‘This is the future’

With a cut of a ribbon on a June afternoon, Terminal A, the latest addition to the Luis Muñoz Marin International Airport (LMM) in San Juan, opened to the public. 

A sleek, white, concrete and metal edifice with a giant, tilted saucer resting atop its entrance and a curtain wall facade made-to-measure for the sun-drenched locale, the terminal is the upshot of a decade-long expansion and modernisation effort – a $400 million undertaking that bore fruit in March, when JetBlue agreed to move in. Today, low-cost JetBlue, the largest air carrier in Puerto Rico, is the sole occupant of Terminal A. 

But in the case of LMM, which opened in 1955 and is named after the first democratically elected governor of Puerto Rico, the attention-grabbing architectural pretense is just that – a pretense. In sum, LMM is part Potemkin village, part object lesson in how to underwhelm. 

Here, the dearth of the hustle and bustle associated with airport travel is unnerving, as is the relative quiet, lending LMM a somnambulant feel. Except for Terminal A, the rest of the airport is narrow and rundown. There is no humming concession area. No queue for a taxi cab outside. Even newly minted Terminal A is practically deserted.  

'EMBARRASSMENT'

“Our airport is an embarrassment,” complains a San Juan woman, a media consultant and former newspaper reporter, while attending a local networking event. “Hopefully, most people come in through JetBlue.”

Eight million people visited and departed Puerto Rico via LMM in 2011. Compare that to Los Angeles International (61.8 million), Miami International (38.3 million), or Newark Liberty International (33.8 million), then take into consideration that Puerto Rico is a global destination, while LMM itself is billed “the gateway to the Caribbean,” and the rationale behind privatising management of the airport – which culminated in a deal to lease LMM in July this year – is obvious. 

“If we want to be competitive, if we want to improve quality of life here, if we want job creation, then we need adequate – actually, we need excellent – infrastructure,” says Luis Fortuño, who as governor of Puerto Rico cut the ribbon to inaugurate Terminal A.

The 51-year-old Fortuño has helmed the emergence of the island of 3.7 million people as a public-private partnership (PPP; P3) hotbed as well as a lodestar for infrastructure investing – a characterisation that Fortuño is unabashed in talking up. 

“We want to be a trailblazer,” he emphasises, “[and] we are a trailblazer”. 

ACT 29 

The 2009 arrival of Gobernador Fortuño dovetailed with the passage of enabling P3 legislation. So-called Act 29 established a legal framework and streamlined procurement process and is widely credited as a model for PPP adoption. Florida Congressman John Mica, head of the House Transportation and Infrastructure Committee, has praised Act 29 as worthy of duplicating in the mainland US.  

The Fortuño administration also ushered in the advent of the Puerto Rico Public-Private Partnerships Authority (PPPA), an independently operated offshoot of the Government Development Bank for Puerto Rico (GDB). Macquarie Group, the Australia-based financial services concern regarded as a PPP pioneer, has assisted the PPPA (“We do not discuss our relationship with a specific partner,” says Juan Carlos Battle, president of GDB.)    

The PPPA, Fortuño stresses, is dedicated to P3 development in Puerto Rico. Heading the authority is David Alvarez, executive director and a level-headed economic adviser. Under Alvarez, the PPPA has embarked on an ambitious privatisation programme. 

September 2011 saw a landmark P3 deal reach financial close when Puerto Rico Highway 22 (PR-22), a 51-mile highway cited as the most-travelled road on the island, as well as the adjoining Puerto Rico Highway 5 (PR-5), was leased to Autopistas Metropolitanas, a consortium teaming toll road operator Abertis and $3 billion fund Goldman Sachs Infrastructure Partners II (GSIP II). 

The PR-22 toll road concession – a 40-year lease in exchange for $1.4 billion – marked the first US brownfield PPP since 2006. But Fortuño is apt to point out that PR-22 has held a larger significance: a homegrown infrastructure asset with the power to attract bids from Abertis and GSIP, as well as Citi Infrastructure Investors (CII) and Morgan Stanley Infrastructure Partners (MSIP).

PR-22 was an ideal maiden project to establish the Puerto Rico P3 campaign on the global stage, Fortuño notes.  

“We were able to look at the model used in Australia, and the model used in Canada,” Fortuño says, describing the decision to lease PR-22. “We were able to see what worked and what did not work.”

The PR-22 procurement process, according to Fortuño, put the asset class – a “global market, where capital can be shifted” – on notice.

“People saw we ran a quick and transparent bid,” Fortuño remarks of the deal, which began in June 2010. “We guarantee our process – the toll road transaction was professional.”

SETTING THE PACE

With PR-22 as its jumping-off point, Puerto Rico has set a pace for privatisation enviable on the mainland US, encompassing both brownfield and greenfield infrastructure. 

In September, San Juan, in a discrete project, announced its pursuit of a $473 million light rail transit (LRT) P3. Early in 2012, the PPPA put out a bid on a greenfield P3, a juvenile detention centre slated to become the first-ever social infrastructure deal in Puerto Rico. 

Then there is LMM – long a target of criticism for not living up to its operating potential, as well as for its shortage of commercial appeal. 

