Infrastructure Morality

INSIGHT The global infrastructure magazine | Issue No. 8 | 2016

Delivering on the Brazil emerges Catalyzing UN’s SDGs from the Car Wash development An interview with An interview with An interview with Amir Dossal Artur Coutinho Syed Uddin Page 12 Page 14 Page 16

#inframorality s a sector, we talk a lot around the morality of infrastructure. But we Ado not use those words. Instead, we talk about affordability, social benefit, development and access. And we aim to improve the morality of infrastructure through programs under an equally diverse Foreword set of themes — social responsibility, active investing and transparency, to name but a few. Yet — until today — no one has really stopped to consider how all of these trends, ideas and initiatives combine and coalesce to form a sense of ‘infrastructure morality’. There are no books or guidelines on infrastructure morality; no training courses or seminars to James Stewart Stephen Beatty Julian Vella dictate what is right and what is wrong. As a Global Infrastructure Chairman Americas and India Asia Pacific Head of result, it is often left to governments, investors, E: [email protected] Head of Global Infrastructure Global Infrastructure policy makers and developers to puzzle out @jaghstewart E: [email protected] E: [email protected] what is morally acceptable and what is not. @stephencbeatty @jp_vella

© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. That is why we are particularly proud of leads to a better world for us, our children One through to our interview with the head this edition of Insight magazine. Within these and our grandchildren. of the G20 Infrastructure Hub in Australia, pages, we have focused on tackling some of the This edition of Insight magazine also this section of our magazine highlights hard issues — flash-points such as migration, contains our Special Report on Asset important ideas and themes from across corruption, social equality and affordability. Delivery, a discipline that has become the infrastructure sector. And we have asked difficult questions of increasingly important as infrastructure On behalf of KPMG’s global network of infrastructure leaders and executives at the owners and operators strive to deliver infrastructure professionals, we would like forefront of the moral debate — Brazil’s improved capacity and customer service to thank all those executives and leaders construction leaders, Bangladesh’s PPP to users. As the articles in this Special who contributed to this edition of Insight executive and the Director General of Kenya’s Report illustrate, much has changed in magazine. We believe that the issues and Vision 2030 initiative, for example. the field of asset delivery over the past themes that we have explored together What comes through clearly is that few years; anyone seeking to enhance the in this publication are vital to the success there is, indeed, a growing appreciation productivity of their assets will find this of our sector and central to creating a just of the moral dimensions of infrastructure. section a valuable read. society for all. And it has deep implications — risks and Of course, there are always exciting To explore any of the themes identified opportunities — for infrastructure owners, projects and ideas emerging in the world in this publication — or to discuss your government, the public, developers, operators of infrastructure. And this edition of Insight own unique infrastructure challenges — and investors alike. We hope that this edition contains a number of other articles certain we encourage you to contact your local of Insight catalyzes a new and deeper view to interest infrastructure participants. From KPMG member firm or any of the authors of infrastructure morality which, ultimately, our discussion with the CEO of Hyperloop who contributed to this magazine.

Around the Up Front: Deny world in migration at infrastructure 4 your peril 8

Up Front: It’s time to talk about morality 6 In this issue: Infrastructure Morality Positive returns and positive change in Africa 20 An interview with Angelia Nalikka, African Development Bank

Quantifying the true value of Rejecting the scourge of corruption infrastructure 22 By James Stewart, Global An interview with Carola Infrastructure Chairman 10 Wijdoogen, NS Group Encouraging a culture of ethics Rejecting the scourge of corruption 24 10 An interview with Clorivaldo By James Stewart, Global Bisinoto, Andrade Gutierrez Infrastructure Chairman Construction Investing in secure futures for the world’s poor: Delivering 12 The power of social license 26 on the UN’s Sustainable By Richard Boele, Development Goals KPMG in Australia An interview with Amir Dossal, Global Partnerships Forum How to build sustainable 28 communities: Lessons from the Brazil’s construction companies 14 UK An interview with David Orr, Positive returns and emerge from the Car Wash UK’s National Housing Federation positive change in Africa An interview with Artur Coutinho, An interview with Construtora Camargo Corrêa 20 Keeping infrastructure affordable Angelia Nalikka, AfDB An interview with Cynthia Chaplin, 30 Catalyzing development: former regulator and regulatory Bangladesh’s PPP Authority 16 economist SIBs: Unlocking a new payment An interview with Syed Afsor H. model for infrastructure 34 Uddin, Bangladesh’s PPP Authority A vision for development: Kenya’s 32 By Tania Carnegie, KPMG in Canada Looking for a more sustainable Vision 2030 Creating opportunity: Diversifying approach to transportation 18 An interview with Professor Gituro the workforce 36 An interview with Stephen Joseph, Wainaina, Kenya’s Vision 2030 An interview with Christine Townley, Campaign for Better Transportation Delivery Secretariat Construction Youth Trust What infrastructure players need 38 to know about social listening By Gregory Daniel and James Grifﬁn, KPMG in Australia Electrifying India with renewables An interview with Tarun Kapoor, 40 India’s Ministry of New and Renewable Energy Electrifying India with renewables Feeding the continent: Unlocking An interview with Tarun Kapoor, India’s Africa’s potential 42 Ministry of New and Renewable Energy 40 By Christian Lindfeld, KPMG in South Africa

© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member ﬁrms of the KPMG network are afﬁliated. Features Spotlight: Insights Asset Delivery Hyperloop at hyper-speed: Restoring faith in Disrupting the transportation sector 62 major capital projects An interview with Rob Lloyd, By Gary Webster, Global Head 46 Hyperloop One 12 of Capital Project Leadership Update: The G20’s Global Infrastructure Hub 64 An interview with Chris Heathcote, Global Infrastructure Hub Emerging trends in infrastructure 66 Will technology disrupt our infrastructure? 70 By Paul Foxlee, KPMG in Australia, and the Chartered Accountants of A new era of asset delivery: Delivering on the UN’s SDGs Driving value in a complex world 44 Australia and New Zealand An interview with Amir Dossal By Mel Karam, Global Head of Asset Time for a new approach to Management, Gary Webster, Global infrastructure planning and 72 Head of Capital Project Leadership, prioritization and Ryan Wolton, Global Head of By Lewis Atter, KPMG in the UK, and Sustainable Value Improvement Said Hirsh, KPMG in Australia Restoring faith in major capital 46 Making the most of infrastructure projects 74 investments 14 By Gary Webster, Global Head of By Stan Stavros and Paul Foxlee, Capital Project Leadership KPMG in Australia Putting the customer at the heart 48 Data everywhere but not on the of asset management whole-life cost of infrastructure 76 An interview with Kevin Young, An interview with Alex Murray, Sydney Water University College London How to keep projects from going 50 Start listening: A pulse on the off the rails infrastructure conversation on 78 An interview with Richard Price, social media UK’s Southern Water By Pranya Yamin, KPMG International Out of the basement: Enhancing Brazil emerges from the Car Wash asset management in the public 52 An interview with Artur Coutinho sector An interview with Bradley Leeman, City of Edmonton Integrating assets in a rapidly evolving world 54 An interview with Mohit Bhargava, NTPC 16 No more excuses: How to stop project delays before they start 56 By Gary Webster, Global Head of Capital Project Leadership Ensuring predictability in complex capital projects 58 An interview with Michael Furlong, Bristol-Myers Squibb Making the most of infrastructure investments Why data is the asset to manage By Stan Stavros and Paul Foxlee, By Mel Karam, Global Head of Asset 60 74 Catalyzing development KPMG in Australia Management An interview with Syed Uddin

Musk’s Hyperloop concept has New debt funding for start construction in 2021. The already found a potential first Thames Tideway? government will also allocate around customer in Europe. Hyperloop EUR3 billion to the Social Housing Having already invested around Europe Transportation Technologies Strategy and almost EUR4 billion GBP1.27 billion of equity into the (one of a handful of companies towards creating places for more Thames Tideway project, the project seeking to commercialize Musk’s than 19,000 new primary school owners are now understood to be The European Union idea) has signed a Memorandum students and a further 43,000 post- considering raising an additional of Cooperation with the Slovak primary students by 2022.16 EU rules spur airport GBP900 million of debt to help finance Ministry of Economy.6 A feasibility privatizations the construction of the London study is now underway to assess With just 7 years left before the mega-sewer.13 It is believed that the potential of linking Vienna (in European Commission’s state-aid the European Investment Bank will Austria) to Bratislava (Slovakia’s rules for airports come into full provide around GBP700 million of Asia capital) by 2020, shortening the effect, governments across the EU the debt, with the additional GBP200 journey time from one hour to are starting to think about whether million expected to be raised through about 8 minutes.7 Reports suggest they want to either privatize their an issuance of private placement Kazakhstan that Sweden and Russia are also airports or focus on regenerating notes. The project owners hope to in talks with Hyperloop companies A road to improved public- them into profitable, stand-alone achieve a rating of BBB+, similar to to assess the feasibility of the private partnership (PPP) enterprises. France recently privatized that of the project’s existing debt, technology in their markets.8,9 the Toulouse Blagnac Airport and has but may scuttle the plans if they are Kazakhstan recently announced the winner of the Big Almaty Ring indicated intentions to do the same Sweden unable to find a sufficiently attractive with state-owned airports in Lyon and price. Any debt raising move would Road (BAKAD) project, awarding the Nice.1 In Germany, the loss-making The project of this generation likely happen ahead of the Brexit contract to a consortium of Turkish and South Korean companies. Frankfurt Airport has entered talks Plans are being developed to create referendum in June. 2 Construction of the 66-kilometer with Chinese investors. Expect to a new high-speed rail network to toll ring road to bypass Almaty see more privatizations and M&A link Sweden’s three biggest cities: Keeping London’s economy (Kazakhstan’s largest city) is expected activity ahead of the 2023 deadline Stockholm, Gothenburg and Malmo/ growing to cost around US$680 million with a with significant interest coming from Copenhagen. The project will cut travel With the full support of the National total concession period of 20 years. outside the region, namely from times by more than half and should Infrastructure Commission, the While the project has undergone China and Canada. help free up existing capacity for UK government lined up behind numerous changes in the 7 years freight transportation.10 Building the the proposed Crossrail 2 project since it was first announced (including The Baltics network will require investment into designed to create a new North- the inclusion of a compensation new rail and rolling stock technology to Rail Baltica gets back on track South link across London. The agreement on currency risk that allow the proposed maximum speeds Almost 15 years after it was first project is expected to cost around exceeded 5 percent of the currency of 320 kilometers per hour. It will mooted, it seems the ambitious GBP30 billion (in current prices) and change),17 the project now represents not only be one of the fastest trains Rail Baltica project may be back on will deliver much-needed new rail the country’s largest-ever PPP and in the world, but it will also be the 14 the drawing board. The proposed capacity and reduce overcrowding. the first in the highways sector. It is largest infrastructure project in over EUR5 billion, 730-kilometer high- In March, the UK Chancellor — expected that the deal will catalyze a generation for the Swedes. Having speed rail link from Tallinn, Estonia George Osborne — allocated some the country’s wider PPP market. recently delivered the current ‘fastest to the Polish border (via Latvia and GBP80 million towards developing train in the world’, China’s contractors Lithuania) would add a welcome the project and noted it as a priority India have expressed interest in helping to 15 North-South connection through the area within the national budget. The deliver this project.11 Lighting up the country Baltics.3 But while the respective National Infrastructure Commission governments seem keen, challenges would like to see a Hybrid Bill ready The world’s largest integrated coal getting everyone to agree on the UK for parliament by 2019 in order to power project is now fully operational right governance, structure and Crossing the River Thames clear the way for the scheme to start in Madhya Pradesh, India.18 The operations by the early 2030s. facility, which boasts installed procurement procedures are raising A new tunnel has been proposed by capacity of some 3,960 megawatts, concerns about reaching final Transport for London (TfL) to link the Ireland is fed by open cast coal mines agreement. Integrating the rail line is existing Blackwall Tunnel approach in producing around 16 million tons per also key, and will require the former Greenwich to Royal Docks across the Building on recovery annum. One of four so-called ‘Ultra Soviet States to convert their rail Thames to the North East. TfL held an Ireland’s government unveiled a Mega Power Projects’ planned by network from the current Russian ‘industry day’ where they discussed massive 6-year capital investment India’s government, the project is system to the standard EU high- the project scope and procurement 4 framework supported by around owned by a subsidiary of Reliance speed rail system . Eighty-five percent with interested contractors, investors EUR27 billion in government funds Power (part of the Anil Dhirubhai of the project’s cost are expected and funders in May. The project is over a 5-year period. The program, Ambani Group) and is currently one of to be covered by the EU with the structured as a 25-30-year availability- launched under the banner of the lowest-cost power producers in remaining 15 percent covered jointly based concession agreement, with 5 “Building on Recovery 2016–2021” the world. Interestingly, the contract by the three Baltic nations. a proposal to fund part of the project envisions significant investments was won through competitive bidding through the introduction of road in transport, education, health and at an ultra-competitive levelized tariff Slovakia tolling on the new tunnel as well as enterprise. The jewel in the crown of just INR1.19 per unit (less than on the existing and adjacent Blackwall A home for Hyperloop will be a new rapid transit system 2 US cents) over the entire 25-year Tunnel.12 Construction is set to start in With no real prototype or for Dublin Airport which will cost period of the off-take agreement.19 late 2018 with operations scheduled commercial product yet, Elon some EUR2.7 billion, but will only for some time in 2022 or 2023.

Source: 1 http://centreforaviation.com/analysis/lyon- Memorandum-Hyperloop-Transportation- 11 http://www.railwaygazette.com/news/high- 15 http://www.standard.co.uk/news/transport/ and-nice-airport-privatisations--lessons-to-be- Technologies speed/single-view/view/chinese-contractors- george-osborne-gives-green-light-to- learned-from-the-events-at-toulouse-249583 7 http://www.dezeen.com/2016/03/11/ eye-swedish-high-speed-programme.html crossrail-2-ahead-of-budget-a3203681.html 2 http://www.airline.ee/airports/chinese- hyperloop-to-connect-european-cities- 12 http://www.infra-news.com/news/ 16 www.per.gov.ie/en/capital-investment- buyers-bid-on-frankfurt-hahn-airport/ bratislava-vienna-budapest/ transport/1732381/pin-issued-for-londons- plan-2016-2021 3 http://www.rail-baltica.com/pub/ 8 http://fortune.com/2016/05/11/hyperloop-one- gbp-750m-silvertown-tunnel.thtml 17 http://www.worldhighways.com/sections/ 4 http://www.railwaygazette.com/news/ raises-80-million/ 13 http://www.infra-news.com/news/funds- emergent/features/kazakhstans-london- infrastructure/single-view/view/ﬁrst-section- 9 https://www.rt.com/business/343569- and-acquisitions/1771556/thames-tideway- road-show-woos-consortia-for-almaty-ring- of-rail-baltica-inaugurated.html russian-railways-hyperloop-technology/ planning-major-debt-raise.thtml road/ 5 http://www.baltic-course.com/eng/ 10 http://www.europeanrailwayreview. 14 https://www.gov.uk/government/news/ 18 http://articles.economictimes.indiatimes. transport/?doc=117782 com/24901/past-issues/issue-5-2015/the- crossrail-2-will-keep-london-moving-we- com/2015-03-30/news/60644178_1_sasan- 6 https://www.scribd.com/doc/303680507/ future-of-high-speed-rail-in-sweden/ should-get-on-with-it-right-away-adonis umpp-moher-amlohri-renewable-energy- based-capacity 4 | INSIGHT | #inframorality

© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. India’s first high-speed rail China development of two new trans- more sustainable and successful gains momentum Hudson River tunnels that will economy for generations to come. New funding for PPPs double capacity once completed The Government of India has inked Reports suggest that China’s and enable high-speed rail service A golden age of transit a Memorandum of Understanding government is in the process of 26 along the Northeast Corridor. The Nearly every major metropolis in (MoU) with the Government of launching a new CNY180 billion program is comprised of a series Canada now boasts a major transit Japan to move forward the Mumbai- (US$28 billion) fund to help lower of projects with the total cost project coming to market in the next Ahmedabad High-Speed Rail Corridor. financing costs for PPP projects in the estimated at more than US$20 5 years. Indeed, many of Canada’s Japan has agreed to fund 81 percent country. The fund is being launched billion and, once funded, will take most ambitious and complex projects of the project costs (estimated at with 10 financial institutions and it around 15 years to complete. are being taken in the light rail transit around US$15 billion) through a 50- is believed that the first contribution and metro sectors. Montreal, Calgary, year loan at an interest rate of just payments were made in March 20 US powers Africa Vancouver and Toronto all plan to kick 0.1 percent. The MoU also includes 2016.32 Two of the shareholders — It seems that President Obama’s off projects with a combined total a moratorium on repayments for China Construction Bank and Postal ‘Power Africa’ initiative is making greater than US$30 billion, while the first 15 years. The 500 kilometer Savings Bank of China — are to strong progress towards its goal of existing projects in Ottawa, Waterloo, high-speed rail line (which includes a contribute CNY30 billion while other doubling access to electricity in Sub- Winnipeg, Edmonton and Vancouver 21 kilometer tunnel) is expected to shareholders, including the Bank of Saharan Africa by 2030. The program (worth an estimated US$15 billion) are cut travel time in half and it is hoped China and China Life Insurance, will has already committed an initial US$7 expected to be completed between that it will help take some pressure each contribute between CNY5 and billion and has helped mobilize more 2018 and 2022. Catalyzed by a new off Mumbai’s hot housing market. CNY15 billion.33 The management than US$20 billion in private sector social and environmental focus, it is Work is expected to start in 2018 and team will be based in the Ministry 21 commitments to invest in power clear that Canada is now entering a should be complete by 2025. of Finance offices. This is further generation and distribution assets.27 golden age of urban transit. evidence of the growing PPP market With an ambition to add some Singapore in China. 30,000 megawatts of new generation Argentina NEWater for Singapore capacity and more than 60 million Turning a corner on default Singapore’s 5th NEWater plant (widely connections to the grid, the initiative known as Changi NEWater 2) is on will now move towards selecting its Ending a 14-year legal battle with track to achieve commercial operation Africa panel of advisors with the intention of holdout creditors, Argentina turned by the end of 2016. The facility starting delivery of the new capacity the corner on its 2001 debt default. will add around 50 million imperial shortly thereafter.28 The program Following the payments, Fitch and gallons per day to the island nation’s Kenya should impact more than 40 Sub- Moody’s (two of the biggest credit water supply, helping the country Saharan countries in Africa. rating agencies) upgraded the At the station ahead of country’s debt to a B grade which, achieve water self-sufficiency in the schedule face of shrinking water supplies and Canada while still speculative, removes Work is moving ahead quickly on the some of the substantial risks that growing populations. Structured as Canada’s armed forces a 25-year design-build-own-operate construction of East Africa’s new lower ratings hold. The World Bank PPP contract, the bid was won Standard Gauge Railway project transforms management of announced around US$2 billion in by a consortium of private sector spanning Kenya, Uganda, Rwanda its real property portfolio new loans to the government. Latin developers and financiers comprised and South Sudan. The first leg from Custodian of the country’s largest America’s development bank CAF also of Beijing Enterprise Water Group the Kenyan port of Mombasa to the and most complex portfolio of real authorized around US$2 billion in loans, (marking a significant milestone for capital of Nairobi is around 80 percent assets, Canada’s Department of mainly for infrastructure. The move has the Chinese developer, becoming the complete and is now expected to National Defence is now exploring already helped recapture the attention first foreign developer to participate be finished in December, at least opportunities to promote greater use of international capital markets and will in Singapore’s water sector) and 6 months ahead of plan.24 Kenya of new technologies and increased undoubtedly pave the way for a new United Engineers Ltd. Public Utility Railways Corporation has now started industry participation in the delivery stage of growth and development.30 Board (PUB) of Singapore is the the search for a private operator to and maintenance of their portfolio. offtaker and regulator for the project. run the Mombasa to Nairobi line. The department manages more than Mexico The consortium is reported to have 20,000 buildings, 12,000 military Mexico City’s airport takes won on a first-year tariff of SGD0.275 housing units, 16,000 works (such flight (US$0.20) per m3 and a total project as sewers, pipelines and electrical cost of around SGD180 million Americas circuits) and more than 2 million Construction is to begin this year 31 (US$130 million).22 hectares of land.29 The department on Mexico City’s new airport. is working to improve the delivery of The facility will be one of the three largest in the world and is designed Waste not, want not US real property projects in infrastructure design, new construction, repairs and to be a 100 percent sustainable Southeast Asia’s largest waste-to- Stalled no longer project. The works will be financed energy project has successfully renovations, demolition, maintenance Frequently referred to as ‘The Most and energy performance contracts. mostly through public funds and reached financial close in early May. public debt guaranteed by future The project finance lenders were Important Infrastructure Project’ in North America, The New York/New A platform of infrastructure cash flows while other periphery DBS, Maybank, Mizuho and BTMU. projects will be developed as PPP Developed by Singapore’s National Jersey Gateway mega-program Having been swept to power seems to be moving forward. arrangements. The concession Environment Agency (NEA), the on a platform that centered was directly granted to Grupo project expects to augment the city- Originally proposed in 2011, the on infrastructure renewal and program picked up momentum Aeroportuario de la Ciudad de state’s energy capacity and reduce development, Canada’s Liberal Mexico, a state-owned company, waste at a rate of around 3,600 tons recently when the Governors of Party is now developing plans to the two states approached the with a 50-year concession from the per day. The NEA, which acts as both invest more than US$100 billion start of operations. The airport will the regulator and the recipient of the federal government with a funding into infrastructure over the next proposal aimed at helping to sit on more than 4,000 hectares of off-take, awarded the concession to an decade. The plan includes a land and will boast an initial capacity international consortium comprising fast track the seemingly stalled dedicated US$45 billion that will program.25 The program intends to of 50 million passengers per year. of Hyflux and Mitsubishi Heavy be shared equally between social, New facilities surrounding the 23 deliver much-needed updates and Industries. The project is expected green and transit projects. The current Mexico City International to cost around SGD750 million capacity increases to the region’s government is prioritizing ‘shovel existing commuter rail infrastructure Airport will also require an estimated (US$542 million) and will deliver a worthy’ projects in an effort to US$7 billion in public investment. reported first year cost of SGD55.19 including updates to the 105-year- invoke infrastructure morality (US$39.95) per ton. old Hudson River Tunnels and the principles that will help build a

Source: 19 http://www.business-standard.com/article/ 23 http://www.nea.gov.sg/corporate-functions/ train_tunnels_that_would_cost_billions_to_ 31 http://mexiconewsdaily.com/news/ companies/reliance-power-gets-cerc-rap- newsroom/news-releases/hyflux-ltd-and- replace.html advances-continue-on-mexico-city-airport/ may-lose-tariff-benefit-114080900777_1. consortium-partner-mitsubishi-heavy- 27 https://www.usaid.gov/powerafrica/ 32 http://www.cnbc.com/2016/03/16/reuters- html) industries-ltd-to-build-new-waste-to-energy- newsroom america-china-to-launch-276-bln-ppp-fund- 20 http://www.railwaygazette.com/news/single- plant-in-tuas 28 https://www.usaid.gov/powerafrica/aboutus by-end-of-march--sources.html 24 view/view/india-and-japan-sign-high-speed- http://www.constructionkenya.com/2720/ 29 Defence Real Property Strategy October 2013 33 http://www.out-law.com/en/articles/2016/ rail-memorandum.html standard-gauge-railway-kenya/ 30 march/china-launches-28-billion-ppp-fund/ 21 25 http://www.buenosairesherald.com/ http://www.indiatimes.com/news/india/ https://www.governor.ny.gov/sites/governor. article/213851/caf-grants-government- railways-to-invest-rs-9-800-crore-in-mumbai- ny.gov/files/atoms/files/Joint%20_Letter_ us$2billion-loan ahmedabad-bullet-train-project-construction- To_President.pdf begins-in-2018_-250734.html 26 http://www.nj.com/traffic/index.ssf/2015/05/ 22 http://www.bewg.com.hk/eng/news/press/ inside_the_aging_cracking_hudson_river_ p140919.pdf #inframorality | INSIGHT | 5

In one way or another, the issue of infrastructure ‘morality’ has been front page news for years. Whether it is shoddily-built bridges and corrupt procurement processes or forced displacements and poor labor conditions, it is clear that society is deeply concerned about the morality of infrastructure decisions. So why is nobody in the sector talking about the issue?

s an industry group, infrastructure Infrastructure morality has now players often boast about unmistakably moved to center stage. In Athe benefits their assets and part, the global debate about infrastructure investments deliver to society. Yet when morality has evolved in explosive bursts, it comes to the morality of infrastructure catalyzed by an ongoing series of public decisions, we tend to shy away from failures and front-page news about talking about the issue. But this can no corruption, malpractice and environmental longer go on. degradation. But it is also being driven by an

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increasing recognition — largely on the management through to public anti- of high-proﬁle scandals, the introduction part of government — that infrastructure corruption drives (and even Presidential of private sector practices such as investments must benefit not only impeachments), it is clear that policy rigorous due diligence, independent economies but also people, the planet makers and regulators are anxious to audit and transparent procurement and future prosperity. demonstrate and encourage greater processes has driven a new level of One of the big challenges with the transparency in infrastructure. professionalism across the infrastructure entire morality debate is that the ‘terms Through Twitter, Facebook and Tumblr — sector. and conditions’ that underpin the moral to name but a few social networks — We believe that the time has come for contract between infrastructure and society has also shown a clear desire to the infrastructure sector — governments, society continuously change. Fifty years promote transparency. As Richard Boele developers, investors, operators and ago, nobody had really considered the notes in his article on page 26 (The power suppliers — to tackle this debate head need for public consultations. A hundred of social license), social media has become on. We must recognize the inexorable years ago, we were busy knocking down a powerful force for transparency in civil link between infrastructure and morality. villages to make way for industrial society. So, too, has the media who now We must articulate our commitment to complexes. increasingly view social media and its moral practices and outcomes. Today, the rules are changing almost inﬂuencers as reliable sources. Most importantly — we must turn daily. Transparency has become the The shift towards greater participation our words into action by challenging the watchword of the decade. From regulators of the private sector in infrastructure morality of our decisions and continuously demanding greater transparency in seems, overall, to have improved asking how we can do better. And we pricing, environmental impact or risk transparency. Notwithstanding a handful can do better.

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The EU Refugee Crisis is a grim yet stark reminder of the unyielding and relentless force of migration. It also clearly illustrates the desperate need for a new approach to managing and integrating migrant ﬂows.

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hether it is Syrians, Iraqis and passed through the immigration facilities would want to welcome migrants Afghanis arriving on the shores between 1892 and 1954 before being with open arms. Forward-thinking Wof Greece each day, migrant dispersed across the country. Today, more governments would view migrants as agricultural laborers in Africa and Asia, or than 100 million Americans trace their a new source of productivity and vibrancy even recent retirees looking for a more history back to Ellis Island. and would take the right combination sedate lifestyle, the reality is that migration Interestingly, it is the developed world of steps to improve the management will never stop. Those that deny the impact that now seems to be struggling with and integration of migrants into their this has on their infrastructure do so at the forces of migration. South Africa has economies and societies. their own peril. put significant focus into facilitating the In the short term, this will require Migration is not a new phenomenon. movement of migrant laborers to the mines significant new infrastructure and a For millennia, populations have moved and farms across the country. China — new ‘lens’ of prioritization. Processing from place to place in search of a better while challenged to accommodate the centers, housing, transportation and life. Migration has created great cities (all sheer number of migrants flowing into social services will all be required, as cities are ultimately the result of migration their cities in the past — has similarly will investment into skills, education from the countryside) and great nations started to focus on easing and facilitating and training. Making the right decisions (rightly or wrongly, the US, Canada and the integration of migrants. and investments — while balancing Australia were ‘founded’ by successive At the same time, the so-called against the needs of current citizens waves of migrants). ‘mature’ markets have taken a significant and residents — will not be easy, but it What made these cities and nations step back. Walls and fences are already will certainly be necessary. great, however, was not simply the addition being constructed across Europe; in the The alternative is no alternative at all: of new workers and consumers. It was their US, a proposal has been made to build masses huddled in refugee camps for ability to recognize the value of migration a wall to stop the flow of migrants from decades; an increase in lawlessness and and then create the right environment to Mexico and South America. And across crime; a loss of potential economic growth; effectively and quickly integrate them into the EU, governments are in turmoil — and a full-scale humanitarian crisis playing the existing society and the economy. and increasingly in conflict with each out right on our doorsteps. The US’s Ellis Island is a perfect example. other — over the current migrant crisis. The sooner governments recognize the Recognizing that more than 1 million people The perplexing thing is that — facing inevitability of migration and start taking would arrive on their shores each year, aging populations, relatively stagnant steps to facilitate and manage it the better. the US developed the massive Ellis Island growth and shrinking tax revenues — Those who continue to deny the impact facility. More than 12 million immigrants one would think that the mature markets of migration do so at their own peril.

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James Stewart Global Infrastructure Chairman E: [email protected] @jaghstewart

s major corruption scandals continue to emerge around the world, it has become increasingly clear that Asociety is starting to reject the scourge of corruption. The big question now is whether governments, infrastructure procurers and providers will seize this opportunity and public momentum to stamp out corruption in all its forms. Given the impact that corruption has on the infrastructure sector, it seems clear that there is no time to waste.

