AMP Capital Investors Limited ABN 59 001 777 591 AFSL 232497
Greenfield economic infrastructure: a new model
Infrastructure Research Report Edition 12 SEPTEMBER 2014
Infrastructure Research Report – Edition 12, September 2014
Contents Introduction ............................................................................................................................................................................... 2 Greenfield economic infrastructure: a new model ................................................................................................................. 3 The cost of delaying investment .................................................................................................................................................. 5 The issue of demand risk ............................................................................................................................................................ 6 The problem of demand risk ........................................................................................................................................................ 7 Risk sharing in the development of economic infrastructure ....................................................................................................... 8 Tax increment financing: part of the solution? ............................................................................................................................. 9 Example of a co-investment model ........................................................................................................................................... 10 Conclusions ............................................................................................................................................................................... 12 Appendix A: Proposed government support test ....................................................................................................................... 13 Global infrastructure: a review of active and committed projects ...................................................................................... 14 European infrastructure ............................................................................................................................................................. 15 An overview ........................................................................................................................................................................ 15 Active projects ................................................................................................................................................................... 16 Committed projects ........................................................................................................................................................... 19 North American infrastructure .................................................................................................................................................... 22 Overview ............................................................................................................................................................................. 22 Active projects ................................................................................................................................................................... 23 Committed projects ........................................................................................................................................................... 27 North Asia.................................................................................................................................................................................. 30 Overview ............................................................................................................................................................................. 30 Active projects ................................................................................................................................................................... 30 Committed projects ........................................................................................................................................................... 34 Australia Pacific ......................................................................................................................................................................... 35 Overview ............................................................................................................................................................................. 35 Active projects ................................................................................................................................................................... 35 Committed projects ........................................................................................................................................................... 36
Infrastructure Research Report – Edition 12, September 2014
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Introduction This report discusses the need for developed economies to adopt a revised model of economic infrastructure development to attract higher levels of private investment. Our research indicates that new investment is running at low levels in most developed economies, as governments struggle with high debt burdens and an insatiable demand for social services. Countries like France debate the issue of whether they already have enough infrastructure. Such views ignore the reality that infrastructure, like all assets, has a defined life. Failure to maintain adequate levels of investment will lead to a spiral of reduced future economic growth and increased public debt levels. The Grow America Act in the United States (US) shows just how expensive it can be to catch up after years of inadequate investment and maintenance. So, how do modern economies get enough infrastructure to sustain growth and living standards? We believe unlocking private funding for greenfield economic infrastructure development would be a good start. This report discusses why institutional investors are unimpressed by greenfield development and focuses on the issue of making these projects more attractive to private investors. Unlocking private investment in this area will assist developed economies to kick start sustainable economic development. Our objective in presenting this research is to stimulate discussion on new risk sharing models. I would like to acknowledge the valuable input of Perry Lucas, Portfolio Manager, AMP Capital Core Infrastructure Fund in the development of this work.
Greg Maclean Global Head of Research, Infrastructure AMP Capital
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Greenfield economic infrastructure: a new model Infrastructure networks form the backbone of a modern economy and are a key driver of growth. However, since 2008 most governments have struggled with both funding limitations and a lack of effective policies to promote economic growth. A view generally shared by policy makers is that the performance of a country’s infrastructure, particularly economic infrastructure, is a major determinant of that country’s economic performance. In most developed economies, infrastructure investment has traditionally been a public sector responsibility. However, the level of public sector investment in capital investments, as a proportion of Gross Domestic Product (GDP), has been falling since 1980 in most Organisation for Economic Co-operation and Development (OECD) countries. The graph below shows this decline. Figure 1: OECD government gross fixed capital formation
% of GDP 10% 9% 8%
7% 6% 5% 4% 3% 2% 1% 0% 1980
1982
1984
1986
1988
1990
1992
Low spending countries
1994
1996
OECD Average
1998
2000
2002
2004
2006
High spending countries
Source: OECD Statistics Note: The series for high and low public spending are the means of public gross fixed capital formation as a share of gross domestic product (GDP) for five countries, which on average over the period had the highest or lowest public investment rates. The high spending countries are Japan, Korea, Mexico, New Zealand and Turkey. The low spending countries are Australia, Belgium, Denmark, Germany and the United Kingdom.
Since 2008, most governments have struggled with both funding limitations and a lack of effective policies to promote economic growth. While they recognise infrastructure investment could be an effective economic stimulant, high levels of public debt have limited their options under the traditional asset delivery model. This suggests that, unless other sources of funding can be found, the deteriorating trend in public infrastructure spending is unlikely to reverse in the short to medium-term. Given their limited options, governments could be expected to turn to the private sector for additional infrastructure 1 investment. OECD reports point to the growth in superannuation and pension funds and highlight how the characteristics of an infrastructure investment may meet the investment objectives of these institutional investors. At first glance, there seems to be a natural fit with infrastructure investment.
1
Della Croce, R., Yermo, J., (2013), “Institutional investors and infrastructure financing”, OECD Working Papers on Finance, Insurance and Private Pensions, No.36, OECD Publishing.
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However, progress to increase institutional private investment has been slow. The United Kingdom is one of the few countries able to mobilise significant private investment in the development of new greenfield infrastructure. For example, the UK’s €450 billion investment in Britain’s infrastructure over the next seven years (£375 billion National 2 Infrastructure Plan 2013), is the largest programme of investment since the 1970s . The plan anticipates that six major 3 insurers will invest £25 billion over the next five years in greenfield infrastructure . However, this funding appears to be targeted to low risk, long dated debt for social infrastructure. Such projects can be expected to have a relatively low impact on economic growth in the short and medium-term. Even in the UK, there appears to be little institutional appetite for greenfield investment for the type of economic infrastructure that would have a higher impact on growth. The reason for this lukewarm response from institutions is that, while governments may be keen to develop greenfield economic infrastructure, such developments tend to be too risky for private investors. Their requirements are more closely met by mature infrastructure assets, which are largely devoid of development risks. The risk profile of an economic infrastructure asset varies over its life-cycle. The below graph illustrates the impact of the changing risk profile on an asset’s valuation as the asset advances from development through to maturity. During development, the major risks are: >
Construction and performance, or completion risk. A project developer can largely insure completion risk by employing a competent Engineering, Procurement, Construction Management (EPCM) contractor to deliver a project which meets its performance objectives on time and on budget.
>
Demand risk. Under traditional models of private sector delivery, demand risk will stay with the project developer who will not find out whether he has correctly assessed this risk until the project commences operations and demand ramps up.
In an operating mature asset, construction and ramp up risks are no longer relevant while future patronage and operational risk can be determined with a high degree of reliability from the established base line. The reduction in overall risk allows a consequent increase in asset value. The greatest value lifts occur after the ramp up of demand. Therefore, the commercial success of a greenfield infrastructure project largely depends on how fast and how far demand ramps up. From a private investor’s perspective, a greenfield economic infrastructure development is inherently riskier than buying into a mature brownfield asset. The limited interest by private investors in greenfield economic infrastructure suggests that mature assets offer them a better risk-weighted return than greenfield assets. This suggests that if governments are to attract significant additional private sector investment into greenfield economic infrastructure, they must explore new approaches in sharing development risk with the private sector. This paper considers how to achieve a better alignment of interests between governments and private sector investors in an attempt to develop a new model for private sector investment in greenfield economic infrastructure. Figure 2: Greenfield economic infrastructure life-cycle Greenfield
Demand or Patronage Risk
Maturity
Asset Value
Potential Greenfield Value Gain
Development
Construction and Performance Risk
Life Cycle Stage Planning Design and Construction Commissioning and Ramp Up Operating Source: AMP Capital
2 3
National Infrastructure Plan: finance update; March 2014 https://www.gov.uk/government/news/government-welcomes-first-injection-into-pensions-infrastructure-platform
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The cost of delaying investment The cost of delaying investment due to a lack of government funding far outweighs the apparent higher cost of private sector financing.
Opponents of increasing private sector investment in infrastructure development often point to the apparent higher cost 4 of private sector funding . This argument ignores the cost of delaying a valuable infrastructure project in the face of government funding limitations. The real question is: can they afford not to develop the project? British Transport Minister Robert Goodwill recently announced a total investment in 209 road projects worth €5.15 billion (£4.3 billion). These projects are estimated to boost the economy by over €22.5 billion (£18.8 billion). If these 5 benefit projections are correct, this represents an economic benefit cost ratio of 4.4:1 . While these are preliminary 6 estimates, a post development audit of Sydney’s M7 tollway suggests a benefit cost ratio of 3.4:1 . Part of the reason why these projects perform well is their ability to enhance the overall road network. This means the benefits of development will extend beyond the users of the new road sections themselves. The graph below highlights the cost of delay against the real value of a project over a range of project benefit cost ratios. In each case, the notional opportunity cost is determined by discounting future costs and benefits by 4% (real) per annum. For a five-year delay in a project with a benefit cost ratio of 4:1, the opportunity cost rises sharply with the benefit cost ratio reaching in excess of 70% of overall project costs. This demonstrates the differences in financing cost are relatively immaterial when considered against the opportunity costs in not developing high value projects. The real need is to find effective funding sources for such projects. Economic infrastructure such as transport networks, tend to have a high leverage to growth, but not all types of infrastructure investment have the same leverage. Social infrastructure tends to have a much lower short-term impact 7 on economic growth. For example, a US study found a marginal elasticity of 1.5:1 for education spending . Longer-term benefits in terms of improved health, improved productivity and reduced crime can be much greater. However, given the need for immediate stimulus, economic infrastructure should be the focus of policy initiatives. From the graph, it is apparent that the cost to the economy of delaying lower economic benefit projects such as social infrastructure, is much less than delays to high benefit projects. A rational government response would be to delay social investment and focus on high yielding projects. Figure 3: Opportunity cost of delaying infrastructure investment
Source: AMP Capital
4
Risk, PPPs AND THE Public Sector Comparator; John Quiggin; Australian Accounting Review 2004 http://www.worldhighways.com/categories/road-highway-structures/news/227bn-uk-road-investment-in-2014-to-support-over-9500-construction-jobs/ Infrastructure Planning and Delivery: Best Practice Case Studies: Department of Infrastructure and Transport; Dec 2010 7 MORE EXTRAORDINARY RETURNS Public investments outside of “core” infrastructure; Josh Bivens; ECONOMIC POLICY INSTITUTE; 2012 5 6
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The issue of demand risk Current models for the private sector delivery of greenfield economic infrastructure do not equitably balance the sharing of risk and reward between stakeholders. With regard to demand risk, there is very little alignment of interests between project promoters (usually governments) and private sector project developers. This has been a root cause of the commercial failure of many early greenfield projects and explains institutional investor reluctance to take patronage risk. If we take the private sector development of a road as an example of a potentially high value project, and assume it is developed under the traditional model of the private sector taking patronage risk through a tolling mechansim, we find the various stakeholders in the road will benefit in very different ways: >
The community as a whole benefits from the economic activity resulting from the development, its ongoing operation, and additional benefits resulting from the transport network enhancement.
