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The state of play of infrastructure

Future opportunity
Customer stewardship in infrastructure can play a key role to navigate the future for investors, operators, regulators and policymakers.

Infrastructure owners and operators face uncertainty, risk and change, but at the same time the opportunity for growth and delivering value to customers and the community has never been greater.

Governments face important choices

A traditional challenge for governments is the contest between fiscal management and infrastructure investment. The need to prioritise fiscal management in order for governments to retain their credit standing in capital markets and confidence with the public, means that not all the infrastructure needs that are identified can always be met from the public balance sheet.

According to a survey by the European Investment Bank nearly 600 cities in Europe report sizeable gaps in infrastructure investment.1 The survey reveals the main barriers to infrastructure investment are tight fiscal budgets with 75 percent of municipalities reporting that a lack of finance due to fiscal constraints is the main obstacle to infrastructure investment.2

It is important that policymakers de-link the choice between fiscal responsibility and infrastructure investment. Infrastructure can and should accrete more productivity and higher living standards that expand the whole economy, including taxation revenue. 

With the right governance and regulatory frameworks it is possible for governments to meet infrastructure investment needs through a combination of public investment and private capital.

Money still flowing but institutional investors not filling gaps investors

According to the Official Monetary and Financial Institutions Forum (OMFIF) there are 750 global public investors managing US$36.2 trillion of assets, an increase of 7.3 percent over the last year. OMFIF reports that between 2009 and 2017 such funds’ combined asset allocation to infrastructure grew by 165 percent.3 As investors increasingly allocate to infrastructure, the challenge to find investment opportunities remains. The 2018 Preqin Global Infrastructure Report reveals US$150 billion of its funds have been committed but not allocated to invest in infrastructure. This has increased from US$65.8 billion in 2012. 4

The continued presence of such capital is likely to sustain infrastructure asset prices in the short to medium term. In the absence of a pipeline of investment opportunities from government, investors will seek to allocate capital into non- traditional infrastructure assets. An example of this is the acquisition of Brookfield Infrastructure Partners of Enercare, which rents furnaces, water heaters and air conditioners to 1.6 million residential and commercial customers in Canada and the United States, for US$3.1 billion.5

According to Preqin, the annual number of infrastructure deals completed fell in 2017 for the first time in a decade: 2378 transactions were completed for an estimated aggregate US$916 billion, representing a 6 percent drop in number but an 8 percent increase in estimated aggregate value from 2016.6 At 1.8 percent of GDP, investment in infrastructure in the European Union is the lowest in 20 years.7

Uncertainty for private capital

Despite tight fiscal settings, the appetite of governments to access private capital is mixed. In some cases there are structural disincentives for governments to open up infrastructure to private investors. In the European ports sector, for example, which the European Commission estimates needs €750 billion in total network investment from 2016 to 2030,8 Connecting European Facility Transport grants by the EU are budgeted at €24.05 billion  for 2014–2020.9 In the latest round of grants, 12 projects were selected corresponding to a grant funding of €85.8 million.10 For EU governments that may consider privatising ports infrastructure, the risk is they may miss out on their share of EU funding in the event that a port was privatised. The extent to which structural factors create disincentives for private investment is an area that needs to be better understood.

In the United Kingdom the high-profile collapse  of Carillion, a large UK facilities management that held 420 contracts with the public sector, is likely to have reduced public trust that the private sector can manage infrastructure.11 Concerns about the performance of water utilities and private transport operators have led to calls for nationalisation by the UK’s Labour Opposition. The threat is considered real by investment markets, which have marked down the shares of UK utilities since Labour Party Shadow Chancellor John McDonnell announced at Labour’s annual conference in September 2017 that ‘rail, water, energy, Royal Mail: we are taking them back’.

In Italy the tragic collapse of the Morandi Bridge with the loss of 43 lives has resulted in a vocal attack on the operator, with ministers arguing that they ‘did not spend the money they were supposed to’. At the time of writing, Auto trade was defending its record.12 Prime Minister Giuseppe Conte wrote on social networks: ‘From now on, all concessionaires will be bound to reinvest most of their profits in modernising the infrastructure they [manage], they will have to comply very stringently with their maintenance obligations and, more generally, they will have to understand that infrastructure is not a financial income, but a public good.'13 One of the challenges for private sector infrastructure service providers that are delivering infrastructure under concession agreements is that the terms of agreements are locked down in confidentiality agreements that are designed to ensure competitive tender processes, but reduce public visibility of the terms of infrastructure asset management. This lack of visibility in turn can reduce public trust in private sector operators.

