Volume No. 2:
June 2011
Historical Precedents
Quote:
Introduction
“The PRHTA serves its
mission of providing
roads without
negatively affecting
its credit capacity
when attracting
private capital for
financially reliable
projects. At the same
time, the PRHTA
acquires additional
credit capacity to
finance projects
where the economic
conditions do not
allow the private
sector to absorb the
risks in the degree
that the government
can.” (Gutierrez 2009)
Broadly speaking, a Public-Private Partnership (PPP) can be defined as a contractual agreement between a
public agency (federal, state or local) and a private sector entity. Through this agreement, certain risks of
delivering a service or a facility are transferred to the private sector or shared with the government entity.
Various models included under the generic definition of PPP have been applied in the past. The application of
some models, such as the concession, dates from many centuries ago. Josse affirms that since ancient times,
it is possible to find certain execution and performance models of public works by contractual techniques of
similar characteristics to those of concession, as we know it today. In Greece and Rome, some precedents of
the construction of public works using the concession model exist, specially in the construction of ports,
where private individuals were commissioned to develop port facilities. The public authorities, in exchange,
allowed the concessionaire to charge a fee to the users (Josse 1895). In addition to these ancient examples,
the golden era of concessionaires was in the middle of the 19th Century (CAF 2004).
The construction and operation of the Suez Canal is one of the most emblematic projects of the 19th Century.
This channel is one of the most important navigation routes in the World. The artificial channel goes through
the isthmus of Suez in Egypt, which connects the Mediterranean and Red Seas, provides a shorter maritime
route between Europe and the countries around the Indian Ocean and the western section of the Pacific
Ocean. In 1854, the French diplomat Ferdinand Marie de Lesseps convinced the Egyptian viceroy of the
merits of the future Suez Canal. In 1858, the Universal Suez Maritime Canal Company was given the authority
to excavate the isthmus to form a channel and to operate it for 99 years. After the 99 years had elapsed, the
channel would be completely owned by the Egyptian government. In November of 1869, the Suez Canal was
inaugurated. At that time, 44% of the investment belonged to the Egyptian government and the rest to
private investors, mostly French interests. Presently, the operation, title, and the maintenance of the channel
is under the control of the Government, the Suez Canal Authority (Association de Lesseps and Suez Canal
Authority 2008).
Today, the PPPs are used widely around the World. The figure below shows the regions of the World where
important participation in public-private partnerships exist.
USA and Canada
Transportation projects of great
extent, incluiding bridges,
highways, trains and parking lots.
$16.2 BB estimated
Ireland
31 hospital concessions
under the PPA process,
$28 BB estimated.
France
The PPA projects
represent over 2.5% of
the GDP of the country.
Holand
World leader in PPA social housing
projects and urban revitalization.
Ontario
30 PPP projects for
construction of hospitals during
the next 5 years.
Russia
A $2.4 BB estimated investment in
PPA transportation projects.
Texas
One of the broader
programs in PPP
transportaion in the world.
Portugal
National Highways €1,270 MM
Water Production €127 MM
Public Transportation €381 MM
Waste Management €571 MM
México
Agressive APP programs
directed in highways.
Public-Private
Partnerships
Authority
www.p3.gov.pr
P.O. Box 42001
San Juan, 00940-2001
China
Transportation projects
exceed $3.2 BB.
Dominican Republic
Has developed PPA in
highways and airports.
Chile
World leader in PPA
projects.
Brazil
$6.3 BB to be invested in PPA
projects.
Africa
PPA projects have the potential of improving
the remainder of infrastructure and services.
Over $8.7 BB in projects with financial
closing (including transportation, health, and
social infrastructure)
India
Over $37.5 BB on port and
highway projects have been
approved.
Australia
Estimated cost in a $400 BB
investment during the next
decade.
Source: Modified from Australia National Public Private Partnership Forum, HM Treasury, e-privatizacion.com, Projects Today,
Public-Private Infrastructure Advisory Facility, EuroMoney, Infrastructure Journal, Deloitte Research.
