Infrastructure Knowledge Exchange

InfraCompass is an interactive tool that looks at the infrastructure capabilities of 49 countries.

Although the topic of infrastructure may not attract bold headlines, the reality in many parts of the world is that the inadequate provision of critical infrastructure...

In Buenos Aires on 23 March, the G20 Finance Ministers announced that infrastructure would remain a priority for at least the next three years—a very welcome announcement for those in the private sector who have long called for greater global coordination of efforts in this area.

Over the last decade, much has been written about globalisation and how we’re more connected than ever before. In the infrastructure world, we think of connectivity as the “linkages of communities, economies and nations through transport, communications, energy, and water networks across a number of countries” .

When we as consumers decide to invest our money—whether through shares, bonds, or other instruments—we look at whether our investment will deliver a solid financial return. It makes sense then that the same risk-return principle is applied to investments in infrastructure.

Infrastructure can often be used as a pawn in the political chess game, not only at a federal level between political parties, but at a foreign policy level too. It’s crucial that a cross-border infrastructure project has political support and cooperation from all parties involved, and that it’s being supported not for political gain, but to further regional development. A lack of strong political leadership can be detrimental to a cross-border project, and weak capacity can be a deterrent to investors.

As outlined earlier in this blog series, private investors are looking for reliable returns to justify the risks that they are taking. Financing and procurement of cross-border projects will often be more complex than national projects due to the scale of the project and compounded risks, and the financial returns may be more uncertain than for national projects.

Risks can be hard to define, manage and mitigate. In infrastructure projects that cross regional or national borders and involve multiple parties from both the public and private sector, these risks may be amplified.

With a growing global focus on attracting private sector investment into infrastructure and utilising the public-private partnership (PPP) model, it is crucial that governments focus on the entire duration of a PPP contract. Efforts need to extend beyond ‘achieving financial close’ and beginning construction or ‘cutting the ribbon’ for commencement of services.

While the infrastructure financing gap is huge, one of the main constraints to infrastructure development is not a lack of finance, but instead, a lack of well-prepared, bankable infrastructure projects.

Disputes in public-private partnerships (PPPs) globally involving key performance indicators (KPIs) represent 20 per cent of all disputes, as highlighted in our data using a representative sample of projects from around the world.

By their very nature as long-term large infrastructure projects, public-private partnership (PPP) projects involve a vast array of interconnecting relationships. Core to any PPP project is the long-term contractual relationship between the government’s procuring authority and the private party (the project company). This is one of many relationships that will affect the success of a PPP.

Transferring risk to the private sector in a PPP contract is frequently referred to as a key part of a PPP arrangement, as well as a key reason why governments use such an approach to procure infrastructure.

Contractual disagreements and disputes are common in PPPs during both construction and operational periods.

The term of a public-private partnership (PPP) contract can exceed 20 or even 30 years. At the end of the term, the relevant private partner is often obligated to hand back the public asset in question (whether it be a road, an airport or a hospital) in a condition that meets the government procuring authority’s expectations.

Globally, governments are accountable for the development of infrastructure and the delivery of basic services in an affordable and inclusive manner. The ability of governments to nurture a conducive enabling environment for infrastructure investment has often been found to be a key differentiator between countries that successfully scale up infrastructure and those that face challenges in doing so.