Monday, February 09, 2009

"Momentum has stalled due to concerns that developers were enriching themselves at the expense of taxpayers."

U.S. stimulus plan might curb state privatizations


By Joan Gralla
Copyright 2009

NEW YORK - The outlook for U.S. road and airport privatizations has dimmed because the infrastructure aid in the $800-billion-plus U.S. economic stimulus plan gives states other options, analysts said on Monday.

Public-private partnerships often require that developers make huge upfront cash payments to states in return for multiyear leases. But deals have stalled since banks stopped lending as freely to these companies, said Kurt Forsgren, a Boston-based Standard & Poor's Ratings Service analyst.

The new federal dollars are expected to be funneled through states and planning groups. Some self-supporting transportation systems, such as turnpikes, which can raise money for improvements by increasing tolls or selling bonds, likely will be left out in the cold, Forsgrem said. That might make them less-desirable candidates for privatizing.

"Why turn something over to a long-term concession which in the future would not be a recipient of federal aid?" asked Forsgren.

Moody's analyst Chee Mee Hu said states will take different approaches with the new stimulus dollars, which will determine whether, for example, they reduce the amount of tax-exempt bonds they sell.

Massachusetts began selling debt backed by federal transportation aid in the mid-1990s, a strategy adopted by other states.

"I think a lot of proposals are being put forward," said Hu.

One constraint the states will face is the U.S. government's insistence that work begin swiftly on the transportation improvements in order to create jobs sooner rather than later.

The shrinking appetite for public-private partnerships can already be seen in the decline in responses some states are getting when they put out preliminary bids for projects, called requests for proposals, Forsgren said.

That's a shift from what until last year was a surge in the demand for U.S. privatizations among overseas developers, including Spain's Abertis (ABE.MC) and Cintra (CCIT.MC) and Australia's Macquarie Infrastructure Group MIG.AX.

U.S. investment banks, eager for stable sources of funds, also raised hundreds of millions of dollars to invest in roads, bridges and airports.

Several blockbuster deals have been signed in the Midwest, including Chicago, as well as in Florida and Virginia.

But momentum has stalled in other states, such as Texas, New Jersey and Pennsylvania, due to concerns that developers were enriching themselves at the expense of taxpayers.

U.S. states will still have at least one compelling reason to turn to private developers, even with the new federal aid.

"I think the question is that the needs far outpace their resources," Forsgren said.

Another obstacle could crimp public-private partnerships, at least for roads and airports: the recession has led consumers to cut back on car and plane trips, as they did during last year's fuel price spike.

That makes partnerships less attractive to developers who lease roads, airports, and bridges around the world.

A case in point is a Virginia toll road owned by Macquarie, according to Moody's, which on Monday cut the outlook on the sparsely traveled highway to negative.

After growing more than 6 percent from 2002 to 2005, traffic on the artery to Dulles Airport has fallen 3.7 percent in the past three years and could fall 7 percent this year, Moody's said in a statement.

(For more on infrastructure, please visit coverage/infrastructure)

(Reporting by Joan Gralla; Editing by Dan Grebler)

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