ANNUAL REVIEW

Infrastructure & Project Finance 2015

October 2015  |  FINANCE & INVESTMENT

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Infrastructure investment and development is a vital tool for modern economies, creating jobs and helping to deliver growth. Since the onset of the financial crisis of 2007-08, governments have been forced to get creative. In the US, for example, federal, state and local level governments have explored novel means of securing infrastructure investment from alternative sources. Private investment in particular has been adopted by virtually all types of infrastructure assets. This has not, however, been restricted just to the US market; public-private partnerships (PPP) and private finance initiatives (PFI) have become a core part of modern infrastructure development.

 

UNITED STATES

Teno A. West

Pannone Lopes Devereaux & West LLC

“The US infrastructure sector has fared well in recent times as governments at all levels – federal, state and local – have continued to face difficult financial circumstances requiring innovative methods and funding sources to provide necessary public infrastructure and municipal services to its citizens. We have seen an uptick in global investment in US infrastructure assets including toll roads, bridges, water and wastewater projects and other core infrastructure assets. Although the laws vary from state to state, the US market in general continues to be more accepting of public-private partnerships and alternative project delivery methods such as design-build and design-build-operate to implement private infrastructure investment.”

 

MEXICO

Marco A. Sotomayor Melo

RDA – Rodríguez Dávalos Abogados

“Adverse economic and financial conditions have been causing, among other things, a substantial decline in global commodities prices, currency instability and oil prices. For Mexico, oil is an important source of tax revenue that has been decreasing over the last two years. Although there has been some investment in infrastructure over the last year, the general perception is that it has not reached expectations, especially those created by the energy reforms. In order to change this negative scenario the federal government is trying to offset the lack of funds with different investment instruments, such as public-private partnerships. There is a commitment to incentivise private investment through all Mexico’s key sectors.”

 

UNITED KINGDOM

Mark Berry

Norton Rose Fulbright LLP

“The first quarter of 2015 has seen a continued rise of UK infrastructure deals, with Thameslink and the Edinburgh Glasgow rolling stock projects being the biggest deals so far. Total deal values for social infrastructure across Europe have risen year on year since early 2014. The government is trying to reduce spending and this impacts the funding available for infrastructure projects. Government budgets also affect the allocation of spending on social and economic infrastructure, which is heavily influenced by public discussion over where the money is to be spent. Many infrastructure projects, both social and economic, are in the pipeline, however access to financing will determine whether this momentum is maintained. In light of reduced spending, the government has tried to develop new financing solutions to attract funding from institutional investors, pensions and insurance firms.”

 

SPAIN

Joaquín Sales

King & Wood Mallesons

“The Spanish infrastructure sector is very advanced from both a technological and ‘know-how’ perspective. Spanish companies are generally held to be on the cutting edge of infrastructure projects, being highly credited in international markets and becoming global leaders in fields such as air and land transport, railways and public works. Official figures say that Spanish companies manage around 38 percent of the world’s principal transport concessions, ranking among the world’s top contractors. This is the result of a combination of strategic vision and leadership and the stale conditions of the domestic market in the last few years, where cuts in government spending across the board have pushed Spanish companies to focus most of their resources on international projects.”

 

PORTUGAL

Teresa Empis Falcão

Vieira De Almeida & Associados, Sociedade De Advogados, R.L.

“In early 2014, the Portuguese government approved the Strategic Plan for Transport and Infrastructure, which has earmarked a range of infrastructure projects that could have a positive impact on Portugal from 2014 to 2020. The priority projects include the development and expansion of major Portuguese ports, the modernisation of the Portuguese rail freight sector, a few projects in the road sector deemed essential to complete the road network, and the increase of cargo capacity at the Lisbon airport. However, despite the approval of the Plan and the end of Portugal’s EU/IMF bailout programme in June 2014 with the economy showing signs of a slow recovery, the project finance and PPP business in Portugal remains quiet.”

 

LUXEMBOURG

Alexandrine Armstrong-Cerfontaine

King & Wood Mallesons

“The government has been dedicating a great deal of its budget to investing in infrastructure development in recent years, especially in emerging and innovative fields and focusing on high-end information and communication technologies, e-commerce, media, logistics and environment. Thanks to the installation of a fibre-optic network for its internet service and to its generally advanced IT infrastructure, Luxembourg has become an ideal place for installing data management centres and IT business. In 2014, the government launched ‘Digital Lëtzebuerg’ to develop the digital economy sector and to promote electronic administration. The Luxembourg government has given a big push to the research, development and innovation sector.”

 

ITALY

Marco Vulpiani

Deloitte

“Infrastructure investments in Europe have clearly experienced a significant drop, particularly in terms of transport infrastructure since the financial crisis of 2008. The cumulative investment gap for the period 2008 to 2013 totalled €138bn, around €62bn of which is related to Italy. Arguably, economic recovery could then be pursued through a massive plan of public investment in transport infrastructure, but this path does not appear viable due to budgetary constraints. It is, therefore, necessary to attract private investment, as well as international capital, in order to increase the level of accessibility and infrastructural facilities in Italy.”

 

SWEDEN

Peter Högström

Lindahl

“The discussion about the need and the model for public infrastructure investments has accelerated over the last 12-18 months. Politically, the current social democrat minority government has stated a clear willingness and preparedness to make substantial investments in infrastructure, and has also indicated that it may be willing to consider alternative models for these investments, including co-investments from other organisations. Financially, Sweden is doing well, having handled the financial crisis extremely well. Therefore the question is whether the government will invest in infrastructure in the traditional way, using the normal budget and lending from the Debt Office, or seek alternative funding via PPPs and PFIs.”

