第1页 Introduction & Chapter 1

Introduction
Institutional financial investors with a long-term perspective, such as insurance companies, pension funds, sovereign wealth funds, endowments and foundations, are increasingly investing in infrastructure assets, therewith joining strategic investors such as construction, energy and utility companies who have done so for decades. This is because (conservatively structured) infrastructure investments provide attractive returns in a low-interest-rate environment and, additionally, serve to diversify and thus improve the risk-return profile of an investor’s overall investment portfolio on account of their low correlation with traditional asset classes.
The volume of private capital in infrastructure is expected to increase significantly in the future and to a certain extent will be essential to help close the aforementioned funding gap for the public sector and ensure further economic growth. This holds in particular for emerging economies.
We use the following common and practical definition throughout this book: Infrastructure generally describes all physical assets, equipment and facilities of interrelated systems and the necessary service providers, together with its underlying structures, organisations, business models and rules and regulations, offering related sector-specific commodities and services to individual economic entities or the wider public with the aim to enable, sustain or enhance social living conditions.
Typical examples of infrastructure include roads, airports, ports, oil and gas networks, energy generation, including renewable energy (e.g. wind, solar, hydro, biomass), water supply, waste water and waste disposal as well as social infrastructure, which includes public facilities such as schools, hospitals, administrative buildings and social housing.
Many investors are interested in the comparatively stable and predictable current income with moderate volatility and risk relatively independent of macroeconomic conditions, which is generated by a certain subset of infrastructure assets – return features shared by real estate or long-term, fixed-income investments. The long-term nature of infrastructure investments allows pension funds and insurance companies to use them to match the maturity structure of their liabilities. Infrastructure assets with this return profile are the driving force behind infrastructure’s reputation as an attractive asset class – a hybrid with characteristics of debt, equity and real estate.
It is the contractual structure that predominantly determines the risk-return profile of each individual infrastructure asset.
Chapter 1
Ultimately, the quality of a country’s available infrastructure is a vital factor in its future economic growth and, hence, must have first priority.
Already today, around the world, a significant proportion of infrastructure assets are in private hands. This is especially true for the telecommunications sector, to a lesser extent for power generation, transmission and storage and even less for transport, water, waste, and social infrastructure. It is expected that private money will continue to flow into these sectors because governments lack the means to finance and maintain publicly-owned and operated infrastructures, owing to pressure on budgets and tax-raising capacity. At the same time, in an ongoing low interest rate environment, investors will keep looking for attractive, long-term, low risk investment opportunities as presented by many infrastructure assets.
The global investment shortfall in infrastructure is estimated to be at least US$1 trillion per annum (WEF, 2014a). The World Bank estimates this excess demand at 1.3% of global gross national product (GNP) (World Bank Database, 2015). Meanwhile, the gap between the need for infrastructure investments and the ability of national budgets to meet this demand is continuing to widen throughout the world.
One particular challenge is financing the construction and operation of international, cross-border infrastructure facilities that are extremely important for the integration of international economic communities, as evidenced by the examples of the Trans-European Transport Network (TEN-T), the Trans-European Energy Network (TEN-E), and the Trans-European Telecommunications Network (eTEN).
One particular consideration is the substantial variation in economic growth combined with the national debt and existing tax and contribution ratios of the respective countries. Industrialised nations often show low levels of growth and rapidly dwindling scope for financing infrastructure via new borrowing or further increasing the burden on taxpayers and users. Therefore, it is important for these countries to realise efficiency benefits through the expansion, maintenance and operation of the existing infrastructure. As a consequence, these countries can only get hold of extra cash by making savings in their bureaucratic structures, in other words they need to cover future expenses by reforming their already overburdened administrative machinery and adjust their budgets accordingly. In this context, value-for money comparisons (effectiveness and efficiency) – both between infrastructure assets of the same kind and/or in the same sector as well as conventional procurement vs. private-sector participation/partnerships – play a decisive role. This is even more crucial once governments aim to attract private capital to fill the financing gaps.
In contrast, the financial liquidity aspect is considerably more important in high-growth countries, because the required infrastructure needs to be available for use as quickly as possible – ‘whatever the cost’ – in order to not only meet urgent needs but also further support economic growth. In a scenario reminiscent of the post-World War II economic boom in Germany, the aim here is to offset the resulting new (government) debt with growing revenues generated in other areas. In both cases, though, the acquisition of private capital to supplement governments’ efforts is one of the primary objectives.
According to estimates by the World Bank, global operating and maintenance costs for existing infrastructure assets alone amount to 1.2% of global GNP, almost equal to the excess demand for new investments of 1.3% mentioned earlier (World Bank Database, 2015). These costs may be due in part, although by no means exclusively, to overall rising rawmaterial costs.
The growth in healthcare costs and pension obligations owing to an ageing population accompanied by reduced tax receipts has led to a further deterioration in the financing options available to governments. In high-tax countries, such as Germany or Scandinavia in particular, tax increases are not a feasible option for funding infrastructure assets. Using fixed-income securities as alternatives has a negative impact on the public purse and the financial rating, plus it can be used to finance only an extremely limited number of projects. In short, the current public policy and regulatory and planning frameworks in most countries appear inadequately equipped and structured to tackle the multifaceted challenges facing infrastructure development in general and sustainable infrastructure in particular over the next 25 years.
According to the comprehensive two-volume Infrastructure 2030 OECD study published in 2006/2007 – this is still the only study of its kind to which all newer studies keep referring – government spending on infrastructure in OECD countries amounted to 2.2% of GNP between 1997 and 2002, compared with 2.6% in 1991–1997 (OECD, 2006, 2007). A more recent OECD report on transport infrastructure only shows that investment rates for OECD countries have decreased even further from 2002 to 2011, floating between 0.8 and 0.9% of GNP (OECD/ITF, 2013).
In high-growth countries, the imbalance between capital supply and demand is many times greater. Estimated annual investments of 5–9% of GDP would be necessary to maintain the projected growth in these countries and facilitate the projected investment needs of US$460 billion over the coming years. According to the OECD, none of the countries concerned will be able to implement these measures without the support of the private sector. Globally, infrastructure investments will need to increase by 60% over the next 18 years to meet demand, following the 2013 McKinsey report cited above. A 2014 report from Swiss Re estimates that annual global infrastructure spending needs to increase from US$2.6 trillion in 2011 to around US$4 trillion by 2030 (Swiss Re, 2014).
Environmental, social and governance (ESG) risks: Environmental risks relate to, for example, physical damage to infrastructure assets from climate-change-induced environmental hazards such as storms or floods, pollution and environmental degradation, changing regulations to curtail CO2 emissions and the contamination of the environment. Violations of human rights, consumer protection rights, rights of indigenous populations, operational health and safety regulations and unfair competition are examples of social risks potentially affecting an infrastructure project or asset. Governance risks result from unethical behaviour (e.g. corruption), a lack of the rule of law in a country and governance structures or management systems that create conflicts of interests between the management and stakeholders of an infrastructure project.