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. The cost of corruption displacement of populations, creates the Corruption is still endemic around the world. potential for damage to the environment Every year, hundreds of billions of dollars are and fuels criminal activity.3 syphoned away from important projects and investments, enriching a few at the expense The biggest burden falls on the Estimates suggests of the majority. What is worse is that — in narrowest shoulders that somewhere many markets — perpetrators are allowed The particularly galling part of corruption in to operate with virtual impunity. the infrastructure sector is that it tends to between 10 to 30 The impact of corruption is massive; it is have the most significant impact on those percent of the value not just about a ‘dash’ here or a ‘tip’ there. who can least afford it. The worst offenders According to the EU Commissioner for Home in Transparency International’s Corruption of publicly funded Affairs, about EUR120 billion is lost to corruption Perception Index are also the countries with construction projects each year across the 27 EU member states the poorest populations and most fragile alone. In the developing world, the damage is economies — places like Somalia, Afghanistan are lost to corruption even more dramatic: some estimates suggest and North Korea where the average worker around the world. that around US$1.26 trillion is stolen from the makes less than a dollar a day.4 developing markets each year.1 Estimates suggests that somewhere Now consider this, the World Bank between 10 to 30 percent of the value of seems to also be having a positive impact estimates that the cost of redressing Africa’s publicly-funded construction projects are lost in the fight against corruption. Yes — there entire infrastructure deficit would be around to corruption around the world.5 At the higher are certainly examples of companies and US$75 billion per year — that’s less than end of that spectrum, someone is practically individuals that have used their influence two thirds of what is ‘lost’ each year in the stealing one out of every three hospitals or their capital for corporate advantage or EU and a tiny fraction of the money lost planned. It means that any country with a personal gain. But, more often, the need to corruption every year in the developing development vision for 2030 will need to wait to attract and retain private sector investors world. Very simply put, the best way to until 2035 to achieve their goals. And it means has led to greater transparency, more robust close the word’s infrastructure gap is to that users may need to pay 30 percent more project due diligence and greater oversight. stop corruption. for their services than they should. The impact on overall national productivity Time to act Corruption is everybody’s problem and economic growth is just as significant. Over the next 10 to 15 years — the public Let us be clear, corruption is damaging for According to one estimate, each dollar of road discourse on corruption will evolve in much everyone involved in infrastructure. For project investment stolen in Indonesia reduces the the same way as the recent debate about tax. owners, corruption leads to wasted costs, economic benefit of that road by US$3.41.6 Just a decade ago, most companies believed reduced margins and — increasingly — the In an era where governments are investing it was ‘acceptable’ to avoid tax wherever risk of civil and criminal liability. Project heavily into economic infrastructure in a bid to possible. But today, perceived tax avoiders funders and investors risk not only the loss drive exponential growth in Gross Domestic or (worse) tax evaders are actively being of their investment (there are some cases Product (GDP) even small amounts of corruption hunted down by not only tax authorities but of foreign investors arriving to open up a can be crippling. also the media. Over the next decade, those new project only to find that the asset was involved in corruption will also be ferreted out never built and the funds had absconded), The anticorruption movement picks and brought to public justice. but also reputational damage. up steam Clearly, there are tremendous incentives to Recent events in Brazil have clearly The good news is that the public discourse stamping out corruption. And we believe that demonstrated the risks raised by corruption on corruption is clearly shifting and gaining governments should be redoubling their efforts for construction and engineering companies in voice — notably bolstered by social media. In to remove any opportunity for corruption in the particular (our interview with Artur Coutinho, key markets such as Brazil, China and India, infrastructure sector across the project life cycle, CEO of Construtora Camargo Corrêa on page 14 governments have made anticorruption a key from procurement and financing through to illustrates some of the challenges facing that priority. And — based on Operation Car Wash operations and management. Companies and country’s construction industry following in Brazil or even FIFA — it is clear that nobody investors should also be sharpening their focus the Operation Car Wash corruption scandal). is immune from persecution. Allegations and on spotting potential signs of corruption and SNC Lavalin’s current experience in Canada charges of corruption are front-page news and be willing to walk away from projects in order suggests that companies participating in the message is getting out. to protect their investments and reputations. corruption overseas also risk losing out on The recent Anticorruption Summit held by Brazil’s current scandal may be highly lucrative contracts at home if found guilty.2 Transparency International in London in May disruptive to the economy and hugely damaging For the public at large, corruption in the indicated that governments, companies and to those individuals and companies implicated, infrastructure sector has massive implications civil society are starting to demand more action but it also makes it clear that there is a limit for daily life, safety and productivity. Corruption to meet the challenges posed by corruption. to how much corruption will be tolerated takes capital out of the public system leading The resulting Anticorruption Manifesto provided by a population. And all signs indicate that to fewer assets being developed. It syphons some clear proposals and the commitments Brazil’s anticorruption fervor is likely to spread resources from project sites leading to made by governments were encouraging. across other markets. In the long run, this dangerous and unsafe infrastructure. In Interestingly, the growing drive to bring should be good news for everyone involved some markets, it allows for disruptive private sector investment into infrastructure in infrastructure and those who use it.

1 http://www.transparency.org.uk/corruption/corruption-statistics/ 2 http://www.theglobeandmail.com/report-on-business/snc-lavalin-calls-on-feds-to-adopt-corruption-settlement-deals/article27188907/ 3 http://www.giaccentre.org/cost_of_corruption.php 4 http://www.transparency.org/cpi2015#results-table 5 http://www.engineersagainstpoverty.org/documentdownload.axd?documentresourceid=4 6 http://web.worldbank.org/archive/website01021/WEB/IMAGES/WPS4099.PDF #inframorality | INSIGHT | 11

ith the UN’s Sustainable Development Goals (SDGs) less than a year old, many infrastructure players are still trying to figure out what role they Wshould be playing in the achievement of these massive global objectives. To learn more about the SDGs, Insight magazine sat down with Amir Dossal, Founder and Chairman of the Global Partnerships Forum and former UN Chief Liaison for Partnerships, and Lord Michael Hastings, KPMG’s Global Head of Corporate Citizenship.

Editor (ED): How are the SDGs different ED: With such massive goals, can the from the Millennium Development Goals SDGs ever really be achieved? (MDGs)? What has changed since the LMH: The SDGs certainly reflect a wave of Everything that I have MDGs were set in 2000? optimism. And nobody would be naïve enough Amir Dossal (AD): The MDGs were a first to suggest that there will never be poverty. But seen through my work step towards bringing the international if you think about the impact of well-planned with the UN and the community together to coalesce around and sustainable infrastructure and its ability a set of global targets. They really set the to improve productivity and jobs — and then Global Partnerships stage upon which UN member states and all of the opportunities that go with those multilateral institutions could collaborate. jobs — it is not difficult to envision a world in Forum tells me that — But it was also clear that the MDGs did not 2030 that is better educated, more sustainable, if we put our minds, cover everything and there were a number fairer, healthier and more productive. Is that of areas that stakeholders felt should be possible? I believe it is. our capital and our included in the goals in order to create a AD: Lord Hastings is absolutely right. The resources towards more harmonious and peaceful society. SDGs are a completely new deal. They are One of the big differences between the aspirational targets and goals, set through an it — we can make a MDGs and the SDGs, however, is in the inclusive process. Everything that I have seen difference. inclusive approach that the UN took to set through my work with the UN and the Global the goals. I think there is a broader sense of Partnerships Forum tells me that — if we put our ownership over the SDG goals that couldn’t minds, our capital and our resources towards be established with the MDGs. it — we can make a difference. Lord Hastings (LMH): The ownership of the SDGs is vitally important. The MDGs often ED: Has the private sector stepped up to came as governmental targets and were the challenge? largely supported by governmental money. LMH: There are many examples of private The SDG targets, on the other hand, are set sector organizations creating programs that between business, governments, civil society respond to the SDGs. At the World Economic and other public institutions and make everyone Forum in Davos in January, for example, Amir Dossal responsible for creating solutions. the CEOs of Tesco, Unilever, Nestle, Royal Founder and Chairman, Global The SDG goals and targets are also much DSM, the Rockefeller Foundation — and Partnerships Forum, and former more aspirational than those that came before. almost two dozen other companies — came UN Chief Liaison for Partnerships We used to talk about cutting extreme poverty together to launch Champions 12.3, a group @AmirDossal in half. Now we are talking about eradicating of mostly private sector organizations focused extreme poverty entirely. on responding to the SDG 12.3, which calls

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. KPMG professionals could write checks and volunteer all day but we wouldn’t have the same impact we do when we help organizations come up with new innovative approaches and ideas that cut to the core of the SDG challenges.

Lord Michael Hastings Global Head of Corporate Citizenship E: [email protected] @LordHastings

funds to projects that deliver capital returns these sustainable development goals and help achieve our SDG goals. is an understatement. So many of the LMH: Using your core capabilities and skills problems we face today can be solved with to drive positive change is critical. KPMG better physical infrastructure and better professionals could write checks and volunteer communications infrastructure. We need all day, but we wouldn’t have the same impact to build schools and hospitals — but we we do when we help organizations come up can build fewer physical assets if people with new innovative approaches and ideas have access to online learning and tele- that cut to the core of the SDG challenges. health services. More sustainable cement production, road AD: Much like other private sector surfaces that recapture energy, renewable organizations, I believe that infrastructure for a halving of food waste by 2030. These are energy systems; if we can help bring these players need to think carefully about how organizations that recognize the value — both ideas and solutions to market, we can make they can use their core strengths to move in global terms and in financial terms — of a much bigger difference than simply writing the needle on some of these goals. In doing what is right. a check could ever accomplish. some cases, it could be partnering with an AD: I would say the response from the private agricultural development agency to provide sector has been tremendous. The UN has a ED: Is there still a role for traditional aid logistics advice and supply chain insights. website where they ask people to contribute and international aid agencies? Or it could be choosing to use lower-carbon and showcase projects and there are nearly LMH: Nobody is saying that there isn’t still an materials to create a more sustainable 2,000 different projects on the site related important role for aid. But when it comes to asset footprint for a new development. to the SDGs. Personally, I think the most massive problems the scale of which the SDGs Each company needs to think about what exciting ones are where local people create are trying to solve, aid is an old solution. What they can contribute to the achievement of local solutions that improve capacity and we are talking about today is encouraging the the SDGs. drive growth. Entrepreneurs and business market to deliver the best possible solutions leaders — like Aliko Dangote in Nigeria who and deploy capital in ways that help create ED: What can infrastructure players do is helping to build that country’s first working jobs, reduce poverty and drive sustainability. differently to help achieve the SDGs? oil refinery which, in turn, will enable more AD: I think the SDGs have also inspired AD: I think it’s quite clear to everyone that of the resource wealth to be transferred the traditional aid organizations to step up we cannot continue on with business as back to Nigerians — are demonstrating the their focus on partnerships with the private usual. What we need is to start taking value of helping people to become more sector. The UK’s Department for International some risks. We need to be trying different self-sufficient. Development has been at the forefront of platforms and innovating in our approach. leveraging their aid assistance to create Simply put, we need to be moving the ED: Is this about expanding the corporate jobs and economic sustainability. And the needle from talk to action. We know the social responsibility budget? Organization for Economic Co-operation problems; we know the solutions; now all AD: I’m certainly a big believer in traditional and Development recently refined its view we need to do is act. corporate social responsibility. But this isn’t on so-called ‘ODA’ (Official Development LMH: At their core, the true purpose of about hand-outs and aid. This is about the Assistance) to encourage donors to work the SDGs is not to eliminate hunger or private sector using their core strengths — more closely with the private sector. As Lord reduce poverty, it is to bring dignity to whatever is in the DNA of their organization — Hastings noted, aid is an old solution. And those who have often been outside of the to create good in society. Nobody is asking now we need new solutions to old problems. conversation of opportunity. I think that — institutional investors, for example, to donate for infrastructure players — the aim should infrastructure to Africa out of the goodness ED: What role can infrastructure play in be to create infrastructure for the dignity of of their hearts. What we are asking is for delivering on the SDGs? those who use it. them to use their experience, capabilities LMH: To say that infrastructure providers Learn more at kpmg.com/globalgoals and skills to improve the flow of investment are fundamental to the achievement of

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s Brazil’s Operation Car Wash (Lava Jato) continues to widen and the political fallout grows, investors Aand infrastructure participants around the world are watching to see what impact the scandal will have on the country’s construction sector and its prospects for growth. To find out how Brazil’s construction companies Mauricio Endo are responding — and recovering — from the scandal, KPMG in Brazil Mauricio Endo, KPMG in Brazil, sat down with Artur E: [email protected] @KPMGbrasil Coutinho, CEO of Construtora Camargo Corrêa, one of Brazil’s largest international construction companies. Mauricio Endo (ME): What impact has Are you surprised by the negative and exit the Car Wash operation by adopting the Operation Car Wash scandal had on sentiment? a responsible posture of collaborating with Brazil’s construction industry? AC: Not at all. We all know that fair competition investigators and working to create a business Artur Coutinho (AC): Clearly, there has brings and assures better quality products environment that is grounded in ethics, already been a far-reaching impact on and services, improves productivity and technical competence and transparency. companies across Brazil, but most notably creates more capable professionals. And ME: What does that mean in practice for in the engineering and construction industry. Brazilians want to be served by a modern, your company? This, tied to the restricted financial scenario efficient and low-cost infrastructure industry. AC: A lot of our efforts are focused on currently at play in Brazil, is making the I firmly believe that only an ethical, fair and ensuring that our company culture, policies recovery process very difficult for many sustainable business environment can bring and procedures are aligned with Brazil’s new companies. And investigations are still benefits to the economy and society. Anticorruption Laws which were recently pending so I suspect the sector still has a ME: How has Construtora Camargo Corrêa updated to bring them in line with the best long road ahead in terms of repercussions responded to the scandal? in the world including the US and the UK. and new developments. AC: I am proud to say that we were a pioneer By combining a keen focus on professional ME: There has been significant backlash among Brazil’s major construction companies training with a dedication to creating an from Brazilians and from investors. and we worked hard to wipe the slate clean ethical and responsible culture — for us

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member ﬁrms of the KPMG network are afﬁliated. We clearly have a long road still ahead. But if we want to create an ethical, fair and sustainable business environment, corporate compliance programs are not enough.

Artur Coutinho CEO, Construtora Camargo Corrêa

and our suppliers and partners — we Brazil. And at the industry level, we have than 75 years and operates in 20 countries believe that we are emerging from the been participating in programs to expand around the world, so we have an impressive scandal stronger and more prepared to sector awareness and adherence to a legacy of large projects across energy compete in a fair and transparent manner rigorous ethical and conduct code. But generation, roads, subways, ports and than ever before. ultimately, the relationship between the airports. We firmly believe that — as the ME: Has transparency been elevated as public and private sector needs to be business environment changes — we will a result? fundamentally redefined and corruption emerge much stronger. AC: For many years, Construtora Camargo needs to be combated permanently. That ME: Will the scandal impact the way Corrêa has maintained a strong audit and is the only way we will facilitate long-term Brazil invests into infrastructure over the internal controls capability. But in June planning and efficiency in our investments longer-term? 2015, we created a new Vice President while also providing greater transparency AC: We recognize that there is an enormous position for corporate governance and and predictability. and historic need for infrastructure in compliance which includes audit and risk ME: Do you think the hard lessons have all areas of the country. But when the management. The elevated role has helped been learned? government resumes investment, they will us to strengthen many programs, particularly AC: Very high-profile executives and need to ensure that infrastructure projects professional training. On top of in-class companies are paying a very high price are contracted in a way that guarantees training, we have also rolled out e-learning for the bad practices they adopted in regulatory stability, long-term planning and tools to ensure we reach 100 percent of the past and I am sure they will never efficient investment. our employees. We have been very clear want to pay that high a price again. I ME: What will it take to turn the corner that those old practices are irregular and think that — with other public and private on Operation Car Wash? counter to our Code of Conduct and we entities now adopting the same high level AC: We clearly have a long road still ahead. take a zero tolerance position on this type of transparency and collaboration — we But if we want to create an ethical, fair and of wrongdoing. can build a market based on ethics and sustainable business environment, corporate ME: What has Brazil’s government technical competence which will surely compliance programs are not enough. We and industry sector done to improve have a long-term positive impact. will also need a drastic reformulation of the transparency in infrastructure procurement ME: Will Brazil’s construction industry way construction and engineering projects since the scandal? rebound from this scandal? are contracted. We strongly believe in Brazil AC: I think the implementation of modern AC: The fact remains that Brazilian and are confident that the country — and its Anticorruption Laws that are comparable to competence in engineering and construction construction companies — will move past the US and UK was a major move towards is well proven in all areas of construction. this issue, stronger and more competitive enhancing the business environment in Our company has been in business for more than before.

