Infrastructure as an Asset Class: Investment Strategy, Sustainability, Project Finance and PPP

425 Pages·2016·5.56 MB·English

by  Barbara Weber

Infrastructure
as an
Asset Class
Investment Strategy, Sustainability,
Project Finance and PPP
Second Edition
BARBARA WEBER
MIRJAM STAUB-BISANG
HANS WILHELM ALFEN

‘Infrastructureisakeyprerequisiteforeconomicdevelopmentandisthebackboneofanysoci-
ety,directlyimpactingthelivesofallcitizens.Sustainableinfrastructureprotectsourworld’s
vital natural resources and environment, and promotes a more effective and efficient use of
financialresources.ThissecondeditionofInfrastructureasanAssetClassintegratesimpor-
tant sustainability aspects into infrastructure investing, making it an indispensable resource
forlong-terminfrastructureinvestorsandpolicymakersalike.’
Prof.KlausSchwab,Chairman,WorldEconomicForum
‘Thisupdatedbookhascomeatacrucialpointforinstitutionalinvestmentininfrastructure.
Pension funds are maturing in a low return environment and need both the capital growth
andcashflowswhichinfrastructureinvestmentscanoffer.Thebreadthanddepthofpractical
experiencesharedbytheauthorswillbeinvaluabletothoseassessingtherisksandrewardsof
investinginthisassettype.’
SallyBridgeland,Chair,LocalPensionsPartnershipInvestmentsLtd
‘Alargerandevenmoreelaboratepieceofnewandvaluableinformationoninfrastructureand
awellwrittenmust-readformarketparticipantsofallkinds.’
RonBoots,APG,HeadofInfrastructureEurope
‘Dr. Weber, Dr. Staub-Bisang and Professor Alfen have produced an excellent update to
theirimportant2009 workoninfrastructureinvestment.Thiseditionsuccinctly captures the
developmentsofthisfast-growingmarketinlightoftheclose-to-zerointerestratesandstrained
governmentbudgets.Thebooknotonlyguidesandinspirespractitionersbutshouldalsobe
mandatory reading for pension fund board members and trustees, so as to gain valuable
informationabouttheopportunitiesandrisksinthisassetclass.’
TorbenMo¨gerPedersen,PensionDanmark,CEO
‘Infrastructureiskeytorobustandsustainableeconomicgrowthandalsorepresentsasignif-
icant opportunity for investors. Dr. Weber and her co-authors deliver an authoritative guide
tothismulti-facetedmarket,addressingboththeopportunitiesinthevarioussectorsandthe
risks.Thebookisessentialreadingforanyinvestmentprofessionalastheassetclassnotonly
represents an opportunity to diversify a portfolio, but also the chance to benefit from global
trends fuelled by renewed government interest and investment in infrastructure. The greater
emphasis in this edition on sustainable infrastructure is particularly welcome and of course
verytopical.’
ChrisKnowles,EIB,HeadofClimateFinance
‘The authors strike a very good balance between a high-level description of the asset class
and a more in-depth and comprehensive coverage of the various sectors and subsectors in
the infrastructure investment universe. This book has been written by experienced industry
practitioners, which is clearly evidenced by the many real-world examples and case studies
covered throughout the book. In a unique way, the book also integrates ESG topics, which
are growing in importance in the infrastructure space. All this makes the book a must-read
notonlyforinvestmentprofessionals,riskmanagersandpensionfundtrusteesstartingtoget
involvedwiththeassetclass,butalsoforexperiencedparticipantsintheinfrastructuremarket.’
ChristophManser,HeadofInfrastructureInvestments,SwissLifeAssetManagers
‘Thisbookprovidesreadersfromthepublicsectorsandinvestmentprofessionalsalikewith
comprehensive guidance to organisational models, value chain elements and the immense
investment needs in the water sector. With “water” having been identified by the WEF not
only as a social and political risk, but also as the number 1 business risk, efforts from all
sectorsofsocietyarenecessarytotacklethisardentissue!’
