Certainty Key for P3 Projects
SAN JUAN – Without money or access to the markets, how can the government of Puerto Rico attract private investors willing to participate in public-private partnership (P3) projects to help fix the island’s crumbling infrastructure and build new projects?
There is no doubt that P3 models are applicable and attractive as they are considered the most efficient project-delivery method whereby all interests are aligned over the lifecycle of the asset and jobs are created, according to a lawyer who has negotiated and closed dozens of P3 deals on a wide range of projects.
“It is a fancy way of saying economic development,” said Frank M. Rapoport, a senior partner with the construction law firm of Peckar & Abramson, where he leads the firm’s P3 practice.
Rapoport, who also serves as chief strategy adviser for the Association for the Improvement of American Infrastructure, the P3’s industry nonprofit advocacy corporation, said there are different models of P3s that will not require the government to come up with money upfront.
One of these is the revenue-source model in which the private investor who puts in the funding for the project is paid back with revenue as it is collected with public transportation projects such as ferry fees and highway tolls. Throughout the years, Puerto Rico has already had its share of P3s that have worked successfully such as the Teodoro Moscoso Bridge, PR22 and Luis Muñoz Marín International Airport.
The co-founder of The P3 Institute, which brings together local and private officials to discuss P3 projects across all asset classes, also said the government has land that it can monetize. Rapoport mentioned the example of a hospital renewal project and the now-defunct U.S. Naval Base at Roosevelt Roads in Ceiba, which could be handed over to a developer, who in turn would get paid by renting out the infrastructure that is eventually built on the premises.
Although Rapoport commended Gov. Ricardo Rosselló’s efforts in restoring Puerto Rico’s credibility, he mentioned that the Financial Oversight & Management Board must provide assurances that investors will get a return on their investment. He said the government must set aside funds that will be used to pay investors in an account that is separate from the general fund to ensure that future governing administrations do not take the investors’ money away.
Despite the island’s credibility problems, he said there are investors willing to invest in local projects but they need assurances and guarantees of repayment.
Rapoport warned that neither Puerto Rico nor the States should be relying on President Donald Trump’s trillion-dollar infrastructure plan to give away money across the U.S. for infrastructure projects. Trump’s legislation, which has not been introduced in Congress yet, will require states to rely heavily on P3 models.
House Speaker Paul Ryan has said he wants $40 of private-sector spending for every $1 in public funds, which means Puerto Rico would have to come up with its own funds.
“A lot has to be done to guarantee Puerto Rico is going to be backing projects. That is true even if Trump were not doing anything,” Rapoport said.