Category Archives: Finance/Funding

Infrastructure funding in the news

What makes good infrastructure? A financier’s perspective…

As we all know, creating successful infrastructure that fulfils its purpose is a multi-faceted affair. It takes political and social will coupled with expertise from the developers, designers, engineers and contractors to plan and build effectively. But before the first foundation stone is even loaded onto the lorry, someone has to foot the bill. We spoke to Brian Field, Urban Planning and Development Adviser of the European Investment Bank and one of the WIN Awards judges, to get his personal take on what turns the financiers onto – or off – a potential project…

Field’s answer to that first question is a straightforward one. “Investors and financiers are clearly looking for an adequate rate of return, although what this actually means will depend on the nature and substance of the project in question.”

It stands to reason that all the stakeholders involved want to see the project succeed. While the civil engineers might lose sleep at night over tangibles such as materials turning out to be unsuitable, or unforeseen geological issues, we asked what might keep a financier awake in the small hours. Field replies, “Once a project is underway, from a financial perspective the key issues are whether it will be delivered on time and on budget and, more generally, whether it will deliver on its promises.”

He is a believer that “best practice in infrastructure design and delivery can only benefit our industry”, so what – to him – marks out a truly successful infrastructure project? “For me, a successful infrastructure project is one that does indeed deliver on its promises, but also benefits the community at large.  It needs to meet basic financial sustainability criteria, including adequate cost coverage for the developer/promoter at the required level of service, including the ability to repay the providers of funds, affordable rents and charges for those using the service where these apply, and value for money for the tax payer.

“However, in satisfying such requirements, it should also meet basic social and environmental sustainability criteria by addressing or mitigating the impact of its development on the natural environment.  It sounds like a tall order, but there needs to be a balance.”

Bridging the blue Danube at Bratislava

When asked what excites him most about a quality infrastructure project, Field comments, “The role of major infrastructure projects as “agents of change” cannot and should not be underestimated.  For me a “quality” infrastructure project is one that is a positive agent for such change. A good example that I think has made a real difference is the Apollo Bridge in Bratislava, Slovakia, a project in which I was involved.

“The bridge itself was planned many years ago and was an aspiration of the municipal authorities even in the Soviet era – as reflected in spatial plans dating back more than 60 years.  The original intention was improve the link between the central area of Bratislava and what was originally developed as a dormitory settlement with large panel-block apartment buildings on the other side of the Danube in Petrzalka.  In the event, the building of the bridge has delivered on all of its promises and more.  It has not only addressed the perceived problems of separation of Petrzalka from the central area of the city, but has also facilitated the regeneration of Petrzalka itself as a thriving district within the broader Bratislava conurbation.”

Completed in 2005 by Metro Bratislava, the bridge is not only remarkable for the regeneration it has brought with it. In an extraordinary feat of engineering, the 5,240-ton steel structure, spanning 231 metres, was rotated across the river from its construction site on the left bank into its final position on a pillar 40 metres from the right bank. The Apollo Bridge was the only European project to be selected as one of the five finalists for the 2006 Outstanding Civil Engineering Achievement Award (OPAL Award) by the American Society of Civil Engineers.

Having established what ticks the boxes for him in terms of infrastructure, Field goes on to explain what he sees as some of the most typical stumbling blocks for new projects. “In conception, infrastructure projects, and particularly large ones, often come with significant political risks that can be a serious pitfall. There are also social and environmental risks that are an increasing focus of public concern and can prevent projects taking off. Meanwhile, once a project is accepted in principle, then funding and procurement can be a problem, a problem often exacerbated by the size of the project in question.  Construction risk comes into play once project implementation is underway and can, once again, be significant.”

Getting infrastructure off the ground in Europe

To help address the funding issues touched on by Field, in collaboration with the European Union and other partners, The European Investment Bank (EIB) currently offers a number of initiatives to offer advice and financial help to EU member states. We asked Field to give examples of where this support has proved to be of significant importance.

Starting with JASPERS (Joint Assistance to Support Projects in European Regions) – created specifically to boost infrastructure in the 12 new member states joining in 2004 and 2007 – he cites the Sofia Metro in Bulgaria as an excellent example of how such support has played a key role in moving forward the construction of an urgently needed mass transportation system. Although planned as far back as the 1960s, work on the city’s new rapid transit network kept stalling. Problems encountered included the unearthing of major Thracian and Roman archaeological finds, the city’s homeless taking shelter in the half-finished tunnels, and a crucial lack of funding.

