Economic | G Pontin

ACE – Green Investment Bank

This paper is the fifth in ACE’s infrastructure investment series and explores in more detail the current market conditions, challenges and rationale behind the Green Investment Bank. It concludes that whilst the Green Investment Bank is a step in the right direction, there are some issues which if left unchecked, could undermine confidence in its ability to facilitate green investment.

Key findings

The Green Investment Bank is a step in the right direction, but finance conditions continue to raise concerns about scale and speed of implementation
The GIB needs to improve transparency and information sharing for investment to take place
Perceptions surrounding the GIB and the subsidisation of green projects needs to evolve if investor confidence is to be gained
The current plan for granting the Green Investment Bank’s borrowing powers should be reinforced further
The GIB should continue to expand and identify other areas where it could facilitate investment

Company website:
http://www.acenet.co.uk/

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ACE – Procurement in PPFM

This paper is the third in ACE’s infrastructure investment series and explores in more detail improvement that could be made to the procurement within Public and Private Finance Models (PPFM).

Issues explored in this paper include the concept of flexibility, transparency and the use of a centralised resource to improve procurement efficiency and reactiveness, resulting in better overall value for money for the taxpayer.

The paper explores and has recommendations in the following areas:

There needs to be clear guidance on model suitability
Centralised efficiency and skills retention are important
The two broad procurement phases, provide limited information or confidence to the market
Implementing a Procurement Efficiency Mechanism (PEM)
There needs to be improved accountability
Procurement issues expand beyond that of Public Private Finance Models
Design and exploratory work can save time and money
Flexibility is required for government to gain better efficiency and value for money
Provide a baseline, creating a fixed operational performance will provide certainty
Dynamic operational performance, providing capacity and efficiency beyond the baseline

Company website:
http://www.acenet.co.uk/

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ACE – Public Private Finance Model: moving forward

This paper is the second in ACE’s infrastructure investment series and explores in more detail the rationale, performance and market conditions that surround Public and Private Finance Models (PPFM).

This paper explores a number of flexible models that should help to improve public and private sector performance. Whilst, encouraging the level of private finance required to improve the UK’s aging infrastructure. Importantly, improving the models through which private finance is encouraged into infrastructure investment is key to providing savings for the taxpayer.

The PFI model is in need of review by government following the financial crisis. A number of factors have changed, such as the higher cost and lower availability of capital. This has in turn called into question value for money, the relative cost of the public sector undertaking the project and attracting further investment into primary (greenfield/new build) projects.
However, the National Audit Office (NAO)3 has previously found that there are some positives that can be taken forward from the PFI miodel. For example:“Sixty nine per cent of PFI projects reported delivering to the contracted timetable in 2008.”“Ninety four per cent of projects responding to our 2008 survey were reported to have been delivered on, or less than five per cent over, price”
There needs to be greater flexibility built within models to allow a more efficient application to a wider set of scenarios. The PFI model has shown that there is an interest from the private sector. Areas such as construction risk can be improved, the financial crisis and the subsequent shift in attitudes away from higher risk projects have highlighted the need for the model to be improved.
This paper outlines five Public Private Finance Models (PPFM) that aim to improve the prospects of private financing, its performance and value for money going forward.

Company website:
http://www.acenet.co.uk/

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ACE – Performance of PFI: 1996 – 2010: lessons learned

This paper is the first of a new series of infrastructure financing papers from ACE. It looks at 15 years of Private Finance Initiative experience in the UK. The paper establishes the lessons learnt, both positive and negative, that must inform new thinking on project financing if the public and private sectors, and most importantly the taxpayer, is to get the best possible value for money earnings and policy.