>
The government benefits through taxes on the increased economic activity, including higher land taxes (resulting from land value increases in the areas serviced by the road). In Australia, for example, federal and state government taxes represent about 26% of GDP. That is, the total government share of benefits can be expected to be about 26% of the economic value added.
>
The construction industry benefits from the direct investment in delivering the asset plus any associated construction activity arising from the economic stimulus.
>
Finally, the private sector developer will receive benefits arising entirely from toll revenues received from the operation of the road itself. These benefits are shared amongst project debt and equity.
Assume for the sake of argument, the present value of developing and operating the road is $1 billion, and is expected to deliver $3 billion worth of benefits (i.e. an estimated benefit cost ratio of 3:1). Development margins are included in the costs, so an expected economic surplus of $2 billion is available to be shared by the government and the community. Government tax revenues will amount to about 26% of the overall economic benefit. This means, as a rough guide, the government share of excess benefits is about 40% (26% total economic benefits / total economic benefits-costs), leaving 60% of the excess benefits for the community. In the event that the project does not perform as expected, (for example, traffic volumes differ from forecasts), the share of the benefits for each stakeholder will change. The graph below illustrates how economic benefits are shared among stakeholders on a $1 billion toll road project as the demand varies from between 60% to 120% of the original forecast. Figure 4: Net present value of stakeholder benefits for $1 billion toll road PV of Net Benefit $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $-$200 -$400
Community
Government
Construction
Equity
Debt
Source: AMP Capital
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Based on the above example, the government project sponsor will receive a net increase in tax returns at a patronage level of 60% of the original forecast. At this patronage level, the project will still deliver an overall benefit cost ratio of about 1.6:1. From this perspective, provided the project proceeds, both the community and government will still enjoy significant benefits. In contrast, the private sector investor will just break even at a patronage level of only 90% of the base forecast. At 60% of the base forecast, the project developer will lose their entire investment. The comparative elasticity of benefit versus demand for the major stakeholders is detailed in the following table. Figure 5: Stakeholder return versus demand
Stakeholder Equity Government Community
Return elasticity versus patronage 3.33 0.91 2.36
Source: AMP Capital
The relatively low impact patronage levels have on government return suggests that government sponsors of economic infrastructure have less incentive to ensure accurate patronage forecasts than the private sector investors whose capital they are trying to attract. This imbalance of incentives is a root cause of institutional investor reluctance to take patronage risk under the current model of private sector delivery.
The problem of demand risk The high sensitivity of equity returns to demand would not be so much of an issue if demand could be forecast with a sufficient degree of accuracy to meet investor requirements. So, at what level of risk would the private sector equity be interested in investing in the above example? Assuming a base case target return of 12.5%, a downside/upside range of between 8% and 15% accuracy would likely be acceptable to an investor. AMP Capital modelling suggests that this range of outcomes would require an accuracy of +/-5% in the assessment of demand risk. However, studies have repeatedly shown that this is well beyond the capabilities of current demand assessment 8 techniques. Flyberg has tracked the accuracy of demand forecasts in large scale infrastructure projects, while 9 Standard & Poors have monitored the accuracy of demand forecasts for toll road developments since 2004. Both groups report large errors in forecasts, often in excess of 40%, with a systematic bias towards overestimation. Flyberg in particular, claims that ‘optimism bias’ by project promoters is a consistent feature of large economic infrastructure projects whether developed by the public or private sector. He attributes much of this bias to the competition for public funding between competing projects. As we have seen above, government sponsors have a relatively weak incentive to produce accurate demand forecasts. 10
An additional problem is that, even if optimism bias can be avoided, the inherent inaccuracies in assessing demand risk are probably too great to provide reasonable assurance to an equity investor under traditional risk sharing mechanisms. Given these considerations, it is not surprising that the track record of private sector investment in patronage exposed economic infrastructure projects has produced a depressingly high number of commercial failures. In almost all cases, 11 failure has been due to overly optimistic demand assessment . This dismal performance has reinforced the reluctance for investors to engage in such projects. It is not just a problem for toll roads but for all economic infrastructure developments where the private sector is fully exposed to demand risk.
8
Bent Flyvbjerg: Policy and Planning for Large Infrastructure Projects: Problems, Causes, Cures; World Bank Policy Research Working Paper 3781, December 2005 Bain, R. and Polakovic, L. 2005, Traffic Forecasting Risk Study Update 2005: Through Ramp-Up and Beyond, Standard & Poor’s, London. Donnelly, R., Erhardt, G. D., Moeckel, R. and Davidson, W. 2010, Advanced Practices in Travel Forecasting – A Synthesis of Highway Practice, NCHRP Synthesis 406. 11 Bureau of Infrastructure, Transport and Regional Economics: Review of Traffic Forecasting Performance Toll Roads; June 2011. 9
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Risk sharing in the development of economic infrastructure Governments need to develop more equitable risk sharing mechanisms to attract private investment back to investing in greenfield economic infrastructure. There has been some movement in this direction in both Australia and the US with the adoption of availability based payments for a number of projects. Under this approach, the government accepts full demand risk and provides an availability payment to the project developers, which is linked to a number of performance requirements. Availability payments have been utilised for some time in social public private partnerships (PPPs) and their use for toll roads is a logical extension. While they have been successful in attracting private sector developers, the risk transfer to the private sector is insufficient to get such projects off government balance sheets i.e. ratings agencies still include project debt as public debt. In the context of constrained government finances, this means there is a limit as to the total amount of underwriting that governments can provide through such mechanisms. Any increased usage of this approach for economic infrastructure could then be at the expense of social infrastructure PPPs. Government sponsored availability payments are therefore not a long-term solution to the problem of increasing the overall level of private sector investment in infrastructure. An alternative is for governments to fund new infrastructure from the sale of existing assets or privatisations. In Australia, this is being taken further with the suggestion that governments become developers of greenfield economic infrastructure, with the specific intention for on sale to institutional investors once these assets reach maturity. This would allow the recycling of capital into the new infrastructure without a major increase in net public debt. However, the rate of investment would still be limited by the strength of the government balance sheet and, as can be seen from the discussion on opportunity costs, this could limit the economic benefit actually realised. In many other OECD countries, these approaches may also face strong political opposition, despite the self-evident benefits. The preceding discussion demonstrates the overall economic benefits to the government and the community may still far exceed the cost of developing an economic infrastructure asset, even if demand falls well short of original expectations. This provides a rationale for revising risk sharing mechanisms to reduce the private sector developer exposure. From a government perspective, attracting additional private sector investment is beneficial even if ratings agencies view project debt as public debt. It both brings forward project development and extends the range of projects which can be developed under a fixed government debt cap. The objectives of any new model of private sector investment in the development of greenfield economic infrastructure should meet the following criteria: >
The level of government assistance provided should be the minimum necessary to ensure the project proceeds. A limit could reasonably be set to ensure that, even under adverse demand outcomes, government financial support does not exceed the present value of the expected future tax revenues.
>
The market should dictate the minimum level of assistance required via competitive tendering. This should be less than the maximum level of assistance determined above.
>
Any new model for greenfield economic infrastructure development should not cannibalise investment in other infrastructure, such as social PPPs.
>
The model should have no adverse impact on overall government debt levels and credit ratings.
From a private investor’s perspective the model should: >
Allow tenderers to set the level of demand risk they are prepared to accept
>
Align the objectives of the government and investors
>
Remove government incentives for optimism bias in demand forecasts
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Tax increment financing: part of the solution? In the US, tax increment financing has been very successful in returning many derelict sites to productive taxpaying usages. There is no reason why a similar concept could not work for the development of infrastructure.
The above discussion suggests a model of support for private sector investment in the development of greenfield economic infrastructure, where governments risk future tax revenues on an ‘as needs’ basis, rather than a presumptive basis, as implied by the availability payment model. This approach has been commonly applied in the US for the redevelopment of old industrial sites. These ‘blighted’ sites may have a high level of contamination where the cost of remediating and redeveloping the site may exceed the market value of the developed land. Consequently, without additional assistance, the sites would remain undeveloped. To overcome this problem, the affected municipality may dedicate, or hypothecate, some of the potential future land tax revenues from the site for its redevelopment. These are taxes which the municipality would not have received if the site remained undeveloped. This means they lose nothing by apportioning potential tax revenues to the site’s redevelopment. They also have an incentive to ensure the value of the site is maximised as this minimises the period before which the site begins to yield taxes. This ensures a high degree of alignment in objectives between the municipality and the site developer. This approach, known as Tax Increment Financing (TIF), has been very successful in returning many derelict sites to productive taxpaying usages. A good example is Cook County in Illinois, (which includes the city of Chicago). Cook 12 County received more than US$ 700 million in taxes from 435 TIF districts in 2012 . This is money that would not have been available if the sites had not been redeveloped. There is no reason why a similar concept could not work for the development of infrastructure. The concept is a natural fit with projects where the potential for generating future tax revenues is high i.e. projects with a high benefit/cost ratio. Governments would select projects for development based on the expected economic benefit and their potential contribution to future taxes. The government could determine the maximum level of support it would be prepared to provide by determining the level of demand at which they were indifferent to the project proceeding. This is the demand level where the value of future tax and project revenues equals the development and operating costs of the project (refer Appendix A). Taking a toll road for example: >
Tenderers would provide a development price and target equity returns based on the traffic volumes determined during the benefit cost analysis.
>
They would also tender an equity return profile over a range of traffic volumes. This would define the level of demand risk transfer they would accept and would allow the government to calculate a support profile for each tenderer.
>
Government support would be provided to the successful tenderer up to this return profile, provided that this is less than the maximum level of support as calculated above.
If tenderers thought that the target traffic volumes were too high, they would simply adjust their tendered equity return profile. In the event of extreme disagreement, this would be equivalent to an availability payment structure. The ability of the tenders to adjust the risk profile, therefore, provides an incentive for governments to adopt conservative traffic forecasts.
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David Orr; Cook County Clerk: 2013 TIF Report
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Example of a co-investment model There are many possible ways of implementing government assistance along such lines. These may range from a simple grant through to equity participation in the project itself. The latter approach would arguably achieve greater alignment of incentives between the government project sponsors and private sector investors. As an example, take a toll road developed on the following basis: >
The overall development and operating costs of $1 billion is expected to deliver a benefit cost ratio of 3:1.
>
The successful tenderer gears the project at 50% and is prepared to contribute half the required equity for an internal rate of return (IRR) of 12.5% at the target patronage level. That is, this structure will require a government contribution of 25% subordinated equity.
>
The tenderer’s return versus patronage profile requires a minimum 8% return on equity at a patronage level of 60% of the target. Above this minimum, returns increase as a fixed proportion of patronage.