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By James Stewart Global Infrastructure Chairman E: [email protected] @jaghstewart

Bangladesh hopes to transform into a middle-income country by 2021. And it expects infrastructure to help drive that transformation. At the center of Bangladesh’s efforts to attract infrastructure investment is the country’s public-private partnership (PPP) Authority led by Syed Uddin. While the unit faces massive challenges, it has also made signiﬁcant progress.

t is no wonder that Bangladesh is known as various development banks and they remain includes the Finance Minister and the Principal one of the ‘Next Eleven’ emerging markets. a key partner in addressing our infrastructure Secretary to the Prime Minister. IThe country boasts South Asia’s third largest constraints, but it was clear that we needed to Mr. Uddin has also been invested with economy and has enjoyed steady economic attract much more investment if we wanted significant leeway to catalyze change. “Very growth of more than 6 percent since 2011. to achieve our goals,” noted Mr. Uddin. often, it really comes down to the leadership Bangladesh’s textile industry is booming, In response, the government established of the individual unit,” noted Mr. Uddin. representing more than US$25 billion in exports what was then known as the PPP Office. “At in 2014. And the country is rich in natural gas, the time, there was no centralized body in coal and hydro-electric potential. Bangladesh to champion the PPP program,” Yet, Bangladesh ranks a mere 144th on the added Mr. Uddin. “We needed an entity Human Development Index. Gross Domestic that could act as champion, facilitator and Product (GDP) per capita, while up more than regulator by working across both the public 60 percent since 2009, still ranks below that and private sectors.” of Myanmar and Yemen. And around a third Bangladesh had some experience with PPPs of the population still lives below the official in the past. A handful had been launched in the poverty line of US$2 per day. late 1990s and, more recently, the country had According to Syed Afsor H. Uddin, Chief seen some success with PPPs in the energy Executive Officer of Bangladesh’s PPP Authority, sector. However, the national government the government knew it would need to further recognized that a more formal and transparent build on the already good economic growth if program meeting international best practices it hoped to impact poverty rates and transform and norms would need to be in place if the the country into a middle-income economy. country was to attract the scale of national and “Growth had been good up to 2009, averaging international investment required to meet the over 5.5 percent the previous decade, but infrastructure gap. we knew it had to be higher if we wanted to really impact development and there was Providing leadership broad consensus that the only way to achieve Joining the team as the CEO in 2012, Mr. Uddin that growth was through investment into was encouraged to start fresh. “When the infrastructure,” noted Mr. Uddin. government set up the PPP Office, they left open the strategy for implementation,” A champion for PPP he pointed out. “What they wanted was With the 6th Five Year Plan (2011–2015) someone who could come in, define the for national development setting a goal of holistic program for the next decade and tripling PPP infrastructure investment as a then drive the program to success.” proportion of GDP (increasing from an initial Leadership would be key and Bangladesh’s 2 percent to 6 percent) by the end of the Plan government was keen to provide the new CEO period, Bangladesh’s government recognized with the scope to catalyze real change. The PPP that new sources of funding would need to Authority was established as an independent be found. “For infrastructure development body reporting directly to the Prime Minister we started by sourcing financing from the and supported by a board of governors that

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. “When we see a problem or challenge, it social objectives. “For the most part, social you are trying to attract private investment is really up to me and my team to come up projects, where commercial viability may be to a project, you really need to be very with recommendations and strategies which more difficult, are being delivered through sophisticated in the way you plan and are then presented to the Honorable Prime public finances, which gives the government develop your project because of the different Minister, Finance Minister and others for more control over affordability and ensuring requirements you have around borrowing endorsement.” access for all.” money,” added Mr. Uddin.

Balancing economic and social objectives Taking a measured approach Unique realities, common lessons Bangladesh’s PPP Authority works across In 2015, Bangladesh passed its first PPP law. Standing up a new PPP unit in a country government departments to help bring Mr. Uddin argues that — while the law could like Bangladesh comes with some unique alignment between economic, social and have been passed much sooner — the PPP challenges and opportunities. But there are development goals. The strategic vision Authority wanted to take appropriate time to also a number of lessons that can be shared for the country is established through ensure that the law would not only provide a from Bangladesh’s experience. The first is that successive Five Year Plans (Bangladesh’s 7th legal framework for PPPs, but that it would each market is different and therefore requires Five-Year Plan was announced in December also be flexible and workable across a variety a tailored approach to PPP. “You can’t just 2015) which outlines the development and of sectors and scenarios. take another country’s experience and apply social goals of the nation. Government “The big danger of rushing to create a PPP it to your own situation; you can take ideas departments are then tasked with creating law is that you may suddenly find that — in and lessons but you need to recognize the programs to help achieve those social and practice — it is actually unworkable and there difference — often subtle ones — that make development goals. have been examples of markets that have had each market unique.” “There is certainly a national framework to go back to the drawing board and rewrite Mr. Uddin also notes the value of leveraging on the basis of which government allocations their legislation which can take years,” he international experience and trusted advisors are divided between the departments in added. “We wanted to take the time to really to help improve confidence in the process. order to help achieve these goals,” explained test our approach on projects to find where “You need to think about what type of investor Mr. Uddin. “But there is flexibility for some we could adjust and improve before we went base you are trying to attract and then work investment priorities to take into account to legislation”. In line with this approach, the to build capability and credibility in those current issues that are seen as particularly Bangladesh government first introduced areas,” he added. “We wanted to attract large important to the sitting government or the Policy and Strategy for PPP projects in international investors so we knew we would society as a whole.” August 2010, prior to enacting the PPP law need to work with large international advisors Interestingly, Mr. Uddin points to the fact in September 2015. that could lend another level of credibility to that economic infrastructure forms the bulk of Mr. Uddin believes that this rigor and focus the program.” the PPP pipeline as proof that government is has allowed PPP projects to be developed Finally, Mr. Uddin advises the need for taking a more ‘hands-on’ approach to achieving and delivered to a higher standard. “When long-term commitment to PPPs and patience. “The reality is that PPPs take time” It can easily take between 5 to 10 years to go from concept to operations, having navigated through feasibility, procurement, negotiation, approval, financial close and construction and during that period there can be major changes in strategy, personnel and policy. “With typical election cycles of around 4–6 years in most countries, this is a challenge faced by both emerging and developed countries. It is in this context that the PPP units can play a critical role in guiding their government towards selection of projects that deliver socio-economic value for the country over the longer term.”

A strong pipeline and bright future Bangladesh’s PPP Authority has made significant progress. When Mr. Uddin joined the PPP Authority in 2012, the group had just three PPP projects in the pipeline. Today, there are 44 projects across seven major sectors We wanted to take the time to really test worth an estimated US$14 billion including our approach on projects to find where a US$3 billion expressway project, a new 220-kilometer transport corridor linking the we could adjust and improve before we capital Dhaka to the main port. went to legislation. Obviously, only time will tell if Bangladesh’s PPP framework and approach will have a significant impact on infrastructure investment Syed Afsor H. Uddin and the achievement of social objectives. CEO, Bangladesh’s PPP Authority What is clear is that Mr. Uddin and his team are single-mindedly focused on removing any barriers to investment. We expect private investors to start to take notice.

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s focus on sustainable infrastructure rises, governments and developers are coming under increasing pressure to create Amore affordable transportation solutions that improve quality of life and protect the environment. In the UK, the Campaign for Better Transportation is one of the organizations campaigning for change in the way transportation is conceived and delivered. Recently, KPMG’s Richard Threlfall Richard Threlfall, Global Head of Public Transport, sat down with the Global Head of Public Transport CEO of the Campaign for Better Transportation, Stephen Joseph E: [email protected] @RThrelfall_KPMG OBE, to talk about sustainability, infrastructure and the public interest.

We are also starting to see sustainability move up the agenda for not just infrastructure promotors but also for institutional investors who, naturally, take a longer-term view on these issues.

Stephen Joseph CEO, Campaign for Better Transportation @StephenJoseph7

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Richard Threlfall (RT): We talk a lot about RT: Have developers, investors and the sustainability of infrastructure, but promotors started to include sustainability sustainability can mean different things considerations into their plans? to different people. What does it mean for SJ: There are certainly some good examples the Campaign for Better Transport? of organizations that are making strong efforts. Stephen Joseph (SJ): I think there is And we are starting to see infrastructure consensus now that development needs to promoters push government to make be sustainable not only in the environmental sustainability more central to infrastructure sense, but also in a much broader way: development. We are also starting to see that it contributes to the needs of the sustainability move up the agenda for not population without compromising the just infrastructure promotors but also for interests of future generations. So that institutional investors who, naturally, take a means not only respecting environmental longer-term view on these issues. limits, but more generally that it enhances RT: I think there are many in the lives for people and contributes broadly industry that worry that individuals and to the economy. communities will always lean towards RT: Are we starting to see more focus on ‘NIMBY-ism’, even when it is clear that the sustainable infrastructure in the wake broader ‘good’ — either geographically of the Paris Climate Change Agreement or across generations — outweighs the and the creation of the Sustainable short-term or localized disruption. Are Development Goals by the UN? these concerns valid? SJ: The Paris Agreement marks the first SJ: Actually, we have found that when faced time the infrastructure sector has had a real with the right kind of process, people do framework to consider in relation to achieving engage seriously and often come up with climate change targets. Multilateral efforts some good answers. But if they feel that the that set realistic expectations and goals are consultation process is being ‘led’ to a certain always helpful. Similarly, on a national level, conclusion, you very quickly lose engagement we’ve seen the UK Supreme Court rule or — worse — turn people against the project. that the country was not doing enough to RT: Infrastructure players are fairly good meet European Air Quality objectives, which at assessing financial costs and economic has influenced a number of infrastructure benefits but I think they are less confident investment decisions in the UK. measuring things such as the concept RT: Issues related to the environment, of ‘no net loss’ to biodiversity. How can sustainability, air quality and transportation infrastructure owners take a broader were certainly front and center in the view of the value of their investments? recent election for the Mayor of the City SJ: I think it all depends on the objectives you of London. Has that type of political have set. It is certainly possible to measure focus helped improve the appetite for biodiversity; the problem is that people don’t sustainable infrastructure? usually do the right benchmarking right up front SJ: Certainly having candidates compete which causes problems with measurement with each other to be more ‘green’ and more later on. If you look at the Scottish Government’s environmentally-focused gives a sense of decision to re-open the Borders Line, that was where the public debate is now going. And not based purely on monetary returns but I believe that politicians need to provide the rather on a broader basket of objectives that type of leadership that is needed on these the government had for that region. It’s that developed. Public consultation is much more topics. But they need to provide leadership combination of objectives aimed at improving common and I think the boundaries of the in terms of the types of outcomes they the quality of life that are really important. discussion shift back and forth and there are hope to achieve rather than handing over RT: Has the devolution of power in the UK wins and losses. But I firmly believe that — a pet project. to local and national governments helped in time — sustainability will be more and RT: Are you seeing your efforts translate drive the sustainably agenda? more at the heart of infrastructure and will into different approaches to infrastructure SJ: Bringing the decision making about become more mainstream for governments investment? transportation closer to home is certainly and regulators. SJ: I think what we are seeing is greater creating a stronger debate about the RT: What advice would you give emphasis being placed on understanding sustainability of infrastructure. Mayors are governments, promoters and developers what infrastructure investments are trying starting to talk seriously about air pollution as they start to incorporate sustainability to achieve. And what that translates into are and that is taking them in different directions considerations into their decision- questions about the types of demand we than may have been the case had investment making? are experiencing and how we can meet that decisions been made centrally. At the end SJ: The key is to engage early on at the demand at a broader level. So it might be of the day, the breathability of air is a local strategic level to understand the broad base pricing strategies in the case of transport issue so having responsibility for infrastructure of options available to achieve your goals. And or creating packages of smaller measures more devolved could certainly deliver some that means moving from a narrow ‘project rather than big projects to meet certain benefits. based’ approach to one that instead looks objectives. The point is that we are starting RT: From where we are today, do you ever at the portfolio of objectives and options. to think about options for meeting demand see a point when your work will be done? Ultimately, sustainable infrastructure is not rather than simply saying “we need to build SJ: Look, we’ve come a long way from the going to be just something that is nice to a new road” and then building a business 1980s when people lay in front of bulldozers have, it’s going to be central to the way case around it. at Twyford Downs to stop new roads being we live.

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s institutional investors start to look for better returns in emerging markets and developers look for new growth Aopportunities overseas, many have set their sights on Africa. With steadily growing economies, strong demographic trends and rising stability and security, infrastructure players are increasingly betting on the continent’s growth potential. In an exclusive interview for Insight Magazine, Kate Maloney, a Director Kate Maloney in KPMG’s International Development Practice, sat down with Angela KPMG in the US Nalikka, Manager of the Private Sector Infrastructure & PPPs at the E: [email protected] African Development Bank (AfDB), to discuss investment opportunities @kmaloney4791 on the continent and to ﬁnd out how infrastructure players can help create positive change — and strong returns — by investing in Africa.

Kate Maloney (KM): Investors and all of the High 5s — energy is the catalyst. private investment. The need is so great but infrastructure players are very interested So we have a number of programs aimed at there is no way that they have the budget to in Africa. What is drawing people to Africa improving access to energy. Our goal is to meet the demands and expectations of the right now? help the continent achieve universal access population. I think governments recognize Angela Nalikka (AN): African infrastructure is to energy by 2025. that for this to happen, they need to play good business and a really good investment, KM: How does the AfDB prioritize projects their part. particularly since returns on infrastructure for investment? KM: Africa has come a long way in terms investments have largely peaked in Europe AN: The process is fundamentally driven by of security but there are still a number of and the US. Smart international investors the countries themselves through National post-conflict zones where, arguably, the recognize that the early bird catches the worm Development Plans. These include sectoral need for infrastructure is often dire. Are and that — eventually — competition for good focusses. For instance, in the energy sector, there opportunities to engage in these deals in Africa will get tighter and returns will the focus ranges from increase in energy markets? fall as a result. People want to invest while supply, investments in transmission networks AN: At the outset, many post-conflict Africa is still a competitive advantage. through grid expansion, or increase in energy countries really need good advice and tools to KM: Are there particular sectors that capture access. The AfDB will then help advise on the help them understand how they can engage the most attention? best way to attain this and also fund either with the private sector in a meaningful way. AN: The AfDB, led by President Akinwumi through the public sector or private sector. Sometimes it’s just not possible for the Adesina, is strategically focused on five KM: Are most African governments open private sector to intervene right away but priorities dubbed the ‘High 5s’. The first is to to private investment? over time, we work to find projects that light up and power Africa; the second is to feed AN: Certainly one of the key things we look attract private sector investors. Just because Africa; the third is to industrialize Africa; the for before we engage the private sector there are challenges does not mean there are fourth is to integrate Africa; and the final one is whether the regulatory and business not opportunities. We worked with a private is improving the quality of life for the people environment is conducive to investment. I investor to make a meaningful investment of Africa. What we recognize is that — across think all governments recognize the need for into Sierra Leone’s power sector right in the

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member ﬁrms of the KPMG network are afﬁliated. International investors increasingly recognize that African infrastructure is a really good asset class and I think we will see more activity as investors become more comfortable with doing business on the continent.

Angela Nalikka Manager of the Private Sector Infrastructure & PPPs, AfDB @agnn

middle of the Ebola crisis. They could see health. But we also recognize that Africa’s the AfDB has seen a tripling in the business that the fundamentals of the economy were female population needs to be engaged we do over the last 10 years and it is set strong and were confident it was a market in development, either as consumers or to go even higher with the roll out of the they wanted to put some capital into. even as providers; generating power and High 5s. International investors increasingly KM: Infrastructure investors are not energy — even on a small scale — can be recognize that African infrastructure is a only looking for good financial returns, good business. really good asset class and I think we will they are also increasingly looking to do KM: Are Africans investing into local see more activity as investors become good for society and the environment infrastructure? more comfortable with doing business on at the same time. How do investments AN: Given the AfDB’s agenda, we need the continent. in African infrastructure improve the more African investors to be involved in KM: I know KPMG professionals spend lives of Africans? Infrastructure development for the continent. a lot of time helping international AN: Infrastructure certainly has a very big Through information exchange, I am sure that investors understand the complexities impact on the development of any country. African investors can tap into the opportunities and opportunities of investing in Africa. Lack of it is considered a key bottleneck to that infrastructure investments afford and as Are there ways that the AfDB can help development — lack of roads separates such, they will familiarize themselves better investors improve their success in these farmers from their markets; there will be no as to how it is structured, how it generates markets? meaningful industrialization without reliable returns and so on — particularly in the power AN: Yes. We have a number of facilities to help cheap electricity; and the list goes on. For generation space. support international investors as they work instance, women often bear the brunt of KM: Have you seen a significant uptick to engage with the private and public sector the lack of power. The majority of our efforts in private investment into Africa over the in Africa. No investor should feel helpless in on climate change are a direct result of past five years? Africa. There is help available; there is world- deforestation and it is often women cutting AN: Yes there has certainly been a recognition class advice available; and, most importantly, down the trees for fuel. The use of firewood of the various opportunities and the low there are great opportunities to achieve both has very severe consequences to their hanging fruits Africa has to offer. For instance financial returns and social impact.

