Taking action for the long term

With sluggish economic growth and rising inequality across much of the world, long-term investment in infrastructure is critical to shift countries onto more sustainable, inclusive growth paths. But too often, governments fail to act—and the chasm between what’s needed and what actually gets done continues to widen. Participants considered the question: how do we find fresh ways to set priorities, build consensus, and develop alternatives?

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Singapore’s Minister for Finance Heng Swee Keat made two relevant points about the Singaporean infrastructure experience. First, Singapore plans and acts with a 100-year horizon on its infrastructure developments and then puts the plan into legislation. In contrast, most countries, states, and cities plan for one term of government—although some progressive jurisdictions will plan ten years out. Second, infrastructure is bigger than just roads, bridges, and tunnels; infrastructure plans should consider schools, hospitals, economic zones housing, and other needs that contribute to a thriving society.

Taking action for the long term

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In other government-initiated capital mobilization efforts, participants cited Australia’s national civic dialogue on long-term infrastructure investment, maintenance, and operation as a good example of a government-led process that is facilitating greater private investment. Participants perceive Australians to be eager to challenge the traditional views that government alone should fund public infrastructure. Canada studied Australia’s success in developing its recent proposal for a national infrastructure bank with contributions of $35 billion from the government and a target of $200 billion from the private sector.

Caisse de dépôt et placement du Québec (CDPQ) has found success in the space between the traditional brownfield and greenfield models with a “khaki” investment strategy. Khaki investment balances risk and reward for the long term by developing greenfield projects on brownfield sites such as Terminal 5 at Heathrow. CDPQ CEO Michael Sabia discussed the investor’s proof-of-concept greenfield project to plan, finance, build, own, and operate Montreal’s new 68-kilometer metro system. With a projected return of between 8 and 9 percent, this scheme is the first of its kind for a pension fund. As such, CDPQ’s leadership of this project creates a “virtuous circle”: every time a passenger buys a pass for transit on the new system, they will be contributing directly to their pension fund – their retirement security.

From an operator’s perspective, MTR Corporation CEO Lincoln Leong drew on MTR Corporation’s 40 years of experience, advising that successful long-term PPPs are built on well-designed risk transfer, ensuring adequate investment in opex. MTR Corporation assumed risk management for operating costs, thereby encouraging its ongoing investment in maintenance. Leong also noted that Hong Kong took responsibility for fare revenue (patronage) and established a government-backed formula for fare increases. The formula created funding predictability and shifted any political discussions on fare increases from “allocating new funds” to “robbing expected revenues.”

Governments and companies that focus on the long term are finding fresh ways to set priorities, build consensus, and develop alternative financing mechanisms. They are showing that mobilizing private capital requires bankable projects that capture value and create an understanding of the private sector’s requirements and expectations.