Public-Private Partnerships

In an effort to deploy new technologies and create local jobs, some public and private entities are teaming up to establish mutually beneficial relationships.
By Erin Voegele | October 06, 2009
public-private partnership is a contractual agreement between a public entity and a private entity in which skills and assets are shared in order to ultimately provide a service or facility for use by the general public. Involved parties share the risk in exchange for the potential to reap the rewards. While this kind of relationship has traditionally been employed to provide municipal services, such as wastewater treatment services, or for projects designed, built and maintained by a private entity but owned by a public entity, a variety of communities are expanding the scope of these relationships to provide resources and support to technology startups as a way to create jobs in their communities.

According to Anita Molino, vice president of programs and energy institute chair at the National Council for Public-Private Partnerships, partnerships designed to spur job creation are likely to become more common in the future. She says these types of relationships may or may not include some type of financial component.

"I think [public-private partnerships] have been a big boon to the emerging technologies world," Molino says. Although many public entities, such as city and state governments, are struggling with the same recession-induced financial limitations that currently plague the private sector, there is a wide variety of resources—other than direct financial support—that cities and states can offer startup companies. Examples of this type of non-financial support include access to city resources and work spaces.

"The fact is [small start-ups] are the future provider of green jobs and it is, in fact, small businesses that continue to provide the most job growth," Molino says. The creation of jobs not only helps a municipality retain and attract citizens, but also benefits the local government through the expansion of the tax base and new sources of revenue, she says.

Toledo Takes a Risk
The city government of Toledo, Ohio, recently established a public-private partnership with SuGanit Systems Inc., a cellulosic ethanol start-up company headquartered in Virginia.

SuGanit was established in 2006 by Praveen Paripati, who also serves as the company president and CEO. Since its inception, the company has been working in collaboration with the University of Toledo to develop a feedstock flexible cellulosic process. "We've been working on a technology that will be able to make cellulosic ethanol from grasses such as switchgrass, agricultural residues like corn stover, and forest waste and trees," he says. "The technology is able to convert very different types of feedstock into sugars. From those sugars we can make ethanol or other chemicals."

There are two primary components of SuGanit's technology. One is a pretreatment process that is designed to make enzymatic hydrolysis more effective. The second is a process that will allow the company to convert C5 sugars into ethanol using regular yeast. Both technologies have been licensed from and co-developed with the University of Toledo.

"[The pretreatment process] is based on ionic liquids that help make cellulose and hemicellulose amenable to enzymatic hydrolysis," Paripati says. The second component of the technology uses a chemical process to convert certain C5 sugars into sugars that traditional yeast can utilize. In this way, Paripati says the process does not require the use of genetically modified yeast.

Ryan Reiter, a development technician in Toledo Mayor Carty Finkbeiner's office, spearheaded the efforts to form a relationship between SuGanit and the city. He says the whole concept of the partnership is to help expedite the development of SuGanit's technology. "To do this, we are sharing some of our resources with him," Reiter says. Paripati and Reiter first met in mid-2008. "My initial task was basically to convince him to open up shop here in Toledo," Reiter says. "My job [in the economic development office] is to help create jobs." This includes helping start-up companies reach the point where they can begin to hire employees.

When considering the formation of a public-private partnership with an entity, Reiter says the city analyzes two aspects of the potential project—its ability to create jobs in the community and the potential for a clear payoff for taxpayers. The relationship formed with SuGanit is expected to achieve both.

"In the short term, this project is going to save the city of Toledo more than $250,000 on an annual basis," he says. "Long-term, it is going to create jobs." The project is expected to save the city a substantial amount of money because SuGanit's future facility will utilize waste feedstocks that the city currently has to pay to dispose of, including leaves, grass clippings and tree waste.

Although not all public-private partnerships include a financial component, the city of Toledo is offering SuGanit some financial incentives. According to Reiter, the company will receive a 30 percent rebate on its local payroll taxes for three years under the Toledo Expansion Incentive program. In addition, if SuGanit selects a qualifying property in which to establish its full-time operations, the company could also qualify for some property tax abatements. In the event SuGanit hires more than 25 people, it would also be eligible for some state tax incentives.

The city is also offering SuGanit a variety of non-financial resources. It is assisting SuGanit in the procurement of feedstock and is willing to act as a resource in connecting Paripati with others in the community. When the time comes, Reiter says he will also help SuGanit navigate the red-tape of the permitting processes for both the pilot-scale facility and a commercial-scale facility.

The local port authority has also offered SuGanit assistance with the possibility of locating a cellulosic ethanol production facility at the local port. While Reiter says the city government is not currently involved with the establishment of SuGanit's pilot facility, it is willing to offer assistance in that area as well.

Once pilot-scale production of cellulosic ethanol begins, the city plans to fuel select vehicles in its fleet with SuGanit's ethanol. The city will also conduct mileage and emissions testing on these vehicles, as well as supply SuGanit with a fuel storage tank and pump to be used to fuel the test vehicles.

"The University of Toledo is also playing a critical role in this project," Reiter says. The university houses the Wright Center for Photovoltaics Innovation and Commercialization, which is a business incubator with available office and lab space in which SuGanit has set up temporary operations.

Forming relationships with city governments can benefit start-ups in other ways as well. "The fact that you've got the local mayor's office and economic development on board [with your project], helps give you credibility," Reiter says. "Right now, a lot of these alternative energy startups need credibility. It is very hard to get funding as a start-up." This credibility can often help start-ups secure needed grant funding. "It does give companies a leg up from a federal and state funding standpoint when they show they are getting local government support," Reiter continues.

Partnership Considerations
Molino says a private entity should consider a variety of factors before establishing this type of relationship with a local government. This includes gauging the willingness of the public entity to become actively involved in the project, as well as the regulatory environment of the community. She says regulation can be a real burden for start-up companies. "To the extent that communities can provide one-stop shopping for permitting and other forms of regulation is very helpful to these companies," Molino says.

Although money is always a primary concern for start-ups, Molino says it is important not to overlook the tremendous benefits of the many non-financial resources a community may be able to offer. "Money is important, but one should certainly not overlook the tremendous benefit a willing, able public participant can be," she says.

"The city of Toledo has turned out to be an enthusiastic supporter of this new technology," Paripati says. "[City leaders] are looking for economic development [opportunities], and cellulosic ethanol seems to have caught their fancy. Having the kind of support we are receiving from both the city of Toledo and the state of Ohio has convinced us to try to do the whole development process and also have a commercial-scale process in the Toledo area. It's always good to have a broad base of support in the community you are trying to develop a business in. When the local authorities and the state are not keen in creating these new technology developments, it is hard to develop commercial plants."

Reiter says that given the current economic climate, he thinks public-private partnerships make a great model for helping new businesses develop. He notes that the city has no equity stake in Su- Ganit or its projects. "We are not getting in the business of cellulosic ethanol, we are just helping [SuGanit] out and sharing our resources with [the company] in an attempt to create jobs."

Paripati encourages other start-ups to be open to forming similar types of relationships with public entities. "Government institutions are typically meant to help the economy develop," he says. "We should take the long view and try to develop long-term partnerships that [benefit] both the local government and the company." EP

Erin Voegele is an Ethanol Producer Magazine associate editor. Reach her at evoegele@bbiinternational.com or (701) 373-8040.