Publications

Q&A: An update on infrastructure — where it stands today and where private investment and advanced technologies promise to take it tomorrow
- October 1, 2018: Vol. 5, Number 9

Q&A: An update on infrastructure — where it stands today and where private investment and advanced technologies promise to take it tomorrow

by Mike Consol with Norm Anderson

One of the major proponents of infrastructure development is Norm Anderson, CEO of CG/LA Infrastructure, an organization that, among other services, compiles annual lists of the top infrastructure projects on various continents, and hosts the project developers at their Leadership Forum events.

Anderson agreed to be interviewed by Real Assets Adviser editor Mike Consol to discuss what he considers some of the most interesting projects currently in the works, the role private investment is playing, and the long-term role technology is destined to play in the space.

The following is excerpted from the podcast interview Anderson recently did with the magazine, accessible at this link: https://bit.ly/2LT6blp

 

What are some of the standout infrastructure projects in North America currently on the drawing board or in the works?

We are looking at three or four highly interesting projects. The first one is the fantastic Dallas to Houston high-speed rail project, 100 percent funded by private investment. That’s about a $20 billion project and what this private company, Texas Central Partners, sees is an economic project for Texas that works financially, and that will be a key piece in turbocharging a regional economy. There is talk of maybe building a spur to Ft. Worth, and maybe going to San Antonio, Austin and even to Monterrey, Mexico, but the real focus right now is Houston to Dallas. The other really interesting fact is they are counting on land value capture opportunities, especially around the train stations in Dallas and Houston. There is a lot of thinking going on in the United States on the transit side about how to commercialize and monetize the stations by developing the land around them. Transit-oriented development is suddenly super en vogue. Look at the Denver Union Station project and look what this type of transit development does to the economics of projects. If you look at Hong Kong and Singapore, that revenue generation enhancement can cover 30 percent to 40 percent of the operational costs of the asset going forward, so it is a big deal.

At what stage is the high-speed rail project?

That is just getting under way. They have hired their subcontractors; Bechtel and Fluor are both involved and a number of other companies as well. They are moving forward and I think they are at 60 percent in terms of the land acquisition, so that is a project that is going to happen.

What other North America projects have your attention?

There is a lot going on that is phenomenally interesting. Another project that is headquartered in Texas is called SeaOne and has a total cost in the neighborhood of $20 billion to export liquefied natural gas from the United States to the Caribbean and Central and South America, replacing highly polluting diesel fuels at about 30 percent less cost.

The third project that I would highlight is the REM project in Canada, which is a $6 billion light-rail line running from downtown Montreal to the airport. What’s really interesting about this project is that CDPQ, a Quebec pension fund, is the developer and owner/operator of the project. So, all of a sudden you have a pension fund that doesn’t come in at the end to support the project, but is actually the instigator, the developer of that project, so this is the first place in the world that has happened. We see this as an example of true leadership, and perhaps the beginning of a trend.

You see these entirely privately funded projects as a new way some infrastructure projects will get done?

That is exactly right, and we are super-excited by that because in the United States alone we have about $24 trillion — between the $7 trillion in life insurance money and $17 trillion in pension fund money — that potentially needs a long-term place to invest. Some of that, maybe as much as 10 percent, ought to be able to go into infrastructure projects. CDPQ Infra in Montreal has actually built a sophisticated infrastructure team that can start projects, get them up and running, cover the development costs, and own and operate the project.

What other North America infrastructure projects are particularly impressive?

There is the $6 billion to $10 billion Hell’s Kitchen Project that is focused on thermal power, but it is also a lithium mining project, combining a renewable energy play with the development of what would be the largest lithium mine in the western hemisphere. That is a big deal since China is a huge player in rare-earth elements, and we are fairly vulnerable on lithium supplies.

How many dollars are needed globally to fund infrastructure needs?

We did the original numbers for a McKenzie & Co. research project more than 10 years ago, and at that time around $42 trillion were needed over the next 25 years for infrastructure. It’s a big, big number. The world under-invests by about 50 percent in infrastructure, and then the efficiency of what we do invest is about 50 percent of what it could be, so we are not even coming close to getting the bang for the buck that we need.

That kind of shortfall suggests governments do not appreciate the importance of infrastructure investing.

