Welcome to the CCI Weblog Asset Monetization Home Page!

Got a bridge to sell?  Lots of public agencies do these days.  There are also tollroads, tunnels, ports available to the highest bidder.  Investment bankers, equity fund managers and hedge fund managers are bringing wealthy investors (including pension funds and foreigners) to the table, and suddenly the focus is shifting from public sector operation and accountability for infrastructure assets to short- and long-term rates of return and "alpha" and "beta" risks to third-party investors.  What is the civil engineer's role in this extraordinary transition?  Will we insist on a place at the table, to lead the discussion on technical issues, or do we merely follow the conclusions drawn by outside investors and their financial advisors? 

Comments

[Eva Lerner-Lam]

Here's a new website I created for detailed discussion about "asset equitization", i.e., the concept of "government-as-shareholder" of joint ventures that own and operate public infrastructure: www.assetequitization.com.

[Anonymous Engineer]

I believe that the privatization of public transportation systems might well be the worst infrastructure disaster of 2007.  Texas is one of the big battlegrounds and ordinary Texans are losing.  The Trans-Texas Corridor, viewed by some as the next generation of the federal Interstate Highway System, is one example.  This is a multi-purpose, nearly mile-wide utility corridor being cut through the center of Texas, from Mexico to Oklahoma.  All automobile and truck lanes will be tolled, and the Texas Department of Transportation (TxDOT) has awarded the first sections under a "comprehensive development agreement" (CDA) to a consortium led by Cintra (a Spanish firm).  Cintra, in turn, is selecting engineering consultants based almost entirely on price and has largely ignored local firms.
 
Another example is the State Highway 121 corridor in Collin County, which stretches southwest from McKinney (the county seat) toward DFW Airport. Collin County is the most affluent county in Texas and also one of the fastest-growing counties in America.  The existing SH-121 has been in place for a century.  With two lanes in each direction, no median separation, and unlimited driveway access, it has been grossly overloaded for decades.  The county paid to design and construct frontage roads over the past decade.  They also offered to fund the design and reconstruction of the main lanes, but TxDOT prohibited this.  Instead, they declared that SH-121 is state property that would be leased to the highest bidder through a CDA.  That bidder initially turned out to be Cintra.  Unfortunately for TxDOT, the State Legislature happened to be in session at that time (they meet for four months every other year).  The Legislature immediately passed a bill stating that any existing state toll road authorities must receive a first right of refusal on any new toll road projects within their authorized regions, including the SH-121 project.  Reluctantly, TxDOT set the Cintra award aside and asked the North Texas Tollway Authority (NTTA) if they wished to submit a competitive proposal.  They did.  Two weeks ago, NTTA gave TxDOT a check for $3.2 Billion.  That up-front ransom will eventually be paid by the driving public in North Texas.
 
The latest example is the western extension of NTTA's President George Bush Turnpike.  The right-of-way coincides with another obsolete state highway, SH-161.  All of the "powers that be" want the project accelerated so that it will be open when the Dallas Cowboys start playing in their big new stadium in August 2009.  Nevertheless, the work is being held up while TxDOT and NTTA negotiate the up-front ransom for the SH-161 right-of-way.  NTTA has offered $400 Million, but TxDOT has countered with a demand for $1.2 Billion.  If an agreement is not reached by December 21, the project will reportedly be cancelled.

Here's an Open Letter to Governor Corzine:

Dear Governor Corzine: Don’t "Monetize" the Turnpike..."Equitize" It!

The inevitable increases in tolls and lack of public accountability with a third party owner of such a major piece of public infrastructure (what if Dubai Ports offers the highest bid for a piece of this iconic roadway?)—not to mention the “beta risks” that will be analyzed and packaged by the same wizards on Wall Street who packaged all those scary subprime loans—wow, we’re treading out onto some pretty thin ice, aren’t we?