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By Adrian King Global Head of Sustainability Services E: [email protected] @AdrianKing_KPMG

nfrastructure owners, operators and promoters often talk about the ‘intrinsic’ value of their assets: reduced carbon emissions, better quality of life or improved safety, for example. IYet few infrastructure companies report the financial value of those benefits. Fewer still use that data to drive decision making across their business. According to one European railway operator — NS Group — the benefits of measuring environmental and socio- economic impacts in financial terms can be tremendous.

Changing expectations drive new denominator to express that value,” she accidents on customers and staff) and approaches says. “We believe that the best common had created an estimated EUR196 million As regulators, shareholders and customers denominator is money.” of positive environmental value through start to demand greater transparency into avoided externalities such as emissions the ‘real’ impact of their infrastructure, a Measuring the value from car journeys (but this was somewhat number of organizations are starting to In 2015, the company released a report offset by an estimated EUR107 million of explore how they might quantify the value highlighting the financial value it creates, and environmental costs, largely due to emissions the company creates for society. reduces, for society. “Putting a financial value from electricity used to power trains). One such organization is NS Group, the on our environmental and social impacts helps Making smarter decisions largest public transport operator in the us to have fact-based discussions with our Netherlands. NS Group began to calculate stakeholders about the trade-offs between According to Ms. Wijdoogen, this approach its environmental impacts in financial terms sometimes conflicting values of people, delivers far more insight than simply enabling using KPMG’s True Value methodology. planet and profit,” notes Ms. Wijdoogen. an organization to quantify its footprint. “It According to Carola Wijdoogen, Director of The largest positive impact came from the helps us to prioritize our investments, for Corporate Sustainability at NS Group, the social value that its mobility services delivered example when deciding whether to invest move to quantify its social and environmental which, on its own, was estimated at EUR7 in reducing overcrowding, increasing parking impacts was driven by the need to meet billion. However, Ms. Wijdoogen notes that at stations or improving the seating on our society’s expectations of the company. there were also around EUR5 billion in ‘costs’ to trains. This information helps us to understand “NS’s core purpose is to provide mobility society related to time spent in trains, crowded how we can allocate resources in the most for society and it is important that we show or delayed trains or time passengers spent effective way possible to maximize the value how we have fulfilled that core purpose,” waiting at stations or changing trains. “We look we deliver to society,” she explains. notes Ms. Wijdoogen. at the entire journey from door to door and put By understanding its environmental impact While some organizations struggle to a value on passengers’ time,” she adds. in financial terms, NS Group is now focused place a financial value on societal and The company also assessed its safety and on finding ways to reduce it. The company environmental impacts, Ms. Wijdoogen environmental impacts which suggested has committed to a 10-year agreement to use believes that financial accounting actually that they had created some EUR560 million green electricity generated by offshore wind enriches the value of the data. “In order of positive value for society by enabling turbines which, in turn, enabled the wind farm to understand and compare all kinds of passengers to avoid car accidents (far to be built, adding new renewable generation value creation, we have to use a common outweighing the negative impacts of rail capacity to the Dutch power industry.

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Putting a financial value on our environmental and social impacts helps us to have fact-based discussions with our stakeholders about the trade- offs between sometimes conflicting values of people, planet and profit.

Carola Wijdoogen Director of Corporate Sustainability, NS Group @ccwijdoogen

The analysis also uncovered areas where what we have already delivered in social and the organization would need to work with environmental terms. Our next challenge aligned partners to achieve incremental is to develop our true value analysis into value. The safety assessment, for example, a forward-looking tool that enables us to suggested that the most effective way to assess and compare potential investments increase the safety value would be to improve and make decisions based on the social the safety of journeys to the station rather and environmental returns, as well as the than making improvements to the trains financial returns. For instance, we have started themselves. to look at how we can improve the social and environmental value of using buses to The journey to quantifying social and reduce overcrowding on trains at rush-hour. environmental impacts We hope that will lead us to a better balance Ms. Wijdoogen’s advice to other between people, planet and profit.” companies looking to value their social and environmental impacts is to start Lead from the top with manageable projects. “Don’t make Ms. Wijdoogen is proud to be leading it too big. We started by focusing only her organization’s charge towards more on our environmental impacts. You need transparent reporting. However, she also to take it step by step. If you want to do believes that sustainability is core to the it, it can be done and there are people mission of the NS Group and, as such, argues keen to help you, including academics and that it should be owned and implemented by professional services firms. There are also the whole company, not just by sustainability other companies out there looking for the experts. “It starts with a belief that this is same answers, and there is a collaborative important; the process must be owned by spirit among the innovative businesses those at the top of the company. If you are that are pioneering this type of analysis.” to succeed, then your decision to understand However, Ms. Wijdoogen is also clear your true value creation must be aligned that the journey for the NS Group is only with your core values and purpose as a just starting. “So far we have measured business.”

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By Fernando Faria reating an ethical and responsible culture in the KPMG in Brazil E: [email protected] infrastructure sector is not easy. But the bigger @FernandFaria Cchallenge often lies in driving that culture across the organization. And now, with many construction companies relying heavily on local contract workers to help deliver major projects, organizations are starting to place renewed focus on how they develop and train their employees, both permanent and contract.

Lead by respect For Clorivaldo Bisinoto, CEO of Andrade Brazil’s construction companies are painfully Gutierrez Construction (Brazil’s second largest aware of the importance of ethics. And while construction company with operations in 44 to date, Brazil’s corruption investigation has countries), the recent focus on employee focused on the bigger decision-makers, conduct and ethical contracting represents the scandal has also sharpened the focus another step in an ongoing evolution for the on the relationship between construction company. “Beginning in 2010, we started to companies and their employees. shift our corporate culture from a ‘command

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member ﬁrms of the KPMG network are afﬁliated. Whether the employee is trained on the job, in classrooms or even through online training, they need to understand the focus is on acting with integrity.

Clorivaldo Bisinoto CEO, Andrade Gutierrez Construction

and control’ approach to one that is much While the current climate in Brazil makes more collaborative in nature,” he noted. hiring full time staff and regular contractors “Today, we aim to lead by respect and focus more difficult, Mr. Bisinoto is committed on encouraging a feeling of ‘belonging’ within to reviving the ‘old ways’ where workers the organization.” and companies could rely on each other With this change in leadership style, the in a relationship built on trust and mutual company has tried to encourage a culture of goals. However, he argues that — in Brazil open communication amongst employees. and many other markets — labor laws are “We’d much rather someone tell us there geared more towards ensuring job security is a problem than have them try to cover rather than encouraging productivity. This, in it up for fear of losing their job or being turn, has led some companies to rely more embarrassed,” he added. heavily on temporary contract workers. Mr. Bisinoto attributes some of the However, he believes that this will change company’s success to the development of in time. “I see a new generation emerging standardized processes that bring consistency in Brazil — many of whom have studied across the organization’s operations in Africa overseas — who recognize that protectionism and South America. “Standardization of isn’t always the best way to defend workers’ processes helps employees remain rights,” he noted. compliant,” he noted. “If there is no established standard or pattern, it’s easy For the better good for employees to start to set their own rules For Mr. Bisinoto, the key is to focus on and quickly become non-compliant.” integrity across the organization. “The starting point must be integrity,” he said. An evolving story “Whether the employee is trained on the Mr. Bisinoto has unique insight into how job, in classrooms or even through online labor contracts have changed in the training, they need to understand the focus construction industry. He joined Andrade is on acting with integrity.” Gutierrez Construction in 1976 and has He also notes the value of having a larger played a variety of key roles within the vision for the company. “Our employees are organization over the four decades, rising extremely proud of what we leave behind in to the role of COO in 2013, and ultimately communities and the impact our work has, appointed as CEO in 2015. particularly on poorer rural areas in Africa and He notes that the training of staff has Brazil,” he added. “It’s about reinforcing a become much more complicated over the culture that is proud of the social benefits years. “Thirty years ago, you could expect to we deliver.” have a sequence of projects that allowed the While his mission as CEO is undoubtedly firm to retain staff after one project ended,” to improve results and steer the company out he noted. “But in the 1990s, hiring practices of the recent scandals in Brazil, he argues started to change and people started to be that this cannot be achieved by reducing the hired for one specific project and then let company’s social contributions. “We have go and, as a result, both productivity and to focus on both in tandem; that’s the only trust declined tremendously.” way we will build a better world.”

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Richard Boele KPMG in Australia E: [email protected] @RichardBoele

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member ﬁrms of the KPMG network are afﬁliated. ithdrawing a project’s ‘social license’ can stop the project. Infrastructure providers, owners and investors should take note: social risk is every bit as Wimportant as the better-understood technical risks of a project — and in the future possibly more so.

Securing a license miss the signals that their social license Not only to gain the understanding that Infrastructure participants have been talking may be in trouble. allows them to improve their relationship about the concept of social license for some There is also often a disconnect between with local communities, but also to reduce time. It was initially created by the mining the potential risk that social impacts may risk and — in some cases — identify sector in an attempt to come to terms with have and the priority placed on SIAs by opportunities to drive improved value for the growing influence of social pressure on project owners and engineers. Many simply those communities in a way that better their investments and operations. The idea refer to SIAs as a ‘non-technical’ input, protects their investments. was that the local communities and society essentially ranking it as subservient to other Impact assessments should be seen as could either grant or revoke an organization’s assessments such as financial feasibility or a continuous management approach rather license to operate. It recognized that — planning. Given that the loss of social license than done at a point-in-time. At the very every bit as much as legal licenses — a social can scuttle a project in mid-stream or add least they should be conducted at regular license was required for any project that exponential costs later in the project life intervals around major project milestones impacted the communities hosting them. cycle, it is important that project owners and and changes — and should be adapted to The fact that infrastructure participants are managers start to systematically consider reflect the changing social dynamics and the starting to adopt this concept is not surprising. social risk on the same level as other different phases of a project (social opinion The whole idea behind infrastructure is to project risks. often changes once the cranes start to go impact communities and people in a positive up). Project owners should also be paying way. And so virtually every project the sector more attention to how social risks evolve undertakes must secure and maintain a and change over time, course-correcting social license. as the project progresses. The concept of social license has an Given the recent Infrastructure players could also be using uneasy relationship with a key tool of their SIAs to uncover new opportunities to the infrastructure sector — social impact focus on whole- create value for community stakeholders assessments (SIAs). Most infrastructure life costs and and — ultimately — reduce the social risk project owners conduct a SIA before they over the lifespan of the asset. Are there ‘green light’ a project. A SIA in some form, sustainability, project opportunities to use local businesses or is usually required by authorities and is developers and workers in the construction? Could a new more often than not only scoped to meet local enterprise be created by allowing local regulatory requirements. This is despite constructors should communities access to some ‘off takes’? project owners knowing that they could be instead be trying to Could the project be designed or developed slowed or stopped in the approvals stage in a way that encourages engagement from if they do not have the broad acceptance ‘own’ and design out the local community? Often one small of the communities they plan to impact. It change in the initial design phase can make is an approach that sees conducting SIAs social risk as much a massive difference in the way societies as a compliance step towards achieving a as possible. respond to infrastructure. legal license. Another major challenge is the ownership Don’t lose it More than just an assessment of social risk. All too often, project owners Measuring the elasticity of a social license While SIAs that go beyond the scope of and developers essentially ‘externalize’ is not easy; some projects may enjoy what is legally required are a good step, the risk to operations, preferring instead wide leeway depending on the expected the reality is that few infrastructure players to focus on timetables and deadlines. But outcomes and benefits for the wider are going far enough to realize the full this is a mistake: problems are always community. The exact boundaries of the value of doing an SIA. Scoped well and much easier to fix in the design stage social license can change overnight with the results used effectively it can be a than once operations have begun. Given community expectations being the key powerful mechanism for understanding the recent focus on ‘whole of life’ costs determinant. Ultimately, a social license is and predicting those impacts and issues and sustainability, project developers and maintained by how responsive the project that can threaten your social license. One constructors should instead be trying to is to changing community concerns and problem is that most infrastructure owners ‘own’ and design out social risk as much challenges. It is a license that must be and project managers tend to assess social as possible. earned every day. impact at a point-in-time rather than across Executives and project owners will know the full life cycle of the project — from Upgrade your license when they’ve lost it. Society has a powerful design and construction through to delivery Infrastructure owners and managers have an ability to tell companies when they are no and operation. And, as such, they tend to opportunity to see and use SIAs differently. longer wanted.

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By Jan Crosby KPMG in the UK E: [email protected] @KPMGuk

ustainable economic growth and development requires sustainable communities. And while, for decades, the UK stood out as the pioneer of new and innovative Sapproaches to creating sustainable housing, it has become increasingly clear recently that the country is now heading towards a major ‘housing crisis’. Many are asking what went wrong.

Moving from developments to to David Orr, there is still much room for to encourage regeneration, the purchase communities improvement when designing and planning price of the assets would be discounted by By now, the link between stable communities new communities. “Far too often, housing is the amount of capital required to improve and sustainable economies should be fairly being built without enough consideration as the quality of the housing stock. If the asset clear. Indeed, for people to be productive to the mix of infrastructure and services that is valued at, say, GBP100 million but requires they need to feel secure in their homes the community will need to remain viable for GBP60 million to rehabilitate, the purchase and communities; they need access to the next 60, 70 or 80 years,” adds Mr. Orr. price would be GBP40 million. employment opportunities; and they need What this meant was that housing reliable infrastructure and government Financing models drive sustainability associations could issue bonds and raise services. The UK has long been a pioneer of the capital from private investors against the Over the past few decades, many sustainable communities effort. Starting with long-term revenue stream and invest it into governments — the UK, the Netherlands and the wider introduction of housing associations improvements. The model has been hugely Germany, in particular — have put significant in the 1970s, the UK has put significant effort successful. “Over the past few years in effort into building ‘sustainable communities’. towards creating affordable and sustainable particular, we’ve become very successful at As David Orr, Chief Executive of the UK’s ‘social housing’ which is a key component of attracting large-scale institutional investment National Housing Foundation notes, sustainable creating local acceptance of a new communities from the capital markets; more than GBP75 communities are about more than just affordable project and to making communities places billion of private capital is now thought to be housing. “It’s about social and economic where people want to live. invested into the UK’s housing associations,” sustainability,” he says. “The challenge is to Along with home builders and community notes Mr. Orr. build places that are economically resilient, developers, the UK’s housing associations The model does more than just create socially inclusive and where people can feel have been key in helping drive the social valuable investment opportunities, it also confident, secure and at peace.” discourse around what constitutes a helps drive the politics of planning and creates For the most part, the effort to develop sustainable community. “Through the housing a new paradigm in the relationship between more sustainable communities has been associations, the UK has managed to achieve developers, investors and the community. based within the context of regeneration. a lot of very high quality and very effective “Empowering the housing associations as From East Germany’s grubby communist-era large-scale estate regenerations over the owners allowed for much more community housing blocks through to massive housing past 20 years,” Mr. Orr notes. “I would participation and resident engagement in the estates in the UK, significant investment, argue that the UK’s housing associations strategic thinking that underpins these projects,” political capital and effort has been poured into have been among the most effective public- adds Mr. Orr. “It’s encouraged more of a transforming older housing ‘developments’ private partnerships in the world.” ‘bottom-up’ rather than ‘top-down’ approach.” into more sustainable ‘communities’. The UK experience owes much of its success At the same time, governments, developers to the creation of new financing models that A housing ‘crisis’ emerges and investors are also increasingly adopting essentially allowed housing associations While the UK was once a pioneer, the sustainable community concepts into new to buy their housing stock by borrowing past 5 years have seen a downgrading of housing projects and plans. Yet according against their anticipated rental income. But regeneration and sustainability in the national 28 | INSIGHT | #inframorality

© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member ﬁrms of the KPMG network are afﬁliated. Far too often, housing is being built without enough consideration as to the mix of infrastructure and services that the community will need to remain viable for the next 60, 70 or 80 years.

