Arise: A New Public-Private Partnership for Infrastructure Investment

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By David Jhirad, Professor …

By David Jhirad, Professor
Director of the Energy, Resources and Environment (ERE) Program
The Paul H. Nitze School of Advanced International Studies (SAIS), Johns Hopkins University. Presented at Transforming Transportation, January 26, 2012. Washington, D.C.

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  • 1. 01/26/2012 Dr. David J. Jhirad ARISEA NEW PUBLIC-PRIVATE PARTNERSHIP FOR INFRASTRUCTURE INVESTMENT Presented at “Transforming Transportation 2012”, Washington DC
  • 2. THE IMPERATIVE FOR MULTI-FACETED INNOVATION Source:
  • 3. additional capacity is substantially higher, reflecting far lower capital costs per MW ofcapacity.INFRASTRUCTURE INVESTMENT NEEDSFigure 5.13 Investment in new power plants and infrastructure in the New Investment inPolicies S new power plants and infrastructure in the New Policies cenario Scenario 2011 to 2020 2021 to 2035 $6.8 trillion T&D $10.1 trillion Coal 4% 8% 7% Gas 8% 8% Oil 8% 44% Nuclear 41% 12% Wind 13% Hydro 6% Solar PV 7% 1% 6% 10% 12% 5% Other renewables 0%Investment in new power plants inSource: IEA WEO 2011 increasingly outpaces investment in non-OECD countries
  • 4. INCREASING DEMAND FORTRANSPORT INFRASTRUCTURE Source: GEF STAP
  • 5. THE NEED FOR LONG-TERM INVESTORS Source: Columbia CGT
  • 6. WHY ARE SWF A GOOD FIT?• Uniquely positioned as long-term investors • Can leverage their large asset base • Have the intergenerational outlook necessary for large- scale infrastructure investment • Prefer to invest in large projects >$500m • Natural to expand their mission from preserving financial wealth to include the preservation of environmental wealth by mitigating climate change• Have access to the massive amounts of capital required for transformation to a low carbon economy
  • 7. WHICH COUNTRIES HAVE AN SWF? Source: Deutsche Bank
  • 8. Assets Under Management i Country Fund Name Year AUM in $bnUAE - Abu Dhabi Abu Dhabi Investment Authority 1976 $627Saudi Arabia SAMA Foreign Holdings n/a $431China SAFE Investment Company n/a $347.10 **Norway Government Pension Fund – Global 1990 $326Singapore Government of Singapore Investment Corporation 1981 $247.50Russia National Welfare Fund 2008 $219.90 *Kuwait Kuwait Investment Authority 1953 $202.80 WHICH ARE THEChina China Investment Corporation 2007 $190China - Hong Kong Hong Kong Monetary Authority Invst Portfolio 1998 $173 LARGEST SWFSingapore Temasek Holdings 1974 $85UAE - Dubai Investment Corporation of Dubai 2006 $82China National Social Security Fund 2000 $77.90Libya Libyan Investment Authority 2006 $65Qatar Qatar Investment Authority 2003 $62Algeria Revenue Regulation Fund 2000 $47Australia Australian Future Fund 2004 $42.20Kazakhstan Kazakhstan National Fund 2000 $38Brunei Brunei Investment Agency 1983 $30France Strategic Investment Fund 2008 $28South Korea Korea Investment Corporation 2005 $27US - Alaska Alaska Permanent Fund 1976 $26.70Malaysia Khazanah Nasional 1993 $23.10Ireland National Pensions Reserve Fund 2001 $22.80Chile Social and Economic Stabilization Fund 1985 $21.80UAE - Abu Dhabi Mubadala Development Company 2002 $14.70Bahrain Mumtalakat Holding Company 2006 $14Iran Oil Stabilisation Fund 1999 $13Canada Albertas Heritage Fund 1976 $11.90US - New Mexico New Mexico State Investment Office Trust 1958 $11.70Azerbaijan State Oil Fund 1999 $10.80Nigeria Excess Crude Account 2004 $9.40Oman State General Reserve Fund 1980 $8.20Botswana Pula Fund 1966 $6.90New Zealand New Zealand Superannuation Fund 2003 $6.90Brazil Sovereign Fund of Brazil 2009 $5.90 Total Capital of around 3.6 trillion USD $0 $500 Source: SWF Institute
  • 9. WHAT ARE SOME KNOWN BARRIERS TO SWF INVESTMENT IN INFRASTRUCTURE?• Comparatively larger risk than traditional investments• Lack of relationship similarly long-term providers of debt financing to match SWF equity stake• Lack of knowledge of international infrastructure investment markets and investment environments in target countries• Lack of relationship with project development entities• Can be perceived as not in line with mission of preserving and multiplying wealth for future generations
  • 10. ACCELERATING RESILIENT INFRASTRUCTURE INVESTMENT FOR SUSTAINABLE ECONOMIES• Launch a process and a working group consisting of Sovereign Funds, Multilateral Development Banks and other stakeholders;• Focus on resilient and sustainable infrastructure investment with social and economic returns supplementing financial returns;• Aim to mobilize an international infrastructure project preparation fund for Rio +20 launch;• Employ cutting edge geospatial information systems to support project design and implementation, and the strategic switch from conventional to green infrastructure.
  • 11. ARISE TOWARDS RIO• Identify and Remove barriers to investment.• Facilitate dialogues between Sovereign Funds, Multilateral Development Banks, financial institutions, companies and other stakeholders in a high- level working group• Define “resilient and sustainable infrastructure”.• Develop qualitative and quantitative benchmarks to define social, economic, and environmental sustainability and resilience of infrastructure projects.• Develop metrics and methodologies to assess the suitability of potential infrastructure investments against these benchmarks.• Develop a package of infrastructure projects to attract capital investment
  • 12. ARISE LAUNCH AT RIO +20• Announce a new and innovative public-private partnership to invest in resilient and sustainable infrastructure, including the Sovereign Wealth Funds (SWFs), Multilateral Development Banks (MDBs), foundations, and the private sector, in direct collaboration with beneficiary communities.• Create a forum in which SWFs and MDBs will determine how to mobilize debt and equity in a timely manner on a project-by- project basis• Attract innovative financing sources such as debt guarantees and grant funding to minimize technological risk and to overcome the initial capital cost hurdle of new technology.• Commit funding and resources to an international project preparation fund to determine investment feasibility, including financial, social, economic and environmental risks and returns.• Support policy and regulatory reforms to create an enabling environment for resilient and sustainable infrastructure development.
  • 13. POTENTIAL INITIAL PARTNERS ARISE
  • 14. ILLUSTRATIVE PROJECT EXAMPLES• Bus Rapid Transit Systems: • Dedicated lanes and bus stops with easy access • Local, Express and Feeder Services • Tickets integrated across whole system and affordable for general public • Reliable user information system • Clean buses with low emissions, e.g. using CNG • Integrated into zoning to enable transit-oriented hubs
  • 15. CONCENTRATED SOLAR POWER PLANT• Around 50MW Capacity• Project cost of $300m• Annual power sales of $ 50m• Cash-flow positive within 24 months• Ideally sited where some form of renewable energy sales credits or subsidies are available