Army Corps of Engineers looks to private sector to hasten waterway improvements

Monday - 7/14/2014, 6:20pm EDT

America's inland waterways need work and the Army Corps of Engineers is looking for new ways to fund a $60 billion backlog in recapitalization projects.

The Army Corps' recapitalization appropriation is about $2 billion annually. Congress has already approved $8 billion for 26 inland waterway improvement projects. But, many of those projects won't be completed for another 50 to 60 years.

Public private partnerships may hold the key to helping the Army Corps speed up those vital infrastructure improvements.

The recently enacted Water Resources Reform and Development Act (WRRDA) set up measures to encourage more private sector participation in waterways projects, including establishing Water Infrastructure Public Private Partnership Program (WIPPPP).

"Previously authorized projects, we think, are prime candidates for the opportunity to utilize these P3 tools," said Jim Hannon, chief of the Operations and Regulatory Division at the Army Corps of Engineers, during a recent roundtable on public private partnerships hosted by the House Transportation and Infrastructure Committee. "There's a value for money analysis that has to be conducted as we evaluate the tool to really compare the traditional delivery model to the different types of models that we would be utilizing with P3."

The public benefits of privately financing a project or speeding up a project's delivery aren't the only considerations when it comes to public-private partnerships.

Hannon says the Corps of Engineers is trying to understand how it can attract private investors who may see the payback on their investment over 20-to-50-year period, depending on the type of project.

"One of the things that we're learning very quickly is that this, for the private investors, is a business deal," Hannon said. "For them, they're bringing capital to the table upfront to get projects completed sooner, get them into operation and, rightfully so, they would expect that there's going to be a guarantee that they get that payback of that period of time."

Hannon compared it to getting a home mortgage, where a bank wants some assurance that the homeowner is able to pay back the loan.

The difference for investors in these public projects, though, are the additional benefits they receive through lower operating costs over time for transporting goods through newly dredged canals or updated lock gates.

"One of the other things that we're really looking into and reaching out to private investors is to get a better understanding of what they expect when they enter into one of these types of agreements," Hannon said.

While the Army Corps of Engineers may be exploring new territory, others involved in U.S. ports and waterways already have experience in using public private partnerships.

The Maryland Port Administration, for example, inked a 50-year, $1.3 billion deal with Ports America Chesapeake, LLC, for "improvement, operations, and maintenance of the Seagirt Marine terminal at the Port of Baltimore," according to documents from the House roundtable. The improvements include dredging a 50-foot channel that would allow the port to service larger cargo ships.

The public private partnerships aren't all about improving navigation infrastructure in the inland ports and waterways, either.

The WIPPPP put financing mechanisms in place to help fund Corps' projects that benefit the environment and aquatic ecosystem restoration.

WRRDA also set up a Water Infrastructure Finance Innovation Authority that would provide credit for projects improving drinking water, wastewater and water resources infrastructure.

In addition, the Corps and the Department of Energy recently identified 58 locations with sufficient physical and economic conditions to explore the development of hydropower at Corps-owned dams. This may provide other opportunities for public private partnerships.

Hannon admitted the Corps of Engineers is still in the early stages of looking at how to best utilize public private partnerships. But he did see potential opportunities for previously approved projects, such as flood management, with a local sponsor.

"This notion of design, build, operate and maintain is what the private investor brings to the table," he said. "They bring the full funding upfront. The project gets built sooner, benefits sooner. The requirement to pay back that investment starts when that project goes into operation. But the investor is also doing that operate and maintain piece over that period of that time. But again, the challenge just gets back to how do we guarantee the federal investment payback and how do we account for those dollars up front?"

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