Friday, April 29, 2011

Screening and Assessment of Transportation Public-Private Partnership Projects

My research paper on government expenditure is continuing to investigate the issue of Public-Private Partnerships on Transportation. PPP is a quite complex and big topic to analyze, therefore, I choose a more specific topic—“Screening and Assessment of Transportation Public-Private Partnership Projects” Namely, how should we find projects suitable to use PPP as delivery model rather than conventional way?

Last week, I wrote a blog “Let the “evil” private sector provides public goods”, which includes some backgrounds of PPPs. And I found an interesting but oversimplified video in YouTube talking about what a shocking terrible idea to use PPP to improve public transit system in Toronto, Canada. The video criticized that PPP is just another “pleasant statement for privatization”. I noticed that all the “bad” examples listed in the video are public transits. So I have two questions in my mind: Does partnership simply mean buying and selling? Does PPP applicable to public transits? It’s better to understand before making judgments.

In the paper, I studied six screening criteria of PPP candidate projects:

l Demonstrated transportation need

l Project scale and complexity

l Project stage and environmental clearance

l Revenue potential and debt capacity

l Cost-Benefit Analysis and Value for Money

l Public interest criteria

All these above criteria are to maximize PPPs’ benefits and enhance the public interest. Demonstrated transportation need indicates that the state agency prioritize their expenditure based on several standards like high demand, safety, congestion relief, legislative obligations and regional economic development. Moreover, the project may need to reach a certain scale to cover the additional costs of PPP delivery method. The project with environmental clearance, potential revenue sources and debt capacity also should be considered first, because these criteria can attract private investment.

Cost-Benefit Analysis and Value for Money are very interesting and useful tools for screening PPP candidate projects. These two methods have been widely used both in the public and private sectors in many countries. Cost-Benefit Analysis is helpful to foresee some latent uncertainties like whether leasing tolls will lose future public revenues. And it is also beneficial to the private sector with a better understanding of the profitability of their business investments. Transportation Ministry of Québec Province in France carried a value for money report for the completion of AU-toroute 25 highway project. The results of the study demonstrate that the completion of AU-toroute 25 will generate major socio-economic benefits.

Minnesota was once the leading state on considering and implementing transportation project through PPP agreement. However, Minnesota’s current PPP enabling legislation is limited and restrictive. For example, “prohibition exists on converting, transferring or utilizing any portion of a highway for use as a toll facility” and “A road authority may not relinquish management of a highway, if the highway is retained or utilized by the buyer, lessor, or operator for highway purposes” (Minn. Stat. 160.84_160.98).

To move forward, PPPs should be adopted to support a state’s transportation strategy, not just to raise revenue. So it is vital that our state should develop our screening criteria for PPP candidate projects.

If you are interesting on this issue, the websites of innovative transportation finance offices are good resources. Federal Highway Administration of U.S. Department of Transportation conducted a report “User Guidebook on Implementing Public-Private Partnerships for Transportation infrastructure projects in the United States”. Minnesota Department of Transportation(Mn/DOT) also has an office of Innovative Finance, dedicating to look for new ways to meet state’s transportation funding challenges. The recent report “Public-Private Partnership Project Screening and Assessment” by Parsons Brinckerhoff , is available on their website and good to look at too.

1 comment:

  1. Thanks for this analysis. There are more than practical considerations to successful P3 go/no-go decisions. I think we will be best served by educating the general public on the value of the paradigm. Politicians will support what their constituents understand. Constituents are generally suspect of change, so framing the discussion is key.