By Stephanie Kelly
NEW YORK (Reuters) - Denver City Council approved on Tuesday a $1.8 billion public-private partnership project to redesign the Jeppesen Terminal of Denver International Airport (DEN), the latest airport to use this financing structure for redevelopment.
P3s, which are more commonly used in Europe, Australia and Canada, are typically made up of a private consortium of companies to design, build and finance a project while ownership remains with the public entity.
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The contract, which is for the next 34 years, is the largest in the city's history, according to DEN.
Some U.S. airports are showing increased interest in using P3s to fund larger-scale projects, said Kurt Forsgren, an infrastructure analyst for S&P Global Ratings. New York's LaGuardia Airport is using a $4 billion P3 structure, working with LaGuardia Gateway Partners to renovate the airport's decrepit central terminal.
"It’s all driven by alternative ways of delivering complicated projects and additional consideration of the full life-cycle costs of these projects," Forsgren said.
"Not just the costs of constructing it, but operating and maintaining over time and having that be a known, upfront cost has made them something that's worthy of consideration for a lot of airport operators."
Two members of Denver's City Council, out of 12 who voted, opposed the contract.
"For me, private money isn't cheaper than bonding with our stellar credit rating," said councilman Rafael Espinoza, who voted no, saying he did not see the need for a P3 structure.
Private financing is generally accepted to be a more expensive way of paying for a project. However, proponents of P3 projects say the entire life cycle of the asset needs to be considered when looking at the bottom line.
The airport and Great Hall Partners, the consortium of private partners involved in the contract, will share the costs of design and construction in the first four years of the project, Mindy Crane, another DEN spokesperson, said.
Over the next 30 years, Great Hall Partners will manage concessions in the terminal. They will be repaid for their initial investment by receiving 20 percent of concession revenues and payments from DEN, Crane said.
The airport will fund its costs through revenue bonds, cash reserves and other sources, Crane said.
The project is expected to create 400 to 450 construction jobs, more than 800 permanent jobs and "generate an additional $3.5 million in annual taxes and general fund revenue for the City of Denver," DEN said in a statement.
(Reporting by Stephanie Kelly; Editing by Daniel Bases and James Dalgleish)