Banking for 7 billion and 7 million

GLOBAL INVESTOR 3.06 Basics — 35
time schedule, and the project experienced no problems during
construction or with respect to the financing plan, such as cost
overruns. The huge Millau Viaduct illustrates perfectly how the public
sector can benefit from private sector knowledge and financing.
Types of infrastructure
Infrastructure is normally divided in two categories, “social infrastructure”
and “economic infrastructure.” The key difference between
the two categories is that users are prepared to pay for the economic
infrastructure (transport, utilities, communications), while
across Europe, the situation is quite different with respect to the
willingness to pay for social infrastructure (typically schools, healthcare).
In a pan-European context, the public sector at present
provides the infrastructure and the related services, whereas in the
Anglo-Saxon PFI or PPP model, social infrastructure consists
mainly of partnerships between the public and the private sectors,
under which the private sector provides the physical assets.
The worldwide current infrastructure project boom has various
reasons, and, particularly on the demand side, we have to distinguish
in a global context between the worldwide regions according
to their stage of development. The dynamics of infrastructure investments
clearly differ between emerging and developed markets: in
emerging markets, the main drivers are urbanization and the building
of new infrastructure to serve a wealthier population, while developed
markets’ infrastructure projects comprise mainly replacements
and improvements of existing infrastructure.
PPPs are long-term partnerships to deliver
assets and services underpinning public
services and community outcomes. Optimal
structuring links private sector profitability
to sustained performance over the long term,
yielding robust and attractive cash flows for
investors in return for delivering better value
for money to the taxpayer.
John Laing plc, The EC Green Paper on PPPs and concessions. John Laing plc specializes
in infrastructure development, investment, and operations. The group invests in, develops, and
operates hospitals, schools, defense establishments, police stations and roads in the private
finance initiative (PFI) and public-private partnership (PPP) markets. John Laing also runs a
United Kingdom train operating company (Chiltern Railways).
Worldwide differences in the infrastructure boom
Emerging markets: The dramatic urbanization figures in emerging
markets (especially in Asia) show that infrastructure needs there
differ significantly from those in developed markets. Globally, it is
estimated that one million people move to cities per week, creating
a vast demand for new energy, transport and water facilities. Demand
is currently being further boosted by the underinvestment
that followed the Asian crisis in 1997– 98. As incomes rise, people
in cities around the world are increasingly asking for western-style
state-of-the-art infrastructure, and the strong economic growth of
many countries allows them to undertake the requested projects.
Developed markets: The rise of global competition among cities
and countries for taxpayers, businesses and corporate headquarters
has been a potent driver for infrastructure projects in developed
markets: easy commuting, fast international connections and
state-of-the-art infrastructure facilities are key to attract business
and improve quality of life (as several surveys issued by HR consultants
suggest). Much of the existing infrastructure is very old
(e.g. the London Underground was first opened in 1863, the Paris
Métro in 1900), and was planned for fewer users and completely
different habits and lifestyles. To finance the works, governments
are using various methods, including PPPs.
What drives PPP structure growth?
Budgetary pressure (fulfillment of Maastricht criteria), aging infrastructure
and increased pressure for different ambitious large-scale
European Community projects force pan-European countries to follow
the UK route. The UK has been at the forefront of such projects
since 1987 and the project volume by value peaked during the period
between 2002 and 2004. The signed project list to date contains
749 projects with a capital value of GBP 46.4 billion invested in infrastructure
projects (source: UK, National Audit Office, 2006).