Natural disasters can take a tremendous toll on life when infrastructure fails, particularly in developing countries. Ryan Orr, executive director of the Collaboratory for Research on Global Projects (CRGP) at Stanford University, says that private investors could be a solution to global infrastructure woes. "If we can mobilize more private finance, we could potentially help to solve these problems both at home and abroad," Orr said. "But the investors need to be confident that they will be repaid and earn a fair return."
At a recent roundtable meeting at Stanford, CRGP members discussed ways to improve the security of infrastructure investments and thus encourage private shareholders to put money into badly needed transportation, energy and water systems worldwide—even in the United States, where the problem of failing infrastructure was vividly demonstrated by Hurricane Katrina, which resulted in the deaths of more than 1,800 people and caused $75 billion in damage. Although construction began on the New Orleans levee system more than 40 years ago, inflexible plans and flagging funding left the system incomplete when the big hurricane hit, Orr said.
"The roundtable is seeking to create a more stable framework for infrastructure projects that will minimize risk," added Barry Metzger, a partner at the law firm Baker & McKenzie and co-moderator of the roundtable. In addition to Metzger and other senior legal advisers, the roundtable also has drawn on the expertise of business executives from companies and financial institutions—such as Bechtel Corp., the World Bank, the Asian Development Bank and Citigroup—and from Stanford researchers representing a wide range of disciplines, including engineering, sociology, business, law and political science.
As policymakers face tax cuts and dwindling funding, many are wondering where all the money will come from. Large investors, including commercial banks and pension funds, may be able to help—and earn some money in the process, according to the CRGP roundtable report. For example, Australia's Macquarie Bank has demonstrated that infrastructure can be profitable, earning an average return of 19 percent on its infrastructure investments over 11 years. Following Macquarie's lead, 10 large investment firms, including the Carlyle Group and Goldman Sachs, have announced new infrastructure funds of up to $1 billion in the past six months.
How does an investor earn money building a bridge? Typically, Orr said, the investor pays to build the bridge, and then owns and operates it for a set period of time—say, 30 years. During that time, the bank collects tolls to recover its investment and bring in a profit. This has proven to be a lucrative business for Macquarie Bank, he noted.
Historically, most investors have been wary of infrastructure ventures, especially in the developing world, because of the potentially large risks, Orr said. In the United States, citizen protests over high tolls or changes in political priorities could pull the rug out from under expensive projects. In the developing world, the risks are even greater, as war, famine, political unrest and corruption all threaten investments, Orr said. "When you invest in a foreign society, how can you tie the hands of that government and guarantee that they're not going to take what you've invested?"
With the fall of the Soviet Union in 1991, large private investors began pumping money into infrastructure throughout the world. "The Western business community really felt that it could fix a lot of the world—reduce poverty, reduce the economic ills in Asia and Africa—by mobilizing the private sector," Orr said. But in the wake of large economic crises at the end of the 1990s, many large projects became distressed or failed, and some governments, including those of Argentina and Indonesia, repossessed the infrastructure that foreign investors had helped to build.
According to Orr, recent international laws have made it possible for investors to hold foreign governments responsible for the assets they seize and to arbitrate disputes in a neutral court. But the trend toward privatization of infrastructure also has its critics, he said, noting that some opponents fear that profit-hungry investors could cut corners, potentially endangering citizens with poorly designed or poorly maintained roads, bridges and airports.
The participants at this year's CRGP roundtable meeting expressed hope that continued improvements to the system will encourage private investors to take a chance with infrastructure investments abroad, Orr said.
"We think that the evolution of large private infrastructure funds is a major development," Orr said. "But is it just another wave of euphoria that's going to come crashing down in eight to 10 years, or have we actually learned something?"
Infrastructure problems in the United States are not unique to New Orleans, he pointed out. Across the nation, the rehabilitation of failing and inadequate infrastructure is expected to cost $1.6 trillion over the next five years, according to the American Society of Civil Engineers.
In California, the backlog for infrastructure improvements may top $70 billion, with an estimated $17 billion needed for drinking water improvements over the next 20 years alone. Statewide, the debate about how to fund infrastructure is thickening. The government is already seeking private investment to repair failing transportation, schools and flood control. The state legislature recently placed a $38 billion infrastructure bond measure on the November ballot. Although bonds raise private money, the government manages the money and guarantees to repay it in a set period of time. Truly private investments could come from the state's pension funds. On April 3, state Treasurer Phil Angelides encouraged the public employees and state teachers retirement systems to invest $15 billion in state infrastructure, but neither pension fund has committed to the investment so far.
"The money belongs to the school teachers and public employees," Orr said. "Why not invest it back into the roads and the infrastructure that they all use every day? Why not have the pension funds both earning their returns and improving the lifestyle for all?"
Mark Shwartz | EurekAlert!
How Strong Brands Translate into Money
15.11.2016 | Kühne Logistics University - Wissenschaftliche Hochschule für Logistik und Unternehmensführung
Demographic change depresses tax revenues
04.11.2016 | Fraunhofer-Institut für Angewandte Informationstechnik FIT
A multi-institutional research collaboration has created a novel approach for fabricating three-dimensional micro-optics through the shape-defined formation of porous silicon (PSi), with broad impacts in integrated optoelectronics, imaging, and photovoltaics.
Working with colleagues at Stanford and The Dow Chemical Company, researchers at the University of Illinois at Urbana-Champaign fabricated 3-D birefringent...
In experiments with magnetic atoms conducted at extremely low temperatures, scientists have demonstrated a unique phase of matter: The atoms form a new type of quantum liquid or quantum droplet state. These so called quantum droplets may preserve their form in absence of external confinement because of quantum effects. The joint team of experimental physicists from Innsbruck and theoretical physicists from Hannover report on their findings in the journal Physical Review X.
“Our Quantum droplets are in the gas phase but they still drop like a rock,” explains experimental physicist Francesca Ferlaino when talking about the...
The Max Planck Institute for Physics (MPP) is opening up a new research field. A workshop from November 21 - 22, 2016 will mark the start of activities for an innovative axion experiment. Axions are still only purely hypothetical particles. Their detection could solve two fundamental problems in particle physics: What dark matter consists of and why it has not yet been possible to directly observe a CP violation for the strong interaction.
The “MADMAX” project is the MPP’s commitment to axion research. Axions are so far only a theoretical prediction and are difficult to detect: on the one hand,...
Broadband rotational spectroscopy unravels structural reshaping of isolated molecules in the gas phase to accommodate water
In two recent publications in the Journal of Chemical Physics and in the Journal of Physical Chemistry Letters, researchers around Melanie Schnell from the Max...
The efficiency of power electronic systems is not solely dependent on electrical efficiency but also on weight, for example, in mobile systems. When the weight of relevant components and devices in airplanes, for instance, is reduced, fuel savings can be achieved and correspondingly greenhouse gas emissions decreased. New materials and components based on gallium nitride (GaN) can help to reduce weight and increase the efficiency. With these new materials, power electronic switches can be operated at higher switching frequency, resulting in higher power density and lower material costs.
Researchers at the Fraunhofer Institute for Solar Energy Systems ISE together with partners have investigated how these materials can be used to make power...
16.11.2016 | Event News
01.11.2016 | Event News
14.10.2016 | Event News
02.12.2016 | Medical Engineering
02.12.2016 | Agricultural and Forestry Science
02.12.2016 | Physics and Astronomy