The pipeline runs dry

How times change. In the same week that Meridiam Infrastructure was celebrating the close of a $1 billion-plus fund for investments in North American PPPs (public-private partnerships), Europe saw the value of completed PPPs in the first half of this year tumble to a ten-year low, according to the European PPP Expertise Centre. 
 
In a recent roundtable we staged in New York, Christopher Voyce of Macquarie Capital offered the opinion that “this year is the strongest for P3s [in the US] for some time”. This is partly driven by expediency as appetite from bond investors forces rapid closes, but also reflects the gradual detoxification of the P3 brand as the use of asset monetisations to plug budget holes gives way to genuine partnerships and community-enhancing initiatives. 
 
In a Europe still battling through the Euro crisis and austerity measures, a comparable transformation is also being seen – but in reverse. In recent times, we have charted the disintegration of many Spanish road PPPs, the near-conclusion of a French rail programme that had delivered a temporary – and artificial – boost to the market’s health, and the sidelining of the once-prolific Private Finance Initiative (PFI) in the UK. For all that, it’s still shocking to discover that a mere three deals accounted for more than half of European PPP activity in the first six months. 
 
The question being asked in Europe, with increasing urgency, is “Where is the pipeline?” Indeed, so urgent is the question becoming, that you can feel free to insert your expletive of choice in between ‘the’ and ‘pipeline’. Stakeholders in the PPP/PFI market in the UK are hoping that a wave of new deals will follow the unveiling of PFI’s replacement procurement tool as part of the Chancellor’s autumn statement on December 5. 
 
From our discussions with industry sources, it’s clear that ‘new PFI’will offer some welcome refinements, for example in doing away with the more controversial (read, expensive) aspects of facilities management and in credit-enhancing projects to encourage institutional investment. But, even if the new model proves politically acceptable, efficient and better value for money, that nagging question regarding the whereabouts of a pipeline persists.   
 
The Priority School Building Programme keeps the school sector ticking over, though on a far more modest scale than the previous administration’s Building Schools for the Future scheme. Beyond that, market sources speak of a handful of waste and housing projects, a few legacy healthcare deals…and not much else. A shift to 'user pay' could open up any number of road projects, but the sudden flourishing of headlines about road privatisation which greeted the government’s tentative plans for the A14 tolling were a timely reminder of the political sensitivity around this subject.   
 
The bottom line appears to be this: At a time of almost unprecedented spending constraint, is there really much likelihood of a new infrastructure-building programme to rival that of a decade ago? The UK government faces many challenges as it prepares to introduce PFI’s successor. Perhaps the biggest will be managing expectations.