Enter JASPERS to the rescue with the technical advice that helped the project win the vital EU funding that eventually enabled work to start in earnest in 1998. So far two lines – M1 Red and M2 Blue – have been completed and a third line, the M3 Green, is in the early planning stages. The project design contract has been awarded to the Czech company, Metroprojekt Praha.

Another EIB product is JESSICA (Joint European Support for Sustainable Investment in City Areas). Field explains, “JESSICA was not initially conceived as an infrastructure funding vehicle, but was designed to facilitate urban regeneration and renewal which had otherwise been prevented or stalled by market failure and/or imperfections; such projects are frequently multi-sector and can be quite complex.  In any event, a recently launched JESSICA operation in Sopot, Poland to develop a new railway station and regenerate the built environment in the station’s immediate vicinity – including development of commercial buildings, a hotel, and parking areas – is a good example of where a relatively modest financial injection can make a significant difference in kick-starting an operation.”

The EPEC (European PPP Expertise Centre) focuses its activities not on projects per se, but on the provision of advisory services that help to create structures to facilitate delivery of robust PPPs. Field tells us, “To this end EPEC has been very active in Greece and Ireland, and is currently very busy in Romania.”

Field goes on to talk about the LGTT (Loan Guarantee Instrument for Trans-European Transport Network Projects) scheme, “An excellent example of where exploitation of the loan guarantee scheme has facilitated the development of a large scale infrastructure project is the Bordeaux-to-Tours link of the LGV Sud Europe Atlantique high speed railway line, which brings high speed rail services to south-western France.”

Overall investment on the new link totals 7.8 million euros, of which 1.2 billion has come from the EIB via LGTT financial instrument. The project got the go ahead in June 2011 and will take six years to complete, cutting journey times from Paris to Bordeaux to 2 hours and 5 minutes. The tracks will be 340 km long with 17 connecting lines, and about 400 civil engineering structures including 19 viaducts and 7 cut-and-cover tunnels.

When you consider that this is just one of EIB’s pan-European projects, it’s worth keeping an eye out for opportunities as and when funding is granted. Regular announcements are made on the bank’s website www.eib.org.

The opinions expressed in the above interview are those of Brian Field and not those of the EIB.

Industry Reaction to UK Infrastructure Plan

The recent infrastructure investment package announced last week by the UK Government sparked a mixed bag of responses from the industry.

Everyone knows the importance of investment in this sector, but how much of this is political rhetoric and how much is real commitment?

Katja Hall, Chief Policy Director at the Confederation of British Industry (CBI), the UK’s business watchdog, was reticent; “We must change the current patch-and-mend, stop-start approach to repairing the road network. Giving the Highways Agency long-term funding means it can’t fall victim to the short-term whims of ministers and allows contractors to plan for the future with confidence.”

“This is only the first step. We need a radical overhaul in how we pay for and manage the road network to attract long-term private investment, instead of relying on ever-tighter public funding.

“Bringing forward the A14’s start-date is a huge shot in the arm of the regional and wider national economy. We now must nail down the detail of how we fund it.”

“The HS2 project is important but it needs to wash its face. Industry, investors and taxpayers need confidence that the business case and programme management is watertight. Given wider public spending constraints, ministers need to keep very firm control of costs.”

David Tonkin, Atkins’ UK and Europe chief executive officer called for an integrated plan; “It is encouraging that the UK has a strong pipeline of infrastructure projects and that some schemes such as HS2 are already underway, but more detailed planning is required to translate the longer list of opportunities from paper to tangible progress.

“Each project needs a clear definition of what it aims to achieve and clarity on the funding available from Government and any additional investment required from the private sector. A detailed and integrated industry plan can then be developed and adopted for its delivery. Having these basic steps in place will provide the confidence to attract necessary private and institutional investment and will allow the supply chain to add more value and deliver the infrastructure more efficiently.”

Chris Temple partner at PricewaterhouseCoopers’ (PWC) engineering and construction called for transparency, 
”The announcement to support the construction and house building sector with major investments is welcome in theory, but we will need the details to be transparent and for the Government to adopt an ‘act now’ approach to avoid any further stagnation. 

