This year in UIM, we?ve covered some of the most pertinent issues concerning the state of water and wastewater infrastructure in the United States. It?s no secret that financing critical infrastructure projects has been one of the most pressing concerns among municipalities. For this month?s Q&A, we sat down with Joel Moser, a partner at Kaye Scholer to discuss some of the infrastructure-related transactions the firm has handled in recent years. Kaye Scholer provides counseling and legal services to Fortune 500, middle-market corporations and government entities on a range of U.S. and international matters, including the planning, development, acquisition, financing, refinancing, operation and sale of energy and infrastructure assets.
How do you view the current state of infrastructure in the United States?
Water infrastructure in the United States continues to suffer from chronic under-investment. Most cities discharge raw sewage into the waterways during storms. In particular, the southwest is water-starved and Los Angeles is facing a capacity crisis and there is absolutely no public will for developing new capacity needed for growth and development.
Briefly, tell us about some of the water/sewer infrastructure-related transactions you have handled throughout your career at Kaye Scholer and elsewhere.
Over the years, I have advised clients on the consolidation of multiple private water systems into a regional public utility; the privatization of a regional water system through a PPP; the creation of a new municipal water authority; the financing of elements for a super-regional and municipal systems; and on the development of innovative brackish water purification and wastewater treatment systems.
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What are some of the municipalities/utilities you have represented?
I have participated in transactions and financings for the New York City water system and represented private investors in regional water projects in Texas and New Jersey. In addition, I have advised on water facility finance programs for communities in Sub-Saharan Africa and in the United Arab Emirates.
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What are some of the pressing issues in those transactions (U.S.)?
The issues are generally driven by the political and historical framework. In the United States, water is usually considered a public asset and there is a great fear of private control of the resource. In some regions of the country, water rights are controlled by superregional, interstate or international agreements or treaties such as the Great Lakes Compact.
From your perspective, what are some of the biggest challenges facing utilities/municipalities when it comes to financing infrastructure projects?
Water is a core infrastructure asset, and generally, a properly structured water program will be easy to finance. However, as with all financing, capital has a price and must be repaid. So, the public must underwrite the cost, either through use charges or general government revenues ? typically taxes. In the current environment, there is no public will to impose either. Since water utilities are largely unseen underground assets, it is very hard to rally the public to support the necessary long-term expense of properly maintaining, let alone improving this resource.
Does Kaye Scholer deal with any transactions involving public-private partnerships? How do you view the state of the PPP market for water/wastewater infrastructure?
We do work on PPPs of all sorts. While the PPP economic model is perfect for both pure and clean water infrastructure delivery, the public reluctance to allow greater private involvement in U.S. assets has meant that the PPP pipeline in the United States is a mere trickle. Elsewhere, particularly in the developing world, PPPs are the best practices model for procurement of public infrastructure and they are being used across the world, from Africa to China.
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What types of situations lend themselves to PPPs???
Frankly, any infrastructure program can be adapted to a PPP. Nevertheless, an asset that involves technology, specialized training, equipment and a significant amount of operational services, tends to work well under a PPP. Hence, water infrastructure is ideal.
What do you see for the financial outlook for municipalities as it relates to water and sewer infrastructure work heading into 2013?
For the U.S., it is all about political will. The debate in the Presidential election about the role of government is ultimately about who will pay for shared services and how. There is no better test case for this question than pure water delivery and proper wastewater treatment. This is finally a question about how a democracy moves past its formative growth cycle into a period of maturity. Will the populace act in their collective interest or only out of self-interest? In many ways, the future of the country will rest on whether American voters can get this right.
Joel Moser is a partner at Kaye Scholer LLP in New York. He has represented investment funds, sovereign wealth funds, developers, industrial sponsors, banking and investment firms, governments and agencies on a wide variety of projects.