The origins of PPPs in Puerto Rico
The “Dos Hermanos” Bridge
Puerto Rico’s experience with public-private
partnerships or concessions date back to the
early 20th Century. The bridge numbered 1755
of the Puerto Rico Highways and Transportation
Authority (PRHTA) that connects the peninsula
of Condado with the Old San Juan islet is
probably one of the initial, if not the first, PPP
projects in Puerto Rico. The history of the bridge
starts with the the Behn brothers, Hernand and
Sosthenes. The brothers inherited from their
stepfather a private, undeveloped and vacant
property, presently known as the Condado. In
1908, the brothers decided to develop the
property, and to advance the process, the Behn
brothers built a new bridge with a different
design than the one that existed in the former
steep embankment during the XVI Century.
Aerial view of the terrestrial entrance to the islet of San Juan and the “Two
Brothers Bridge” (Puente Dos Hermanos).
The bridge, constructed by the Behn brothers was named by the citizens “The Bridge of the Two Brothers” (Puente Dos
Hermanos). In 1910, Sosthenes sold the bridge to San Juan City Council for $25,000 (Vidal Carvajal 2007). The financial and
construction risks that the brothers assumed, makes this historic project an initial attempt into a public-private partnership.
“Doña Fela” Parking Garage
A more clear example was established by the issuance of San Juan’s city ordinance 166 of May 22, 1961, as amended by city
ordinance 26 of September 24, 1963. In these city ordinances, the Municipal Assembly of San Juan authorizes an “auction of
special character by which the bidders will agree to build on an undeveloped land owned by the city of San Juan, a parking
garage, …”. This historic concession is known today as the Doña Fela parking garage.
On January 3, 1964, Felisa Rincón de Gautier, Mayor of San Juan, signed a leasing contract with Farnsmo, Inc., a corporation
organized under the laws of Delaware, and whose main office was located in New York City. The contract established that
Farnsmo, Inc. would design, build, finance and operate a parking lot building for a thirty (30) year term. Later on, the
ownership title of the building would go, free of charge and at no cost, to the Municipality. The contract required that the
private company develop the plans and specifications of the parking lot building, and obtain the approval of these documents
by the municipality. In addition, the period allotted for construction could not exceed 270 days. Likewise, it demanded that
the company, during the time period under its management, to be held responsible for the maintenance and repair of the
building without any cost to the city, thus preserving the “efficiency standards and appearance kept in the first class parking
garage in the city of San Juan.”
The contract also established the parking fees the general public could be charged (e.g., $0.38 the first hour or fraction
thereof and $0.10 for each additional hour). Both parties agreed that the parking fees could be adjusted every 2 years based
on the consumer price index published by the Puerto Rico Department of Labor (Escritura Pública 1964).
When the original contract expired, Héctor L. Acevedo, Mayor of San Juan, subscribed on June 26, 1992, a new concession
agreement with the company Meyers Brothers of Puerto Rico, Inc. The new contract leased the property for a twenty-five
year term in exchange of an annual monetary sum of $200,000 with a $25,000 raise every five years to be paid by Meyers
Brothers of Puerto Rico, Inc. to the municipality of San Juan. Similar to the previous contract, the municipality transferred the
risks of maintenance and operations. At the same time, the ownership title and control of the property is withheld by the city
of San Juan (Escritura Pública 1992).
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Teodoro Moscoso Bridge
Another emblematic project under the PPP infrastructure procurement approach is the Teodoro Moscoso Bridge over the San
José Lagoon in the metropolitan area of San Juan. Under the governorship of Rafael Hernández Colon, the contract of the
project was approved. As part of the public policy, for the feasibility of projects involving the private sector, it was necessary
to amend the enabling Act of the Puerto Rico Highway and Transportation Authority (PRHTA). The 1965 Act, created the
PRHTA, and was amended by the legislature in 1990 to allow the Secretary of the Department of Transportation and Public
Works (DTOP, Spanish acronym) and the PRHTA the following (Gutiérrez 2009):
• Contracting of private companies for the construction, management and maintenance of roads and bridges. The owner of the
project would be the PRHTA or the Commonwealth of Puerto Rico, and its financing would be accomplished through the
establishment of a toll fare.
