What matters when planning an infrastructure investment
Financing for infrastructure works is increasingly being provided by private investors and is one way to make up for the lack of public funding. Project financing and works carried out under concession continue, however, to encounter numerous obstacles of a regulatory, planning, financial, administrative and bureaucratic nature.
In terms of regulation, the principle that needs reaffirming is that, once entered into, arrangements cannot be unilaterally amended by the State. Contractual certainty and stability are a precondition for attracting private investment in infrastructure works which, by their nature, represent a major financial commitment, whilst offering returns that are deferred over time.
The attention of decision makers and the resources for public-private financing initiatives need to focus on projects that can be more easily realised: a) as capable of paying for themselves out of toll revenues; b) with the involvement of private resources and capabilities. To this end, some form of public-private partnership is essential in attracting capital that would otherwise be channelled towards other, less risky forms of investment.
Related to this is the process underway in many countries designed to boost the public finances, which is key to a government’s ability to carry out and maintain infrastructure works, by introducing tolls for existing structures. The principle of “pay per use”, already widely adopted in southern Europe, is now being applied on the road networks of Germany, Austria, France and Slovakia, which since 2002 have awarded contracts to private operators for the installation and operation of tolling systems. This is despite the difficulties that sometimes result from the introduction of such systems, due to their economic impact on the affected communities and resistance from certain business lobbies (look at the example of Ecotax in France).
Modern, efficient airports and motorways require continuous upgrades in order to keep pace with the changing needs of the people who use them. This involves large-scale investment. The ability to deliver complex projects, such as the new terminal wing for Fiumicino airport or the Variante di Valico, requires not only a reputation for reliability, but also cutting-edge engineering expertise and an extremely solid financial structure.
In the near future, Atlantia plans to invest up to €13 billion in Italy’s motorways in order to clear the worst bottlenecks. This is in addition to the €12 billion already invested and another €10 billion that we intend to spend on expanding Fiumicino airport.
On the one hand, we want to improve traffic flow on the most congested sections of motorway or on those that we expect to become so, such as the Genoa Bypass. On the other, we need to respond to growing rates of passenger growth, ensuring that Rome and the country as a whole are better connected to the rest of the world.
To decide which projects to finance, it is essential to have a vision of how the sector will evolve, and of how transport and the international economy is going to change over the coming twenty or thirty years. This is reflected in the fact that, having started out with the foundation of Autostrade Concessioni e Costruzioni SpA in 1950 (Atlantia didn’t yet exist), and having expanded our Italian operations to achieve our current size, the holding company has begun to export its know-how. Today, we operate more than 2,000 km of motorway in Brazil, India, Chile and Poland. At the same time, we are working on major investment projects in Santiago in Chile and in the area around Sao Paulo in Brazil. In addition to these assets, in 2016, the Group was chosen to operate the three airports on the Cote d’Azur at Nice, Cannes-Mandelieu and Saint Tropez.
Our growth and diversification strategy is led by a number of readily apparent, global mega-trends, such as demographic growth, increasing per-capita wealth, the rate of motorisation and the presence of natural resources. This indicates that the fastest growing countries are beyond Europe, in Latin America or in Asia, even if Europe itself is capable of offering attractive investment opportunities due to the sizeable gap currently present between the cost of equity and the cost of debt.
What matters when planning an infrastructure investment
Based on the Atlantia Group’s experience, we believe that it will become increasingly difficult to deliver gigantic infrastructure projects. This is partly a reflection of the lengthy authorisation processes involved and the frequent opposition shown by communities in the areas in which the new works are to be built.
In our view, in identifying priority works to be carried out, it is important to bear in mind certain key goals, such as:
All of this whilst taking into account the restrictions encountered in raising the necessary finance. In response, the concept of “frugal infrastructure” is gaining ground around the world, proof of the fact that the sustainability and funding of major works is becoming increasingly difficult. Making infrastructure “frugal” means cutting out unnecessary expenditure when planning projects, reducing the layer upon layer of technical standards leading to increased construction costs and times. We cannot ignore the fact that a country’s infrastructure can give its economy a significant competitive advantage. Greater awareness of this truth should enable us to minimise demands for compensatory measures, which are often none other than a price to be paid for a community’s agreement to allow a project to go ahead.
Having said this, we cannot ignore one final consideration regarding the way in which projects are carried out. It is essential for infrastructure to be of high quality in order for it to last over time, just as good design is key to ensuring that the costs of construction and maintenance do not become unsustainable. The quality of infrastructure thus has a major role to play in a far-sighted and sustainable approach to our business, compatible with the country’s growing need for social, economic and environmental development.