Project revenues are shared between the partners to ensure that the private sector investor receives its targeted returns. This means that at patronage levels less than the target, the government will top up private sector equity returns. At patronage levels greater than the target, the government will receive progressively greater shares of project revenues than the private sector equity. Overly optimistic patronage forecasts by the government sponsor will, therefore, be punished. This should markedly reduce the incentive for optimism bias in the project. At about 60% of the target of patronage levels total government returns including tax receipts and revenue share produce an IRR of about 4% on their investment. This means that the required level of support is slightly less than the government break-even level and the project is worth proceeding on the tendered basis. Above 60% of the base patronage level, government returns (project revenues plus tax), will rise from about 4% at the threshold level to 19% at the target patronage level. Project revenue shares to the government would rise from about zero at 70% of the target patronage level and reach 9% at the target patronage level. This means that tax revenues are only impacted below about 70% of the target patronage level. Figure 6 shows the anticipated private sector and government returns (project and project plus tax) as a function of patronage levels. It demonstrates that assistance is only provided as is necessary and so provides the most efficient use of government funds. When the project reaches maturity, we anticipate that the operational cash flows would be sufficiently de-risked to be attractive to institutional investors. Both private sector and government shareholders could then sell their stakes into secondary markets. Figure 7 gives an indication of potential market values in a 25 year concession agreement, assuming the project met its patronage targets. Because only cash flows generated by the project itself would be sold by the government sponsor, their overall sale value would be less than the senior equity.
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Figure 6: Comparative returns on equity Return on equity
30% Target Patronage Volume Threshold Patronage Volume
25%
20%
15%
10%
5%
0% 40%
50%
60%
70%
Senior Development Equity
80% 90% Patronage % target
100%
Federal Subordinated Equity (Ops)
110%
120%
130%
Federal Subordinated Equity (Ops + Taxes)
Source: AMP Capital. For illustrative purposes only.
Figure 7: Market value of equity – 25 year concession Market value % original equity 250%
200%
150%
100%
50%
0% 0
5
10
15 Year of sale
Market Value Federal Sub Equity
20
25
30
Market value of senior development capital
Source: AMP Capital. For illustrative purposes only.
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Conclusions It is clear that the level of private sector investment in the development of greenfield economic infrastructure will not increase significantly until new models are developed which provide a more equitable sharing of risk. We believe that the most equitable approach is to base risk sharing on the underlying benefit received by the participants. The concept of tax increment financing appears to be the most efficient means of achieving this objective. The coinvestment model described in this paper is not the conventional TIF approach but is an attempt to promote dialogue on this issue. We believe that it would: >
de-risk demand exposure sufficiently to attract private sector development capital into greenfield economic infrastructure while protecting the public interest;
>
in doing so it should aid in the timely development of high value projects and assist overall economic recovery;
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provide strong incentives for government agencies to develop projects with the highest economic value, thus improving the allocated efficiency of the overall economy;
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allow the government to recycle its capital, preserving its overall budgetary position;
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increase access of institutional investors into economic infrastructure projects through the development of deeper secondary markets for mature infrastructure assets.
Under this model, private sector developers still have strong incentives to minimise the cost, and subsequently, maximise the benefit of the available government securitisation. Overall, it should, therefore, promote more efficient use of public funding than alternative models. At this stage, it is difficult to assess how ratings agencies would assess such a model. However: >
at the very least, even if project debt remained on the government balance sheet, the overall government debt level would be reduced by the injection of private sector equity;
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by focusing on projects with a high economic benefit the potential tax revenues should provide a high effective cover ratio on the project debt;
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this should also improve the government’s ability to service its overall debt burden;
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by aligning government sponsor and institutional investor objectives, optimism bias should be significantly reduced, which ratings agencies would see as a major benefit.
The ability of tenderers to set their own level of demand provides a further measure of protection against optimism bias. For example, if tender participants decided that target patronage levels were too optimistic they could simply bid a flat return profile, effectively throwing 100% of patronage risk back to the government, or the current availability payment model. While a toll road example has been used to explain the concepts of how tax increment financing could be applied to infrastructure, there is no reason why the approach could not be used wherever there is significant demand risk. For example, the mechanism could easily apply to shadow tolling mechanisms which have been used in the UK instead of direct tolls. Delays in developing projects with high benefit cost ratios due to limited public funding impose high opportunity costs on economies. This should make reform of development models a high priority for governments which are reliant on economic growth to reduce overall debt burdens.
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Appendix A: Proposed government support test The maximum level of government assistance provided to a project is determined at the demand point where the value of future tax and toll revenues equal the development and operating costs of the project. Using the same toll road example set out earlier in this paper: >
Target traffic volumes would be determined during the benefit cost analysis and tenderers would provide a development price and target equity return based on this volume.
>
The tenderer would also provide a minimum return on equity that it could accept in the event of lower than expected traffic volumes. This would allow a minimum level of patronage or threshold level to be calculated for each tenderer.
>
Government support would be provided up to the minimum required to support investor returns at threshold volume provided this is less than the maximum level of support, as calculated above.
In this example, if actual patronage levels fall to about 60% of expectations, toll revenues would be sufficient to cover operating costs but, under the current model of private sector involvement, they would be inadequate to also cover investor financing costs and the project would fail commercially. At this level of demand the project will still generate benefits in excess of development and operating costs, so from government and community perspectives, is still worthwhile. Additionally, overall government revenues would have been no worse off if it had offered assistance to the project equal to the present values of the taxes actually realised. That is, at 60% of the base patronage expectation, the government should be indifferent to the project proceeding. This is shown in the graph below.
Figure 8: Government support test Value ($b) $3,500
$3,000
$2,500
Significant community benefits
$2,000
$1,500
$1,000
$500 Development and operating costs $100% Base Forecast
Value of tolls
Marginal tax gain
60% Base Forecast
Net community economic benefit
Source: AMP Capital
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Global infrastructure: a review of active and committed projects How to read this section In this section we have summarised recent infrastructure activity by region and sector. We have principally considered developed economies and major emerging economies. The four regions included are: >
Europe;
>
North America, focusing on the US and Canada;
>
Northern Asia, focusing on China and India; and
>
Australasia, focusing on Australia and New Zealand.
The sectors are summarised in the following table. Sector
Description
Power
New generation assets, except renewable energy.
Transmission & distribution
Energy distribution, mainly electricity and natural gas.
Transport
All transport infrastructure, including air and sea ports, railway and road developments.
Water & sewerage
Assets associated with management of the water cycle, including collection, distribution, treatment and disposal. Irrigation projects are also included.
Telecommunications
Communications assets.
Social Infrastructure
Includes health, education and justice assets.
Energy storage
Principally energy storage projects, including liquid hydrocarbons, natural gas and carbon sequestration. Additionally, pipelines built for carbon sequestration will be included in this sector.
Renewables
Renewable energy generation projects of all types.
We have attempted to provide an overview of the major project announcements in each region. The majority of these projects may be developed over the longer-term (if at all), but their inclusion in our summary provides an indication of ambition and spending directions. We have included projects under active development which provide a good indication of the immediate project pipeline. For this reason, we have separated the projects into the following sections: >
Active projects, i.e. projects still in planning but prior to actual construction.
>
Committed projects, i.e. projects that have begun physical development.
For example, an active project would be a project announced by government entities but not yet tendered. Such projects have a high probability of proceeding but could still be subject to delays or cancellation. This category gives a good idea of the future pipeline. Committed projects give an appreciation of actual investment relative to that pipeline. This summary was developed from publically available sources, and while due care has been exercised in its preparation, AMP Capital offers no warranties as to its completeness or accuracy.
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European infrastructure An overview While the size and scope of planned future projects suggest a healthy level of ambition, confirmed infrastructure investment remains low. The moderate number of projects under active development suggest the future pipeline will remain constrained. In a generally lacklustre scenario, the main activity appears to be centred on the UK, Scandinavia, Russia and Turkey. Planned investment in transport and energy projects in Russia and Turkey are particularly impressive, although it remains to be seen how many of these projects eventually get off the drawing board. At the other end of the spectrum, there appears to be some hope for renewed investment of a low base in the Portugal, Italy, Greece and Spain (PIGS) economies. During the six month period to March 2014, infrastructure funding initiatives totalling US$884 billion were announced in Europe. The major contribution comes from the UK’s 2013 National Infrastructure Plan which identifies £377 billion (US$575 billion) of investment out to 2020, the largest programme since the 1970s. It looks for institutional investors to contribute up to $US40 billion through revised Public to Private Partnership (PPP) arrangements. The following graph shows the planned expenditure over time and across sectors. There is a marked fall off in planned expenditure post 2016, with only energy expenditure (including generation, renewables and transmission and distribution) continuing at high levels. This suggests that much of the programme is primarily focussed on delivering a short-term economic stimulus. Figure 9: UK 2013 infrastructure plan expenditure
Source: AMP Capital
The apparent success of the UK government in getting large institutional support for this programme with six insurance groups agreeing to invest up to $US40 billion is significant. However, the proposed investment appears to be in long dated debt for social PPPs, so unfortunately, these investments do not signal a break-through in the issue of attracting institutional investment into greenfield economic infrastructure projects. Also of interest in the UK is a resurgence of interest in nuclear power, following announcements that: >
Britain is set to sign a deal with France's EDF Group for the first nuclear plant to start construction in Europe, post Fukishima, at a cost estimated at around €23 billion;
>
The British Office of Nuclear Regulation (ONR) and the Environment Agency are nearing the end of their licensing process for Hitachi's nuclear reactor design. The agencies, which perform Generic Design Assessments for new nuclear reactors in the UK, said they expect the designs to be approved by the end of
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2017. This would move Hitachi one step closer to building the six new nuclear power plants it has proposed for Britain. Other funding announcements include: >
Spain’s 2014 budget includes €17.31 billion on infrastructure with a government contribution of €8.98 billion. Spending includes €3.19 billion on completing high speed rail projects and €1.4 billion on the conventional freight network.
>
The Norwegian government announced plans to create a NOK100 billion ($16 billion) domestic infrastructure fund over five years, as part of an aggressive plan to boost government spending on roads, railways, expansion of broadband internet and other projects.
In Russia: >
The Russian government was presented with a provisional three year investment budget of Roubles (RUB) 1.2 trillion ($US37.78 billion) for Russian Railways (RZD). This includes investments of RUB395.6 billion in 2014, RUB415.2 billion in 2015, and RUB438.4 billion in 2016. Capital projects include:
enhancements to the Trans-Siberian Railway and Baikal - Amur Mainline (BAM),
improvements to railway infrastructure in and around Moscow,
increasing capacity on the Mezhdurechensk – Taishet freight line including the construction of a new bypass around Krasnodar.
>
An extra RUB51 billion (US$1.56 billion) has been allocated for the construction of new airports and roads in FIFA World Cup 2018 host regions. The government is looking to attract private investors to contribute to the new road and airport works through PPPs.
>
In the Urals Region an infrastructure programme involving a US$3.91 billion investment in roads, as well as communications, and information technologies up to 2020 has been adopted.
>
The Turkish government is planning to convert 70% of its single-lane railway tracks to double-lane by the end of 2023 to enhance services to passengers. Currently, only 446km (or 4%) of the country's 11,120km rail track is double-lane. The country's investments are slated to rise to TRY45 billion (US$22.8 billion) by 2023 and the total length of the railway network would be increased from 11,000km to 25,500km.
>
The Norwegian Public Roads Administration (Statens vegvesen) plans to invest €10 billion (NOK80 billion) in road building and tunnel upgrades from 2014-2017, according to its new investment plan for the period. A further €2.87 billion (NOK23 billion) will be spent on pedestrian and cyclist safety measures.
