Infrastructure Finance: What Problems? What Solutions? by Prof. - - PowerPoint PPT Presentation

Infrastructure Finance: What Problems? What Solutions?

by Prof. Louka T. Katseli National and Kapodistrian University of Athens 09.10.2017

• I. Infrastructure – key enabler for post-2015

transformation

• Economic transformation - alleviate growth constraints

– Transport facilities – Utilities (water, gas, electricity) – ICT Networks

• Social transformation - access to water, sanitation, energy

for the poor, education, health

– Educational establishments – Health facilities – Public buildings

• Environmental transformation - from high to low carbon

energy

– Waste management – Renewable energy-related infrastructure – Energy-saving construction & reconstruction activities

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• II. Challenges to Infrastructure Investment
• Large infrastructure deficits at all levels of income (undersupply: $ 1

trillion per year through 2020; additional $ 200-300bn to ensure low- carbon-emitting and climate resilient investment)

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Source : ODI et al, European Report on Development 2015 : Combining Finance and Policies to Implement a Transformative Post-2015 Development Agenda

• II. Challenges to Infrastructure Investment (cont)
• High sunk costs, lumpiness, uncertain returns, long gestation

periods, high risks

• High upfront capital requirements – investment in fixed assets

under uncertainty

• Complex risk profile (macroeconomic, political, technical,

construction, revenue) ⇒High return expectations by private investors – affordability? ⇒High contingent liabilities for the public sector

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Categories Barriers

1. The Investment Opportunities

• Lack of political commitment over the long term
• Regulatory instability
• Fragmentation of the market among different level of governments
• No clarity on investment opportunities
• High bidding costs
• Infrastructure investment opportunities in the market are perceived as too risky

2. The Investor Capabilities

• Lack of expertise in the infrastructure sector
• Problem of scale of pension funds
• Regulatory Barriers
• Short Termism of Investors

3. The Conditions for Investment

• Negative Perception of the infrastructure value
• Lack of transparency in the Infrastructure sector
• Shortage of data on infrastructure projects
• Need to report standards and performance measurement
• Benchmarking
• Regulation (Solvency II): Infrastructure Investment in Developing Countries = alternative investment

(high capital requirements) 4. Impediments for institutional investors

• Reporting standards
• Performance measurement

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Source: OECD Pension Fund Investment in Infrastructure: Policy Actions, Working Paper 2011, G20-OECD Working Group on long-term financing

• II. Challenges to Infrastructure Investment (cont)

• III. Policy matters for mobilization and effective

use of infrastructure finance

Infrastructure productivity: How to save $1 trillion a year (McKinsey 2012)

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Source : ODI et al, European Report on Development 2015 : Combining Finance and Policies to Implement a Transformative Post-2015 Development Agenda

Domestic action

• Ensure a strong and sustainable supply of bankable projects - “…the constraint is less one of

funding than an insufficient pipeline of bankable projects.”

• Contribute to building an enabling environment – “…the private sector will not invest in the

dark…”

• Design and implementation of a Medium Term Strategy for Infrastructural Development;

promotion of a Compact for Sustainable Infrastructure Finance for its implementation

• Capacity building in project selection, transaction structures, project, implementation,

monitoring and evaluation

• Regulatory reform to reduce lengthy and costly expropriation and legal procedures and to

enhance competition in transport service provision

• Custom reforms to lower waiting time and enhance transparency in border crossing
• Strengthen planning and budgeting processes to make provisions for needed maintenance

costs; Improved quality and standards of public procurement in construction material

• Geographical concentration of productive activities to lower infrastructural needs (eg.

Industrial or Innovation Zones)

• Creation of accountable Specialized Agencies or Facilities for Infrastructure Development to

ensure transparency in concession awards, bidding processes and awards.

• Transparent state-business relations

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• III. Policy matters for mobilization and effective

use of infrastructure finance (cont)

International action

• Global standards on PPPs contracts and government procurement in infrastructure
• Work with MDBs to identify a set of exemplary projects – identify exemplary regional projects
• Better donor co-ordination and harmonization to avoid duplication and promote coherence
• n the ground
• Close the knowledge gap – MDB/OECD/private sector collaboration (data, benchmarking,

monitoring, learning platforms) => create a new asset class for long term investors

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• III. Policy matters for mobilization and effective

use of infrastructure finance (cont)

• IV. Blended Finance and PPPs are necessary …
• Close the funding gap for project development – combine domestic and external funds and

develop specialized financial vehicles (EFSI-Junker Plan, Jessica, etc) Mixture of international public and private resources with national public expenditures principal source (40-70%)

• Mobilise DFIs and MDBs (EIB, EBRD,IFC) to provide long-term finance, necessary credit and risk-

mitigation instruments with significant blending (private finance, ODA, technical assistance, OOF, risk-mitigation instruments)

• Make funding available under appropriate terms - local currency debt markets (infrastructure

bonds), local financial intermediaries, MDBs: crowding in private capital through the use of risk mitigation instruments and co-financing by Institutional Investors

• Develop local capital markets – more effort to create incentives for local financing/local currency

bond markets

• Extend use of bond financing and PPPs.

Sources: HLP on Infrastructure Investment – Recommendations (2011) ODI et al, European Report on Development 2015 : Combining Finance and Policies to Implement a Transformative Post-2015 Development Agenda

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• V. PPPs around the world (2001-2016)

Source: EPEC

• Europe has been historically

the most active. Recently the distribution has become more even with Australia, UK, Canada, Chile, France, India, Japan and Mexico taking the lead.

• PPPs

mostly in transportation (54%) and Social Infrastructure (31%)

• Junker

Plan (EFSI) an important step (16 projects approved)

• Greece in the lead : 3rd

position in EU after UK, France with 7 contracts worth 465 mil EUR