”The £3bn to kick start the 165,000 new affordable homes is an ambitious commitment and will be a welcome change from the current low levels of funding into the sector. We will also need to see a commitment towards better connectivity between financiers, suppliers, contractors and buyers to enable this ambition to be realised.”

Sue Percy, Chief Executive of the UK’s, Chartered Institute of Highways & Transportation (CIHT) called for a multi modal strategy;

“Whilst we welcome the investment outlined for the highways sector, CIHT believe that this must form part of a long-term multi modal strategy. This and future investment must not only be in large-scale high profile schemes but also in smaller scale projects that can have a direct positive impact on local communities and economies.”

“Everyone relies on or uses transport daily, integrated transport is fundamental to the economic, social and environmental wellbeing of the community. The whole transport network (including rail, buses, walking & cycling) is important to different users in different ways and must be effective to provide a safe and efficient level of service.”

Other voices in the media highlighted the fact that the investment package announced covered commitments already made to projects already underway and labeled it misleading…

Tell us your views and post your comments below.

Richard Greenan


US transport infrastructure: time to bridge the funding gap

The recent spate of bridge collapses in the US provides a graphic illustration of the state of the nation’s aging infrastructure. The American dream of big cars and freeways has run its course…

Funding the vital infrastructure upgrade is taxing both state and federal administrations…

Gail Taylor reports

So how big is the issue? Statistics from the US Federal Highway Administration (FHWA) state that some 68,842 bridges – more than 11% of the nation’s total highway bridges – are classed as ‘structurally deficient’. Such bridges are defined as needing significant maintenance, rehabilitation or replacement. Add to that The American Society of Civil Engineers’ 2013 Report Card for America’s Infrastructure which currently rates US bridges at a middling C+ and the picture’s not looking too rosy. According to ASCE there’s also a significant percentage of bridges classed as ‘functionally obsolete’, with the average age of a US bridge currently standing at 42. Many of the bridges built in the great infrastructure boom of the 50s and 60s were only designed and built with an intended lifespan of around 50 years.

Alarming as these figures sound, there has been some improvement over the past two decades: back in 1992 a massive 22% of bridges were deemed structurally deficient. The ASCE also claims that most of America’s bridges are regularly inspected and are “extraordinarily safe”. However, with rapidly dwindling state and federal funding for on-going maintenance programmes, there’s a large and brooding question mark over how to keep such progress going in coming years.

Quote_2
It’s a question that needs some progressive answers urgently, because as the ASCE’s Managing Director of Government Relations and Infrastructure Initiatives, Brian Pallasch, states, “America’s bridges and roads are the foundation for connecting our communities and businesses. Our transportation infrastructure is essential for connecting our lives to an ever-expanding world of opportunity. However, the Federal Highway Administration estimates that to eliminate the nation’s bridge deficit backlog by 2028, we would need to invest $20.5 billion annually, while only $12.8 billion is being spent currently.”

The cost of not spending money
Not only is there potential damage to both local and national economies to consider, there’s the threat to human lives. Although being rated ‘structurally deficient’ doesn’t necessarily mean that a bridge is unsafe – and collapses are mercifully rare so far – when a bridge does fail the consequences can be catastrophic. Notable tragedies in recent years include the collapse of the Queen Isabella Causeway in Texas in 2001 in which eight people died. Then five years ago in 2007, the world looked on horrified as the 35W bridge collapsed into the Mississippi River, killing 13 and injuring 145.

Next came WashingtonState. On 27 May 2013, the four-lane interstate 5 bridge collapsed about half-way between Seattle and Vancouver. It now seems the failure was caused by a truck’s load hitting one of the overhead trusses, but interestingly the bridge was not classified as structurally deficient as first reported. It was however, functionally obsolete and, in common with thousands of US bridges, ‘fracture critical’. In other words it would only take one component of the bridge to fail or be seriously damaged for the whole structure to crumple. Several vehicles were sent plummeting into the icy waters of the SkagitRiver, but thankfully there were no fatalities this time round.

What’s going wrong?