>
Slovakia plans to invest more than €3.5 billion (US$4.76 billion) on new roads, motorways and other transport infrastructure, according to the draft partnership agreement between the European Union and Slovakia for the 2014-2020 budgetary period. The proposed expenditure is part of the European TEN-T network. Funds will also be allocated to increasing the energy efficiency and environmental friendliness of the transport system, and improving the public transport system and navigability of the River Danube.
Active projects An indication of the project pipeline can be gauged by looking at projects currently being actively developed, but have not yet reached a financial close. The data shows project announcements for the third quarter of 2013 and first quarter of 2014. As the graph on the following page indicates, the majority of projects are in the transport sector.
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Figure 10: Projects under active development - Europe $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $Q4 2013 Power
Telecoms
T&D
Water and sewerage
Q1 2014 Transport
Social infrastructure
Renewables
Source: AMP Capital
Power >
German energy provider RheinEnergie will develop a combined-cycle heat and power plant (CHP) in Niehl, Cologne. The plant is intended to generate 453MW of electricity and approximately 265MW of heat by means of a combined heat and power system, supplying up to one million households with power and approximately 50,000 households with district heating.
>
Construction on the Akkuyu nuclear power plant in Mersin could begin as soon as Russian state-run nuclear company Rosatom receives an environmental impact report from the Turkish Government. Up to 49% of the project is open to Turkish investors. In late January, environmental organization Greenpeace claimed that construction had begun on the nuclear power plant without proper authorization. Turkey does not currently have any nuclear power plants, but has plans for three including the controversial Mersin facility. The other two plants are planned for the Black Sea province of Sinop and the north western province of Kırklareli. Several protests have been staged in opposition to the plans.
>
In February, Romania's nuclear power plant operator Nuclearelectrica announced plans to invest up to €1.9 million in the Tarnita-Lapustesti pumped storage hydropower plant.
Transmission and distribution >
The UK’s National Grid plans to invest up to £26 billion (US$43 billion) between now and 2021 on upgrading and developing gas and electricity networks. This expenditure is included in the 2013 National Infrastructure Plan.
Roads >
The UK will undertake 209 road projects schemes at cost of £4.3 billion (US$5.6 billion). US$2.5 billion will be spent in 2014, more than twice the amount spent in 2013. All due to commence or be completed in 2014, these road programmes are estimated to boost the economy by over £18.8 billion (US$24 billion) an estimated benefit cost ration >4.
>
Moscow has announced a tender to build а toll road parallel to Kutuvkosky Prospekt. The planned road, which will stretch from the business centre Moscow City to the Moscow Ring Road and meet the M1 toll road bypassing Odintsovo, will require RUB40 billion (US$1.1 billion) for construction and RUB20 billion ($US0.6 billion) for the city to buy the land.
>
Romania’s national roads company has plans for work to start on 400kms of new highways in 2014. This is expected to cost in the order of €5.8 billion. The three key projects are the €1.2 billion Comarnic-Brasov highway, the Craiova-Pitesti highway and the southern beltway in Bucharest. All three projects will cost a total of €5 billion and extend for 230kms.
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Rail >
UK Network Rail has announced a five-year plan to invest £38 billion (US$51 billion) in rail infrastructure. This includes the construction of new tracks, the renovation of stations and the upgrade of existing lines. Network Rail has awarded geographical framework contracts for its £2 billion electrification programme. The project will electrify two thousand track-miles [3,200 track-km] to provide faster, quieter and more reliable journeys.
>
During 2014, the RATP Group will invest €1.6 million in its Ile-de-France network, in accordance with the contract agreed with STIF in March 2012, designed to make significant efforts in renewing equipment and improving the service provided to passengers. The contract between STIF and RATP for 2012 to 2015 calls for total investment of €6.5 billion over 5 years, or some €1.6 billion per year. This is significantly higher than recent years and will allow RATP to carry out major programmes to renew rolling stock and maintain infrastructure whilst at the same time modernising a substantial portion of the RATP transport network.
>
German Rail, Deutsche Bahn (DB) plans to spend around €4.6 billion on infrastructure renewal and investment in 2014, with maintenance expenditure set to increase by around €200 million. Next year DB plans to renew more than 3000 kms of track, 2350 switches and crossings, two million sleepers, and four million tonnes of ballast across its 34,000 route-km network.
>
A dedicated airport rail link between Paris Est and Charles-de-Gaulle Airport could begin operating in 2023 under a €1.7 billion - €1.9 billion project announced on 23 January 2014. The project would be led by ADP and infrastructure manager RFF, as a 50:50 joint venture. Currently, the airport is linked to the centre of Paris by a branch of RER Line B, which offers 28 trains each way per day with a journey time of around 35 minutes. It is also served by inter-regional TGVs using LGV Interconnexion to bypass the capital. With ADP projecting that traffic through the airport will double from the current 60 million passengers per year over the next decade, another rail link is seen as essential.
>
The Ile-de-France transport authority, STIF has approved draft plans for the €2 billion western extension of Paris RER Line E from St Lazare to Mants-la-Jolie. The project involves constructing an 8km tunnel from St Lazare to La Défense and upgrading the existing line to Poissy and Mantes-la-Jolie. The extension will cut journey times between western suburbs and La Défense, an important commercial centre on the west side of Paris, by up to 17 minutes.
>
Denmark Train Fund DK calls for an investment of DKK28.5 billion ($US5 billion) to shrink journey times to just one hour between major city pairs. Train Fund DK seeks to tap into North Sea oil revenues and use the funds to develop the rail network.
>
The European Commission (EC) has adopted the seven year €1 billion Shift2Rail PPP research project designed to increase passenger and freight traffic within the European Union. Under Shift2Rail, the EC will more than triple its funding of railway research to €450 million between 2014 and 2020 compared with €155 million for the previous period. This will be matched by €470 million from the railway industry. Shift2Rail has ambitious targets as it is aimed at reducing railway life-cycle costs by 50%, doubling capacity, and increasing reliability by up to 50%. By doing this, the EC believes rail can increase its share of passenger transport (which has remained fairly constant at 6%), and reverse rail's decline in freight market share (dropped from 11.5% in 2000 to 10.2% in 2013).
Airports >
Finavia plans to begin a €900 million development programme at Helsinki Airport. The major development programme, to be carried out between 2014 and 2020, will focus on increasing check-in and transit travel capacity as well as improving traffic arrangements.
Water and sewerage >
Thames Water has announced approximately £8 billion (US$10.4 billion) of upgrades to essential infrastructure between 2014 and 2020, equivalent to £1,385 for each of the 5.7 million households it services. The company plans to invest £5.1 billion (US$ 6.7 billion) from 2014 for improvements to the UK's oldest treatment works, pipes and sewers.
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Renewables >
Mainstream Renewable Power unveiled eight utility-scale wind and solar projects which are to reach financial close and begin construction works this year (2014). The projects, which are spread across four continents, have a combined capacity of over 1,000MW and will generate enough electricity to power more than half a million homes. The largest of the projects, the 450MW Neart na Gaoithe offshore wind farm in Scotland is due to start preliminary construction activities in late 2014. The seven onshore wind and solar plant has received all the necessary planning permissions and the grid connections are currently being finalised.
Committed projects Despite evidence of a reasonably healthy project pipeline, actual commencements were at some of the lowest levels seen since the Global Financial Crisis (GFC). This appears to be evidence of Europe’s struggle to reconcile necessary investment with high debt levels and social policies. Actual commencements are shown in the following graph. Of all sectors, only the primarily privately financed telecoms area maintained investment at around historical levels. Figure 11: Projects commenced in quarter - Europe $25,000.00
$20,000.00
$15,000.00
$10,000.00
$5,000.00
$0.00 Q4 2013 Power
Telecoms
T&D
Water and sewerage
Q1 2014 Transport
Social infrastructure
Renewables
Source: AMP Capital
Power >
Alstom has signed contracts worth approximately €1.25 billion (US$1.8 billion) with Polimex, Rafako and Mostostal Warsawa, members of the consortium in charge of the supply of two 900 MW units to major Polish utility Polska Grupa Energetyczna (PGE). This project concerns the units 5 and 6 for a new ultra-supercritical (USC) coal-fired power plant in Opole, south-western Poland. Once operational, it will be the country’s largest coal-fuelled facility, and will supply electricity to the equivalent of two million homes. Unit 5 is due to enter commercial operation in 2018 and unit 6 in 2019.
Roads >
A consortium led by Ferrovial Agroman has secured a contract to work on the £500 million (US$832 million) M8 M73 M74 motorway improvements project in central Scotland. Transport Scotland said the deal represents the first roads infrastructure scheme and the largest contract to be awarded as part of the government's £2.5 billion (US$4.1 billion) Non-Profit Distributing (NPD) model, a form of alliance contract. The project includes 28.6 kilometres of motorway of which 12.4kms will be newly constructed and the other 16.2 km of existing road will be upgraded. It is expected to be completed in spring 2017.
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>
Construction works are underway on a 15km section of the Livorno-Civitavecchia highway project. Some €2 billion worth of private funding is to be made available for this project. The funding stream is being set in place due to framework changes being made by CIPE, the Italian interdepartmental committee for economic planning. This will now pave the way for banks to fund the project.
>
The Société de la Rocade L2 de Marseille, formed by Group Bouygues Travaux Publics (17,5%), CDC Infrastructure (35%), the fund Meridiam Infrastructure Finance (35%), EGIS (5%) and Spie Batignolles (7,5%), has signed a partnership contract with the French Ministry of Ecology, Sustainable Development and Energy for the new Marseille bypass, known as the L2 or the A507. The 30-year PPP contract includes financing, design, construction, maintenance and renewal of the infrastructure and equipment. When all construction is complete, the infrastructure will be operated by the Mediterranean division of the French Interdepartmental national road network. The largest infrastructure project awarded in France in 2013, the total investment amounts to €620 million (US$1 billion).
>
Contracts for the tunnelling stage of Norway’s Solbakk tunnel project have been let. The US$1 billion tunnel will be 14.3 kilometres long, with its deepest point 290 meters below sea level. During this development program (over a 39 month period), approx. 1.2 million cubic meters will be excavated from the area between Nord Jæren and Ryfylke. The completion is scheduled for 2018.
>
Work has commenced on the estimated €1.2 billion (US$1.65 billion) contract to build the Comarnic-Brasov highway section in Romania. The Comarnic-Brasov highway section should be completed by the end of 2016
>
The Swedish Government, Stockholm municipality, Greater Stockholm and the councils of Solna, Nacka and Järfälla began on a 19km expansion of the Stockholm metro network. Total investment will be SEK19.5 billion (US$3 billion) project.
>
Russian Railways International, a subsidiary of Russian Railways (RZD), began work in March to upgrade a 370km line in Serbia and supply diesel trains to Serbian Railways. This follows the acceptance of a $US$800 million export credit by Russia's Ministry of Finance to finance the US$941.2 million project.
Rail
Telecommunications >
Alcatel-Lucent signed a €750 million (US$1.3 billion) deal to provide 4G and IP networking technology to China Mobile. The contract will see the Paris-based vendor supply TD-LTE access equipment from its LightRadio portfolio, an evolved packet core (EPC), IP routing and next-generation optical transmission kit. Alcatel-Lucent will also deliver GPON equipment and provide professional services to China Mobile. The partnership will support China Mobile's migration to an all IP platform paving the way for the future adoption of network functions virtualisation (NFV) and cloud services, Alcatel-Lucent said.
