At the Houses of Parliament this week, Infrastructure Investor hosted a discussion about the future of UK infrastructure which brought together politicians and investors – a meeting of minds that arguably doesn’t happen often enough. Among those sharing views was Danny Alexander MP, the coalition government’s Chief Secretary to the Treasury.
Aside from learning that Mr Alexander was sufficiently grounded to have done the school run earlier that morning, many other insights emerged and will be shared with our readers in a full summary of proceedings – both in the December/January issue of the magazine and on InfrastructureInvestor.com.
The need for such exchanges has arguably never been greater. Governments (and the UK government is far from alone in this) need a substantial amount of private capital to be deposited in the collection box marked “infrastructure”. But politicians are all too aware – in a still-recovering economy – that they can’t bend over backwards too far for investors if doing so creates a raw deal for end-users.
Meanwhile, deal flow is the lifeblood for investors – they need to know what it is they’re being asked to invest in, they want as much choice as possible, and seek reassurance that government and regulators won’t put too many obstacles in their way (even allowing for the delicate balance referred to in the previous paragraph).
One of the big concerns for those on the infrastructure frontline is the lack of deal flow. In the UK, it is widely acknowledged that the government has recognised this and sought to address it.
Through the National Infrastructure Plan (NIP), introduced in October 2010, the government sought to provide the investment community with a clear idea of its priorities for the years ahead. But if this laid out a vision – a good starting point – it was not immediately apparent how investors were expected to be involved (the sceptical saw it as less a plan than a wish-list).
With the appointment of Lord Deighton (who won much acclaim for his oversight of planning for the London 2012 Olympics) as Commercial Secretary to the Treasury in January this year, came renewed hope that the NIP will be turbo-charged. Admirers of Deighton will tell you that “delivery” is his preoccupation to the extent that he probably mutters the word in his sleep.
Those still to be converted, however, will wait for further proof of progress – and, in this respect, all eyes will be on the Autumn Statement next month when an NIP update is due.
Some will not expect much: pointing to what they see as a fundamental mismatch between the kinds of projects government wants the private sector to support (often greenfield, with construction risk) and the kinds of projects many investors actually want to back (frequently brownfield, without construction risk).
In turn, the government may point to the UK Guarantees Scheme (UKGS) – an initiative introduced in July 2012 that makes use of the government’s strong credit rating to credit-enhance projects and make ostensibly risky deals more back-able.
But for all the good publicity that surrounded the scheme when it was announced last month that £33 billion (€39 billion; $53 billion) of projects had “pre-qualified” for government support, the political opposition was able to counter that – up to that point – only one (Drax power station) had actually utilised a guarantee in the 15 months the facility had been available.
This serves to underline the difficulty – for all the good intentions – of government creating the conditions that will allow investors to help bring needed infrastructure to fruition. But by showing a willingness to get together, air any differences and find areas of common agreement, the divide between the public and private sides should not prove unbridgeable.