James Corless, Director of Transportation for America – a non-governmental organisation advocating investment in fixing existing infrastructure – states, “While this particular bridge was not considered structurally deficient at the time of its shocking collapse, it is one of thousands that are well past their intended lifespan and carrying far more traffic than intended at the time they were built. Considering that progress on repairing deficient bridges has slowed in the last ten years, Congress took a major gamble in last summer’s new transportation law by eliminating dedicated funding for repairing highway bridges. Now bridge repair is forced to compete with other transportation needs for funding.”

Quote_3And therein lies part of the rub. Many states have been using funding from the ailing federal Highway Trust Fund to plough into new infrastructure, rather than devoting it to maintenance and repairs. Quite simply, a beaming state official cutting the ribbon on a flashy new project makes for better PR vote-wise than an engineer in a hard hat fixing an old bridge. Perceived wisdom is that new infrastructure equals new jobs and a boost to the economy, which of course it does. However, according to Transportation for America repair work on roads and bridges “generates 16 per cent more jobs than construction of new bridges and roads”.

Another important factor is a reduction in revenue from both federal and state motor fuel tax, referred to as ‘gas tax’, through which state governments have historically paid for a large part of their transportation infrastructure costs. Gas tax has not risen since 1993, Americans are driving less according to the US Department of Transportation, and the cars they drive are more fuel efficient. Gas tax is paid into the Highway Trust Fund, but the combination of falling revenues and massive demands on the Fund have led to a prediction by the Congressional Budget Office that it will be bankrupt by autumn 2014.

Funding the way forward

A report published by The Heritage Foundation in 2012 states, “Governments clearly need to find some source of funding in the coming years to rebuild the ageing road network that has fostered US economic productivity for the past 50 years. The federal government is steadily backing away from this responsibility, but it still restricts states’ options for financing and modernization of their own roads. If Washington is not going to be part of the transportation solution, it should simply get out of the way and let states find their own ways forward.”

Some states have already implemented their own funding programmes with great success. Glenn Myers is Chief Technical Professional – Transportation for civil engineering giant, Atkins Global (North America). He comments, “Many bridge owners – state, county or municipality – are also turning to tolling and Public-Private Partnerships (PPPs) to fund capacity improvements and some rehabilitation projects.”

And funding needn’t necessarily come from domestic investors alone. Myers continues, “A number of international investors have already provided financing for several PPP projects in the US.” One such example is that of global specialist in project finance, Macquarie Capital, which has backed a number of US projects including the Port of Miami Tunnel.

Quote_1While PPPs can be a very valuable tool, as evidenced by neighbouring Canada’s successful and increasing use of them, they cannot provide the entire solution. To this end, a number of federal initiatives have been put in place. Myers continues, “Funding not only has to address ageing bridge infrastructure, but also address increasing capacity demand of functionally obsolete highways and bridges. The funding requirements to meet the needs of all the infrastructure in the US is tremendous. To help address the funding issue, U.S. Rep. John Delaney (Democrat-Maryland) introduced The Partnership to Build America Act (H.R. 2084) with bi-partisan support, co-sponsored by 13 Republican and 13 Democratic representatives. This bill proposes to create financial resources to help upgrade the nation’s aging infrastructure, creating a $50 billion American Infrastructure Fund (AIF) that could be leveraged to $750 billion.”

Last year’s Moving Ahead for Progress in the 21st Century (MAP-21) Bill has set aside £1 billion for projects of national and regional significance and extended the Transportation Infrastructure Finance and Innovation Act (TIFIA) credit support programme. This can now led up to $750,000 million in financial year 2013 and $1 billion in 2014. Discretionary grants are available from the US Department of Transportation’s Transportation Investment Generating Economic Recovery (TIGER) programme which has $473.847 million in its coffers this year.

Whatever route Congress and individual states do eventually choose adopt, there is no doubting the US has come to that bridge and it is now high time to cross it. When it does, as Myers concludes, “Business opportunities for engineering firms and associated businesses will follow the funding.” There is certainly plenty of work out there to be done.

