The U.S. continues to struggle as a consequence of decades of under investment in its infrastructure assets. Rapidly-aging water, wastewater and electricity networks have become an increasing priority with an estimate $2.2 trillion of investment now required to return them to acceptable, operable standards.
The problem is that we face a very real infrastructure deficit with public agencies largely underfunded. U.S. stimulus funding peaked in 2010 and is forecast to decline in future years, requiring states and local governments to be much smarter about their budgeting. Public agencies are faced with the reality that they must either be inward facing and manage their existing asset portfolio in the most efficient manner possible, or look outward to the private sector for creative procurement and sources of funds.
To avoid large bills for unplanned emergency repairs, many public agencies are now moving toward realistic lifecycle budgeting to ensure lower costs and achieve much greater efficiencies over time. Risk-based asset management planning is consequently becoming an urgent priority for U.S. utility owners in terms of setting priorities for safety, economic cost and benefits, and, importantly, meeting stakeholder demands.
A thorough review of the entire lifecycle of assets and associated investment will almost certainly reap dividends.
A thorough review of the entire lifecycle of assets and associated investment will almost certainly reap dividends. Key benefits and success factors include:
- Consistent approach to asset management planning, aligned to owner’s business objectives.
- Improved quality of decision making, reducing risk of asset failure
- Protection and enhancement of asset value
- Improved reliability and performance
- Financial, social and environmental sustainability
- A basis for improved organizational performance
The international benchmark for optimal management of assets is PAS 55 (Publicly Available Specification) which began in the U.K. through industry consultation with the Institute of Asset Management (IAM). Compliance with the PAS 55 standard is now required in many industrial U.K. sectors, including some utilities. The standard is rapidly gaining acceptance in Europe, Australia and New Zealand and provides a clear framework for excellence in asset management. In the U.S., there are some early signs of major utility owners moving towards PAS 55 compliant strategic asset management, particularly in the transit and energy arenas. This will be facilitated through the development of PAS 55 into an emerging international standard (ISO 55000), which, when it is published in 2014, will further promote its acceptance in the U.S. as the benchmark for asset owners. New York City Transit Authority (NYCT) has just embarked upon a five-year Enterprise Asset Management implementation program with a view to moving towards ISO 55000 certification.
Public Private Partnerships (PPP)
A PPP is a commercial arrangement between a private developer and a public agency for the delivery of a public infrastructure asset or service. While there is no single model in the U.S., a PPP can include design, construction, finance, operations and maintenance. Private developers can provide all or some funding for a project. The key is to provide the developer with a source of revenue from which they may generate a return on their investment. This can be provided in the form of a concession (i.e. tolls, user fees) or through a pre-agreed flow of “service payments” from the public agency, which effectively mortgage capital and operating costs. PPPs not only have the effect of generating capital where it is lacking in the public coffers, but they also necessarily shift the paradigm of public procurement from short-term and budget-driven to one which is much more long-term and cost effective.
Infrastructure investment opportunities must provide optimal value for money through innovation and efficiency in order to attract capital, and high-quality performance to retain it.
Private ownership in public infrastructure creates a direct link between investment and performance of such assets. Infrastructure investment opportunities must provide optimal value for money through innovation and efficiency in order to attract capital, and high-quality performance to retain it. In traditional public procurement, government agencies select the most qualified or cheapest bidders to deliver projects which have already been funded and given a green light. Private investors, on the other hand, require that any project prove its viability and potential for consistent high performance over an extended period.
Some of the largest U.S. PPPs to reach Financial Close recently have been in the transportation sector, including the Indiana I-80/90 Toll Road ($38billion) and the I-635 LBJ Freeway in Texas ($26 billion). However the demand is evidenced by the mix of project types in the market including the monetization of Chicago’s on-street parking meter system, the Long Beach Courthouse in California ($495 million), and the Seagirt Marine Terminal in Baltimore ($334million). Prominent utilities-based PPPs include a 550MW thermal power plant in Astoria, NY ($1 billion), and a 30-year concession agreement to design, build, finance, operate and maintain a new water reclamation facility in Santa Paula, California ($125 million).
Faithful+Gould brings experience from a broad range of industry sectors. We are able to support the prioritization of projects across a wide range of investment routes, including PPP based on a variety of global models. Together with our parent company Atkins, we have helped many organizations significantly improve their approach to asset management planning. Through our established asset management consultancy, we can now help our U.S. clients move toward PAS 55 certification compliance, an important and realistic way forward in this critical economy.