April 27, 2015

From InfraAmericas

By Carl Winfield

The US Treasury has published guidelines on three models to help state and local governments better align their interests with investors in P3 deals.
In a white paper released last Wednesday (22 April) the US DOT concentrates on three specific methods used to regulate privately-owned energy and telecom infrastructure which could be applied to P3 projects:

  • a price cap model limiting the price of the infrastructure service instead of the rate of return;
  • a model limiting the allowed rate of return on investment and regulating the price which a firm can set in order to generate the revenue it will require to cover its expected costs and earn the designated return;
  • and a sharing model which contractually obliges sponsors and investors to share risk or return.

Marcus Lemon, chair of Polsinelli’s Infrastructure & Public-Private Partnerships practice, said many of the models which the US DOT had recommended were already being put into action.
“We are already seeing these types of structures and ideas developing in P3 deals in the marketplace,” Lemon said.  “One example is performance based payments where performance is tied to payment and sometimes sharing of the upside (revenue) or downside occurs.” 

Lemon added that performance based payments also seem to be gaining popularity, especially in the face of recent controversy over straight availability payment projects which have encountered performance or revenue issues.

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