 

NORWAY

Simen Skaar Kristoffersen

Advokatfirmaet Schjødt AS

“There are currently several major infrastructure projects in Norway that are either in the planning phase or in actual progress. In fact, infrastructure in terms of railways and roads is a high priority for the Norwegian government. The current 15 largest road projects in Norway have a value of approximately NOK109bn, while the 10 largest railway projects in Norway have a value of approximately NOK53bn. More than NOK508bn has been earmarked for investments in rail and road transport projects up until 2023. Earlier this year the current government kicked off a process that may open pension funds to infrastructure investment.”

 

JAPAN

Nobuyuki Nagata

Deloitte

“Under the infrastructure initiative of the 2015 Japan Revitalisation Strategy, the Japanese government has set out a mid to long term investment target on infrastructure to expand the PPP/PFI market size to the equivalent of $100bn by 2022. At the same time, the Japanese government plans, as part of its short term investment target, to undertake concession projects for six airports, six water supply facilities, six sewage facilities and one toll road this year as a short-term investment target.”

 

CHINA & HONG KONG

Xiaolian Zhang

King & Wood Mallesons

“The slowing of China’s economic growth has been noted by the world. According to the data issued by the National Bureau of Statistics, the growth rate of fixed asset investment in China for January to August 2015 is 10.7 percent, the lowest level since 2001. In order to address the situation and increase domestic demand by making fixed asset investment, the Chinese government has issued a series of policies to stimulate infrastructure investment projects, optimise investment structures, lower investment thresholds, and make up the ‘short slab’ of public products, public services and other aspects. Furthermore, the Chinese government has implemented a reform of its budget system and has promulgated a series of laws and regulations.”

 

UNITED ARAB EMIRATES

Abraham Akkawi

EY

“The regional construction industry saw increased activities in 2013 and 2014 due to upbeat economic sentiment. Some of the biggest drivers in terms of activity, and of course the buzz, are the preparations for the Dubai Expo 2020, including the DWC Jebel Ali, the work at the Abu Dhabi Airport, the announcement of Dubai South and the associated infrastructure work on these projects. These projects have rallied support from local communities, government bodies and global construction contractors. This trend has set the stage for momentum to continue in the construction industry into 2016.”

 

SOUTH AFRICA

De Buys Scott

KPMG

“The infrastructure sector in South Africa for the last 12-18 months can be described as challenging. The most dominant immediate issue is rolling electricity load shedding to compensate for the shortfall in Eskom generating capacity, user demand and essential electricity maintenance programmes. The power and electricity problem has had a negative impact on the local GDP and the economy, on the whole, is sliding towards recession. The construction sector reflects this mood with virtually all construction companies recording losses or substantial profit declines. Their respective order books don’t indicate many big contracts commencing soon.”

 

KENYA

James Woodward

KPMG Kenya

“Despite having made significant progress in infrastructure development in recent years, it is widely accepted that Kenya’s infrastructure remains inadequate to meet the country’s needs. With current government spending on infrastructure at $1.6bn, Kenya faces a significant infrastructure financing deficit estimated at $2.4bn annually, or about 1.6 percent of GDP over the next decade. For 2015-16, the Kenyan government is predicting a 6.5 percent increase in real economic growth which is underpinned by optimistic infrastructure expansion. However, scathing reports from the well-respected Auditor-General of Kenya states 26 percent of the 2014-15 budget was not fully accounted for.”

 

ANGOLA

Irina Neves Ferreira

Angola Legal Circle Advogados

“Since the end of the civil war, the Angolan government has been making efforts to recover the infrastructure sector. The construction of a deep water port in Cabinda which began in June 2015 and the rehabilitation of a 1344 km section of the Benguela railway between the port of Lobito and the DR Congo are two good examples of significant infrastructure development. The steady drop in oil prices has definitely taken its toll on short to medium term infrastructure policies. The 2014 annual general budget had been calculated using a reference price of $98 per barrel of oil, so the Angolan government was forced to approve an amendment foreseeing a reduction of 54 percent in public investment.”

 

MOZAMBIQUE

Paula Duarte Rocha

Henriques, Rocha & Associados

“The availability of natural resources and Mozambique’s geographic location have been key to boosting infrastructure development and rehabilitation, with significant investors in the mining, energy and transport infrastructure sectors. Experiencing annual Gross Domestic Product growth above 7 percent in recent years and with the prospect of 2015-2016 seeing growth above 8 percent, Mozambique’s potential to attract foreign investment for developing much needed and critical infrastructure seems promising. Rising inflation, political instability and increased financing of the state budget through credit are said to be stalling the Mozambican economy, threatening the positive forecast of economic growth.”


CONTRIBUTORS

Advokatfirmaet Schjødt AS

Angola Legal Circle Advogados

Deloitte

EY

Henriques, Rocha & Associados

King & Wood Mallesons

KPMG

KPMG Kenya

Lindahl

Norton Rose Fulbright LLP

Pannone Lopes Devereaux & West LLC

RDA – Rodríguez Dávalos Abogados

Vieira De Almeida & Associados, Sociedade De Advogados, R.L. 


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