Now, there are of course a range of counter-arguments regarding efficiency, accountability, innovation etc., that those of us who believe in the value of private investment in infrastructure would make in order to rebut this proposition. But these "value" arguments continue to be difficult to prove in the absence of validating data. And the apparent simplicity of the counter-arguments, coupled with negative publicity about half-built hospitals going bust and school walls collapsing, only feed the anti-"private" sentiment that appears to prevail across many sections of the public.
With the UK seen by many across the globe as a trailblazer in introducing private operators and investors into historically public-owned and funded infrastructure, should this be seen as a "local" issue, or are there potential ramifications for the global infrastructure market?
With projects as geographically diverse as Sydney Light Rail (subject to significant delay and a A$ one billion dollar compensation claim from the contractor) and the Denver Eagle P3 project (subject to a recent project default notice served by the authority), there are worrying signs that, across the globe, both public and contractor sentiment towards private investment may run through the same cycle of excitement, frustration and, ultimately, hostility that we have experienced in the UK.1
The frustrating thing with this is that the world badly needs private investment if it is to meet its substantial infrastructure deficit, and there remain compelling macro arguments in favour of institutional pension, insurance and sovereign wealth funds investing in infrastructure to generate the growth required for countries across the globe to provide their populations with an acceptable standard of living.
So, should the private infrastructure industry head ostrich-like for the nearest sandpit or is it time for action? In my view, the answer is clear: if the global industry does not move to address the negative perceptions – and, indeed, the substance behind some of these perceptions - there is a significant danger that what is currently seen as principally a UK problem will, in the next few years, become a global problem. So what can be done? My starter for six would be:
- focus on outcomes: we need to evolve models that are more clearly focussed on delivering value to society (for example, through reduced reoffending by ex-offenders or lower susceptibility to MRSA in hospitals) and which can offer tangible evidence of the benefits that are being delivered;
- evolve the partnership model: we need to continue the move away from a binary world of either traditional public procurement or private "project finance" models and develop a wider range of partnering models, that provide more flexibility for the public and private sectors to play to their strengths, and adopt a more sophisticated approach to risk and reward;
- take ESG seriously: as trailed by others, the industry needs to see environmental, social and governance considerations as fundamental to their business - not as optional extras. Developing an industry-wide governance code of best practice would be a good start;
- deliver fit-for-purpose investment: we need to structure competitions and funding solutions that are sympathetic both to the nature of the underlying infrastructure and to public expectations. A five- to seven- year horizon private equity model may work for an investment in a solar project or merchant waste treatment plant but it is difficult to see how such horizons and investment drivers are compatible with, say, a community hospital or a water treatment and distribution network;
- review the accounting framework: balance sheet treatment too often trumps value and sensible risk transfer. It makes no sense for a country to account for a commitment to a 30-year availability payment for a new asset in the same way as it does when borrowing to meet its annual current account deficit; and
- adopt an enhanced community focus: the industry needs to work much harder at communicating and engaging with the community, both locally and nationally. Infrastructure investors need to act as, and to be seen as, organisations committed to providing enhanced services to the public on a sustainable basis: not as financial vehicles focused on providing the lowest cost "acceptable" service to enable the maximum extraction of cash.
None of these proposals are revolutionary and, undoubtedly, there are already examples of much that is good across the industry. The truth, however, is that this is not the wider perception. Whatever the outcome of other current political car crashes, the UK is - and is still seen as - a leader in the private infrastructure industry. With leadership comes responsibility and what now needs to happen is for the industry in the UK to engage with the public sector to proactively promote and wholeheartedly embrace the case for evolutionary change.
1. As part of his Autumn budget speech on 29 October 2018, the UK's Chancellor of the Exchequer, Philip Hammond, announced that he would be abolishing the use of PFI/PF2 for all future projects.