Privatisations >
The privatisation of state assets still struggle to gain political acceptance in many European countries. Recent News includes: >
Greece is slow moving on the €16 billion state asset sales being pushed by the EU.
>
Turkey's distribution network has now been fully privatised and the government hopes to earn an additional US$13 billion in proceeds from the privatisation of the remaining portfolio of power generation assets.
>
Spain is reported to be considering the floating of a 49% stake in Aena Aeropuertos, the country's state-owned airport operator. Aena, the world's largest airport operator by passenger numbers, could be valued at over €10 billion (US$13.5 billion).
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PPP activity >
PPPs that closed in the period are summarised in the following table. For a more detailed description of the larger projects, refer to the previous summaries. The UK clearly demonstrated its leadership in the PPP model closing 12 out of the 17 PPP projects in Europe during the review period.
Date
Project
Country
Sector
Capital Value
28 Mar 2014
Mersey Gateway Bridge Project
UK
Transport
£450m
25 Mar 2014
North Tyneside Borough Council - Older People Homes For The Future
UK
Social infrastructure
£300m
28 Feb 2014
Southampton Royal Pier Waterfront Regeneration
UK
Social infrastructure
£450m
21 Feb 2014
M8, M73 And M74 Motorway Improvements
UK
Transport
£415m
2 Jan 2014
Merseyside Waste PPP
UK
Water & sewerage
18 Dec 2013
Manchester Brunswick Housing Regeneration PFI
UK
Social infrastructure
£100m
16 Dec 2013
Royal Liverpool Hospital PFI
UK
Social infrastructure
£335m
10 Dec 2013
Wales Project Gwyrdd Waste PPP
UK
Water & sewerage
£185m
28 Nov 2013
West London Residual Waste Services
UK
Water & sewerage
£840m
27 Nov 2013
Greater Gabbard Offshore Transmission Owner (OFTO)
UK
Transmission & distribution
£317m
26 Nov 2013
Salford University Accommodation
UK
Social infrastructure
£81m
22 Nov 2013
Woking Social Housing PFI
UK
Social infrastructure
£80m
21 Jan 2013
Kurumoch International Airport
Russia
Transport
€230m
9 Jan 2013
Sopot Railway Station
Poland
Transport
$350m
16 Nov 2013
L2 Marseilles Bypass
France
Transport
€645m
6 Dec 2013
Zagreb Airport PPP
Croatia
Transport
$314m
25 Nov 2013
Monselice Hospital PPP
Italy
Social infrastructure
€184m
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North American infrastructure Overview After a lacklustre fourth quarter in 2013, the big news from the US was a proposal to invest US$302 billion for repairs on roads and transit systems under the Grow America Act (the Act) in apparent reaction to long-term concerns regarding the condition of the national transport infrastructure. The Act will also allow states to charge tolls on interstate highways for the first time which should markedly improve the prospect for transport PPPs. The proposed funding allocation is as follows: >
US$199 billion to the federal aid highway programme (an increase of US$9 billion),
>
US$92.1 billion to the National Highway Performance Program to repair and reduce congestion,
>
US$13.4 billion to the Fix-it-First initiative targeting deficient bridges,
>
US$ 10.1 billion to the highway Safety Improvement Program,
>
US$72 billion to public transit (a 70% increase).
Options for financing this four year plan include: >
revising how businesses are taxed and closing tax loopholes,
>
revamping the tax code that allocated spending of US$126.5 billion for infrastructure and highways, and
>
increasing taxes on fuels used in trucks and cars.
President Obama also unveiled the commencement of a US$600 million competition for grants to construct infrastructure for transit systems, roads and ports. Other major news includes the toll of Hurricane Sandy. New York Governor, Andrew Cuomo, announced a US$17 billion plan to ‘storm proof’ New York's infrastructure and transit systems to withstand the impact of extreme weather. This includes a US$4.9 billion plan to harden New York's transportation network against future storms. New York has endured nine presidentially declared disasters in the three years since Cuomo took office. In Canada, Prime Minister Stephen Harper has announced a C$14 billion infrastructure fund that will offer provinces, cities and smaller communities access to federal money over the next 10 years. The New Building Canada Fund, which was first announced in last year’s Federal Budget, is part of the larger C$53 billion New Building Canada Plan, which also includes a Gas Tax Fund and a funding model for PPPs. C$4 billion is being set aside for projects of ‘national significance’. The fund’s remaining $10 billion has been dedicated to infrastructure and community projects in the provinces and territories, with C$1 billion of that earmarked for communities with populations under 100,000. US freight railroads this year plan to collectively spend a record US$26 billion to build, maintain and upgrade infrastructure, according to the Association of American Railroads (AAR). The railroads have invested about US$550 billion in their rail networks since 1980, including US$115 billion in the past five years. The work has included upgrades to bridges and tunnels, and new tracks and facilities. Specific programmes include: >
Amtrak 2014 infrastructure plans include the expansion of Positive Train Control (PTC) and upgrading of a key section of the Washington DC to New York and Boston Northeast Corridor (NEC) for 257km per hour operation.
>
BNSF has announced a record $US5 billion capital expenditure programme for 2014, an increase of around $US700 million from 2013. BNSF says the largest component of the plan is the $US2.3billion allocated to its core network and related assets. Approximately $US1.6 billion will be spent on locomotive, wagon and other equipment acquisitions during the year. The programme includes about $US200 million for positive train control (PTC), installations and $US900 million for terminal, line, and intermodal expansion and efficiency projects.
In Canada, Canadian National announced a C$2.1 billion capital investment plan for 2014 which includes: >
C$1.2 billion for infrastructure on the 32,000km network in Canada and the US, including track renewals, bridge improvements and various branch line upgrades.
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>
C$300 million for locomotives and rolling stock, including the acquisition of 45 more high-horsepower locomotives.
>
C$600 million for terminals, distribution centres, IT and completion of the Calgary Logistics Park.
Other significant North American planned expenditure includes: >
The Commonwealth of Pennsylvania’s Transportation P3 board has formally approved the state’s proposed bundled bridges project in which the state will enter into a contract with a private partner to construct and maintain repairs on roughly 4,700 deficient bridges throughout the state. The project could cost as much as US$4 billion, according to early estimates.
>
The Electric Reliability Council of Texas is planning to spend more than $3.6 billion on 16 transmission improvement projects between 2014 and 2018. The projects include additions and upgrades to more than 3,300 miles of transmission lines and other equipment improvements to increase capacity and support reliability.
>
Governor of New York Andrew Cuomo offered his support for a commuter rail investment project which would see MTA Metro-North’s New Haven Line trains routed over Amtrak’s Hell Gate Bridge into New York Penn Station. Provisionally costed at around US$1 billion, the Penn Station Access proposal has been under consideration by New York MTA for some years as a means of providing more capacity and resilience on the Metro-North network.
>
The Port Authority of New York and New Jersey has earmarked nearly US$8 billion for upgrades at LaGuardia, John F. Kennedy, and Newark airports as part of a 10 year plan. The three airports have been rated among the five worst in the nation.
>
The Maine Department of Transportation (DOT) plans to invest US$2.02 billion over the next three years to improve roads and bridges across the state. The three year work plan from 2014 to 2016, will utilise US$100 million in state transportation bonds and federal highway funds to invest in more than 1,600 projects that will be taken up across all of the state's 16 counties.
>
The Florida Department of Transportation (FDOT) will receive US$8.8 billion in the ‘It’s Your Money Tax Cut Budget’, to make strategic transportation improvements throughout the state. This will fully fund the FDOT’s Work Program and continue investments in port, construction, bridge and other transportation infrastructure improvements.
>
The Government of Alberta in Canada is set to invest C$5 billion (US$4.5 billion) over the next three years to expand and rehabilitate the highway network in the northern parts of the province. As part of the three year construction programme, over 2,500km of existing provincial highways, mostly in the northern regions, will undergo rehabilitation.
Active projects New project announcements in the period are summarised in the following graph. While transport projects predominate, significant activity is evident in all sectors. A feature has been the increasing use of PPP delivery of transport projects.
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Figure 12: Projects under active development – North America $50,000
$45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000
$Q4 2013 Power
Telecoms
T&D
Water and sewerage
Q1 2014 Transport
Social infrastructure
Renewables
Source: AMP Capital
Power >
The US Department of Energy (DOE) has announced it will approve approximately US$6.5 billion in loan guarantees for the construction of two new Westinghouse AP1000 nuclear reactors at the Alvin W. Vogtle electric generating station, in Georgia. Georgia Power, Oglethorpe Power, the Municipal Electric Authority of Georgia (MEAG) and the City of Dalton in Georgia are the partners in the Vogtle project that is being constructed by a consortium led by Southern. In 2010, the DOE made conditional commitments for a total of US$8.3 billion in loan guarantees for Plant Vogtle. In February 2014, the DOE will issue loan guarantees of approximately $6.5 billion to Georgia Power and Oglethorpe Power, while it continues to work on the remaining conditional commitments for a US$1.8 billion loan guarantee to MEAG. The total cost of the Vogtle nuclear reactors is estimated at US$14 billion.
>
The Alberta Utilities Commission approved an application by Shell Canada Ltd for the construction of a 690MW, gas-fired cogeneration plant. Shell indicated that the power plant would be commissioned in three stages; the first cogeneration unit would be in service by January 2016, the second cogeneration unit to be in service by March 2016, and the third cogeneration unit to be in service by May 2016. All up costs are estimated at US$1.3billion.
Transmission and distribution >
Ameren Transmission Company of Illinois (ATXI) has received siting approval of final routes and sub-stations from the Illinois Commerce Commission (ICC) ICC to build the US$1.1 billion Illinois Rivers transmission project. The 345,000V transmission line project, which is claimed to be the longest single transmission line in Illinois history, will facilitate the delivery of low cost power and improve the reliability and efficiency of the electric power grid, apart from creating new jobs.
>
The Alberta Electric System Operator (AESO) has selected five bidders for a new line to Fort McMurray. The new Fort McMurray West 500 Kilovolt AC single-circuit line will run for about 500kms from an existing generating station near Wabamun.The project is estimated to be worth about US$1.6 billion. The consortium selected will design, finance, own and operate the line, and will earn fixed monthly payments for 35 years.
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Road >
Four teams will compete in the forthcoming request for proposal (RFP) process for the Indiana segment of the proposed Illiana Corridor Expressway. The four teams Indiana selected will compete to design, build, finance, operate and maintain the state's portion of the Illiana Corridor Expressway Project, a proposed 47 mile, tolled highway connecting I-55 in Illinois to I-65 in Indiana. Construction in both states is scheduled to begin in late spring or early summer of 2015. Indiana and Illinois are handling their procurements separately, and construction schedules for the project are anticipated to cost at least US$1.3 billion.
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A US$1.4 billion transport package has been approved by the Fairfax County Board of Supervisors for funding highway interchanges, wider roads and new sidewalks in the Virginia state county.