After competing against Macquarie and Ferrovial Aeropuertos, Highstar Capital, a $5.5 billion US fund manager focused on core infrastructure, together with Grupo Aeroportuario del Sureste (ASUR) in July paid $615 million upfront for a 40-year lease of LMM, and will invest $1.4 billion toward improving and renovating the airport. 

“LMM is not a world-class international airport now, but it could be,” says a senior infrastructure professional familiar with the deal. “Its potential is what made it attractive.”

To Fortuño, the specific infrastructure asset – be it LMM or PR-22 – is a small part of a bigger discussion. For Puerto Rico, the US, and countries all around the globe, the die has been cast: privatise or perish.

“The global economy has changed forever,” he explains. “This is the future of infrastructure development.” 

‘I TOOK A WRONG TURN SOMEWHERE’ 

“We might want to check that out, just to be on the safe side.”

A piercing fire alarm is going off in the hotel where Fortuño, seated at the head of a conference room table, is speaking to me. His baronial tone of voice is unbroken and, after instructing a staffer to investigate, Fortuño is able to resume recounting his improbable political career.

“Just a corporate lawyer who took a wrong turn somewhere, is how I describe myself,” he jokes, demonstrating a self-effacing humour. “I was just fed up. People I worked with got sick of me complaining about how bad [Puerto Rico] was doing. I needed to put action behind it.”

Fortuño shrugs. “As simple as that really, I wish there was more to it,” he says, smiling. 

If Fortuño can laugh about his put-up-or-shut-up approach to running for public office, there was nothing lighthearted about the fiscal climate gripping Puerto Rico by the time he became governor in 2009 as a member of the pro-statehood New Progressive Party (NPP). 

Fortuño had represented Puerto Rico as resident commissioner, a non-voting member of Congress, since 2004 (“I came to realise I was unable to do much there,” he remembers), and wanted to be “an executive”. Elected governor in 2009, he inherited a Puerto Rico with a $3.2 billion deficit, lethargic economic growth, and a Standard & Poor’s (S&P) BBB- credit rating which prompted Fortuño to visit Wall Street to argue that the island was better than junk bond status.

“My wife wanted a recount,” jokes Fortuño, who is also a father to three college-age children. 

FISCAL HARDSHIP

Puerto Rico, which had entered its fiscal hardship in 2006, well before the global financial crisis, had begun examining privatisation in order to refurbish its existing infrastructure (which Alvarez cited had been built in the 1960s) and spur growth. 

“If we want to grow, we need our fiscal house in order,” Fortuño says. “Two, we need infrastructure, and to attract private capital. As we all now know, not even the federal government or state government, has the capital needed to develop and keep our infrastructure up to speed. We have to tap into private capital to guarantee that we indeed have the best infrastructure possible.”

“We want to be competitive. We want to compete for global business. If we do not do that, we will not be competitive”.  

But privatisation in Puerto Rico has not come without opposition. Battle has admitted the $615 million paid for LMM will be used to retire debt on the airport, while the island itself has remained in debt. Puerto Rico is also still in a recession born in 2006, with 45 percent of the population considered poor.

In addition, while political support for greenfield infrastructure is high, the pro-commonwealth Popular Democratic Party (PDP) and Puerto Rican Independence Party (PIP) have opposed leasing existing infrastructure. 

Still, Fortuño, who is slightly trailing PDP rival Alejandro García Padilla before the November 6 election, is adamant that Puerto Rico, as well as privatisation, are on the right track.

“We are coming from far down, and we are growing, and we can grow faster,” he insists. “As far as privatisation, what we care about is quality of life, we care about competing. We want to compete for inland and foreign capital.”

THE CLOSER

Presiding over a successful PPP programme has earned Fortuño acclaim as a champion for privatisation. Crediting his background as a corporate attorney (he earned his law degree having graduated from the University of Virginia), Fortuño called himself a willing P3 evangelist.

“I see myself as basically a salesperson to a large degree,” he says. “People need to understand that we have the proper tax regime and legal framework, but we also have a rather attractive business climate and that we are going to maintain that.”

Fortuño also emphasises that Puerto Rico, as a P3 adopter, has been able to establish a solid PPP programme via eliminating procurement risk. 

“It [private investment in public infrastructure] will take off on the mainland, but it has not [yet],” he says. “There is a lot of fear there about reaching a contract agreement and having it fall through. Procurement is a costly process. Competing and not being chosen in the end is acceptable, but the worst-case scenario is to go through the process and never reach a conclusion.

“The structure for procurement, to a certain degree, is about what I used to do,” Fortuño continues. “Putting together a transaction, and then closing that transaction.

“Before becoming governor, I conducted business from Argentina to New York, and there has to be a certainty and simplicity to a transaction.”

Fortuño says he has observed privatisation in Virginia, Ohio and Florida and spoken, on an informal basis, with government personnel about infrastructure on the mainland, but he expressed concern that PPP development has not increased Stateside.

“That the mainland has not adopted it, that is shocking,” he says. 

Meanwhile, Fortuño, who says he has not given thought to what he would do for a living if not re-elected governor, stresses that he is focused on securing a second term.

“I came to do what is right,” he says, “and what is right, is working.”