that only 9 percent of the officials were actually opposed to PPPs.

As Gov. Dean noted: ?States and local governments are facing increasingly more and more difficult decisions when it comes to the funding of their expanding infrastructure needs. When public-private partnerships are utilized effectively, they provide the public with assets and services that would not be realized otherwise. [The vision behind CPFA is] to create a level playing field for both the public and private sectors.?

To facilitate improved knowledge about PPP options, the council will specifically advocate for the establishment of a center of excellence on public-private partnerships. CPFA recognizes the importance of creating some kind of official PPP center comparable to other similar centers that can be found in the United Kingdom, Canada and Australia. ?Providing public officials with an independent source of best practices and lessons learned on public-private partnerships is essential,? Mayor Goldsmith said.

While the model is relatively new in the United States, numerous case studies exist nevertheless both domestically and abroad. The center will serve as a comprehensive depository of sorts for all these case studies and PPP models that U.S. state and municipal governments will be able to access.

In addition to Dean and Goldsmith, proactive participants in CPFA already include Marcia Hale, former Director of Intergovernmental Affairs during the Clinton administration and now the president of the ?Building America?s Future,? which is supported by Pennsylvania Governor Ed Rendell and California Governor Arnold Schwarzenegger, and Frank M. Rapoport, chair of the Global Infrastructure and Public-Private Partnerships practice at the law firm McKenna Long & Aldridge LLP. CPFA will also involve representatives from engineering and construction firms, private equity and pension funds, labor unions, financial institutions and banks, trade associations, academic leaders, developers, consultants and former senior government officials.

As part of its mission, CPFA has positioned itself in the forefront of an expanded effort to improve public trust for the PPP approach when it comes to the repair and delivery of municipal infrastructure projects and services. (Other efforts to promote the PPP approach are being pursued by the National Council for Public-Private Partnerships and Building America?s Future.)? Bill Malarkey, managing director/head of the Boenning & Scattergood?s water and infrastructure practice, agrees with this goal. ?There is a lingering mistrust of the PPP model [by U.S. municipalities] despite successes in other countries,? he said. ?A lot of this has to do with misunderstanding the PPP model and equating it with privatization.?? ?

Rapoport noted that the first working meeting of the council produced some ?very positive feedback.? Attendees at the meeting primarily included representatives from consulting firms, law firms and financial firms. Rapoport indicated that the financial community in particular had been ?waiting for something like this to help stimulate government officials into action.?

At the inaugural meeting of CPFA, it was recommended that the council specifically serve to develop, manage and drive an effective legal and public policy strategy that will in turn support the business development of the complex PPP infrastructure sector. Additionally, CPFA will seek to offer an informed, experienced, organized and effective voice to policy makers, the press, and other influencers on the difficult and challenging questions facing the PPP arena. And while CPFA will proactively seek to educate the various appropriate stakeholders on the definition of PPPs and benefits of PPPs, including increased project capacity and risk allocation optimization, CPFA will not implement projects or provide the public sector/local government entities with fee-generated technical support or project management support.

It was interesting to catch up with a number of financial practitioners focused on the infrastructure sector to learn of their own particular response to this new council and the role that it could serve. Overwhelmingly, those financial players operating within the infrastructure private equity fund arena noted that infrastructure projects (vs. infrastructure-related companies) are simply too difficult to invest in. Not only is it a challenge to identify an actual PPP infrastructure project that has the complete support of a municipality, but the projects are often too risky. More importantly the projects take too long to implement and offer very low returns.

CPFA could be very helpful to the financial sector institutions if the council could more effectively ?inspire political will to readily accept private sector capital in PPPs,? noted Barry Gold, a managing director of the Carlyle Group?s Global Infrastructure Fund.? He added that CPFA should assist in facilitating more true partnerships with public sector authorities.

Bill Brennan, president of Brennan Investment Partners and portfolio manager of Kinetics Water Infrastructure Fund, echoed similar sentiments. He added that initiatives like CPFA should also focus on advocating the development and design of more comprehensive PPPs that incorporate existing technology options as part of an overall solutions package.

There is now a second official meeting of CPFA in the works to finalize the council?s operations structure, to prepare the council?s outreach strategy, and to begin the implementation of a comprehensive database of PPP case studies.

Kathy Shandling is the Executive Director of the International Private Water Association (IPWA) ? a global advocacy/non-profit organization that serves as a conduit between the public and private sector players involved in the water/wastewater infrastructure project and service arena.

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