PeterBrabeck,Chair,2030WaterResourcesGroup;Chairman,Nestle´ SA
‘Long-termandsustainableinvestmentsintorenewableenergyandthemaintenanceofexist-
ing assets are essential for the global energy transition. Not only the energy sector, but all
infrastructure areas are facing urgent needs for new investments. In a clear and instructive
way,thisbookprovides acomprehensive overview ofvariousinfrastructuresectorsandisa
must-readforallinterestedinsustainableinfrastructureinvestments.’
Dr.SuzanneThoma,CEOoftheBKWGroup
‘Barbara has a wonderful understanding of the infrastructure asset class and all its nuances.
This new edition captures the essence of how both investors and the opportunities they are
pursuinghaveevolvedoverthelast6yearsasinfrastructurehasbecomeanincreasinglycore
long-termassetclass.’
MikeWeston,ChiefExecutive,PensionsInfrastructurePlatform(PIP)
‘The first edition was one of those rare books that left the reader wishing that it had been
writtenwhentheywereanoviceinthefield,whilestillmanagingtocoverthestateoftheart;
yetthesecondeditionmanagestoimproveuponit.ThenewstressonsustainabilityandESG
placesitcentrallyintoday’sinternationalmarketplaceforinfrastructureinvestment.’
ConCeating,ResearchCommissionEuropeanFederationofFinancial
AnalystsSocieties
‘ForanyoneinvolvedininfrastructurePPP–publicsectorprofessionalsandprivateinvestors
alike – this book provides critical insights: Not only does it categorize the different organ-
isational models of PPP investment, but it also positions PPP within the broader context
of infrastructure investing and project finance and helps consider the increasingly important
environmental,social,andgovernancedimensionsinvolved.’
GilbertProbst,Co-FounderoftheGenevaPPPCenter,ChairforOrganisational
BehaviourandOrganisation,UniversityofGeneva,andMemberoftheExecutive
Committee,WorldEconomicForum
‘Sustainableinfrastructureandprivatecapitalfrominstitutionalinvestorsareveryimportant
elements in realising the 2030 Agenda for Sustainable Development and its 17 Sustainable
Development Goals. The book Infrastructure as an Asset Class, Second Edition, addresses
theseissuesfromaninvestor’spointofview,explainingwhyitisrationaltoinvestininfras-
tructure,andevenmoresoifbuiltinasustainableway.Thebookisaveryimportanttoolfor
investors,internationalofficialsandpublicservantsalike.’
MichaelMøller,Director-General,UnitedNationsOfficeatGeneva
Infrastructure
as an Asset
Class
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Infrastructure
as an Asset
Class
Investment Strategy, Sustainability,
Project Finance and PPP
Second Edition
BARBARA WEBER
MIRJAM STAUB-BISANG
HANS WILHELM ALFEN
Thiseditionfirstpublished2016
©2016BarbaraWeber,MirjamStaub-BisangandHansWilhelmAlfen
Firsteditionpublished2010byJohnWiley&Sons,Ltd
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LibraryofCongressCataloging-in-PublicationData
Names:Weber,Barbara,1968-author.|Staub-Bisang,Mirjam,1969-author.
|Alfen,HansWilhelm,author.
Title:Infrastructureasanassetclass:investmentstrategy,sustainability,projectfinanceandPPP/BarbaraWeber,
MirjamStaub-Bisang,HansWilhelmAlfen.
Description:Secondedition.|Chichester,WestSussex:JohnWiley&Sons,2016.|Series:TheWileyfinanceseries|
Includesbibliographicalreferencesandindex.
Identifiers:LCCN2016004044|ISBN9781119226543(hardback)
Subjects:LCSH:Infrastructure(Economics)–Finance.|
Investments–Management.|Public-privatesectorcooperation.|BISAC:
BUSINESS&ECONOMICS/Finance.
Classification:LCCHC79.C3W432016|DDC388/.049–dc23LCrecord
availableathttp://lccn.loc.gov/2016004044
AcataloguerecordforthisbookisavailablefromtheBritishLibrary.