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US Transportation Secretary Anthony Foxx has announced a Transportation Infrastructure Finance and Innovation Act (TIFIA) loan for US$452 million to finance the Downtown Crossing section of the Louisville and Southern Indiana Ohio River Bridges Project. The cost of the Downtown Crossing, which Kentucky is funding, is around US$1.3 billion and represents one half of the bi-state Ohio River Bridges project, which also includes the new East End Bridge, spanning the Ohio River eight miles to the north. Indiana will finance the East End Crossing project, also estimated to cost $1.3 billion, and will be developed through a joint venture between Vinci Construction Grand Projects and Walsh Construction. The project will be delivered as a PPP concession package and involves designing, building, operating and maintaining a cable stayed bridge over the Ohio River. A similar PPP proposal was rejected by the Kentucky governor, despite strong support in the legislature.
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In 2014, Canada, in collaboration with the Michigan Department of Transportation, anticipates to begin purchasing land on the Detroit portion of the river, potentially as soon as spring 2014. Under the US$2 billion plus project, a six-lane bridge would be constructed from Detroit to Windsor.
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A US$840 million Transportation Infrastructure Finance and Innovation Act (TIFIA) loan for the Grand Parkway Project in greater Houston, Texas has been announced by US Transportation Secretary Anthony Foxx. The US$2.5 billion project will improve safety in addition to adding highway capacity in the region. The Grand Parkway Project will include a four-lane 55 mile toll road in northwest Harris County and southeast Montgomery County.
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Quebec has launched a Request for Qualifications from infrastructure developers interested in a PPP contract to design, build, finance, operate and maintain the new C$3 billion St. Lawrence bridge. Construction for the new bridge will start in 2015 to allow for it to be in service by 2018. The rest of the corridor project will be completed by 2020. This bridge is one of the busiest in Canada, with C$20 billion worth of international trade crossing it every year.
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Californian commuter rail operator Caltrain has released the draft environmental impact report for the planned electrification of the 82km line between San Francisco and San Jose. The project is due to be completed in 2019 and as well as benefitting commuter rail operations, will allow California High-Speed Rail services to run into San Francisco on Caltrain infrastructure. The cost of the project is estimated at $US1.2 billion, with a further $US440 million required for the acquisition of a fleet of electric commuter trains.
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The Los Angeles County Metropolitan Transportation Authority (LACMTA) has received a US$670 million grant from the Federal Transit Administration (FTA) to build the two mile Regional Connector light rail transit line in the city. Expected to open in 2020, the Regional Connector will initially handle about 60,000 trips or more each weekday. Apart from the FTA grant, LACMTA will also receive US$64 million from other US Department of Transportation (DOT) funds and a loan of up to US$160 million from the Transportation Infrastructure Finance and Innovative Action (TIFIA) program. Remaining funding of about US$1.4 billion will be pooled from state and local resources.
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The United States Federal Transit Administration (FTA) has granted conceptual planning approval for the construction of a $US1.34 billion starter light rail line in the city of Durham, North Carolina. The 27.5km line will link Alston Avenue in East Durham with the University of North Carolina and Chapel Hill with 17 stations.
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The Federal Transit Administration (FTA) has given approval to VIA Metropolitan Transit in San Antonio, Texas, to continue developing a federal funding investment request for a modern streetcar system. The FTA's approval of entry into project development puts VIA on the path toward federal funding for future phases of the streetcar project.
Rail
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The Honolulu Authority for Rapid Transportation plans to spend US$1.6 billion on construction and design of guide ways, stations and infrastructure for the Honolulu rail project during the fiscal year 2015. That money includes US$1.1 billion for construction, including US$682 million on the airport/city centre guide way, as well as US$63 million on city centre utilities and US$95 million on utility relocation.
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The Silver Line appears on track to receive a federal loan of nearly US$1.9 billion to help fund the second phase of the rail project, which will include a stop at Dulles International Airport. The Metropolitan Washington Airports Authority and two of its partners in the US$5.6 billion rail project, Fairfax and Loudoun counties, have been asked by the Department of Transportation to apply formally for a federal loan — a sign that they are likely to receive the funds they have requested.
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Companies from across the US and around the world are expected to compete for a contract worth between US$1.5 billion and US$2 billion to design and build a 60 mile section of California's proposed high speed rail line in the San Joaquin Valley. The Valley would form part of a 520 mile line between San Francisco and Los Angeles for electric trains capable of hauling passengers at up to 220 miles per hour. The cost of the state wide line is projected at about US$68 billion. The project continues to face obstacles as legal, financial and political concerns cast a shadow over the rail authority's efforts.
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The United States Federal Transit Administration (FTA) issued a record of decision approving plans for the 25.8km Maryland Purple Line LRT, which will serve the northern suburbs of Washington DC. The 21-station line will run inside the Capital Beltway from Bethesda in the east to New Carrollton in the west, with direct connections to Metrorail's Orange Line, Green Line and two branches of the Red Line and to the Marc commuter rail Brunswick, Camden and Penn lines. The US$2.4 billion project is being implemented as a PPP by Maryland Transit Administration (MTA).
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The District of Columbia's Department of Transportation (DDOT) issued a request for qualifications to firms interested in submitting statements of qualification to design, build, operate and maintain an integrated premium transit system (IPT) that includes the city's new streetcar system. The US$3 billion IPT system will be developed in phases and include 22 miles of dual/single track fixed guide way, related equipment and facilities, and potentially up to 15 additional miles of fixed guided track. The IPT also encompasses local bus services.
Airports >
Salt Lake City International Airport is about to undergo a US$1.8 billion capital improvement program that includes construction of a new terminal, concourses, parking garage, rental car facilities, improved roadways and associated infrastructure. Called the Terminal Redevelopment Program (TRP), the project is currently in the schematic design phase.
Ports >
Bechtel has been selected by LIGTT Project Company LLC to provide management services for the preconstruction of the Louisiana International Gulf Transfer Terminal. The innovative US$1.2 billion new cargo transfer terminal off Louisiana’s Gulf Coast will be the largest deep-water port in the US and will cater to the new classes of larger, more economical ships
Renewables >
Dragonfly Solar, a commercial solar developer based in Lakeville, Minnesota and SolarWorld, a US based solar manufacturer, will partner to deliver a 517 kilowatt solar array to four electric utility cooperatives in the US Midwest. The US$1.2 billion project is the nation’s first and largest to be developed under a model of joint ownership among utility cooperatives investment. Construction of the solar facility is scheduled to begin this spring in Oronoco, Minnesota. Upon completion, the array will be interconnected to People’s Energy Cooperative’s power delivery system.
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With more than 80 owners of nearly 20,000 acres on board, a US$2 billion wind energy project planned for southeast South Dakota has moved to the research phase. The Dakota Power Community Wind Board has approved the purchase of a 60 meter tower that will be used to gather data in the design of the wind turbines in southern Lincoln County, near Beresford. US based renewables developer First Wind is planning to deploy 750MW of solar and wind generation capacity over the coming two years – equivalent to a 75 per cent expansion.
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The US has approved two solar power plants with a combined capacity of 550MW in California and Nevada as part of President Obama's Climate Action Plan. The first project, called Stateline Solar Farm, will be built in
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San Bernardino County, California. Using photovoltaic (PV) panels, the facility will generate 300MW and create about 400 jobs during construction and 12 permanent jobs during operations. The second project, called Silver State South Solar, will be located near Primm, Nevada. The 250MW facility will create around 300 jobs during construction and 15 permanent operations jobs. Both projects have commitments from Southern California Edison to purchase the energy produced for 20 years. >
Civil works for the Muskrat Falls hydroelectric project in Canada is planned to start before the end of this year and last for approximately four years. The 824MW Muskrat Falls development and the 2,250 MW Gull Island project are part of a C$7 billion plan to develop the lower Churchill River. Nalcor Energy, the client responsible for the development, is a crown corporation owned by the Government of Newfoundland and Labrador. Nalcor is now focused on completing commercial negotiations with Astaldi to finalise the contract.
Committed projects Actual project commencments were at low levels and were possibly impacted by the federal funding impasse at the beginning of 2014. Commencements identified are shown in the following graph. Projects were well spread across all sectors. Figure 13: Projects commenced in quarter – North America $20,000.00 $18,000.00 $16,000.00 $14,000.00 $12,000.00 $10,000.00 $8,000.00 $6,000.00
$4,000.00 $2,000.00 $0.00 Q4 2013 Power
Telecoms
T&D
Water and sewerage
Q1 2014 Transport
Social infrastructure
Renewables
Source: AMP Capital
Transmission and distribution >
NSP Maritime Link Inc., a subsidiary of Emera Inc. has started construction of a high voltage direct current (HVDC) cable connection between the island of Newfoundland and Nova Scotia in Canada. Two 200 kV HVDC power cables will span a subsea distance of approximately 170kms. Project costs are estimated at US$800 million.
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Construction on NIPSCO’s Reynolds-Topeka Line, affecting approximately 105 parcels of land in Kosciusko County, has commenced. It’s part of the utility company’s 7 year $1 billion capital improvement plan that will involve the replacement of hundreds of miles of electric lines and underground cable. The utility company says the new line will strengthen Indiana’s electric system and provide improved access to wind and solar renewable energy sources.
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Roads >
The New York Metropolitan Transportation Authority (MTA) has awarded contracts taotalling US$1.4 billion for construction of different portions of the East Side Access (ESA) project. Construction under the second contract is expected to commence in the second quarter of 2014 and slated to complete in 2020.
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All 592 of the suspender ropes on the George Washington Bridge are to be replaced as part of a US$1.03 billion project approved by the Port Authority of New York and New Jersey. The project on the 82 year old suspension bridge will also rehabilitate all of the span's main cables and replace the walkways.
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In 2016 the city of Long Beach, California, will have a new iconic landmark in its harbour. The project to replace the ageing Gerald Desmond Bridge is a joint effort of Caltrans and the Port of Long Beach, with funding contributed by the Port of Long Beach, the California Department of Transportation, the US Department of Transportation and the Los Angeles County Department of Transportation. Of the US$1.1 billion budget, approximately US$650 million is for actual bridge construction.
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The US$1.5 billion replacement of the Goethals Bridge has reached financial close. The project has been called the largest PPP in New York. Construction of the new cable stayed bridge is expected to be completed in 2017.
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The North Tarrant Express (NTE) PPP in Texas has reached financial close. The PPS project for Segment 3A of the route will be carried out by NTE Mobility Partners Segments 3 LLC (NTEMP3) for the Texas Department of Transportation (TxDOT) and the North Central Texas Council of Governments (NCTCOG). The US$1.4 billion project will rebuild 10.4km of the existing main lanes of I-35W. The work will see the addition of two managed toll TEXpress lanes in both directions, doubling the capacity of the highway.
Airports >
Orlando International Airport has let contracts in a US$1.1 billion expansion programme designed to increase capacity to 40 million passengers by 2016. The airport, which was originally designed to house 24 million passengers per year, currently handles over 35 million including 1.8 million international arrivals.
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Construction is set to start on the US$950 million Tampa Gateway Centre, after the project secured US$194 million in state funds. The 2.3 million square foot car rental and retail facility will be built south of the main terminal and will be linked to the airport by a 1.3 mile people mover. The Tampa Gateway Centre is designed to connect the airport to whatever future system of mass transit arises in Tampa Bay. The project is expected to create 7,141 construction jobs and, when it's finished in 2017, another 1,112 permanent jobs.