In the US, President Trump’s infrastructure plan has been released and is awaiting debate in Congress. The plan is seeking to stimulate US$1.5 trillion of investment in infrastructure over the next ten years through a series of infrastructure reforms and a focus on creating incentives for states to attract new, non-federal revenue streams dedicate to infrastructure investments.14 It would divest certain infrastructure assets the federal government owns, including energy transmission assets, Ronald Reagan Washington National and Dulles International airports and George Washington and Baltimore Washington parkways.

The President’s infrastructure plan has a much- needed focus on reforming impediments to infrastructure investment; however, its passage through the legislative process is uncertain. It proposed, for example, to amend title 40 of the United States Code, which because it restricts the US Government’s ability to sell property has a federal property civilian inventory of facilities with an average age of 47 years. The reforms propose allowing the government to take assets no longer needed by any federal agency directly to market. As a result any interested party could purchase assets at a fair market value. The challenge in the US is to progress infrastructure reforms through a divided Congress.

China’s Belt and Road Initiative (BRI) promises to make progress through mostly government funding on meet the US$1.7 trillion annual spending on infrastructure investment that the Asian Development Bank estimates is needed between 2017 and 2030 to maintain growth momentum, eradicate poverty and respond to climate change.15,16 The passing back to Chinese owners of the Sri Lankan port at Hambantota and 69km2 of land in 2017 because the Sri Lankan government was unable to service debts on loans, has led to disquiet in the region, with Malaysia and Pakistan curtailing and suspending projects.17, 18

The global environment for infrastructure illustrates that governments face challenges in how they deliver infrastructure.19 with concerns about PPP models, challenges driving infrastructure reforms through parliaments, and geo-political tensions, there is no certain pathway. In this environment customer stewardship with its focus on adaptability, transparency and serving society may offer a pathway for new sustainable long-term investment.

Go beyond the contract: New PPP source code

In Policy Outlook Paper No. 2, Shifting Australia’s infrastructure mindset to the long game, we introduced the ‘Better Infrastructure Futures Framework’ (BIFF) with the intention of helping policymakers, investors and the community to better understand the uncertainty and opportunity around long-term infrastructure. The framework’s intention was to illustrate that while PPP or similar infrastructure contracts with long-term contractual terms provide a high level of certainty for both the government and owner/operator, these benefits  are not costless, and indeed may have an escalating opportunity cost over time to both investors and the economy. In fact, the longer the contract period, the greater chance the benefits of contractual certainty at project commissioning may be offset in future decades. This is because the contract may prevent or give little incentive for the concession holder to respond to emerging threats and opportunities. The result can be infrastructure that is inflexible and static in its environment and for customers.

From our discussions with governments and project managers it is clear there is an untold story or the PPPs that are working. Critical to success is an approach by both government officials and infrastructure asset operators to go ‘beyond the contract’. If a PPP is being managed with a ‘tick the box’ approach that focuses on abatement for sub-standard performance, then a conflict relationship is institutionalised and the PPP is likely to underperform. The key ingredient for successful PPPs, a culture of collaboration, cannot be measured with a tick the box approach.

In the current environment where it is difficult for policymakers to confidently set key performance indicators (KPI) for a PPP for five years let alone 30, Customer Stewardship Blueprint may offer a circuit breaker to establish a new collaborative culture that allows projects to adapt over time to the benefit of all. In doing so, they can help jurisdictions to get back on course when experiencing unsatisfactory outcomes with PPPs.