Here’s another way. Don’t “monetize” the Turnpike; “equitize” it. Transfer the assets into a new corporation and “invest” in it by buying shares. If the Federal government buys 1/3 of the shares and the Garden State buys 1/3 of the shares, that leaves another third for those private investment funds that are so eager to buy the whole darn thing. Or, better yet, set aside 10% of the shares and sell the remainder to those private investors. After a few years of traction, when the markets are more robust, and the new corporation has had a chance to restructure all those things that everyone thinks makes the Turnpike not as efficient as it would be if it were in private hands, the company could do what any pair of tech geeks in a garage would do: Try to get listed on the stock market with a well-placed IPO to the general public for that remaining 10% share.

Ridiculous, you say?

Incredibly, this is the financing model used throughout China today. It is a major tool used by, yes, the Communist government over the past decade and a half. Virtually every major infrastructure project built by China in the past 15 years used this classic, capitalist approach to financing and ownership. Government ministries responsible for telecommunications, petroleum, shipping, highways, ports, subways, dams, levees, parks, disaster relief systems and most other forms of public infrastructure have each established capitalistic “government enterprises” (guo qi yeh) that are authorized to operate independently, with their own corporate boards of direction and management personnel. Each enterprise sets its own business mission and objectives and develops its own strategic approach and tactics for achieving their commercial targets. They take risks, build infrastructure, and many make respectable profits for their shareholders. Importantly, the State takes about one-third stake in each of the enterprises, while another one-third is held by provincial or other regional or local government units, so stewardship of the “public good” remains in place. The remaining one-third is offered to domestic and foreign investors who willingly step forward to invest in an enterprise that is fully-backed by the government. These same investors also bring their expertise (or at least insist that the company acquire it) to give the existing organization a thorough bootstrapping for efficiency and effectiveness. When things start to look really good, say in 3 to 5 years, well, they go public and list on various domestic and international stock markets.

On Monday, December 3, China Railway went to market with a US $5.5 billion IPO. (Amtrak, are you watching?)

So, Governor Corzine, before you take your taxpaying constituents out much further onto that very, very treacherous “monetization” ice, let’s all take a serious look at “equitizing” one of our state’s most prized infrastructure assets.

Eva Lerner-Lam, M.ASCE, F.ITE
President
Palisades Consulting Group, Inc.
Tenafly, NJ 07670
www.palisadesgroup.com

[Eva Lerner-Lam]

Corzine’s Slow Pace on Plan for Toll Roads Benefits Its Foes
By KEN BELSON
Published: December 1, 2007

One top New Jersey official says tolls on the New Jersey Turnpike are bound to triple. Another warns commuters to expect a 50 percent increase. Still others tell drivers to brace for a higher gasoline tax as well as a toll rise.

In the year since Gov. Jon S. Corzine began formulating his ambitious plan to refinance the state’s toll roads as a way to ease New Jersey’s debt and widen its highways, he has given his opponents and even top-ranking lawmakers in his own party the time to question his plan and offer alternatives. See: http://www.nytimes.com/2007/12/01/nyregion/01pike.html

[Eva Lerner-Lam]

Here's a conference in New York City for infrastructure investment analysts: http://infrastructure.dowjones.com/. It's called
"Infrastructure Summit 2007: Building a Better Tomorrow with Private Capital." From the conference homepage: "The Private Equity Analyst Infrastructure Summit will focus on private investment in public infrastructure projects - including transportation, sanitation, water management, energy generation and transmission, and other capital-intensive municipal projects - both in the U.S. and abroad, with a particular focus on how institutional investors and private equity firms can manage these investments to minimize the risk and maximize returns."

[Stephan Butler]

Carlyle Raises Infrastructure Fund
POSTED: 11-06-2007

The Carlyle Group has closed its first infrastructure fund with $1.15 billion in capital commitments. The fund will invest primarily in transportation and water infrastructure projects in the U.S. and Canada, generally ranging from $100 million to more than $1 billion in enterprise value.

PRESS RELEASE
Global private equity firm The Carlyle Group today announced it has completed raising its first infrastructure fund, Carlyle Infrastructure Partners (CIP), with equity commitments totaling $1.15 billion. The fund will invest primarily in transportation and water infrastructure projects in the U.S. and Canada generally ranging from $100 million to more than $1 billion in enterprise value.

