By John Cox, The Bakersfield Californian, 04.19.2011

April 19--For a massive infrastructure project beset by severe challenges at virtually every turn, a rare dose of good news surfaced last week at the Los Angeles Convention Center.

Hundreds if not more than 1,000 business people showed up to the California High-Speed Rail Authority's Industry Forum to find out how they might participate in the $43 billion project proposed to link Los Angeles and San Francisco by 2020.

Not surprisingly, the vast majority of companies represented that day hope to win lucrative contracts to design or build the project. But a select few -- 22 in all, including some pension funds, according to the rail authority -- hope to invest in the project in expectation that doing so will return them a profit.

If even a few of those preliminary "expressions of interest" lead to actual deals involving cash, trains or other tangible contributions, it could help the rail authority fend off attacks by critics who contend that the project is too political and poorly conceived to attract the $10 to 12 billion in private sector money the authority expects to cover about a quarter of the project's budget.

As rail authority CEO Roelof van Ark proclaimed to his audience April 12, bullet train systems around the world thrive in the hands of private companies long after government-funded construction ends.

"The real high-speed rail systems in the world generate cash," he told reporters at a press conference later that morning.

Representatives of large international firms and consortia present at last week's event confirmed that they look forward to sitting down with van Ark to negotiate terms for making large investments in the project.

John McGrath, project manager and business developer for ACS Infrastructure Development Inc., a Spanish-owned rail contractor with offices in Florida, said the company is open to helping build, maintaining and operating all or part of California's bullet train system. He said ACS plans to bring money to the table.

Asked whether he thinks van Ark's vision is going to be profitable, McGrath said, "I believe it is."

Challenges ahead

But it remains unclear exactly how and when private sector deals might come together. Also, doubts persist as to whether the rail authority will be able to reassure would-be investors that the project will be fully built as proposed.

Uncertainty with regard to the project's public sector financing poses a significant hurdle. The Obama administration's budget deal with Congressional Republicans earlier this month slashed all $2.5 billion in 2011 high-speed rail funding, though van Ark insisted that his agency retains access to $5.5 billion in state and federal money -- enough to build the initial segment from north of Fresno to about Bakersfield starting next year.

Some say the lack of a federal commitment to finish the project will jeopardize private investment.

"It's very difficult to put a long-term plan together not knowing if you're going to be funded next year," said Stephen Buschmeyer, vice president of business development at Tutor Perini Corp., a large, Sylmar-based construction firm that he said has tentatively offered to perform and finance some of the system's construction in exchange for an equity stake in the project.

This dilemma -- private sector reluctance to invest in California high-speed rail without adequate public sector commitment, and vice versa -- came up last year in a highly critical report to the state Legislature by an industry peer review group.

The report said that resolving this problem, which it termed a "chicken-and-egg" conundrum, will require the authority to finish a full business plan complete with realistic revenue projections and a business model spelling out things like who will operate, maintain and build the system.

Speaking last week on his own behalf, the group's chairman, Will Kempton, CEO of the Orange County Transportation Authority, said he was encouraged by the fact that 22 entities have expressed interest in investing in the project.

But he also said the authority needs to complete its business plan as soon as possible, if only to allow future partners to provide key input while the system is still in a formative stage.

"The operator will bring a wealth of knowledge or input into the design," Kempton said.

Still more urgent calls for a business plan have come from state Treasurer Bill Lockyer. He said through a spokesman that because of an unclear overall plan for the project, investors continue to demonstrate "tepid" interest for $9.95 billion in general obligation bonds approved by California voters in 2008 to provide the state's share of the project.

Lockyer spokesman Tom Dresslar said investor reluctance does not necessarily hinder the bond sales but that they seem like a misplaced priority as California struggles with other pressing infrastructure needs.

"The real issue is not so much whether we can sell high-speed rail bonds," Dresslar said. "The question is, should we sell high-speed rail bonds?"

Rail authority staff acknowledge that a full business plan is necessary, and say they expect to meet the Legislature's October deadline for a draft of the document. The agency blames the delay on a staffing shortage that Kempton's group has also pointed to as being problematic.

Working out details

It may be that the business plan, as well as the long-term future of the project, will be guided by talks that kicked off at last week's industry forum in Los Angeles.

As far as what form the contributions from the 22 potential private sector investors could take, Van Ark and members of his staff said they are keeping an open mind for now.

Van Ark told his audience at the industry forum about different models that exist in Europe, including a toll road-type arrangement in which private companies are granted government concessions to maintain and operate a portion of high-speed track over a set period of time.

But he quickly backed away from that level of specificity, saying moments later at the press conference that it was "too early to say" what type of public-partnership might work best in California's case. In fact, he declined to be specific in any way about what kinds of public sector partnerships he would consider.

"All the interested parties today could well become partners of ours," he said.

Some of the large consortia at the forum agreed that keeping an open mind on public-private partnerships seemed like a wise approach, even as some said certain details must come forward soon.

Arvind Kapoor, representing a joint venture between General Electric Transportation and CSR Corp. Ltd., also known as China Southern Railroad Group, said the partnership hopes to manufacture trains for the bullet train project, and that it "would be willing to look at" a public-private partnership with the rail authority.

Among the many details yet to be negotiated, Kapoor said, are how much money the partnership would involve. But first GE and CSR need to know more about how the train system would be run, he said.

"I think there's a lot to be seen from the project side," he said.

The assistant president and director of business development for China Construction America Inc., Frank Zhang, said his company, owned by China State Construction Engineering Corp. Ltd., hopes to enter into a public-private partnership to design, build and possibly operate California's high-speed rail project, "depending on terms."

Zhang said the company awaits many important details of the project, but that the lack of information is not yet a problem.

"It takes time," he said.