In a blow for the future development of P3s in the U.S., an international player plans to end its involvement in the sector because the “risk-reward” is no longer attractive.
Skanska President Anders Danielsson made the announcement Oct. 19 during a preliminary third-quarter earnings report, saying that losses on two major U.S. projects led the company to reevaluate its participation in public-private partnerships.
“The risk-reward is not attractive for us,” he said in a conference call with analysts.
The Sweden-based company will release its final earnings report for the third-quarter Nov. 8.
Danielsson said the company will stop bidding on new mega P3s after taking $100 million in write-downs on two projects he described as about 50% complete.
“The project write downs are caused by additional cost overruns due to low production rates and delays,” he said, adding that problems are isolated to those P3s. “Despite the write-downs, the Skanska group remains financially strong.”
In addition to suspending work on P3s, Skanska will also stop bidding on engineering, procurement and construction projects for combined-cycle generation facilities and will explore divesting its operations in the power sector.
Danielsson, who described the two troubled P3s as “large and complex,” said Skanska has secured financing to complete them. He would not identify the projects “out of respect” for the company’s clients.
“Skanska remains fully committed to our civil construction and infrastructure business in the U.S.,” the company said in a statement. “Skanska USA will continue to pursue alternative delivery infrastructure projects, including design-build projects.”
Skanska is involved in a number of ongoing P3s, including one of its largest — the $4 billion overhaul of New York City's LaGuardia Airport — and Florida’s $2.3 billion redevelopment of Interstate 4 through Orlando.
Both projects have experienced some delays and unanticipated costs.
The LaGuardia project is being built by LaGuardia Gateway Partners LLC, a special purpose company owned by Vantage Airport Group LLC, Skanska Infrastructure Development, Meridiam Infrastructure North America and JLC LaGuardia LLC. LGP has a 34-year lease on the P3 with the Port Authority of New York and New Jersey.
In a July 24 analysis affirming LGP’s Baa3 rating and stable outlook, Moody's Investors Service said the joint venture missed a milestone in May to complete work on half of Terminal B because of production issues related to installing exterior glass on the building.
Moody’s said liquidated damages were assessed because of the late delivery.
The New York Transportation Development Corp. sold $2.4 billion in special facilities bonds on May 17, 2016 for the project, which includes a new 35-gate Terminal B, central hall and a connecting concourse. Substantial completion on the project is slated for 2022.
Skanska is also a major player in Florida’s largest P3, a project called the I-4 Ultimate that is also over budget and experiencing delays.
I-4 Mobility Partners, a venture between Skanska Infrastructure Development Inc. and John Laing Investments Ltd., is reconstructing 21 miles of interstate in the densely populated Orlando area. The project was financed in 2014 with a $949 million Transportation Infrastructure Finance and Innovation Act loan, $486 million in bank loans and equity.
In June, Moody’s revised the outlook to negative on I-4 Mobility’s Baa1 rating because of a requested 245-day delay in reaching the substantial completion date caused primarily by drilled shaft failures due to complex subsurface geological conditions.
The outlook change also reflects I-4 Mobility’s claim for $100 million in compensation filed with the Florida Department of Transportation, and a high level of points assessed for noncompliance events such as frequent lane closures due to flooding. As a result, Moody’s said FDOT has increased its oversight of the work.
In July, U.S. Reps. Darren Soto, Val Demings and Stephanie Murphy, all Democrats, wrote a joint letter to FDOT Secretary Mike Dew saying they were concerned about Moody’s report. They also requested a status update on why the I-4 Ultimate project is “over eight months behind schedule and $100 million over budget.”
In a one-page reply Aug. 10, Dew said I-4 Mobility submitted relief event claims for more time to complete the project and for more compensation, which FDOT is continuing to evaluate.
“The filing of the claim in and of itself does not mean that the project is either delayed by the amount of additional time I-4 Mobility is seeking or that the project is in excess of the department’s budget,” Dew said.
Soto said Thursday that it continues to appear that the project will be late and over budget, and that potential construction problems with cracks in various foundations had been discovered.
“FDOT denied critical financial, safety and time concerns regarding I-4 Ultimate, and basically said ‘trust us’ without providing even a bare minimum amount of information to verify,” Soto told The Bond Buyer. “The public deserves to know all the facts.”
In addition to problems discussed by Moody’s, central Florida drivers have complained about the lengthy disruption caused by the work on I-4. As of May, 475 damage claims had been filed by drivers, according to the Orlando Sentinel.
The I-4 Ultimate project will add four variable-rate, tolled express lanes while maintaining free general use lanes, and construction on 15 interchanges and 124 bridges. Work started in 2015 and is due to be completed in 2021 under the original schedule.