Key findings:

Reviewing the PFI model
PFI’s lack of public trust demonstrates that there needs to be a clear and transparent link between capital liabilities, operational liabilities and the expected rates of return for private companies within financing public projects.
Within the review of the PFI procurement model Government must look to retain the benefits that a successfully procured PFI project can deliver as it develops new financing models.
The focus of the debate must be to develop a successful public-private model moving forward, ensuring efficient investment in the UK’s long term economic growth.
The effect of the recession and financial crisis:
The financial crisis and recession have had a significant effect on the financial sector. Lending has been constrained, confidence between banks, consumers and business has been shaken.
There have been significant changes in the cost of capital; the cost of government borrowing; the difference between the two; the private sector’s ability to raise funds; and attitudes to risk. These factors call into question the assumptions within the PFI model, resulting in a weaker less sustainable case for its usage.
New issuance in a range of primary debt markets, global issuance of leveraged loans and issuance of high-yield corporate debt have all undergone a challenging year in 2011. This means it has been harder for companies to raise funding.
The financial crisis has changed attitudes to risk, with companies moving towards cash rich positions, paying off debt and re-enforcing balance sheets. This has fed through into the PFI model, with fewer companies able to take on the risks, and raise the finances required to make projects successful.
A continuing aversion to risk will impact on the long term growth and investment potential of projects in the UK from the private sector. however, it is important to recognise that attitudes to risk are also aligned with the pricing of finance. For example, the recent decision of RWE and EON to abandon their UK nuclear build programme shows how difficult it is to raise finance given
uncertainty with regards to risks, earnings and policy.

Company website:
http://www.acenet.co.uk/

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ACE – Barriers to Investment

ACE’s Barriers to Investment report explores a wide variety of aspects that act as barriers, or significantly change the risk profile of an investment project. These processes are important within the investment cycle and should be understood by all parties involved.

By facilitating wider debate on these issues it is hoped that the UK can open up new and existing avenues of funding to help address the infrastructure challenges we face moving forward.

Investment in infrastructure is currently considered as a key policy objective of most developed and developing nations. The goal is a simple one, given the financial crisis, reduced demand conditions and concerns regarding sovereign debt, capital spending is considered a method of facilitating economic growth.

However, these conditions have meant that financial markets are less willing to invest, and their risk profile is considerably lower (reducing their willingness to take risks). This is unfortunate given governments willingness to transfer both the financing and risk of delivering infrastructure projects into the private market.

This paper has identified three key areas where improvement is required to facilitate more activity within infrastructure investment.

The risk associated with the construction phase of infrastructure is not understood, and is considered of significant risk by investors. This phase of projects needs de-risking.

The public/private sector need to outline clearly what risk each party are prepared to accept and the return associated with such risk.

There needs to be a dialogue between government and industry to move the debate surrounding the barriers that are in place with a view to designing practical solutions.

Company website:
http://www.acenet.co.uk/

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ACE – Infrastructure: a case for funding 2010

This report from ACE aims to review and analyse a range of material that is openly available (such as economic papers, cost benefit analysis and case study evidence) in an attempt to ascertain what effect infrastructure investment has on the economy. This paper will not however go into the mechanisms that would fund such projects but attempt to demonstrate the scale of potential the contributions the construction and infrastructure sector could make.

The economic rationale behind investment decisions has not been as important as it is during this economic cycle given the recent recession, tightening credit conditions and proposed public sector cuts. Projects need to demonstrate that they will improve the future growth prospects of the UK.

The return upon infrastructure investment was found to vary significantly not only between projects, but also across countries. Theory suggests that achieving a positive economic effect from investment relies on the current level of provision in respect to that of the optimal (equilibrium level), maintaining the long run competitiveness of the economy, investor certainty, access to capital, accounting for externalities and market failure, and creating a conducive regulatory environment.

Company website:
http://www.acenet.co.uk/

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Monitoring Business Energy Costs and Efficiency

Moffatt Associates devised a set of research questions and methodology to explore and evaluate trends in business energy costs, actions taken by companies to increase energy efficiency and the views of industry on the likely business implications of EU and UK energy policy. This was the first time that any serious attempt had been made to analyse the impact of rising energy costs on UK business.

Since 2005, Moffatt Associates has researched and built a UK business contact database covering 500 major energy users and 1000 SME’s. Every year we track trends by carrying out 200 in-depth interviews with senior energy management managers across a representative sample of public and private sector organisations.

This survey is widely used by the UK Government, Ofgem and industry as the benchmark reference for how industry is managing energy efficiency and carbon emissions reductions. Our UK business users survey is publicised widely and is the most comprehensive survey of its kind in the EU.

The survey is currently sponsored by RWE npower in association with the Major Energy Users Council (MEUC) and the UK Federation of Small Business (FSB).

Company website:
http://www.moffatt-associates.com/

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