Tougher terms seen for infrastructure P3 deals

NEW YORK Thu May 7, 2009 10:29pm BST

NEW YORK (Reuters) - U.S. state and local governments eyeing public-private partnerships, or "P3s," for infrastructure will demand tougher terms from investors amid rising concern about the tie-ups, a Fitch Ratings project finance analyst said on Thursday.

Governments are feeling "push-back" from the public on the tie-ups as the terms of prominent deals and aborted attempts at agreements in recent years come under scrutiny, Cherian George, managing director of global infrastructure and project finance at Fitch, told the Reuters Infrastructure Summit.

Pressure on public officials should spur governments with assets that investors want -- such as highways that could be turned into toll roads -- to strike deals that voters can support, or at least not oppose, said George.

He sees increased demands for transparency in public-private negotiations, along with tighter oversight and protections for the public from rising costs written into agreements for assets leased or sold to investors.

Currently, governments can count on benefits upfront in the agreements. But for some deals, the effect of concessions stretching decades will be unpredictable because of inadequate terms, George said.

"It's really a crapshoot," he said, adding that the final "P" in public-private partnership has to underscore "partnership."

George Bilicic, vice chairman of investment banking at Lazard, said he expects governments will hold out for tough terms in "P3" deals, which he also expects to increase if state and local government budgets weaken further.

Given the choice between leasing or selling a road and cutting deep into social program spending, polls show voters warming to the idea of public-private partnerships, said Bilicic, also speaking at the Reuters Infrastructure Summit.

"I think people are thinking about the world differently," he said. "You're going to have a lot of cities and states in serious, serious trouble."

(For summit blog: blogs.reuters.com/summits/)

(Reporting by Jim Christie; Editing by Dan Grebler)

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