David Orr CEO, UK’s National Housing Federation @natfedDavid housing agenda. “The pivotal moment was to be more involved in operational decision the 2010 Comprehensive Spending Review making rather than focusing on articulating which started the government’s program of what they want to deliver,” he adds. “Housing austerity economics,” notes Mr. Orr. “A lot of Association Boards need to get the steer funding for regeneration projects essentially from government but then need to be left disappeared overnight.” alone to do what is in the best interest of In early 2016, the debate around funding for their communities and what is needed to sustainable communities entered a new phase. achieve their particular objectives.” Decrying the state of what he called ‘sink While government must play a key role, estates’, UK Prime Minister David Cameron developers and investors must also step up to announced an initiative to reinvigorate the shape the sustainable communities agenda. UK’s housing regeneration program. Backed “It’s rather easy to blame government but the by investments of around GBP140 million reality is that developers also need to recognize and a new Estates Regeneration Strategy, that their job isn’t about building houses, it’s the program aims to transform 100 different about being an integral part of ‘place-making’ housing estates across Britain. and community-building,” he says. As Mr. Orr notes, it will take more than new For both the private and the public sector, bricks and mortar to achieve this vision of legacy is key. Rather than just ‘build and ﬂip’ transformation. “If the government’s ambition houses or solve the short-term problem, with the regeneration announcement is to developers and politicians need to think be realized, they will need to think very hard about the communities they want to see in about how they also balance investments 20 to 30 years. “If you are going to build a into community support, job creation and community, make it a place that you would the kinds of things that make places resilient, want to come back to in 20 years, a place functional and sustainable,” he says. that you would be proud to say you helped Mr. Orr is optimistic that the objectives build,” he adds. can be achieved. He points to a history of great successes and innovation in the UK housing market — from the introduction By the numbers: of the housing associations through to 20 UK housing years of executing successful large-scale regeneration programs. “We know how to do — Between 2011 and 2014, there was this successfully,” he notes. “What we needed a shortfall of 430,000 new homes was clearer public consensus about the fact in England. that we are approaching a housing crisis.” — Over the course of the last parliament, Build a legacy of sustainability almost one in three of all new homes The challenge is that the creation of sustainable built were affordable homes delivered communities requires planners, developers, by housing associations. owners and governments to think holistically — One in every 10 houses in England is about the needs of the community. This, in turn, a housing association home. requires political leadership and support. “This isn’t about blindly raising the stock of available — Housing associations built 50,000 housing, it’s about politicians making the homes last year, 40 percent of all new connection between housing policy, economic homes in England. Our plan ‘Ambition growth and sustainability and making the right to Deliver’, published in 2014, shows decisions for the future,” Mr. Orr adds. how housing associations could more However, Mr. Orr warns that over-inﬂuence than double their output to deliver of government can also create obstacles. “The 120,000 homes a year. challenge comes when government wants

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Jonathan Erling KPMG in Canada E: [email protected] @KPMG_Canada

s governments increasingly shift towards ‘user-pay’ mechanisms for infrastructure, concerns are rising about whether consumers can afford Athe growing cost burden. For governments seeking to renew their aging infrastructure, the challenge is even more acute: asking users to pay more for existing services is always a difﬁcult (and often politically dangerous) proposition. Jonathan Erling, KPMG in Canada, recently had the opportunity to sit down with former regulator and regulatory economist, Cynthia Chaplin, to discuss some of the challenges facing governments and infrastructure owners as they strive to renew their infrastructure affordably.

Jonathan Erling (JE): Governments are in a suspect that enthusiasm for environmental perception and technological change. difficult position trying to balance between alternatives starts to wane as the cost to Solar and wind were simply not affordable the need to deliver new infrastructure and the user rises. We’ve also seen governments just 10 years ago and now solar is — in the requirements of maintaining aging struggle to properly quantify the real cost many markets — achieving cost parity assets. The power sector is a particular per ton of avoided emissions, which likely with traditional generation sources. How challenge in that there is a clear desire to influences the public perception that the do you anticipate and manage changes shift towards low-carbon and renewable benefits of shifting to renewable power in the ‘affordability envelope’ over time? generation sources, but also big questions are unknown. CC: It’s hard. And it requires you to really about how these new assets will be CC: Absolutely. If people perceive that it is think about your infrastructure and investment funded. Are consumers willing to pay costing more than it should or if it’s inordinately decisions a little differently. In some cases, it more for infrastructure? expensive then it undermines trust and people might be that you don’t go for the one massive Cynthia Chaplin (CC): I think the question become less willing to accept new prices or project that could solve everyone’s problems often boils down to what people believe structures. I think that is where regulators can in one go. Instead you might decide to roll they are getting in return for their money. play a very helpful role. Politicians can make out smaller, more affordable projects that But there is a general problem when you are the big policy decisions because they are then spread out the costs to consumers. If you renewing baseline infrastructure because the accountable to the electorate, but regulators own your home and you have 10 projects perception is that you are asking people to can provide an alternative route for making that need to be done, you generally don’t pay more to get the same level of service. some of those implementation decisions in hire a contractor to do them all at once: it’s So you really need to be able to demonstrate a way that is sometimes more transparent not affordable. You decide which projects some benefit or offer some new service in and accountable. can get done within the cost envelope you return for that investment. JE: Another challenge is that ‘affordability’ can afford and prioritize the rest for later. JE: Most people certainly believe that is often an elastic concept that changes JE: There is an interesting new dynamic reducing carbon is a long-term benefit, but I depending on economic climate, at play in the power sector in general 30 | INSIGHT | #inframorality

© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member ﬁrms of the KPMG network are afﬁliated. The simple fact is that governments want people to be productive — it’s the best thing for the economy — but to do that, people need access to affordable infrastructure.

Cynthia Chaplin Former regulator and regulatory economist in that consumers will soon have much we’ve certainly seen some governments start CC: I think there is a clear role for both more control over the cost of their energy. to add some optionality into their contracts, government and regulators. Government Simply put, if electricity costs become essentially allowing them to halt development must set the overall policy direction and the too expensive from the grid, users may of long-term projects if they believe that objectives and hopefully rely on market forces simply purchase their own renewable the affordability equation has changed too in competitive areas to ensure the results are energy kit and come off the network. It’s much. Most of the time, costs are covered affordable. For the non-competitive areas, already becoming a somewhat affordable but I think governments recognize that the the regulator can make the implementation alternative in many markets. most unaffordable assets may become the decisions in a transparent and open way that CC: That’s where governments and regulators stranded ones. ensures that the impacts are well considered may want to be particularly concerned. Upgrade JE: Many believe that the provision and that people have a chance to have their costs and capital expenditures are ultimately of affordable infrastructure is a moral voice heard. Unfortunately, regulators have shared by the people who use those assets. If responsibly of government. What influence sometimes been leery of making decisions we start to lose users from the grid, the cost should morality have on the affordability for direct rate support, and sometimes what of the upgrades will need to be shared by a debate? it takes is a political push, either through smaller and smaller group of users. Layer in the CC: I’m an economist so I look at it as an legislation or policy, to instruct the regulator idea that home generation will be expensive economic policy question before I even start to put in place certain programs. I think at first — and therefore affordable to only the talking about the morality of it. The simple regulators should be playing a stronger affluent — that means that upgrade costs are fact is that governments want people to role in the decision making around policy now falling on the shoulders of those that be productive — it’s the best thing for the implementation. really can’t afford them. economy — but to do that, people need JE: I suspect technology will make the JE: That really raises the risk for infrastructure access to affordable infrastructure. I think debate even more complex. Some markets investors. The sector is trying to build or you can make a very practical economic case already charge differential pricing for time renew assets that will last 40 or 50 years that making infrastructure affordable adds to of day usage and smart meters allow but we really don’t know what our power the economy. How governments go about infrastructure operators to know exactly needs will be in the future or even what doing that — whether through subsidies, tax who is using how much power and when. our generation mix will look like. If people distribution processes or rate-payer subsidies Cost allocation can become much more are generating their own power, do we for those that can’t afford it — depends on the precise than before. But this raises the still need a distribution network? Clearly local realities and circumstances. ire of certain groups that have heretofore there’s a point beyond which affordability JE: The challenge becomes rather complex benefited from the averaging of costs becomes a risk for owners and investors. once you start to add in other investment over different classes of users. Should the CC: We can use the distribution and requirements like resilience improvements regulator be trying to protect consumers transmission grids to deliver and receive and cyber security protections. But who from changes in cost allocation? services from distributed resources, although should be making the decision on what CC: Technology and shifting public and social those grids will need upgrades to accommodate exactly is affordable for consumers? Is values are clearly changing the equation. more distributed resources. For the larger that the role of governments who are But what is certain is that affordability will centralized generation projects, I think most accountable to the population but tend to always be a key challenge for infrastructure operators — at least in the electricity sector — think in political cycles, or is it the role of the owners. The dynamics may change but the are fairly attuned to the regulatory risks, political regulators who tend to see the long-term core issue will remain: can people afford their risks and market risks that they face. But picture but are not accountable to voters? infrastructure? #inframorality | INSIGHT | 31

By James Woodward KPMG in East Africa E: [email protected] @JamesWoodward1

Kenya is enjoying strong growth and signiﬁcant improvements in quality of life. Driving this growth and development is Kenya’s Vision 2030, a long-term development plan for the country. With a strong focus on improving the country’s infrastructure, among other initiatives, the government has taken a number of steps to make Kenya’s infrastructure more attractive to foreign and private investors. All signs indicate that their hard work is starting to pay off.

rom the fertile lands of the Rift Valley to almost tripled.1 And between 2012 and 2014, the heels of disputed election results. Peace the bustling port of Mombasa, Kenya is foreign direct investment inﬂows jumped and security were quickly restored, but the Fclearly enjoying a period of growth and from US$259 million to almost US$1 billion.2 period raised a number of signiﬁcant political, prosperity. The country is already the largest social and economic questions for the country. economy in East and Central Africa and serves The need for a vision “We recognized that we really needed as a regional center for banking, technology While Kenya has long been viewed as one a long-term view of how we wanted to and transportation. Between 2004 and 2014, of Africa’s most politically and economically develop as a country and how we planned Gross Domestic Product (GDP) per capita stable markets, violence erupted in 2007 on to improve the quality of life for all Kenyans,

1 http://data.worldbank.org/indicator/NY.GDP.MKTP.CD?page=2 2 http://data.worldbank.org/indicator/BX.KLT.DINV.CD.WD

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. and in particular the poor, and that led us to 2030 plan and so we work with them during Kenya has already enjoyed some success develop Kenya’s Vision 2030,” noted Professor their campaigns to help them understand the in key areas. A new 50-kilometer eight-lane Gituro Wainaina who serves as the Acting implications of their ideas on the Vision and the controlled-access highway was built between Director General of Kenya’s Vision 2030 long-term development goals we have set.” Nairobi and Thika, linking several towns to Delivery Secretariat. Sometimes that means cooperating the capital’s North East. Investments into with the new government to integrate renewable power and the ‘last mile initiative’ A transformative plan platform promises into the Vision 2030 have seen electricity rates fall from 19 cents Vision 2030 is intended to transform Kenya agenda. “The current MTP was adopted per kilowatt hour to around 11 cents today. into a “newly industrializing, middle-income in 2013 and includes a strong focus on And dredging at the Port of Mombasa has country providing a high quality of life to all digital transformation to respond to the reduced ship turn-around times from 18 its citizens by 2030 in a clean and secure government’s platform of providing every days to just 2 days. environment”. The plan is based on three pillars child with a laptop by January 2017 under (economic, social and political) and embeds a the digital literacy project,” he noted. Improving the investment climate set of values that defines what the country Like all governments around the world, hopes to achieve and how it hopes to achieve there are limits on how much of Kenya’s it. The economic pillar aims to achieve and infrastructure can be funded from the public sustain an average economic growth rate of purse. “The only way we will be able to 10 percent per annum until 2030, the social deliver on Vision 2030 is through public- pillar seeks to build a just and cohesive society All of Kenya’s main private partnerships (PPPs) and so we have with social equity and the political pillar aims to parties base their been very focused on creating the right realize a democratic political system founded environment to attract private and foreign on issue-based politics that respects the rule platforms on the Vision investors,” noted Professor Wainaina. “We of law, and protects the rights and freedoms have had successful PPPs in the past, but of every individual in Kenyan society. The three 2030 plan and so we the PPP Act of 2013 really helped articulate pillars are anchored on enablers and macro as work with them during how the private sector can support the the foundations. government in this initiative.” The implementation of Vision 2030 their campaigns to help The government has untaken a number of is a progressive process with goals and them understand the initiatives to improve the investment climate. milestones that will be achieved over time. For example, recognizing that procurement It is implemented in successive 5-year implications of their processes had become contentious and time- cycles called Medium Term Plans (MTPs). ideas on the Vision consuming, the government has focused The first MTP was implemented between on improving the use of technology to drive 2008 and 2012 and the second MTP is being and the long-term efficiency across the procurement life cycle. implemented in the period 2013 to 2017. Specialized courts have also been Rather than an opportunistic political development goals we established to deal with procurement manifesto, Vision 2030’s plan is entrenched have set. challenges and contractual issues. And into the country’s Constitution 2010, a move soon a law will be enacted that requires that Professor Wainaina says provides popular those bringing failed challenges to court to support and longevity. “The Constitution 2010 pay the legal fees. “Currently, companies provided transparency into how government can dispute awards in the courts for years — deals with businesses and citizens, it created often with little or no basis of claim — which important structures and institutions, it not only slows the process but also adds articulated the relationship between the two to investor uncertainty,” added Professor levels of government at the national and county Wainaina. levels and — most importantly — it gave Professor Gituro Wainaina Kenyans a direct voice in the development of Reaping the benefits Acting Director General, Kenya’s the constitution,” noted Professor Wainaina. Professor Wainaina notes that Kenya Vision 2030 Delivery Secretariat “We are extremely proud of our constitution and is already enjoying benefits from the credit it with much of our success since 2010.” Vision. “We’ve attracted dozens of global Infrastructure at the core businesses — like Google, IBM and Virgin Aligning politics with long-term vision From the outset, Kenya’s government Atlantic — who have made Kenya their Astute timing and prudent cooperation in recognized that the Vision could only be headquarters for Africa and serious investors developing the Vision’s MTPs has also been enabled through investment into infrastructure. are recognizing that Kenya offers the best key to providing stability and confidence in “If we want to improve access to healthcare, opportunity to build a presence in Africa the initiative’s long-term goals. The MTPs are we need to build roads that can take people to because of our people, our skills, the ease designed for five years and to coincide with hospitals; if we want to improve tourism, we of doing business and our investment into Kenya’s general election cycle. need to improve our ports and airports; if we infrastructure,” he added. “We appreciate that politics is very important want to create new business opportunities, But he warns that Kenya does have one to the development work that we do and we we need to invest more in our Information pitfall for foreign investors and business try as much as possible to implement the and Communication Technology (ICT) people: “Once you come to Kenya you won’t Vision in harmony with the election cycle,” infrastructure,” added Professor Wainaina. want to leave,” he notes. And he’s absolutely explained Professor Wainaina. “All of Kenya’s “Infrastructure is the foundation that holds right: I came to Kenya from Australia in 2009 main parties base their platforms on the Vision up each of the three pillars in our Vision.” and have no intention of ever leaving.