• Provide procedures for transferring the management and operation of existing roads and highways to private companies.
• Provide benefits and advantages through the regulations of special societies by qualifying the construction of toll roads as an
eligible activity.
• Establish an Oversight Board to regulate the negotiation process, and to ratify the PPP contracts negotiated between the
concessionaire and DTOP and the PRHTA.
Dr. Elías R. Gutiérrez highlights PRHTA served as a facilitator up to the point of producing preliminary designs. “The PRHTA
serves its mission of providing roads without negatively affecting its credit capacity when attracting the private capital for
financially reliable projects. At the same time, the PRHTA acquires additional credit capacity to finance projects where the
economic conditions do not allow the private sector to absorb the risks in the degree that the government can.”
Finally, the concession contract for the final design, construction, maintenance, operations and transfer was signed by the
PRHTA and Autopistas de Puerto Rico (APR) on December 20, 1991. In the year 1992, the Federal Highway Administration and
the U.S. Department of Transportation awarded the PRHTA with its Innovative Highway Finance Award (Bigas 1992).
Conclusion
There are examples of successful
projects under the PPP procurement
model of PPP. Likewise, one could
find examples of unfortunate
projects.
The
detail
worth
highlighting is how the concept has
been proven in Puerto Rico and
other parts of the World that the
PPPs represent an option of
providing
more
and
better
infrastructure services for the
benefit of citizens and overall
economic development.
Aerial view of the Teodoro Moscoso Bridge over the San José Lagoons. The first greenfield
project in the United States under a PPP arragement.
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References
Association du Souvenir de Ferdinand de Lesseps. 1 24, 2008. http://www.associationlesseps.org (acceso: 25 de noviembre de 2010).
Bigas, Jorge L. Informe al Comité de Transición. San Juan: Autoridad de Carreteras y Transportación de Puerto Rico, 1992.
Corporación Andina de Fomento (CAF). Financiamiento privado de infraestructuras: Estudio de alternativas y experiencias en materia de
proyectos de participación público privada para América del Sur. Buenos Aires: Iniciativa para la Integración de la Infraestructura
Regional Suramericana (IIRSA), 2004.
Escritura Pública. Número uno (Margarita Landrau, 3 de enero de 1964).
Escritura Pública. Número tres (Wilfredo Siaca Alequín, 26 de junio de 1992).
Gutiérrez, Elías R. Evolución del Concepto de Concesión Aplicado a Puentes y Autopistas en Puerto Rico. San Juan: Elías R. Gutiérrez,
Ph.D., 2009.
Josse, Pierre L., Les travaux publics et l' expropriation. Sirey , Paris: Sirey, 1895.
Ordenanza Municipal. 166 (Municipio de San Juan, 21 de mayo de 1961).
Ordenanza Municipal. 26 (Municipio de San Juan, 24 de septiembre de 1963).
Suez Canal Authority. 2008. http://www.suezcanal.gov.eg/ (acceso: 21 de noviembre de 2010).
The National Council for Public-Private Partnerships. The National Council for Public-Private Partnerships. November 17, 2010.
http://www.ncppp.org (acceso: 19 de noviembre de 2010).
Vidal Carvajal, William. "El Condado: Historia, Visión y Futuro." Planos y Capacetes, Julio 1, 2007: 12-20.
Aerial view of the Luís
Muñoz Marín International
Airport, San Juan, Puerto
Rico.
This informative bulletin is prepared in collaboration with the Civil Engineering and Surveying Department of the University of Puerto Rico at Mayaguez. It is solely
prepared for educational purposes and should not be considered as a recommendation for buying or selling a title or participate in any business or particular negotiation.
The information presented includes data and assertions considered accurate and correct by experts in the field. These declarations are based on the actual
understanding of events, literature, findings and research that are not necessarily indicatives of future events that could be out of the reach and control of the
Government of Puerto Rico and its agencies or instrumentalities.
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