Exactly. What they need to understand is that, for economies to continue to grow, the only bullet left to ensure the continued growth of the global economy is significant infrastructure investment; that is the piece that is really missing. There is plenty of money in the United States, but who is creating a bankable pipeline of projects so that that money can go into necessary projects? We don’t see enough of that.

What is grabbing your attention beyond North America?

The Bogota Metro project has been on the drawing board for maybe 30 years and it is finally going to go forward. It’s a giant and super-challenging urban development project. They just received $600 million in financing from the Inter-American Development Bank, so that project — with great leadership — is on its way.

The other initiative we find important is the Silk Road projects. Everybody talks about China’s strategic use of infrastructure to create a whole new global trading route between China and Europe. It is a fascinating opportunity uniting all the countries of central Asia right into Pakistan and India, and all the way into Eastern Europe. First of all, it shows how potent infrastructure is strategically; it also challenges us in the United States to modernize our infrastructure model, and to perhaps lead a response that takes into account local priorities, initiative and capacity.

You have said that technology needs to play a bigger role in infrastructure project selection, development and operation. Elaborate, please.

Who drives infrastructure project design? Who drives the selection of projects? Increasingly it needs to be the people who should be benefitting from the project — and as never before it is possible for them to do that through the use of technology. You have a super computer in your pocket, and I have a super computer in my pocket. Why can’t we use our devices to tell governments what their priorities are, and their priority projects are? Once you start to do that, infrastructure becomes a very local business for local companies. A year ago I helped to launch the CanInfra Challenge, and we talked about the fact that the user experience determines everything nowadays — or at least should determine everything — about a project in terms of its design and whether it actually functions or not.

With Ipsos we have done some polling and asked people, “What do you think about when you think of infrastructure investment?” We found 4 percent of people say highways and roads, 2 percent say airports, 37 percent say health, and 36 percent say mobility. Mobility means goods and services, but it mostly means people and a proper experience for them as they are moving around their city or their country.

Does project selection get better if private investment is driving the process?

Not necessarily. If private investors are focused only on internal rate of return, especially in developing countries, what gets funded are projects that are cherry picked, those with the lowest risk and the highest rates of return, but those are not necessarily the projects that benefit the largest amount of people over the longest period of time. Let’s take water and wastewater projects as an example. They are almost never invested in by the private sector. This is a big problem — a failure of the current model. If you look at a place like Latin America you see significant investment in energy and telecommunications, and virtually no new private investment in the stuff that people care about — healthy drinking water, sanitation and transportation.

How is U.S. infrastructure funded these days?

It depends on the sector. The water/wastewater sector and highways, transit and bridges is virtually all publicly funded — there is very little private investment. There is a lot of private investment, with significant government oversight, around energy and telecommunications projects.

One of the things I don’t think we appreciate is there is not going to be any additional public investment in infrastructure, given the size and significance of our national debt, so that means it is going to be very hard getting money — state, local or federal money — for water and wastewater and for transportation. This creates a huge opportunity for private investment. The only way you bring in private investment is by convincing citizens that the public sector, the government, is actually going to be able to ensure the performance of that investment. So, perhaps counter-intuitively, we have to revitalize and repurpose the public sector.

Citizens also have to know they will play a role in deciding which investments are prioritized.

We are talking about a very different way of thinking about our infrastructure matrix going forward, leading to the big questions of what kind of a country we are going to have going forward. Right now the distribution in terms of federal funding in transportation is 90 percent highways and 10 percent transit. You tell a millennial that and they don’t even believe you, they think you are making it up — fake news! It is fascinating where we are versus where we think we are and where we want to be in the infrastructure space.

What role do you see technology playing in the future?

This is a big question — perhaps the big question. There are a host of technologies that can be brought to bear, including drones, artificial intelligence, building information modeling and virtual reality. All of a sudden, people will see what that new light-rail project will mean for them. It becomes something that you want, something really interesting. Technology will eventually allow for a customized experience when entering a transit facility as it recognizes you walking into the station and directs you to the places you want to go and the things you want to be exposed to. But the real issue — aside from engaging people’s minds, and planning and executing more efficiently, with greater transparency, is what do we want? Are we going to focus on individual transit, or mass transit; on smart cities, or smart people; on inclusion or opportunity? These are big questions, and they have to do with vision. Everything has to do with vision. The future is incredible, but we have to design it, and the investments that we are making now matter, because they will last for 30 or 40 years or more.

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