The first phase of PPPs for toll roads

Since the beginning of his administration, Gov. Luis Fortuño and his top economic officials have repeatedly stated that public-private partnerships (PPPs) will play a major role in the administration’s plan for the reconstruction of the island’s economy. According to the administration, PPPs will be an important vehicle to strengthen Puerto Rico’s credit, bring new investment into the island and promote the creation of much-needed jobs.

The administration has announced its intentions to use PPPs to develop traditional infrastructure projects such as roads and highways, water systems, generation of electricity and the construction of public schools.

Our front-page story describes how the government intends to use PPPs to both manage and expand the island’s network of toll highways. As currently conceived, the PPP procurement process involves separate and distinct phases. In industry jargon, these phases are commonly referred to as “brownfield” or “greenfield” projects. Brownfield projects are those involving toll roads and facilities that already exist, while greenfields are those where there will be new construction.

The phase that the Puerto Rico Highways & Transportation Authority (PRHTA) intends to deploy first is a brownfield project in which the agency would grant one or more 50-year concessions over the toll roads currently operated by the PRHTA. The PPP Authority has already issued a request for qualifications to financial investors, operators of infrastructure projects and contractors, who may be interested in these concessions. These qualifications are due today. Following receipt of these qualifications, the government would then issue a request for proposals.

The government believes the value of the 50-year concessions of the island’s existing toll roads is about $2 billion. The administration expects that a significant portion of the proceeds would be received as a lump-sum amount. But it would be fair to ask how the receipt of this payment would foster economic development and promote the creation of jobs. After all, these existing toll roads were financed through bond issues and the government is legally required to use a portion of the proceeds to pay off those bonds.

Though not immediately apparent, it seems that the importance of receiving this cash infusion is that it would help improve the fiscal condition of the PRHTA, an agency that no longer has access to the bond markets to meet its expenses and capital plans and is currently surviving thanks to the assistance of the Government Development Bank. The proceeds generated by the grant of concessions to operate existing toll roads would enhance the bonding capacity of the PRHTA, enabling this agency to pay off some of its outstanding bonds allowing it to borrow additional funds that can be invested in additional infrastructure projects.

But while fixing the PRHTA is certainly an important objective, our most pressing need is new construction and expansion of our highway network. Greenfield projects are the ones that would really bring significant new investment to the island and create the amount of jobs that we need. Projects involving new construction, however, will not begin for a few years, since, as of today, they lack most of the required permits and rights of way.

Time is of the essence. If we are going to rely on PPPs to bring our economy out of this five-year recession we need to move swiftly and decisively. The consequences of not recognizing the urgency of the current situation could be very grave indeed. The federal stimulus funds issued under the American Recovery & Reinvestment Act that have been helping the island economy for the last 15 months to the tune of over $6.5 billion will run out next year, and new funds will have to come from somewhere. At that point, which is fast approaching, PPPs will be the only hope we have to replace them.