Comments on: Principles of Privatization – Part 2: Value Levers http://www.urbanophile.com/2009/10/29/principles-of-privatization-part-2-value-levers/ Passionate About Cities Thu, 09 Feb 2012 16:28:26 +0000 http://wordpress.org/?v=2.9.1 hourly 1 By: The Urbanophile http://www.urbanophile.com/2009/10/29/principles-of-privatization-part-2-value-levers/comment-page-1/#comment-5537 The Urbanophile Fri, 30 Oct 2009 22:06:48 +0000 http://www.urbanophile.com/?p=963#comment-5537 Paul, I wouldn't be surprised if this were a carry trade transaction either. I just read in the Journal this morning that Macquarie is restructuring its infrastructure funds, including highways. Not sure on the full rationale, but they clearly got burned. Paul, I wouldn’t be surprised if this were a carry trade transaction either. I just read in the Journal this morning that Macquarie is restructuring its infrastructure funds, including highways. Not sure on the full rationale, but they clearly got burned.

]]> By: Alon Levy http://www.urbanophile.com/2009/10/29/principles-of-privatization-part-2-value-levers/comment-page-1/#comment-5536 Alon Levy Fri, 30 Oct 2009 20:39:11 +0000 http://www.urbanophile.com/?p=963#comment-5536 Paul, corrupt public interests are as capable of blocking competition as corrupt private ones. In New York, much of the disinvestment in the subway over the decades came from the dominance of Robert Moses, a public appointee, who preferred to invest in roads. Paul, corrupt public interests are as capable of blocking competition as corrupt private ones. In New York, much of the disinvestment in the subway over the decades came from the dominance of Robert Moses, a public appointee, who preferred to invest in roads.

]]> By: Paul http://www.urbanophile.com/2009/10/29/principles-of-privatization-part-2-value-levers/comment-page-1/#comment-5535 Paul Fri, 30 Oct 2009 18:13:22 +0000 http://www.urbanophile.com/?p=963#comment-5535 I would be very interested in finding an analysis of the financial structure behind the "investments" in existing infrastructure. My gut instinct is that the purchases/leases of the Skyway and Indiana Toll Road were heavily leveraged affairs, dependent on "carry trade" financing. My hunch is that the purchaser (led by Macquerie Group) borrowed Japanese Yen to finance much of the deals betting that the Yen would remain weak and continue to exhibit extremely low interest rates. A return on investment of only 2 or 3 percent could be quite profitable if you paid only 1.5 to 2 percent interest and as long as the yen remained weak. Given Japanese sensitivity to maintaining exports in the face of growing Chinese and Korean competition, they had every reason to expect that the Japanese would be sensitive to appreciation of their currency. Were these deals, in part, a form of long term currency speculation, a bet that Japan could not escape from the liquidity trap it found itself in after its property bubble burst in 1990? More to the theme of this blog though, I can say that the transactions involving the Toll Road and the Skyway made a new user of the South Shore out of me. What worries me though is that private control of the Toll Road and Skyway will be (yet another) source of corruption in Indiana politics, with the consortium controlling these improvements quietly working to blunt improvements to service on the South Shore interurban between South Bend and Chicago. I would be very interested in finding an analysis of the financial structure behind the “investments” in existing infrastructure. My gut instinct is that the purchases/leases of the Skyway and Indiana Toll Road were heavily leveraged affairs, dependent on “carry trade” financing. My hunch is that the purchaser (led by Macquerie Group) borrowed Japanese Yen to finance much of the deals betting that the Yen would remain weak and continue to exhibit extremely low interest rates. A return on investment of only 2 or 3 percent could be quite profitable if you paid only 1.5 to 2 percent interest and as long as the yen remained weak. Given Japanese sensitivity to maintaining exports in the face of growing Chinese and Korean competition, they had every reason to expect that the Japanese would be sensitive to appreciation of their currency.

Were these deals, in part, a form of long term currency speculation, a bet that Japan could not escape from the liquidity trap it found itself in after its property bubble burst in 1990?

More to the theme of this blog though, I can say that the transactions involving the Toll Road and the Skyway made a new user of the South Shore out of me. What worries me though is that private control of the Toll Road and Skyway will be (yet another) source of corruption in Indiana politics, with the consortium controlling these improvements quietly working to blunt improvements to service on the South Shore interurban between South Bend and Chicago.

]]> By: cdc guy http://www.urbanophile.com/2009/10/29/principles-of-privatization-part-2-value-levers/comment-page-1/#comment-5534 cdc guy Fri, 30 Oct 2009 13:17:51 +0000 http://www.urbanophile.com/?p=963#comment-5534 Aaron, a couple of factors in Indy: Indianapolis' water company has never been municipally operated, so the "core operation" concept is invalid here. Prior to the city purchase (with Veolia's private operating contract) earlier this decade, IWC was an independent company, and then a subsidiary of NIPSCO. The PUC has roundly criticized the municipal oversight of the water utility since the city bought the pipes and plants. Having never run a water company, the city apparently didn't know how to contract it out. Citizens Energy is a not-for-profit trust, so its cost of funds is not as high as a for-profit buyer's would be. Plus, it already has in-house meter-reading, customer service, billing, and pipe-service operations, so savings are more plausible than with other purchasers. And finally, per-gallon water rates are absurdly low. We pay more to send water down the drain than to get it out of the faucet. It wouldn't hurt to increase rates to promote conservation; even in Central Indiana clean fresh water is not an unlimited resource. Aaron, a couple of factors in Indy:

Indianapolis’ water company has never been municipally operated, so the “core operation” concept is invalid here. Prior to the city purchase (with Veolia’s private operating contract) earlier this decade, IWC was an independent company, and then a subsidiary of NIPSCO.

The PUC has roundly criticized the municipal oversight of the water utility since the city bought the pipes and plants. Having never run a water company, the city apparently didn’t know how to contract it out.

Citizens Energy is a not-for-profit trust, so its cost of funds is not as high as a for-profit buyer’s would be. Plus, it already has in-house meter-reading, customer service, billing, and pipe-service operations, so savings are more plausible than with other purchasers.

And finally, per-gallon water rates are absurdly low. We pay more to send water down the drain than to get it out of the faucet. It wouldn’t hurt to increase rates to promote conservation; even in Central Indiana clean fresh water is not an unlimited resource.

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