The Foreign Investment Issue
By Robert W. Poole Jr.
Last year during congressional hearings into the growing use of long-term public-private partnerships (PPPs) for toll roads, the subject of foreign “ownership” (meaning foreign investment in the consortia that win long-term concession contracts) kept coming up as something negative. Likewise in some of the debates over tolling and PPPs in Texas, and—needless to say—in Lou Dobbs’ coverage of this issue. Since this issue is unlikely to go away this year, let me offer a few thoughts we should all keep in mind in these debates.
First of all, when it comes to entrusting responsibility for developing, operating, and managing a billion-dollar-scale toll road project, whom would you rather call upon—a company that has only constructed toll roads but never operated them as a business? Or one with a long track record of doing all aspects of the job—design, finance, construction, marketing, operating, maintenance, and expansion/reconstruction? Public Works Financing last October published its annual international survey of PPPs in infrastructure. In the transportation category, the top 20 firms, as measured by the number of concession projects in operation, are all domiciled overseas. Only three U.S. companies made even the top 30—Bechtel, Fluor, and Kellogg Brown & Root, with a handful of projects each.
Second, populist critics like Lou Dobbs have for years been decrying U.S. companies that outsource work overseas, shifting millions or (in aggregate) billions of dollars in investment and jobs to other countries. Yet when his researcher interviewed me on toll road PPPs, and I made the point that enticing foreign firms and investors to put billions of dollars into immovable infrastructure on U.S. soil for very long periods of time should be seen–even by Lou Dobbs—as “in-sourcing” and good for America, those words were left on the cutting-room floor. But it is good for America, as long as the concession agreement protects the public interest, as it should do, regardless of the nationality of the companies involved.
Third, as I predicted about two years ago, the composition of the investment capital going into these projects is becoming more American, as various equity funds get created by the likes of Goldman Sachs, Carlyle Group, and many others. Macquarie Infrastructure Group, one of the oldest such funds, now has 20% U.S. investors, including CalPERS, Fidelity, Putnam, and Blackrock. The newer Macquarie Infrastructure Partners has 47% U.S. investors, including Metropolitan Life Insurance, Northwestern Mutual Life Insurance, the Mid-Atlantic Carpenters Pension Fund, and the Midwest Operating Engineers Pension Fund. Carlyle would not name names, but tells me the investors in their fund are “primarily U.S. public pension funds and also include union pension funds.”
Fourth, we are increasingly seeing joint proposals by U.S. and overseas companies, such as the northern Virginia Beltway HOT Lanes project financed last month by a joint venture of Fluor and Transurban, and the stretch of SH 130 in Texas between Austin and San Antonio being developed by a joint venture of Cintra and Zachry Construction.
My hope is that within the next five years, there will be such a large degree of U.S.-based investment and widespread use of joint ventures that the “foreign company” issue will fade away. But I suppose demagogues will keep using it as long as they can.