In these challenging economic times, public-private partnerships (also known as “P3s”) are an effective tool to help meet public needs and maintain a high level of public control. AECOM’s Russell MacDonald shares his insights on the future of P3 investing and delivery in U.S. water and wastewater treatment with WWD Managing Editor Elizabeth Lisican.
Elizabeth Lisican: Why are public-private partnerships a wise choice for water utilities? What factors are making them more viable?
Russell MacDonald: Public-private partnerships may be a wise choice for water utilities that are looking for the best life-cycle cost scenario for their major assets such as water and wastewater treatment plants. Utilities need to take into account the real costs of owning and operating these assets as well as looking at the risks inherent in these assets. Certainty of costs and outcomes has driven the P3 delivery model in many market sectors and countries. Water utilities in North America are now starting to explore these innovative options.
Sophisticated owners of infrastructure assets around the globe are realizing that governing and managing assets is different from building, operating and owning the assets. Among the many key factors that make P3s more viable are the need for greater cost-efficiency and the ultimate responsibility to provide the best value for the customer.
Lisican: What are the biggest challenges of P3 implementation?
MacDonald: The biggest challenge of P3 implementation is centered on the value proposition. Utilities that want to deliver the best life-cycle cost for their assets will need to examine P3 as a form of project delivery. If the goal of the utility is to deliver the best life-cycle cost and maximize risk transfer, then P3 is worth serious consideration. The biggest challenge is not financing. A design-build or design-build-operate also is an option in the P3 spectrum. Again, the biggest challenge is to get utilities to look at their assets on a life-cycle cost basis vs. a cost-of-capital basis.
The utility also needs to let its customers know it is exploring every option to provide services at the lowest possible cost and with the maximum amount of risk transfer.
Lisican: What are some additional best practices to keep in mind for a successful P3?
MacDonald: Top of the list of best practices to keep in mind for a successful P3 would be to ensure that there is a “champion” from the public side that is fully committed to the process.
Successful P3s have very good alignment of objectives between the political side of the public sector and the staff side. The incubation period for P3s is usually very long and they require a deep commitment from the public sector. The private side of the equation has to evaluate the strength of the ongoing commitment of the public sector to the P3. The cost of bidding P3s is substantial and the private sector certainly looks not only at the technical and financial merits of the P3 but, more importantly, to the commitment of individual “champions” from the public sector.
Lisican: As for the customers, rate increases remain a major concern. How can they better understand the value of water?
MacDonald: Water and wastewater treatment should always be separate from general revenue spending and borrowing. The real cost of water treatment needs education, not subsidization. In most parts of North America, water is underpriced, not overpriced. Letting a market rate prevail will drive correct behaviors for customers and the utilities that are the stewards of the water life cycle.