Maritime Trade and Transport - HWWI

Infrastructure investments are regarded as relatively secure long-range and demonstrate a
distinctive risk profile:
Market risks are extremely limited due to government regulations, long-term exclusive public
supply agreements, and market entrance barriers. Risk regarding demand is generally limited
by government guarantees and inelastic demand.
Business risks are greatest during the development and construction phase of an infrastructure
facility, as a result of completion and quality risks and highly uncertain predictions of
demand development. This applies especially to new construction projects for which experience
is not available from other comparable projects elsewhere. Examples like the Eurotunnel
or the Herren Tunnel in Lübeck show that significant risk of loss may be lurking. 106
The greater risks involved in new construction projects are, however, rewarded with greater
rates of return.
Since the operating costs are relatively low as a rule, the reliability of demand predictions increases
in the course of time, and the value of the facility rises after installation and commissioning,
the risks in a typical infrastructure facility decrease during its life cycle.
The private operator is subject to political influence, especially in regard to decisions regarding
terms and conditions and range of services. In countries with unstable political environments,
corruption and changes in the “rules of the game” by the government can threaten
the profitability of the investment.
Infrastructure facility funding is generally leveraged at 30%-90%. Changes in real interest
rates represent a risk that should not be underestimated. 107 They can, however, be limited
by means of hedges and sound financial management. The degree of leverage is determined
by the life cycle phase, risks, operating costs, and evaluation of expected future cash flows.
The following table provides an overview of the risk-return profiles of various transport infrastructure
investments:
Returns and risks of infrastructure facilities
Fig. 23
Infrastructure facility Risk Expected annual return
Airports and ports low to moderate 13% – 25%
Toll roads
Early phase
Growth phase high 13% – 20%
low 8% – 12%
Rails high 12% – 15%
106 The privately funded Channel Tunnel between France and Great Britain has lost billions so far. A doubling of
the construction costs and user figures that are 25% lower than expected have led to debts amounting to almost
9 billion euros. Other German pilot projects, the Herren Tunnel (Lübeck) and the Warnow Tunnel (Rostock),
also threaten to lose millions as well, due to inflated user predictions. See Seidel (2006).
107 If user fees are inflation-dependent, they balance the risks of inflation and thus of nominal
rates of interest. There is no protection from changes in real interest rates. See RREEF (2005).
138 Berenberg Bank · HWWI: Strategy 2030 · No. 4
Source: Mercer Investment Consulting (2006).