ISBN978-1-119-22654-3(hbk)ISBN978-1-119-22656-7(ebk)
ISBN978-1-119-22655-0(ebk)ISBN978-1-119-22657-4(ebk)
CoverDesign:Wiley
Setin10/12ptTimesbyAptaraInc.,NewDelhi,India
PrintedinGreatBritainbyTJInternationalLtd,Padstow,Cornwall,UK
Contents
ListofFigures xiii
ListofTables xv
Preface xvii
ANotefromthePublisher xix
Acknowledgements xxi
AbouttheAuthors xxiii
Introduction xxv
CHAPTER1
Infrastructure–AnOverview 1
1.1 DemandforInfrastructure 2
1.2 SustainabilityandInfrastructure 7
1.2.1 Sustainabilityandsustainabledevelopment–abriefhistory 8
1.2.2 Theneedforsustainableinfrastructure 9
1.3 DefinitionandCharacteristicsofInfrastructure 10
1.3.1 Differentiationofterms:project–asset–facility 13
1.3.2 Characteristics 15
1.3.3 Cross-sectorcharacteristics 16
1.3.4 Typesofinfrastructurecompanies 16
1.3.5 Roleoftheprivatesector 18
1.3.6 Valuechainelements 19
1.3.7 Greenfieldversusbrownfieldinvestments 21
1.3.8 Yield-drivenversusIRR-driveninvestors 22
1.3.9 Sourcesofrevenueandfinancing 24
1.3.10 Competitionandregulation 25
CHAPTER2
InfrastructureInvestments 27
2.1 InfrastructureasanAssetClass 28
2.1.1 Investorsininfrastructure 29
2.1.2 Risk-returnprofilesofunlistedinfrastructureinvestments 33
vii
viii CONTENTS
2.1.3 Benchmarkinginfrastructureinvestments 40
2.1.4 Portfoliodiversificationthroughinfrastructure 46
2.2 SustainableInfrastructureInvesting 56
2.2.1 Conceptofsustainableinvesting 56
2.2.2 Whyinvestinsustainableinfrastructure? 62
2.2.3 Howtoinvestininfrastructuresustainably 64
2.2.4 Challengesofsustainableinfrastructureinvesting 68
2.3 ApproachestoInfrastructureInvesting 69
2.3.1 Listedinfrastructureinvestments 69
2.3.2 Unlistedinfrastructureinvestments 73
CHAPTER3
OrganisationalModel 87
3.1 PrivatisationModels 87
3.1.1 PrivatisationversusPPP 88
3.1.2 Formalprivatisation 94
3.1.3 Functionalprivatisation 95
3.1.4 Materialprivatisation 96
3.2 PartnershipModels 100
3.3 BusinessModels 102
3.3.1 Availabilitypaymentmodels 103
3.3.2 User-drivenpaymentmodels 105
3.3.3 Direct-userpaymentmodels 106
3.4 ContractualModels 107
3.5 FinancingModels 110
3.6 InterimSummary–Various‘PrivatisationPaths’ 110
CHAPTER4
CharacteristicsofSelectedInfrastructureSectorsandSubsectors 113
4.1 Transport 114
4.1.1 Cross-sectorcharacteristics 114
4.1.2 Roadtransport 118
4.1.3 Railtransport 125
4.1.4 Airtransport 133
4.1.5 Watertransport 141
4.1.6 Sustainabilityconsiderations 149
4.2 WaterSupplyandSewageDisposal 152
4.2.1 Characteristicsandorganisation 152
4.2.2 Sourcesofrevenueandvaluechainelements 158
4.2.3 Competitionandregulation 160
4.2.4 Private-sectorinvolvement 161
4.2.5 Sustainabilityconsiderations 164
4.3 WasteDisposal 166
4.3.1 Characteristicsandorganisation 166
4.3.2 Sourcesofrevenueandvaluechainelements 172
4.3.3 Competitionandregulation 175
4.3.4 Private-sectorinvolvement 176
4.3.5 Sustainabilityconsiderations 178