CIP was established in March 2006 and has 14 investment professionals located in New York and Washington, DC with more than 100 years experience in global infrastructure investing. CIP will invest in transportation and water and wastewater facilities, including roads, bridges, tunnels, airport facilities, maritime ports, transit projects and other public benefit infrastructure. The team is co-headed by Robert W. Dove, former Executive Vice President at Bechtel Enterprises, and Barry P. Gold, former Managing Director and Co-head of the Structured Finance Group at Citigroup. CIP's first investment Synagro Technologies was acquired in a public to private transaction in April 2007. Synagro is the largest recycler of organic, non-hazardous waste and wastewater residuals (bio-solids) in the United States.

Mr. Dove said, "U.S. public infrastructure requires $1 trillion in funding over the next five years. The private sector has a role to play, as seen in Europe, and can be a proven means of helping to satisfy such dramatic funding needs. We are grateful to our investors for the confidence they have placed in us and we look forward to expanding the use of Public Private Partnerships in the U.S. and Canada."

Mr. Gold said, "Carlyle takes a unique approach to public benefit infrastructure that addresses the accountability, user fees and quality concerns of some public officials and users. We create true partnerships, where private sector capital and expertise improve government services and facilities, while government oversight remains strong and decision-making and fees are shared through long-term concessions that provide predictable returns to the private company. It is a true win-win proposition."

The Carlyle Group is a global private equity firm with $75.6 billion under management committed to 55 funds. Carlyle invests in buyouts, venture & growth capital, real estate and leveraged finance in Africa, Asia, Australia, Europe, North America and South America focusing on aerospace & defense, automotive & transportation, consumer & retail, energy & power, financial services, healthcare, industrial, infrastructure, technology & business services and telecommunications & media. Since 1987, the firm has invested $32.3 billion of equity in 686 transactions for a total purchase price of $157.7 billion. The Carlyle Group employs more than 900 people in 21 countries. In the aggregate, Carlyle portfolio companies have more than $87 billion in revenue and employ more than 286,000 people around the world. www.carlyle.com

[Eva Lerner-Lam]

Here's a blog by Stephen Butler, a Corresponding Member of the ASCE Committee on Critical Infrastructure:
http://bridge4sale.blogspot.com/

[Eva Lerner-Lam]

Here are some articles about the privatization of public assets:
The Privatisation Paradigm: Jumping onto the infrastructure bandwagon, by Ryan Orr (http://crgp.stanford.edu/publications/articles_presentations/Orr_IJ.pdf)

The World Bank: The Impact of Infrastructure Privatization (http://rru.worldbank.org/PapersLinks/ReadingList.aspx?topicid=40#id6052)

Infrastructure Privatization and Regulation: Promises and Perils, by Ioannis N. Kessides
(http://wbro.oxfordjournals.org/cgi/content/abstract/20/1/81)

Privatization of Infrastructure by Moustafa Kassab, Keith Hipel and Tarek Hegazy (http://www.cwn-rce.ca/Docs/pdfs/policy_governance/Moustafa%20Kassab_CWN%20Jan%2008,%202004.pdf)

Infrastructure Privatization Spreads Nationwide
Privatization (November/December 1996)by William Eggers(http://www.heartland.org/Article.cfm?artId=9424)

More to come...please add your own references by posting a comment, below.

[Eva Lerner-Lam]

Planned Bridge Poses Question: Public or Private?
This October 10, 2007 NYTimes article (http://www.nytimes.com/2007/10/11/us/12cnd-bridge.html?ex=1349755200&en=51e0ed0da66bcfe9&ei=5088&partner=rssnyt&emc=rss) describes an unusual situation in Detroit, where a reclusive billionaire owns a major bridge between the US and Canada. Plans for a new bridge are in the works for both a private and a public bridge, either or both of which would be paid for by user tolls. Which one--or both--should be built?