Can Public-Private Partnerships Work?

Can Public-Private Partnerships Work?

Public-private investment could put U.S. Ag at risk, but it may be the only way to fix infrastructure.

The recently passed Waters Resources and Reform Development Act (WRRDA) provides authorization for public-private partnership (P3) pilot projects for the inland waterway system. But the concern is whether giving control to the private sector, or even foreign entities, could put the ag economy at risk.

A P3 is a contractual agreement between a public sector agency and a private sector entity to deliver a public service. In a future P3, a non-federal entity, either one or more private entities or a public authority, could assume responsibility for the funding, operation and maintenance, replacement, and/or major rehabilitation of the locks and dams under a cooperative agreement.

Barges transit through the Chain or Rocks Locks near St. Louis, MO. About half of U.S. grain moves by barge on the Mississippi. Photo by U.S. Army Corps of Engineers

Following up on a blog post on the WRRDA agreement, a Farm Futures reader questioned whether lockage fees could be sustainable. Traveling Upper Mississippi River lock 22, 23, 24, 25 and Melvin Price locks and dam, a 15-barge tow both ways paying a lockage fee of $100 per barge could cost $15,000 if the fee stays at only $100 per barge. He questioned whether shippers will pay that lockage fee in the end. Will commercial grain elevators who are located down river pay for the benefits that come with locks, or will shippers move commodities to free water transportation areas?

 Randy Gordon, president of the National Grain and Feed Association, says that’s one reason NGFA has been reluctant to support the concept. NGFA believes infrastructure is a “legitimate role for government funding given the broad-based benefits across the economy and to recreational users,” Gordon says.

Mike Steenhoek, executive director of the Soybean Transportation Coalition, says although WRRDA does provide authorization for P3 pilot projects, they’re just exploratory. “The goal is to investigate it in order to better understand if the approach should be pursued or not,” he says.

Steenhoek says it is possible that the pilot project will adapt a lockage fee type of approach. It's possible a bonding style approach could be embraced, which could offer the potential for foreign sources of funding. 

“Through all my discussions with policymakers or the Army Corps of Engineers, at no point has anyone suggested foreign ownership of the locks and dams, but there could be a scenario in which foreign entities purchase bonds that are issued for the purpose of enhancing the inland waterways system,” Steenhoek says.

The U.S. government currently issues bonds and receives funding from foreign entities to finance a host of activities without transferring ownership to the foreign entities.

Study evaluates private investment

A recent study funded by the soybean checkoff explores the potential for engaging and accessing private funding to enhance the condition of the inland waterway system.

“Given the continued lack of federal resources toward our lock and dam system, more attention is being devoted to alternative sources of funding, including private equity,” says Patrick Knouff, a soybean farmer from Minster, Ohio, and chairman of the Soy Transportation Coalition.

The study, “Proposed Public-Private Partnership Projects for U.S. Inland Waterways Infrastructure Financing, Operations, and Governance,” was performed by The Horinko Group. The analysis provides an introduction to the concept of public-private partnerships, suggests locations that would be likely sites for such an approach, and highlights successful public-private partnerships (P3) in other industries that could serve as a model for the inland waterway system.

The analysis suggests that under a P3 arrangement, the private sector would likely not have the appetite for investing in the construction of new lock and dam facilities. The more likely approach, according to the report, would be for private investment being devoted to proper maintenance of existing sites.

In the end, Steenhoek warns that just because you open the door for private investment does not mean private investment will want to walk through that door.

“The investment opportunity must be attractive," he explains. "Emphasizing maintenance of lock and dam sites over new construction will make this investment opportunity more appealing to the private sector.” The cost of one lock construction project is approximately equal to the cost of nine major rehabilitation projections.

“The private sector often is better able and equipped to deliver the same or elevated services at a lower cost,” Steenhoek adds.

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