#inframorality | INSIGHT | 33

Assessing social and governance risks of prospective infrastructure projects is common practice to avoid exploitative labor practices, violations of environmental law, or the implications of displacing communities. The intention is to understand potential adverse impacts on Tania Carnegie the project and quantify the cost of risk mitigation as KPMG in Canada well as the risk itself when pricing projects. E: [email protected] @taniacarnegie

t its core, infrastructure directly decisions? Better outcomes for society? As the Rather than paying service providers for enables mobility and competitiveness, adverse impact of social issues are increasingly the investment and resources they put into Aas well as a more inclusive society by being quantified in economic terms — is it delivering a service, the government aimed to helping to remove barriers that prevent certain time to more intentionally consider the positive instead pay them for the specific outcomes groups of citizens from fully participating in impact created to help prioritize decision making they achieved. And ‘Social Impact Bonds’ or the economy. Addressing the social needs regarding infrastructure projects? SIBs were born. of communities are inherent in infrastructure The term ‘Social Impact Bond’ is actually projects that provide access to essentials An appetite for outcomes somewhat of a misnomer. They are not such as health care, education, affordable Governments have increasingly been shifting strictly ‘bonds’ as they take the form of housing and environmental benefits in the way they think about meeting the social a typical debt instrument. Nor are they projects that produce renewable energy. needs of its citizens by moving from the more contingent on a broader idea of ‘social Are we missing an opportunity by not traditional fee for service approach to procuring impact’ but rather on a carefully pre-defined explicitly considering the net positive social services from non-government organizations set of performance measures that are and environmental value created through (NGOs) or other service delivery agencies, to indicators of social impact to be achieved infrastructure projects? What if we incorporated procuring social outcomes. When, in 2010, over the longer-term. In fact, rather than social outcomes as part of the evaluation the UK announced that it would be piloting a SIB, these approaches would be more requirements or as part of a performance a new approach to delivering social services, accurately described as ‘pay for performance’ bonus? Would this result in better investment governments around the world took notice. or ‘pay for outcomes’ contracts.

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. A good idea spreads engage a limited population. By comparison, True Value methodology has helped our Regardless of what they are called, they infrastructure projects are large scale clients monetize these externalities and are clearly enjoying significant attention and often impacting multiple communities and use this information to more effectively experimentation in key markets around the providing a natural platform to quantify prioritize business initiatives that will world spreading from the UK to countries benefits. enhance competitive advantage and reduce across Europe and also including Australia, Quantifying the social outcomes created risk in the future. Israel, the United States and Canada, by infrastructure projects and incorporating What is already very clear, however, is spotlighting infrastructure needs in the them as part of business case development that these new models and approaches are developed world. Similarly, Development and performance incentives aligns with catalyzing fundamental change in the way Impact Bonds are also gaining traction, our call for public-private partnerships to governments approach infrastructure and which seek to attract financing of projects prioritize a new set of ‘P’s’ — people, planet service delivery. As more and more projects in developing nations. Since the early days and prosperity — to address the increasing reach their objectives and governments in 2010, more than 50 different SIBs have focus on infrastructure morality and how start to calculate the value created for been established covering a wide variety to accomplish the significant demand for society, we expect to see elements of of issue areas such as reducing recidivism, infrastructure development and the resulting the pay for performance model start to preventative health measures and early economic potential. emerge across government contracting childhood education. and projects more broadly. This approach has attracted the interest of government. In part, because they enable Vision and effort required the public sector to de-risk the delivery Transforming the model will not be easy and and cost of preventative social services SIBs are a stepping will take significant work from government, by having private investors fund the initial investors and developers. At a strategic level, delivery of the intervention, by providing stone towards governments will need to assess the societal better value for taxpayer money by paying a much broader context and where they see outcomes that for outcomes rather than inputs. Investors could influence the new model. They will also also see this as a means to leverage their approach to pay for need to examine their policies, regulations capital to drive measureable improvements and legislation to create a more supportive in society and to earn a return based performance and environment for investment into pay for on the avoided costs to government as ways to incorporate performance schemes. the intervention has reduced long-term The private sector and infrastructure dependency on social programming. The social outcomes investors will also need to adapt. key is how the risks are priced. into the financial Understanding the risk-sharing and payment mechanisms will take some time and A journey, not a destination analysis and pricing investors will need to start adjusting their SIBs are a stepping stone towards a much of service delivery projections to reflect the growing influence broader approach to pay for performance of performance-based incentives. At the and ways to incorporate social outcomes and infrastructure same time, they will also benefit from into the financial analysis and pricing broadening their perception of how their of service delivery and infrastructure projects. investments can influence social outcomes; projects. A recent report by the Brookings proactively understanding and measuring Institute assessing the lessons learned A parallel can be drawn to the private social impacts will be key to demonstrating from the experience of early SIBs found sector. Businesses are increasingly value in the future. they have been successful in shifting interested in understanding both the positive A new approach is emerging and it may the focus to outcomes and increasing and negative social, environmental and very well transform the way we pay for investment in preventative interventions. economic impacts of their business on and invest into infrastructure. Investors, The report also highlighted the challenge society, and how the net impact could developers and governments had best of achieving scale, as SIB pilots typically affect earnings over the longer-term. Our be prepared.

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By Richard Threlfall Global Head of Public Transport E: [email protected] @RThrelfall_KPMG

Infrastructure developers and contractors generate value for society in two main ways: through the assets they create and deliver, and through the employment opportunities they provide to local communities. As a sector, we do a great job reporting on the social beneﬁts of our developments. And now, according to Christine Townley, Executive Director of the UK’s Construction Youth Trust, it’s time to focus on creating better social beneﬁts through training and employment.

ince the dawn of time, construction disadvantaged groups into the workforce. has been a valuable source of “Infrastructure projects are often massive, Semployment for people around long term and impactful and are great at the world. Today, more than 6 percent of capturing people’s attention,” she noted. the UK’s total workforce is employed in “I think the infrastructure sector has the construction.1 And more than 12 million ability to draw young people towards a people across the EU are employed career in construction and, in doing so, by formal construction companies (not help develop skills and apprenticeships counting independent contractors).2 that get the neediest in to work.” The economic benefits of these construction jobs within an economy is A matter of survival well documented. Diversifying the workforce and encouraging Yet construction jobs are also particularly participation of young people should not valuable to society because they are be a purely altruistic goal for developers often the ﬁrst (and sometimes only) and contractors. Data from the US clearly employment opportunity available to illustrates the looming talent gap: there those who tend to need employment the are almost twice as many construction most: the disadvantaged, young people employees aged 50 years or older in the and those reintegrating into society. US as there are those under 30. And when Ms. Townley believes the infrastructure construction slowed in the wake of the sector has an important role to play in ﬁnancial crisis, it was employees under helping integrate young people and 30 that were hardest hit.3

1 http://researchbrieﬁngs.ﬁles.parliament.uk/documents/SN01432/SN01432.pdf 2 http://ec.europa.eu/eurostat/statistics-explained/index.php/Construction_statistics_-_NACE_Rev._2

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Thousands get them jobs in

2000 construction and we do that by removing

1500 barriers such as gender, 2006 2008 2010 2012 2014 16–29 30–39 40–49 50+ ethnicity, ﬁnance and Source: Current Population Survey Annual Social and Economic Supplement other elements.

“If construction companies want to bid for women.4 And more than 13,000 students longer-term contracts, they are going to need visited the facility over the past year to learn workers and that means they really need to more about working in the sector. start encouraging young people to enter the “There are great programs and initiatives industry now,” added Ms. Townley. underway across the country, large and small,” At the same time, construction companies added Ms. Townley. “About 10 years ago I met are also starting to recognize the value of a man responsible for maintaining council Christine Townley diversity within their workforce. “There are houses in Leicester who was a big champion Executive Director, UK’s a growing number of studies that prove the of diversity and fought hard to attract women Construction Youth Trust value of gender diversity in the workforce into his department. But he did it because he @christine_CYT and increasingly on the construction job site; knew it was the right thing to do, not because I frequently hear from foremen and developers of a government program or incentive.” Helping people to help themselves who say that female employees are often Construction Youth Trust focuses its attention more productive and easier on the machinery, Knowing where to start into three main areas: educating young people which means less downtime over the project.” Part of the challenge in the UK — and many about opportunities in the construction sector (a other markets around the world — is that program called Budding Brunels); giving young More support needed the way construction companies contract people a ‘taste of the trades’ through on-site While governments and developers are with workers has evolved from an industry courses (the Budding Builders program); and increasingly starting to recognize the social, largely dominated by direct employment managing bursaries to help support individuals economic and business benefits of attracting to one instead characterized by individual seeking training in the sector. young people to the construction sector, the contractors and so-called ‘Tier 2’ suppliers. As “Our mission is to enhance young peoples’ unfortunate reality is that not nearly enough a result, some companies have been reluctant lives, and hopefully get them jobs in construction is currently being done. In fact, in the UK — to invest into training individuals who may and we do that by removing barriers such as arguably one of the more advanced economies simply move to a higher-paying opportunity gender, ethnicity, finance and other elements,” in the world — the role of encouraging young once they have developed their skills. noted Ms. Townley. “We’re particularly focused people to join the sector largely falls on However, the reality is that there is always on the disadvantaged and young people, either organizations such as Construction Youth Trust. the risk that well-trained employees will be through the Schools Initiative to help them With no central government support, funding poached by a competitor and — just like any actually understand what the professions and can be difficult. “We have strong supporters other company that values highly-trained trades are like or by working with people who in the industry including infrastructure clients talent — construction companies will need are not in employment, education or training like Network Rail who help fund certain to focus on retaining them. “I believe we and helping them maybe get their first job.” programs and others that donate time and have an obligation to keep on encouraging Ultimately, Ms. Townley believes that the offer opportunities,” noted Ms. Townley. “We’ve new talent to enter the sector and to keep government and private sector will need to also benefited from pockets of money from training them in order to raise up our national work together to encourage young people into local authorities and local government, but that capability and improve access to employment the construction and infrastructure sectors. doesn’t provide the steady stream of consistent for young people and the disadvantaged,” “Government needs to flex its muscles and revenue we need to run our programs and added Ms. Townley. use its buying power to make a difference achieve our objectives.” While Ms. Townley certainly praises the and help communities get work; for their part, Of course, Construction Youth Trust is not private sector for the efforts they have companies need to take a risk and recognize alone in its goal of encouraging young people made to date, she believes there is much that their future depends on fostering the to join the sector. Crossrail’s Tunnelling and more to be done. “I think government talent of tomorrow today,” she added. Underground Construction Academy (TUCA) and the private sector do care about the For those companies that are not sure where has trained more than 10,000 people since its issues, but my experience suggests that to start, Ms. Townley and the Construction establishment by the consortium that includes some organizations just aren’t sure where Youth Trust team are keen to offer ideas. “Help Transport for London and Network Rail. Today, to start — they want to do something but us to help young people to help themselves,” almost a third of Crossrail’s jobs are filled by don’t know how to.” she suggests.

3 http://www.federalreserve.gov/econresdata/notes/feds-notes/2015/where-are-the-construction-workers-20150226.html 4 http://www.crossrail.co.uk/careers/engineer-your-future

#inframorality | INSIGHT | 37

any of the articles in this edition of Insight magazine argue that social engagement is key to Mensuring that infrastructure is moral, valuable and good for society. The big question, therefore, is not whether to listen to community stakeholders, but rather how. We believe social ‘listening’ and predictions are central to social Gregory Daniel engagement and, ultimately, project success. KPMG in Australia E: [email protected] @KPMGaustralia A powerful and sophisticated tool communicate with their constituents. And If you are reading this publication, you probably even banks see social media as a channel have a working understanding of social media. that can help them rebuild trust with their You almost certainly have a LinkedIn profile, stakeholders. No longer the belligerent maybe even a Facebook page. And if you are an adolescent; social media has become mature executive at a ‘public-facing’ company — say a and sophisticated. utility or a transit system — you probably also This sophistication makes social media have a Twitter profile (albeit managed by your extremely powerful. Trusted and now virtually corporate communications team). ubiquitous, social media connects people and What you may not recognize, however, groups around common causes and passions. James Griffin is how sophisticated and how powerful More importantly, it removes barriers between KPMG in Australia E: jgriffi[email protected] social media has become. The technological people and empowers individuals. Indeed, @james_hgriffin sophistication is hard to deny; in just a decade, whereas in the past, corporations tended social media has become all-pervasive and to hold the power through access to media, all-knowing — its algorithms and network politicians and advertising, social media has effect unparalleled in their ease and elegance. leveled the playing field and — if anything — More importantly, it has also gained shifted power to the individual. sophistication of pedigree. Today’s ‘traditional’ media (now largely hollowed out of resources Great opportunity comes with great risk and researchers) tend to see social media as For infrastructure developers, investors and a reliable and trustworthy source. Politicians owners, the growing sophistication and use social media as a grassroots vehicle to power of social media is far more than an

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. It requires a deeper understanding of nuances such as the history of the key actors and influencers, the velocity and veracity of the conversations and the connections between other likeminded groups or influencers.

dirt — how various segments of society and non-technical risks. This has proven to be the local community will respond to certain an extremely valuable activity for risk and activities and actions surrounding their project. crisis management, helping executives Our experience suggests that virtually every defend and mitigate issues as they arise. non-technical delay on an infrastructure project More exciting however, is the predictive could be avoided if executives had paid better nature of social listening. This is where attention to what social media was telling early signals of trends are captured and them. All too often, signs of major issues first analyzed, potential scenarios are plotted appear on social media. Those who know how based on experience and social models, to listen to those signs can also be the ones and responses are tested in the court of that avoid them. social media to predict fairly accurately how a segment of the population or community Think deeper area will respond to various factors. Many infrastructure executives may believe that they already do a fairly good job at listening Start listening to social media. They likely have a handful How can infrastructure participants start of digital natives and millennials stashed really listening to social media? First, away within the marketing department who executives will need to carefully assess interesting development; it is a massive monitor their brand, respond to customer who should own responsibility for social opportunity and a massive risk. comments and post service updates. media within the organization. Whether Let’s start with the risk. Left unmanaged, However, we do not believe that this level it remains within marketing and sales or social media has the power to delay projects, of social listening goes nearly far enough whether it is consolidated under the risk add unexpected costs and — in extreme given the massive risks and opportunities management function within the executive cases — lead to project failure. In part, this that social media represents. Real social team, organizations need to be very clear is because social media users (particularly media listening is about more than simply about the risks and opportunities that social those born into the digital world) have tracking brand mentions, net promotor media represents. also become increasingly sophisticated scores and positive/negative sentiment. Next, infrastructure executives will need and powerful. Social activists even more It requires a deeper understanding of to focus on finding, retaining and developing so; having been virtually locked out of the nuances such as the history of the key the right mix of capabilities, tools and talent traditional media for decades, most activists actors and influencers, the velocity and to drive actionable and practical insights from quickly became adept social media users veracity of the conversations and the their social media data. This is still largely an and now understand how to harness the connections between other likeminded emerging field; finding individuals with skills channel to achieve their goals. groups or influencers. and a track record will be difficult for the But it’s not just social activists that Part art and part science, the value of time being. have become adept social media users. social media listening often depends on the The most important step, however, is So, too, have investors. In fact, we have capabilities of those analyzing the data. More what executives do with the insights and worked with a number of large institutional than just experience in marketing, social predictions that their social listening efforts investors who have used information listening requires the combination of wide- deliver. Having the right governance models, taken from social media to inform their ranging disciplines such as demographics, risk management frameworks and controls investment decisions. In some cases, mathematics, sociology, engineering, to ensure that information is turning into they have passed over financially sound phycology and analytics in order to deliver action will be key. investments due to potential issues they truly valuable insights. noted on social media. Don’t add to your risk The flip side of risk is opportunity. And From reactive to predictive Ultimately, we believe that infrastructure the opportunity for social media savvy For the most part, current social media organizations and their leaders need to infrastructure players is equally strong. By listening activities in the infrastructure sector recognize that social media simply can’t be leveraging information from social media, tend to focus on managing immediate and ignored. To do so would be to add a new infrastructure developers and owners current issues. Key topics are monitored in dimension of risk that could be avoided. And could avoid the types of delays, costs and real-time, shifts in the mood or the pace of with social media increasingly acting as a reputational damage that can result from a the discussion are analyzed and executives force of convergence between traditional social backlash to a project. They can identify are informed — often through a bi-weekly media, social activists, financial analysts and mitigate risks before they arise. And they dashboard or monthly report — on the and politicians, it seems clear that the risks can predict — even before shovels hit the current level and potential impact of key are only set to rise.

