Political dithering not financing structure is still the investment killer

I was leading a round table discussion this week chewing over the global challenge of financing vital infrastructure projects in a post-economic downturn, risk-averse era. 

Antony Oliver
26 February 2014

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Despite global consensus behind the notion that economic and social growth stems from investment in decent transport, water, power and housing infrastructure, the projected global investment need of perhaps $57trillion by 2030 remains eye-watering.

Of course, sitting as we were in London, the discussion didn’t fail to note the scale of the infrastructure challenge facing the UK right now. In short, it is also immense. 

As I was reminded at another event the week before, hitting the targets set by the UK National Infrastructure Plan means that over the next couple of years annual infrastructure investment has to ramp up from the current rather pedestrian pace of around £18bn a year to something closer to £45bn.  

And with 65% of this expected to come from the private sector, the obvious question remains as to how the investment pace is going to be lifted? 

The answer of course, is that it almost certainly isn’t going to be. 

Back in the world of reality, while there is an appetite for investing and plenty of money around globally to invest, there simply are not sufficient “quality” projects – as the bankers might say – to enable the required investment levels to be met.

By quality we are not talking about the project’s ability to deliver transport services or water supplies or power to the grid – although this certainly remains fundamental. In today’s risk-averse world, quality means the project’s ability to deliver a consistent return on investment with the right risk profile and over the right length of time. 

And that means potential investors being able to see where the funding is going to come from to repay the investment and having confidence that it will not suddenly change over the long term. 

Oh, how things have changed in the last 20 years since the days of the UK water and power privatisation, regulatory reform and private finance initiatives when, as London First chief executive Jo Valentine points out this week in Infrastructure Intelligence, global investors piled in to the UK to pay for the much-needed infrastructure upgrades. 

Not so today, where the current risk profile of many projects is such that potential investors are more likely to head for alternative destinations abroad.

Without question mistakes were made with the UK’s early forays into private investment for public assets. But that should not be used as a reason to cease pioneering. 

It is time government woke up and took the lead. Rather than ministers protesting that our road network is best off relying on public cash, they must surely embrace the fact that UK infrastructure will only be renewed - as we know it must be – with the involvement of private investment. 

One way or another, the consumer will pay.  Government‘s job is to provide the necessary leadership and support, take difficult decisions and make long term policy. 

It is, after all, dithering by politicians not project finance structures that kills off investment opportunity.

Antony Oliver is the editor of Infrastructure Intelligence.