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New York State is set to commence the US$3.6 billion construction project at LaGuardia Airport in New York City, which involves the construction of a new Central Terminal Building. The new terminal will feature vast open spaces, restaurants, shopping plazas, amenities, new parking garages, free Wi-Fi and other support facilities. It is expected to handle nearly 17.5 million passengers a year by 2030. It currently accommodates about 12.5 million passengers a year, although its capacity is only eight million.
Water and wastewater >
The Federal Emergency Management Agency (FEMA) has approved US$730 million in funding to repair the Bay Park Wastewater Treatment Plant in New York that was severely damaged during Hurricane Sandy. The funding is the largest Sandy infrastructure award and will also provide protection against future extreme weather for the plant. Of the total funding, FEMA has committed at least US$657 million, and Governor Cuomo has committed to use at least US$73 million in federal community development block grant funds to cover the remainder.
Telecommunications >
The US Army has awarded AT&T Government Solutions a US$4.1 billion, five year IDIQ contract to supply communications and transmission systems. AT&T will supply the army with a full suite of communications services, including satellite, microwave, fiber optic, over the horizon radio and wireless capabilities, as well as all ancillary support services.
Reneweables >
Siemens and Cape Wind have signed a major contract for the construction of the US’ first utility scale offshore wind farm. Siemens will supply 3.6MW offshore wind turbines, an offshore Electric Service Platform (ESP) and
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a long-term service agreement. The project is situated off the Northeast coast, 20kms offshore of Nantucket at Horseshoe Shoal in the Nantucket Sound. Installation and commissioning is expected for 2016. When fully built, Cape Wind will have a capacity of 468 MW and cost US$1.5 billion. >
BBE Hydro Constructors Limited Partnership was awarded a C$1.4 billion (US$1.3 billion) contract to build the 695MW Keeyask hydroelectric power plant for Manitoba Hydro in Manitoba, Canada. The BBE Hydro Constructors team consists of Bechtel, Barnard Construction and EllisDon. The team will build a seven unit powerhouse, earthen structures, rock excavation, electrical and mechanical work, and will be responsible for the construction and removal of temporary cofferdams. First power from the plant is expected in 2019, with completion scheduled for 2020.
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In February 2014 BC Hydro signed the contract with InPower BC (SNC-Lavalin) for the John Hart redevelopment project which includes the construction of an innovative, underground powerhouse that will enhance public safety and improve the site's environmental footprint. The US$1.1 billion project is expected to be completed by 2018/2019.
PPP activity >
PPPs in transport and social infrastructure continue to gain momentum in the US, despite frequent legal challenges. PPPs that were closed in the period are summarised in the following table. For a more detailed description of the larger projects, refer to the above summaries.
Date
Project
Country
Sector
25 Nov 13
Georgia I-75/575 Northwest Corridor P3
US
Transport
US$850m
12 Nov 13
New York Goethals Bridge PPP
US
Transport
US$1.3bn
23 Oct 13
University Of Nevada - Reno Housing P3
US
Social infrastructure
US$22m
9 Oct 13
Ohio River Bridges Project, East End Crossing
US
Transport
US$763m
3 Mar 14
John Hart Generating Station Replacement
Canada
Renewables
C$1.35bn
17 Dec 13
Providence Care Hospital
Canada
Social infrastructure
C$350m
14 Oct 13
Sorel-Tracy Detention Centre P3
Canada
Social infrastructure
Unknown
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North Asia Overview Despite a slow down in overall growth, China continues an impressive programme of infrastructure investment with the main emphasis on transport and energy developments. In the transport sector both rail and road transport received significant boosts. Examples of planned road spending include Guangdong province’s plans to invest over CNY720 billion (US$117.5 billion) on highway investment during 2013-2017. Following this massive four year investment, the total highway network in the province will increase to 8,140kms. Rail is also undergoing something of a renaissance after the fall from grace of the previous rail minister and his ruinously expensive programme of high speed rail development. This time round there seems to be a more balanced strategy of conventional passenger and freight developments together with high speed passenger developments in high demand areas. In addition, some major investments in urban metro developments are planned. In the energy sector, coal fired generation still holds sway, but strenuous efforts are being made to reduce both the energy intensity of economic growth and to improve the sector’s environmental performance. Subsequently, nuclear power and renewables are also getting a boost. In India, the run up to the national elections has meant a number of announcements on major projects but the fragile nature of the national economy means that few will actually be realised. For example, the National Highways Authority of India is continuing the process of investment in toll road projects and general road construction. Plans called for some US$27 billion of road projects to be awarded in India by the end of 2013. However, at the end of the year, only 479km of projects had been awarded, representing less than 5% of this target. Consequently, it is anyone’s guess as to what projects actually commence construction. Other ambitious programmes include new roads under the Special Accelerated Road Development Project-North East (SARDP-NE) and the Arunachal Pradesh (AP) package of roads and highways. The Union Road Transport and Highways Ministry has approved Phase A of this project which includes the building of 6,418km out of a total of 10,141km of roads. The works are due to be completed by March 2017. Most railway interest is in development urban metro systems. Many announced projects are still awaiting funding. More secure is the 1,829km Eastern Dedicated Freight Corridor (DFC) which will eventually link Ludhiana with Dadri near Delhi and Dankuni near Kolkata. The World Bank has committed to lend $US2.7 billion for construction of the Eastern DFC. Of this, $US975 million for the first phase was sanctioned in May 2011. The loan for the second phase, which is currently out for tender, is expected to be worth $US1.1billion New electricity generating projects are also being announced, although the past track record of the NTPC in delivering projects does not breed confidence. Ambitious nuclear and renewable projects announcements should also be viewed with some scepticism.
Active projects New projects under active development are summarised in the following graph.
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Figure 14: Projects under active development – North Asia $90,000 $80,000
$70,000 $60,000 $50,000 $40,000 $30,000 $20,000
$10,000 $Q4 2013 Power
Telecoms
T&D
Water and sewerage
Q1 2014 Transport
Social infrastructure
Renewables
Source: AMP Capital
Power >
US based CB&I signed an agreement with CPI Power Engineering Co. Ltd., a subsidiary of China Power Investment Corp., to form a joint venture to build nuclear power plants in China. CPI is a state owned power generation company and one of the three nuclear plant owners and operators in China. CB&I will provide engineering, procurement, construction management, commissioning, project management and technical support services for new build stations. CB&I is currently providing EPC, commissioning, information management system and project management services for two units at CPI’s site in Haiyang.
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Tenders have been submitted for the proposed ultra-mega power 1600 MW projects (UMPPs) in Odisha and Tamil Nadu. These projects are being developed by the NTPC and are estimated to cost Rs25,000 crore (US$ 2 billion), each. The UMPP in Tamil Nadu is to be constructed in Cheyyur and one in Odisha in the Sundergarh district.
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NTPC will set up a 1,320 MW power project in Bihar entailing an investment of Rs9,200 crore (US$1.5 billion). The plant will have two units of 660MW each. The project is proposed to be implemented through a joint venture with BSPGCL.
Road >
Mumbai Metropolitan Region Development Authority (MMRDA) plans to build the Mumbai Trans-Harbour Link (MTHL), a 22km causeway, which will connect Sewri in the island city to Nhava Seva in Navi Mumbai. The MTHL, once completed, will be the fourth longest in the world. They plan to start actual work on the project before the end of 2014.
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The Maharashtra State Road Development Corporation (MSRDC) has floated global bids for the construction of the Versova-Bandra Sea Link. The bidding process is expected to be completed and the project awarded by mid-2014. The new link would cut travel times by half. The sea link will have eight lanes whereas the Versova connector would have six and the Juhu Koliwada connector just four lanes. The cost of the project is estimated at Rs5,975 crore, or US$1billion.
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India is set to commence a new Rs6,284 crore ($1.1 billion) project to increase the Eastern Peripheral Expressway of National Highway Number NE-II to six lanes in the states of Haryana and Uttar Pradesh. The total cost of project includes the cost of land acquisition, resettlement and rehabilitation and other preconstruction activities. The project follows a major national highway widening project approved by CCEA in Haryana, under the government's flagship road development programme.
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In China a new 88km highway is planned to connect Chengde with capital Beijing. The highway will connect Chengde in Hebei Province to Beijing's Pinggu district. The project will cost some US$1.3 billion. The route
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will feature a design speed of 100km per hour. Construction work on the Chengde section of the highway is due to commence in 2014. Rail >
Shanghai Transport & Port Authority has proposed a 90 km, US$3.2 billion six line tram network in the south western Songjiang district. This is the first stage of a plan for an 800 km network by 2020. The plan envisages that the 16 km route T1 from Xinsongjiang Road to Xinqiao would be operational by 2016, along with the 12 km first phase of route T2. The initial six lines would have a total of 118 stops, and would provide interchange with metro lines 9 and 22. A 20 hectare depot and four park-and-ride sites are also planned.
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Kochi Metro Rail Ltd and Agence Française de Développement signed a €180m long-term loan agreement on February 8 to finance the first phase of the Kochi metro in Kerala state. The 25 km elevated north-south line would run from Aluva to Petta with 22 stations. Tenders for 25 standard gauge cars were invited in October. The project is expected to cost Rs5,170 crore, or US$1.0 billion
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Mumbai Metro Rail Corporation (MMRCL) will issue detailed tenders for Metro-3 by July 2014 and award the contract to the successful bidder by October 2014. The construction of the 32.5 km long Colaba-BandraSEEPZ underground metro corridor is likely to commence in January 2015. The project is to be undertaken on an Engineering, Procurement and Construction (EPC) basis.
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The Delhi Metro Rail Corporation (DMRC) has assured to complete the work on the first phase of the Lucknow Metro Rail project by February 2017, if it was assigned the task. The DMRC team also said that if the work was handed over to them on a turn-key basis, it would begin work Jan 25, 2014 and a trial run will begin on the Amausi-Alambagh route by February. The second phase, the Alambagh to Munshipulia section would follow in the first quarter of 2019. The Project is valued at Rs6,000 crore (US$1.3billion).
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In Bangalore, the BMRCL is looking for viability gap funding (VGF) for Phase II of Namma Metro. Under the scheme, the BMRCL could get a one-time grant from the central government to fund a part of the project. The present estimation of the 72 km project is Rs26,405 crore (US$ 4.3 billion) and completion is planned by 2019.
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The Export-Import Bank of China has agreed to provide loans for the construction of a rail line that will link border cities in Yunnan to Laos' capital Vientiane. The railway will be about 420 km long, and the cost of construction is estimated to be about $7 billion.
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China plans to develop strategic rail networks at a cost of around US$30 billion including: >
The 224 km Huanghua–Dajiawa line to improve links around the Bo Hai coast for passenger and coal transport. The route starts at Huanghua Nan and runs through Cangzhou, Bingzhou and Dongying, crossing the Yellow River at Datianjia and heading east to Weifang and Dajiawa.
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A Lianyungang–Zhenjiang line will run for 312 km along the coast of Jiangsu province.