Gail Taylor

Philip Bates, director of strategic transport at Buro Happold responds;
http://www.wantoday.com/wia_blog/2013/06/19/comment-philip-bates-director-of-strategic-transport-buro-happold/


 

PPP launched to fund infrastructure development in South East Asia

Release from Asian Development Bank (ADB) and International Enterprise (IE) Singapore

NEW DELHI, INDIA – The Asian Development Bank (ADB) and International Enterprise (IE) Singapore today signed a Letter of Commitment to launch a public-private partnership (PPP) initiative to catalyze infrastructure development within ASEAN. The initiative will see ADB work with Singapore agencies, led by IE Singapore, to enhance private sector participation and investments in regional PPP projects.

Based out of Singapore, the initiative is proposed to be funded at $9 million over three years. This amount is jointly committed by ADB and Singapore government agencies, led by IE Singapore.

This is one of the first concrete initiatives put in place following the Memorandum of Understanding signed between the Government of Singapore and ADB last year to strengthen cooperation for sustainable growth in the region.

It aims to help address the region’s pressing infrastructure development needs, building towards the establishment of the ASEAN Economic Community (AEC) by 2015. ASEAN’s infrastructure needs are estimated at $60 billion per year over the next decade.

The signing ceremony for the Letter of Commitment took place today during the ADB’s 46th Annual Meeting in New Delhi, India, witnessed by Singapore Deputy Prime Minister and Minister for Finance, Tharman Shanmugaratnam, and ADB President Takehiko Nakao. It was signed by IE Singapore’s Deputy Chief Executive Officer Chua Taik Him, and confirmed by Kunio Senga, ADB Director General of the Southeast Asia Department.

“Despite strong growth in the region, Southeast Asia’s infrastructure coverage lags behind the Asian average. The needs are well beyond the funding capacities and fiscal resources of governments and multilateral development banks,” Mr. Senga said. “It is crucial to involve the private sector in infrastructure financing if ASEAN is to continue building and growing.”

“Singapore-based companies have an established track record implementing PPP projects in Singapore and overseas. Singapore also has a strong financial sector with comprehensive capabilities to support infrastructure financing. The initiative strengthens the involvement of private sector investors in infrastructure projects in the region and enables them to share their expertise with host countries.” said Mr. Chua.

The initiative will work with governments in the region to structure PPP projects, tapping into ADB’s regional operations and outreach to ASEAN member countries. It also aims to explore ASEAN’s capital markets to finance or refinance these PPP projects. Areas that the initiative will fund are wide-ranging, covering power generation, water management, transport infrastructure, and more.

Targeted to begin operations in the second half of 2013, the initiative will be run by a core team of specialists. Representatives from ADB and Singapore agencies, led by IE Singapore, will jointly oversee the initiative’s operations.

Finance package unveiled for London Battersea Tube link

Wandsworth Council is set to agree to an innovative financing package for an extension of the Northern Line to Battersea.

The proposal, which has been worked up over the past year between Wandsworth and Lambeth Councils, the GLA and HM Treasury,  would use Enterprise Zone legislation to capture local business rates revenue and channel it into the delivery of this major infrastructure project.

This is the first time such a scheme has been brought forward in England and could set a new blueprint for financing growth and job creating transport schemes.

The proposal involves the GLA borrowing up to £1bn to pay for the Tube extension, with a repayment guarantee provided by the UK Government to minimise borrowing costs.

Loan repayments would be made through two revenue streams:

1)            Contributions from local developers collected by the local authorises under the section 106 and Community Infrastructure Levy (CIL) regimes.

2)            The growth in business rates revenue within a new ‘Nine Elms Enterprise Zone’ which would include the regeneration area’s key development sites. The zone would stay in operation for at least 25 years.

A map showing the proposed areas of Wandsworth and Lambeth included in the zone can be viewed at: http://ww3.wandsworth.gov.uk/moderngov/documents/s26642/13-135%20Northern%20line%20Extension%20Appendix%202.pdf

Over time these funding sources are expected to cover the complete repayment of the loan.

Enterprise Zones usually offer incoming businesses a discount on their rates bills to stimulate growth and investment. In this proposal, it would be used purely as a mechanism to fund the Northern Line Extension. There would be no changes to planning powers within the zone, which would remain under the control of the local authorities.

The financing package would need to be agreed by Wandsworth Council, Lambeth Council and Transport for London before it can included in an application to build the scheme under the Transport and Works Act. TfL plans to submit this application by the end of April and the three authorities will decide whether to approve the plans before then.