Dec 07, 2007

A Foreign Solution to Infrastructure Problems

WWD: The U.S. is facing a critical need to upgrade its water/wastewater infrastructure; however, there has been an obvious shortage of funding to meet utilities’ needs. Do you see public-private partnerships (PPPs), including foreign investment, as an emerging solution to help fund U.S. projects?

José Luis Briceño: The 14% (approx.) market share of private firms in the U.S. water business has remained steady over the past 50 years, but I believe there is an increasing awareness of the need to progress from the “business as usual” mentality, considering the fact that current funding systems seem to be unable to meet the needs for maintenance and upgrades. There is a clear indication that private funding is needed through the optimal alignment of risks, responsibilities and rewards that PPPs enable.

There are a number of factors driving the trend toward PPPs: There is a huge backlog of deferred maintenance in the infrastructure systems. Water quality standards are increasingly stringent, posing a major challenge to municipalities. There is a growing complexity in the operation of water utility plants and the associated need to keep abreast of technological developments. There are several large water firms (based in both the U.S. and abroad) with appropriate resources and expertise who are open to market opportunities in the water utility sector.

WWD: How is foreign investment through partnerships with U.S. authorities different from traditional foreign direct investments? What are some of the benefits?

Briceño: PPPs better allocate the U.S. government’s limited resources, and they have the capability to ensure cost savings and quality improvements. Foreign investors have always had a fluid relationship with U.S. authorities as the drivers of economic growth in the areas where they do business. PPPs are ongoing and create a close-knit relationship.

The benefits stem from a model that pays off for all stakeholders, including firms, local administrations and the general public. Furthermore, it is a model with a well-established track record of efficiency in other parts of the world. In Spain, for instance, it has allowed first-rate infrastructures and a steady supply of high quality water for large cities along the Mediterranean coast, an area with very similar water issues to those in California.

WWD: Would you say there is still a great deal of resistance to foreign firms getting involved in the management of critical infrastructure such as water and wastewater, and how do foreign companies address this issue?

Briceño: No. An administration’s priority is to find the right partner for the design and operation of the plants, regardless of the firm’s nationality. This partner needs to be a very efficient firm with proven expertise and a track record of reliability. I believe this is the key issue to consider. There is also the question of the strong capital investments needed in the long run to maintain and improve water quality and distribution while complying with existing regulations. That greatly restricts the number of entrants to the market.

A conscientious effort should be made to address issues related to foreign ownership in order to inform the public about the long-term nature of these types of relationships. Local administrations may tap into the expertise of these companies that stake their established reputations on every project, so there is a level of mutual trust between the partners.

WWD: Do you think that foreign investment in U.S. infrastructure will continue to increase in the future?

Briceño: As we all know, investment needs are large and unprecedented (a trillion dollars over the next two decades, according to ASCE estimates). Clear water is a national priority, underpinning our future economic development.

There are many large groups operating in different countries, both national and foreign, with the knowledge and financial means to be part of the solution to the current problems in the U.S.

Foreign water firms are both acquiring water and wastewater utilities (investor and municipally owned) in the U.S. and increasingly entering into PPPs with municipalities for the operation of their water systems. Many municipalities recognize that there are savings to be made by the economies of scale that these companies muster, including the development of a technological expertise that would not be feasible in a smaller organization.

About the author

Neda Simeonova is editorial director of Water & Wastes Digest. She can be reached at 847/391-1011 or by e-mail at [email protected]. José Luis Briceño can be reached at 312/644-1154 or by e-mail at [email protected].