An inquiry by the United Kingdom House of Commons Public Administration and Constitutional Affairs Committee, which examined the ramifications of the collapse of facilities management and construction firm Carillion, heard evidence that successive governments have sought to transfer risk inappropriately with procurement teams aggressively seeking to maximise risk transfer, in some cases without knowing key data about the services they were asking companies to bid for.20  The committee expressed concern that the sole business justification for private finance initiatives (PFI) appeared to be to keep projects off government balance sheets. The committee concluded: ‘It is unacceptable that almost 30 years after the first PFI projects were initiated, the Treasury cannot produce an evidence base to support its claims that PFI is worthwhile for any reason apart from the fact that it takes debt off balance sheet.'21

The committee also expressed concern that the government’s focus on costs was leading to poor outcomes. It stated: ‘The Government appears to focus unduly on cost in its contracting decisions, with a detrimental effect on service quality. The Government’s priority to save costs has frequently led to worse services. The Government’s approach of pursuing the lowest possible cost and the highest possible risk transfer has flowed from a very transactional approach to contracting.'22

Our future may rely on customer stewardship

Customer stewardship provides a pathway for greater effectiveness in translating dollars invested into positive long-term economic and social impacts. It is the necessary scaffolding that every infrastructure entity should adopt as it experiments, designs and implements customer-led initiatives in the infrastructure sector.

Put simply, customer stewardship is the collective management pillars and practices that focus on delivering quality long-term customer outcomes.

We should no longer tolerate an absence of long- term customer stewardship of infrastructure, and the opportunity to begin that transformation is now possible. Infrastructure forms a potent asset and network that has a lot to do with shaping our future destinies. It is for this reason that customer stewardship is not only important, our future may rely on it.

Customer stewardship offers a pathway to create a ‘cycle of trust’ that is critical to bridging the growing divide between investors, communities and governments.

Local, national and global infrastructure has the potential to shape a much better, safer and inclusive world. How we can together activate such a vision, of earning trust and the framework for applying customer stewardship, is discussed in the next chapter.

There is neither regulation nor government intervention that can assure customer-led infrastructure takes root. It relies on responsible owners that have a disciplined and transparent approach to managing their balance sheet, and a strong focus on customer interaction to inform new investments. 

1. Hoyer, W. 2018. Global Public Investor 2018. p.95. OMFIF. London. Available: http://thinktank.omfif. org/gpi.

2. Ibid. 

3. Official Monetary and Financial Institutions Forum. Global Public Investor 2018. p14-15. OMFIF. London. Available:

4.  Preqin Ltd. 2018. 2018 Preqin Global Infrastructure Report. Available: 

5. Jones, J. & Kiladze, T. 2018. Brookfield Infrastructure buys into residential services with acquisition of Enercare. The Globe and Mail, 1 Aug 2018.

6. Carr, T. 2018. Record Assets Creating a Competitive Deal Environment. Preqin Ltd. 2018 Preqin Global Infrastructure Report. p.17. Available:

7. Hoyer, W. 2018. Global Public Investor 2018. p.95. OMFIF. London. Available: http://thinktank.omfif. org/gpi.

8.  De Langen, P., Turro, M., Fontanet, M. & Caballe, J. 2018. The Infrastructure Investment Needs and Financing Challenge of European Ports. Brussels: European Sea Ports Organisation. Available: Investment%20Study%202018_FINAL_1.pdf.

9.  European Commission. 2018. CEF Transport - Innovation and Networks Executive Agency - European Commission. European Commission. Available:

10.  European Commission. 2018. CEF Transport - Motorways of the Sea. European Commission. Available:

11.  Public Administration & Constitutional Affairs Committee. 2018. After Carillion: Public sector outsourcing and contracting. UK House of Commons. Committee. Available:

12.  Polleschi, I. 2018. Anger at Italy bridge operator as hunt for survivors goes on. Reuters, 15 Aug 2018.

13.  Conte, G. 2018. Facebook post 17 Aug. Available:

14.  The White House. 2018. Legislative Outline for Rebuilding Infrastructure in America. Available:

15.  Sawad, Y. 2018. Public-private partnerships boost for Asia. Global Public Investor 2018. p.100. OMFIF. Available:

16.  The Economist. 2018. Planet China; The Belt and Road Initiative. Issue 28 Jul 2018, p.7

17.  Ibid.

18.  Sawad, Y. 2018. Public-private partnerships boost for Asia. Global Public Investor 2018. p.100. OMFIF. Available:

19.  Ibid.

20.  Public Administration & Constitutional Affairs Committee. 2018. After Carillion: Public sector outsourcing and contracting. UK House of Commons. Committee. Available:

21. Ibid.

22. Ibid.

There is neither regulation nor government intervention that can assure customer-led infrastructure takes root. It relies on responsible owners that have a disciplined and transparent approach to managing their balance sheet, and a strong focus on customer interaction to inform new investments.
Garry Bowditch