As recent events such as the collapse of the I-35W bridge in Minneapolis show, public infrastructure around the world requires investment for necessary
As recent events such as the collapse of the I-35W bridge in Minneapolis show, public infrastructure around the world requires investment for necessary safety repairs and maintenance. The private sector could provide a major part of the solution for governments struggling to fund these projects, according to Investing in Global Infrastructure 2007: An Emerging Asset Class, a new report by professional services provider Ernst & Young.
The huge capital demands of large-scale infrastructure projects around the world Û running into the US$ trillions over the next decade Û will likely create intense competition among governments to attract private investment. The report estimates private sources could account for 10 percent to 15 percent ($240 billion to $360 billion) of the capital needed for worldwide infrastructure projects annually.
There are good opportunities to create win-win situations, explains Ernst & Young Global Real Estate Director Dale Anne Reiss. Governments urgently need funding and private-sector expertise to improve or replace aging infrastructure. And, investors can benefit through the steady, long-term returns infrastructure investments can provide.
Private capital supporting public infrastructure is not new. What is new is the extent and the sophistication of private investment. It is truly emerging as a new asset class. Governments wanting to embrace private finance need to educate the public about the benefits and overcome fears of losing control of public assets.
Governments with the political will and a coordinated approach to building and preserving key infrastructure will attract the most attention from private investors and be offered the best terms, according to the report. Other key points include:
- In the U.S., the American Society of Civil Engineers (ASCE) estimated in its 2005 Infrastructure Report Card that $1.6 trillion needs to be spent over a five-year period to bring the nation’s infrastructure up to ÎgoodÌ condition.
- In Australia, the average cost of toll road construction has doubled in the past few years from $427 million (A$500 million) to $854 million (A$1 billion) per project.
- The Chinese government is investing state funds heavily in infrastructure development, as it invites foreign investors bringing advanced technologies to take part in toll road, water supply and renewable energy projects.
Available at www.ey.co, Investing in Global Infrastructure 2007: An Emerging Asset Class takes a global approach to private investment in roads, bridges, airports, rail lines, water utilities, energy generation and distribution systems. It discusses a range of vehicles through which private capital is able to invest in public infrastructure: privatizing public companies purchased direct from governments, such as municipal utilities and water companies; public/private partnerships; infrastructure funds investing in single or multiple sectors, such as transportation and utilities; greenfield development, including new construction of public infrastructure; and, operating existing infrastructure assets, such as toll roads and bridges through long-term concession agreements with public agencies.