This year’s Infrastructure Week held in May came as public support for infrastructure investment is at an all-time high. According to a recent Gallup poll, three out of four Americans support increasing investment in the U.S. transportation and energy systems. And with the majority of infrastructure projects in the U.S. already funded by the private sector, all the pieces are in place for large-scale investments.
Large-scale infrastructure projects are often so complex that potential investors are cautious about the level of risk involved. Public-private partnerships (P3s or PPPs) offer a solution. In this type of agreement a private entity shares project risk with a public agency, offering an attractive framework for structuring large-scale projects such as airports, tunnels, and bridges. Due to the long service life of P3s, efficient risk sharing requires a reliable basis for long-term planning.
An investor with technical proficiency, such as Siemens Financial Services, can help ensure P3s are completed on time and on budget. As lead equity or debt investors in projects, such as Thameslink railway in the United Kingdom, Elazig Integrated Health Campus in Turkey and Bangalore Airport in India, we’ve individually tailored and evaluated risk to meet local needs of P3 projects in other regions of the world.
The same is true locally for states and municipalities in the U.S. Here are a couple of ways financiers can help minimize risk on P3 projects:
- Due Diligence Boosts Investor Confidence. One oversight in a large-scale infrastructure project could lead to long-term risks throughout the entire project lifecycle, such as failure to complete construction on time. These types of risks can be mitigated by proactive action on the part of the financier, such as taking stock of economic conditions.
- Meeting Expectations. With big projects come big expectations. That’s why To accomplish this, contracts must be structured so that the public receives full, fair value for use of its property.
- Budget Responsibly. In the same way that the private sector needs to be responsible with its profits from the project, overall P3 budgets must be structured to prevent a disproportionate shift of current capital costs onto future taxpayers.
Even with these ways to help reduce risk at the local level, I’d be remiss not to highlight the great opportunity the U.S. federal government has to play a critical role in creating a system for P3s to thrive in. If the federal government can maintain long-term commitment that withstands the headwinds of change in Congress and the White House throughout the duration of a P3 project, the project has a better chance at attracting private investment. Further, if the federal government can ensure reliable funding throughout the entire project, ultimately guaranteeing the ability to payback any debt from it, the project becomes more attractive to private financiers.
In an environment where there is a need for private capital to fill funding gaps,I’m hopeful the demand for P3s will continue to grow and the country’s vast infrastructure needs will be met.
The original version of this blog appeared on Siemens website.
Disclaimer: The content of this blog does not necessarily reflect the views of the World Bank Group, its Board of Executive Directors, staff or the governments it represents. The World Bank Group does not guarantee the accuracy of the data, findings, or analysis in this post.