There’s a price to be paid

Among the many risks typically associated with infrastructure financing, social risk – i.e., the risk that citizens will oppose privately financed infrastructure – doesn’t tend to cause investors many sleepless nights.

However, in the wake of the Occupy Wall Street protests and the Global Day of Rage held in many cities around the world on October 15 – protests targeting inequality and corporate greed with a strong anti-capitalist flavour – infrastructure investors might do well to pay attention.

At a recent conference on infrastructure risk organised by insurer Marsh, Thomas Putter, former chief executive of German fund manager Allianz Capital Partners, said as much to a roomful of attendees:

“There’s been a dramatic change in the political and social appreciation of infrastructure. The public takes infrastructure for granted, especially in the Western world. We [infrastructure investors] are now part of a mechanism that will force these assets to be paid for. This is social dynamite. And we’d better be very careful about how we explain this.”

Putter has captured the zeitgeist. As austerity rages across Western economies and as its citizens find themselves increasingly poor, cash-strapped governments will be forced to lean on the private sector to satisfy infrastructure needs. And that means infrastructure’s costs are about to become much more transparent to Western citizens.

Readers following government criticism of the UK’s Private Finance Initiative (PFI) already have an insight into the potentially explosive political and social aspects of privately financed infrastructure, with the coalition government stoking public fears with tales of PFI endangering the long-term sustainability of the country’s schools and hospitals.

Ignore the burning fuse at your own risk.