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The planned 420km Nanchang–Ganzhou line would have stations at Xiangtang, Fengcheng, Zhangshu, Xingan, Xiajiang, Ji’an, Taihe, Wan’an and Xingguo.
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A 574km line would run from Yinchuan to Xi’an, and include double tracking of sections of the 266 km line from Pingliang to Xi’an.
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A 366km line between Quzhou and Ningde costing 30.5 billion yuan has been approved, as well as work to enhance capacity of the E’mei to Mi’yi section of the Chengdu – Kunming railway.
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More imminent is the construction of the Yancheng–Lianyungang line which together with the Qingdao–Lianyungang and Shanghai–Nantong lines will form a coastal route linking the Shandong peninsula with the Yangtse delta. Expected cost is 26 billion yuan (US$4 billion). It will include 234km of double track and 76km of single track branch, with 12 stations, 90 bridges and viaducts totalling 149 km. Primarily intended for passenger services, the line will be designed for 200km per hour running. Opening is planned for the end of 2017.
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A high-speed railway linking the Chinese capital of Beijing with Shenyang, capital of Northeast China's Liaoning province, is expected to kick off construction in the first half of 2014. The 709 km railway will cut travel time between the two cities in half to 2.5 hours. The railway is expected to be completed within 5 years with a total investment of 124.5 billion yuan (US$20.4 billion). It is designed with a speed of 350 km per hour.
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Airports >
An estimated 200 billion yuan (US$32 billion) will be invested in a new airport for Beijing. The new airport, scheduled to open in 2018, will be located between Beijing's Daxing district and Langfang in neighbouring Hebei province, and will be 46km away from the centre of China's capital. Its 700,000 square meter terminals will be able to handle 72 million travellers a year.
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Shanghai’s Pudong International Airport will be home to the world’s largest satellite airport terminal when it goes under construction starting in 2014. The four year project will house 105 airplanes, the Shanghai Airport Authority said, making it the largest detached terminal in the world. Bidding has yet to take place on the project.
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First phase of Navi Mumbai airport may be ready by 2017. Mumbaikars can expect construction to start at the end of 2014 and the first phase of the airport, with a runway and a terminal, is planned to be ready by 2017.
Ports >
Shanghai has applied to the central government for permission to build a multibillion yuan container port facility to further develop its free trade zone. The city plans to start the fourth phase of the expansion of Yangshan Port to add annual capacity of 4 million 20 foot equivalent units at a cost of at least 10 billion yuan (US$1.3 billion). Shanghai has been the world's busiest container port for the past three years, and the Yangshan deep water port accounted for about 40 per cent of the container volume the city handled last year.
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The proposed port at Duggarajupatnam in Nellore district has the potential to become a major shipping facility. The port will be constructed once land acquisition is completed at a cost of Rs7,500 crore (US$1.2 billion).
Transmission and distribution >
The Indian Government plans to invite global bids for a dozen interstate transmission projects worth over Rs20,000 crore (US$3.5billion) to connect power generation projects in states including Chhattisgarh, Haryana, Rajasthan and Tamil Nadu.
Telecommunications >
ZTE Corporation has won a bid to become the leading partner in the construction of China Unicom’s IMS network. As part of the project, ZTE will partner with China Unicom to build the provider’s IMS network in 10 northern China provinces and cities including Beijing, Tianjin, Shandong, Heilongjiang, Jilin, Liaoning, Hebei, Henan and others. In addition, ZTE will reconstruct China Unicom’s current fixed network into an IMS network on a large scale with the overall goal of improving the comprehensive full service operation capabilities of China Unicom.
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Nokia Solutions and Networks has won an LTE contract with China Telecommunications Corporation (China Telecom), a major wireless broadband operator in China. The operator has selected NSN as major partner for its nationwide LTE rollout.
Renewables >
Trina Solar Limited has signed an investment framework agreement with the local government authority of Turpan Prefecture to develop a 1GW ground mounted solar power plant project in western China's Xinjiang Region. Under the agreement, the plant is scheduled to be built in multiple phases over a four year time frame starting from early 2014.
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The Indian Ministry of New and Renewable Energy plans to set up four solar based ultra-mega power projects (UMPPs) in Sambhar in Rajasthan, Khargoda in Gujarat and Ladakh and Kargil in Jammu and Kashmir. The 4 GW project, which is estimated to cost around Rs30,000 crore (US$5 billion) or Rs7.5 crore (US$110) per megawatt, will be developed in phases.
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A consortium of Patel Engineering, Turkey‘s Limak and state owned BHEL has emerged as the lowest bidder for a 1,000 MW hydro project in Jammu & Kashmir. The 1,000 MW, US$2.5 billion, Pakal Dul hydro-electric project, having four units of 250MW, is located in the Doda district of Jammu and Kashmir.
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Committed projects In common with most other areas, actual project commencments were at low levels compared with previous figures. Commencements identified are shown in the following graph. The emphasis on tranport projects is pronounced. Figure 15: Projects commenced in quarter – North Asia $40,000.00 $35,000.00 $30,000.00 $25,000.00 $20,000.00
$15,000.00 $10,000.00 $5,000.00 $0.00 Q4 2013 Power
Telecoms
T&D
Water and sewerage
Q1 2014 Transport
Social infrastructure
Renewables
Source: AMP Capital
Power >
Bharat Heavy Electricals Limited (BHEL) has secured a INR79 billion (approximately US$1.3 billion) engineering, procurement and construction contract from NTPC for the North Karanpura super thermal power project (STPP) in Jharkhand, India. BHEL's scope of work for the North Karanpura STPP includes design, engineer, manufacture, supply, construction, erection, testing and commissioning for the EPC package comprising three 660 MW units.
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State-owned NTPC will lay the foundation stone for the 2,640 MW power project in Madhya Pradesh, entailing an investment of Rs17,000 crore or US$3 billion The Bundelkhand super thermal power project, located in Chhatarpur district, would have four units, each having 660MW generation capacity. Half of the total electricity generated from the plant would be supplied to Madhya Pradesh.
Roads >
Construction has started on the east section of the No2 south ring road in Shunhe, China. Of the US$ 2 billion total, US$1.6 billion will be spent on the road construction and the remainder on land acquisition.
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Construction of the 26.4- kilometre Jinan-Changqing line of the Jinan-Liaocheng railway in China will begin during March 2014. The project includes nine stations and will cost US$2.2 billion in total, out of which US$202 million is scheduled to be invested in 2014.
Rail
Ports >
Singapore's PSA Investments will develop a fourth container terminal at India's largest container port Jawaharlal Nehru Port, worth Rs7,915 crore (US$1.3 billion) and adding 4.8 million standard units of capacity. The Jawaharlal Nehru Port Trust (JNPT) has awarded the project under the design, build, finance, operate and transfer basis
PPP activity >
No PPPs reached close in either India or china during the period under review.
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Australia Pacific Overview The big news from the antipodes is the push to privatise government assets which means that Australia and New Zealand rank among the global leaders in privatisations. The listing of New Zealand's Meridian Energy in October 2013 raised US$1.6 billion in the country's biggest ever initial public offering. This followed N Z Energy's US$678 million initial public offering in August. Further sales including 49% of Genesis Energy Ltd. and 23% of Air New Zealand Ltd are being planned. Following the US$5 billion leasing of Port Botany and Port Kembla in April 2013, the NSW government completed the long-term leasing of Macquarie Generation for a return of US$1.9 billion in January 2014, and the Port of New Castle for US$1.3 billion. Next target for the NSW government is likely to be the partial sale of the state’s electricity T&D assets which have an asset base of around US$30 billion. Queensland is likely follow suit. The rationale for these sales is both to reduce public debt and recycle funds into the development of needed economic infrastructure. Infrastructure projects under active development are indicated in the following graph. Figure 16: Projects under active development – Australasia $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000
$Q4 2013 Power
Telecoms
T&D
Water and sewerage
Q1 2014 Transport
Social infrastructure
Renewables
Source: AMP Capital
Active projects There is a noticeable bias towards transport projects. Rail >
GVK Coal Infrastructure (Singapore) Pte Ltd, part of GVK Hancock, has finalised a commercial agreement with rail freight operator Aurizon to jointly develop a rail line and a new coal terminal in Australia’s Galilee Basin coal reserve. GVK had announced A$10 billion investment to develop Hancock coal mines including nearly $6 billion to set up rail transport corridor and port infrastructure.
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Procurement is now under way for two major contracts on an A$1.6 billion light rail link in Sydney, Australia. The major contract on the central business district (CBD) and South East Light Rail project will cover design, construction, services relocations, operation and maintenance of the 12km project, as well as the operation and maintenance of the Inner West Light Rail network. It will be delivered as a PPP. It is expected both contracts would be awarded in mid to late 2014.
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Victoria Premier Denis Napthine announced an investment package of A$2 billion to A$2·5 billion (US$ 1.8 billion) for the Pakenham and Cranbourne suburban lines in Melbourne on March 6. The programme is
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expected to increase capacity on these routes by 30% or by 2 million passengers. Construction is due to begin in 2015 and is expected to take five years to complete. The Metro Trains consortium of MTR, John Holland Construction and UGL Rail Services has been appointed as contractor. Road >
Leighton Contractors Pty Limited, as part of the Wellington Gateway Partnership (WGP), has been selected by the New Zealand Transport Agency (NZTA) as the preferred proponent to deliver the NZ$1 billion Transmission Gully Motorway, under anavailability based PPP arrangement.
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Property and infrastructure group Lend Lease and its partner, French construction firm Bouygues Construction, have been appointed the preferred tenderer to build the $3 billion (US$2.7 billion) NorthConnex Motorway in Sydney. The project, formerly known as the F3-M2 link, will be developed by toll road operator Transurban and its partners in the Westlink M7 toll road. The NorthConnex Motorway is a nine kilometre twin tunnel that will link the southern end of the M1 Pacific Motorway (formerly the F3 Freeway) at Wahroonga to the Hills M2 Motorway at the Pennant Hills Road interchange.
Committed projects Actual project commencements were at a low level in comparison to historic levels. Figure 17: Projects commenced in quarter – Australasia $12,000.00
$10,000.00
$8,000.00
$6,000.00
$4,000.00
$2,000.00
$0.00 Q4 2013
Power
Telecoms
T&D
Water and sewerage
Q1 2014
Transport
Social infrastructure
Renewables
Source: AMP Capital
The main projects commencing developed were two PPPs: >
The Queensland government announced an order for 75 new six-car trains, maintenance services for a period of 30 years and the construction of a purpose built maintenance centre under a 32 year PPP. A consortium comprising Bombardier Transportation, John Laing, ITOCHU Corporation and Uberior will deliver the order. The total value of the contract is approximately $4.4 billion (US$4.1 billion).
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The NSW government entered into a design, build and finance contract for a new convention and exhibition centre in Sydney with the Darling Harbour Live consortium, comprising Capella Capital, AEG Ogden, HOSTPLUS, Lend Lease and Spotless. Contractual close was achieved on 22 March 2013. Financial close occurred in December 2013. The project will be adjacent to the existing convention centre at Darling Harbour. The new facility will have a holding capacity of 10,000 people. The project also includes a premium hotel and a new car park.
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