黑洞社区

UK consultants are well placed to capitalise from trillion-pound investments in global infrastructure but a lack of finance is stymying markets closer to home.
These were the key themes to emerge at 黑洞社区鈥檚 first Infrastructure Executive Forum held recently in London.

Global consultants joined investment bankers to discuss the state of project finance and to identify the next wave of emerging economic and high-growth infrastructure sectors.

Investing long-term

After the gloomy assessment of the current investment climate (see, How finance delivery broke, below) panel members looked at solutions to unlocking private sector project finance.

Berwin Leighton Paisner鈥檚 Mark Richards said the government could do more to stimulate long-term investment by providing a 鈥渃lear, coherent and independent regulatory framework鈥� for industries such as water, transport and energy. He said cancelling the third runway at Heathrow sent out the wrong signal to the investment community: 鈥淚f you start messing with the regulated assets it will turn off the investor community.鈥�

Richards said the National Infrastructure Plan (NIP) is a step in the right direction as it makes it clear to investors what sectors the government is focusing on, though it lacked detail on how the investment gap would be bridged.

Bond is back

The panel highlighted two initiatives to kickstart the funding of infrastructure through bonds: EU project finance bonds and the Hadrian鈥檚 Wall Capital Product.
The EU鈥檚 proposed project bond aims to enhance the credit worthiness of infrastructure bonds by using the European Investment Bank (EIB) to guarantee up to 20% of the project value. If the project was unable to generate sufficient cash to service its debt the EIB would step in with funds.

KPMG鈥檚 Richard Threlfall said there is a discussion in the Treasury about the Green Investment Bank providing the equivalent of EU project bonds. 鈥淔or government to take out that slice of risk is absolutely the simpler, most efficient thing to do,鈥� he said.

The HSBC鈥檚 Katrina Haley said that the government should put forward a pilot project to demonstrate the benefits of bonds. The Hadrian鈥檚 Wall product is a fund
that guarantees around 10% of a project鈥檚 funding requirement, which predates the EU project bond.

The future for these types of products looks promising, said BLP鈥檚 Richards, and credit ratings agency Fitch reported that the EU project bonds could improve credit ratings of large infrastructure projects and allow institutional investors back into the market.

With the government planning to fund 70% of its 拢200bn infrastructure plan through private sector funding, such as project infrastructure bonds, these methods of leveraging project finance won鈥檛 come a moment too soon.

The new gold rush

The second forum panel focused on where the estimated $60tn (拢37tn) of global infrastructure was going to be built, and the emphasis was East, not West.
The Middle East was still seen as having growth potential despite the uncertainty of the Arab Spring. Enrst and Young鈥檚 Malcolm Bairstow identified huge opportunities in Saudia Arabia, Kuwait, Qatar, Iraq, Afghanistan, and potentially Libya.

Nick Field of URS Scott Wilson was concerned about the 鈥渕omentous changes鈥� in the Arab world. 鈥淨atar is stable and Bahrain is always on the edge, but the real worry is Saudi Arabia which has high unemployment.鈥�

There was a difference in views on the Chinese market. Field was worried Chinese firms could pose a competitive threat: 鈥淲e鈥檙e now seeing Chinese contractors on the world stage and they鈥檙e beginning to innovate.鈥� But Norman Anderson of CG/LA said that China still had a long way to go, and would need outside help. A comment that seemed to be borne out by news last week that Arup had signed a deal with the China Railway Group to pool resources in pursuing global infrastructure opportunities.

Leveraging growth

Forecasts for huge growth in global populations was the underlying reason for infrastructure growth said Foster + Partners鈥� Huw Thomas. Demand from the new middle classes is unrelenting, he said, and this is driving urbanisation and the demand for energy, water and transport infrastructure. 鈥淔ive to seven years ago our clients saw what was happening and they started investing world-wide,鈥� he said.

Thomas said there are great opportunities to use infrastructure to leverage more investment in the local economy. He cited Saudi Arabia, where new sustainable cities are being planned along high speed rail lines.

Thomas believed UK consultants have the ability to unlock secondary value around infrastructure investments: 鈥淥ur ability to innovate is very important.鈥� He saw particular opportunity around transport hubs, such as ports and airports and said that more infrastructure could be leveraged through the extractive and energy industries. He said energy investment could unlock investment: 鈥淭he thinking about the way we tackle energy allows us to look at other things. Energy is a Trojan horse. It will allow us to develop around energy plants.鈥�

In the UK the panel said the focus was more on getting the most from existing assets than building shiny new infrastructure. Field said that the UK was investing only when absolutely necessary, such as in energy now when we鈥檙e about to run out of power.

Around existing infrastructure KPMG鈥檚 Threlfall saw an opportunity to link up underused airports. 鈥淲e don鈥檛 have to build a new airport on Boris island. There鈥檚 no reason why we can鈥檛 use existing runways.鈥�

Project manager super-league

The good news is that UK consultants are well placed to win the 拢1tn of global infrastructure work over the next five years, according to Ernst & Young鈥檚 Bairstow. He said there is an emerging global super-league of delivery partners and project managers which includes many UK companies.

鈥淲e have fantastic iconic design brands such as Fosters, Rogers and Arup. It鈥檚 a strong competent in the UK,鈥� said Bairstow. 鈥淏ut we should be better at productising what we do. We sell great project once but there鈥檚 no repetition.鈥�

CG/LA鈥檚 Anderson said the UK should build on well-known brand values. 鈥淵ou see UK firms leading the way in many places around the world. There is a giant opportunity to brand UK infrastructure and use it to strategically push higher level projects around the world.鈥�

It looks as though many of the UK鈥檚 construction professionals will be living away overseas for a while yet. Until the government can unlock global private sector finance there will be limited UK investment, which means consultants will be going global with their blue chip brands to build infrastructure for the next generation of global superpowers.