#inframorality | INSIGHT | 39

By Santosh Kamath KPMG in India E: [email protected] @kamath_santosh

I ﬁrmly believe that anyone working in the renewables sector — investors, developers, engineers and others — need to work with passion and not be all-consumed by the proﬁts and economics for now.

Tarun Kapoor Joint Secretary, India’s Ministry of New and Renewable Energy

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. ndia’s government is striving to achieve some massive electrification objectives. On the one hand, India’s government wants to deliver on its promise to deliver ‘electricity to all’ by I2019. At the same time, the government aims to increase the country’s total renewable power generation capacity to 175 Gigawatts (GW) by 2020. According to Tarun Kapoor, Joint Secretary with India’s Ministry of New and Renewable Energy, renewable power will play a key role in achieving the government’s electrification agenda. Recently, Santosh Kamath, KPMG in India, sat down with the Joint Secretary to talk about the challenges and opportunities ahead.

Santosh Kamath (SK): India has set very SK: I understand the government is also communicating the cost that was required aggressive targets for renewables. Are working to install a significant number of to develop the system so people don’t really the targets achievable? solar water pumps throughout the country. appreciate that a new system will cost money. Tarun Kapoor (TK): Right now, India’s TK: Yes. In fact, there are already about Once we get to a larger scale, however, I total renewable capacity is around 42GW 60,000 installed and plans are in place to think the question of affordability becomes of installed capacity and that accounts install another 150,000 or so in the next less of a problem. Solar power has already for between 6 to 7 percent of the energy 2 to 3 years. India has around 25 million fallen to rates of just INR 4.5 per kilowatt currently going into the grid. The aim is to water pumps used for farm irrigation and hour, so it’s already quite comparable to other take it to 15 percent by 2020 and — if we these consume approximately 20 percent power sources. achieve our objective of 175GWs by 2022 — of the total grid supply of power. Many of SK: Do you envision a world without we will be at 17 percent. It might be very the solar pumps are fairly simple pumps, fossil fuels? difficult but I believe we can achieve it. but we are also working with farmers to TK: I firmly believe that anyone working SK: What are some of the challenges install 25 to 50 horsepower pumps that can in the renewables sector — investors, you worry about when working towards supply water into the irrigation system. And developers, engineers and others — need to this goal? we have proposals to put up small solar work with passion and not be all-consumed TK: I think there are three big challenges. plants in farming areas to feed power into by the profits and economics for now. Those The first is transmission because most the system during the daytime when the are certainly important, particularly if we of the renewable power will come from farmers need it most. want a sustainable renewables sector. wind and solar so we will need to focus on SK: What role should the government But we need passion and dedication to building transmission lines out to the solar play in funding renewables to achieve the mission of eliminating fossil fuels. parks and wind turbines, which are often the electrification agenda? We need to always keep that goal in mind in more remote parts of the country. The TK: The power sector as a whole is a and make sure that we don’t shut down second challenge is around the continued commercial sector that generally doesn’t new ideas. willingness of the distribution companies need extra money from tax payers or the SK: Can foreign investors and developers to buy increasing amounts of renewable government but there are some sectors that play a role in helping achieve India’s power, particularly since some of them are will need additional investment. If you have renewables and electrification objectives? already in a surplus situation. And the third a village with just 100 houses that needs a TK: Absolutely. India is a fantastic market for challenge is bringing in low-cost financing line to the grid, you can’t just load the cost renewables and we welcome investments, because renewables can often be a very of that connection onto the 100 families ideas and technology from all over the world. capital intensive proposition. that live there because they probably can’t Policies in India have changed significantly SK: What role will renewables play in the afford it. But in other parts of the country, and there are essentially no restrictions government’s electrification program? the cost of connecting a consumer is not and no entry barriers with the opportunity TK: There are around 18,000 villages that very high, so you really need to look at how to maintain 100 percent ownership (FDI) in are not electrified and about 3,500 of those you cross-subsidize that and use money renewables. We really need affordable and cannot be connected to the grid, either due from the whole power sector. Further, the clean power and are looking for investments to cost or practicality. So those villages will government has made a budgetary outlay to of around US$200 billion over the next 5 need to be supplied through standalone fund rural electrification that have provisions to 7 years to achieve our agenda. I think renewable sources, mainly solar. There for renewable based mini and micro-grids. that should interest many large companies are also significant areas of the country SK: Will affordability become a bigger and investors. where power simply isn’t reliable so we are issue as more renewable power comes working to develop standalone renewable into the network? generation in those locations to help ‘even TK: I think that — over the past 4 or 5 out’ the power supply. decades — we have not been very good at

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Christian Lindfeld KPMG in South Africa E: [email protected] @KPMG_SA

Africa’s cities are abuzz with opportunity, potential and — importantly — new infrastructure. Yet outside of the cities, the pace of change has been stubbornly slow. This is a bigger problem than it may seem: Africa’s growing cities need food, labor and resources to achieve their full potential and that, in turn, requires efﬁcient and effective rural infrastructure. So if you are betting on Africa’s cities, you have better also be betting on its rural infrastructure.

hile Africa may not be the (GDP) in Sub-Saharan Africa rose by around cities. Africa is expected to see the highest fastest growing continent, 5 percent each year between 2008 and 2014. rates of urbanization between 2020 to Wmany observers think it has the Security and rule of law is improving quickly 2050. And by 2030 the continent will boast strongest long-term potential. Population and Africa’s markets compare favorably to around a dozen cities with populations of trends suggest a massive demographic China and India in the UN’s Ease of Doing more than 5 million people. For foreign dividend; Africa will surpass China in terms of Business rankings. investors and local politicians alike, Africa’s working age population by 2040. Productivity Perhaps not surprisingly, much of the cities are crucially important to future is steadily rising; gross domestic product focus has been on Africa’s fast-emerging growth.

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Nourishing growth Moving agricultural product across borders governments to have a better understanding The problem is that Africa’s growth trajectory is even more unpredictable. Lorries are sitting of the relationship between infrastructure, is simply unsustainable without a significant at the border between South Africa and agriculture and productivity. With this change in the way rural infrastructure is Zimbabwe (Africa’s busiest border crossing) information, governments will need to planned, funded and delivered. The reality often idle for days, making the transportation channel more of their precious resources is that cities need food in order to be of fresh fruit or produce a particularly risky towards a stronger balance of rural and productive; businesses require labor; and proposition for farmers. urban infrastructure. industry requires resources. Without rural Attracting investment to Africa’s rural Government will also need to focus on infrastructure, either costs will increase or areas has been difficult. Governments encouraging private investment into Africa’s productivity will decrease. (quite rightly) see cities as catalysts to agricultural sector and rural areas. Reducing Agriculture also remains an extremely development and productivity and, as a regulatory complexity and improving contract important industry for most Africans and result, tend to channel the vast majority certainty will certainly encourage some African countries. Today, almost two-thirds of of their infrastructure investment budgets investment. But governments will likely Africa’s labor force is employed in agriculture towards urban areas. Politicians also tend to also want to take a more interventionist meaning that any improvements in the sector prefer urban investment, favoring projects approach through levers such as localization tend to have broad-based benefits for the that can bring the most (perceived) benefits requirements on foreign direct investment wider population. At the same time, almost to the most people. and tax incentives. a third of Africa’s GDP currently comes The private sector will also need to from the fields.1 As many other markets play a role in overcoming Africa’s rural have found in the past, improving the value infrastructure deficit. The returns on a single of agricultural production is a clear path to rural infrastructure asset may not be as driving economic growth. rewarding as a similar investment in urban The importance of agriculture is not lost Simply put, infrastructure right now, but significant on most of Africa’s governments. Kenya’s potential exists to capture other value Vision 2030 development strategy notes infrastructure tends generators down the road. An investment the importance of the sector in helping to to unlock the value into a new rural road, for example, may drive GDP growth to 10 percent per year by change the investment equation for the 2030. Other governments — from Ethiopia of other infrastructure, development of a new power plant or through to South Africa — have championed hospital in the same rural area. Simply put, the value of the agricultural sector. so investors would be infrastructure tends to unlock the value of Yet agricultural output from Africa remains best served thinking other infrastructure, so investors would be small. Indeed, the continent as a whole best served thinking holistically about rural exports less farm produce than Thailand.2 holistically about infrastructure investment. And the vast majority of what is grown in the rural infrastructure Private sector players will also play an fields never reaches Africa’s cities. Instead, integral role in improving the agriculture it is sold at local markets, eaten by farmers investment. value chain across the continent. From seed or — far too often — eaten by weevils. brokers and fertilizer producers through to grain warehouses and ports, much of the A rough road to market agricultural value chain rests in private sector Part of Africa’s agricultural challenge comes Private investors have been slow to fill the hands. Many are already focused on growing down to land ownership. In many cases, gap. Models for private investment into rural their market share in Africa but more must landholdings are too small to encourage infrastructure in Africa have yet to emerge and be done to encourage new investment farmers to modernize. Far too few of those there are, as yet, too few commercial farms by foreign players and more established that work the land have ownership over the to attract the attention of a more speculative indigenous industries. land, which discourages investment and the investor or developer. Besides, most foreign adoption of sustainable farming practices investors are still trying to come to terms Planting the seeds of growth (such as leaving fields fallow). And much of with doing business in Africa and, for now, Africa’s promoters, investors and consumers the land now being converted to cultivation would prefer to focus their attention on the have a lot to be excited about. Africa’s is marginal at best. cities where returns are more predictable economies, businesses and cities are ramping The more pernicious problem, however, and risks more manageable. up for tremendous growth and opportunity. is a lack of efficient, reliable and effective But fulfilling Africa’s full potential will take rural and agricultural infrastructure. Even Everyone plays a role on the farm more than investments into cities alone. It if yields were improved and farmers were Overcoming Africa’s rural infrastructure deficit will require a balanced approach that unlocks keen to invest in their own production, it is to unlock the continent’s full potential will Africa’s agricultural potential at the same unlikely that Africa’s cities would see any take determined action from government time as its economic potential. benefit. Roads are unreliable — the same and the private sector. Those that manage to achieve the right journey from the field to the city could take Likely the greatest burden will fall on balance should enjoy more sustainable hours or it could take days, depending on governments. Investment priorities and economic growth. Those that do not will the state of the road — and much of rural prioritization models will need to change likely suffer slower growth, higher costs Africa lacks electricity which impacts storage to properly reflect the critical value that and a widening divide between urban and and irrigation. agriculture provides. This will require rural populations.

1 Fact Sheet: The World Bank and Agriculture in Africa: http://go.worldbank.org/GUJ8RVMRL0 2 http://www.economist.com/news/brieﬁng/21694521-farms-africa-are-prospering-last-thanks-persistence- technology-and-decent #inframorality | INSIGHT | 43

Mel Karam Global Head of Asset Management E: [email protected] of asset @KPMGuk

Gary Webster Global Head of Capital Project Leadership E: [email protected] delivery: @KPMG_Canada

Ryan Wolton Global Head of Sustainable Value Driving Improvement E: [email protected] @KPMGaustralia

value in a hareholder, lenders and taxpayers worldwide are Sexpecting better management of their physical infrastructure over the life of the asset. Traditionally, complex building, operational performance, and rehabilitation and maintenance management have been treated as distinct silos. From organization, cost and value reporting through to managing stakeholder expectations, in many instances, this has driven poor life cycle decision making world unpredictable consequences

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and poor stakeholder value. As margins have been eroded, efﬁcient capital allocation, optimizing operational performance and ﬁnding ways of extending the life of physical assets has become much more of a focus. And it has been warmly welcomed and adopted by executives and investors alike. Driving this rapid ascension is a growing recognition that not enough is being done to maximize the value of infrastructure assets and investments.

As this Special Report on Asset Delivery Sydney Water illustrates (page 48), there is the job of engineers and asset managers to get illustrates, the discipline of portfolio significant value to putting the customer at projects back on track and improve efficiency. integrated management has become the heart of the asset delivery program. That is why — on page 50 — we spotlight infinitely more mature and sophisticated Part of the challenge for infrastructure owners Richard Price (the Director of Engineering over the past few years. With significant and operators is the sheer complexity of the with the UK’s Southern Water) who has spent value to offer, we believe it is now time task. But as projects become exponentially decades helping asset owners and sponsors for infrastructure owners, operators larger and more complex, the full value of keep their projects from going off the rails. and investors to get serious about their asset delivery becomes apparent. Stephen What is clear is that an integrated approach approach to how they optimize the life and Andrews’ article on page 58 illustrates some of to asset delivery (and the value derived thereof) performance of their infrastructure assets. the challenges faced in creating predictability is set to increase significantly over the coming for complex capital projects, while Rajesh years. In his article on page 60, Mel Karam Around the world, demand for infrastructure Ivaturi’s article on India’s largest power producer looks at some of the new approaches unlocked capacity is on the rise and infrastructure (page 54) demonstrates some of the challenges by data and analytics, the Internet of Things budgets are struggling to keep up. But of integrating assets in a rapidly evolving world. and Cloud computing. As his article illustrates, building new infrastructure is not the only way While the complexity of asset delivery may new opportunities to capture value from asset to bridge the gap. Infrastructure owners and be increasing, the excuses for project delays delivery are emerging almost daily. operators should first start by improving the due to poor project and asset management This Special Report on Asset Delivery productivity of the assets they already have. are rapidly disappearing. As Gary Webster aims to introduce new ideas, catalyze debate Optimizing the life cycle management of points out in his article on page 56, asset and encourage action as we move into a physical assets can deliver both topline and owners and operators are increasingly new era of how organizations manage the bottom-line benefits. Costs can be removed, facing pressure to improve the way they development, delivery and operations of downtime reduced and unexpected shutdowns identify and manage their external risks their infrastructure assets. We encourage avoided, while at the same time, helping drive throughout the asset’s life cycle. you to contact your local KPMG office or growth and improving customer relationships. Of course, infrastructure assets do any of the authors in this report to discuss As our interview with Kevin Young at Australia’s occasionally run into trouble and it is often these issues and ideas in more detail.

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Gary Webster Global Head of Capital Project Leadership E: [email protected] @KPMG_Canada

overnments and companies have a golden opportunity to dramatically reduce the high Gfailure rate of projects, and build much-needed 21st century infrastructure without putting unnecessary strain on taxpayers or clients.

Late and over budget. Anyone working on in the way that the project is set up and large capital projects will probably be familiar run, and assured about outcomes. with these four short words. All of this requires sound governance, risk As a combination of economic and management, partner selection, contracting population growth fuels a boom in global and whole-life asset management. infrastructure, both private and public sector project owners are desperate to slash the Dispelling the myth of the ‘black swan’ high rates of failure. Projects that fall short of their targets, or fail Climbing the Curve, KPMG’s 2015 Global completely, are rarely caused by ‘force majeure’ Construction Project Owner’s Survey, random events, otherwise known as ‘black reveals that more than half of respondents swans.’ They are far more likely to be a result suffered one or more underperforming of controllable factors such as inadequate project in 2014–2015. In the previous leadership, governance and reporting, poor 3 years, just 31 percent of projects came planning, project and risk management, and within 10 percent of budget, and a mere a lack of appropriate resources. 25 percent came within 10 percent of their It’s impossible to overstate the value of original deadlines.1 experience and know-how when approaching If they want to meet shareholder and a project. Some of today’s mega-projects taxpayer expectations — and avoid taking a involve enormous scale and complexity, hit to their ﬁnances and their reputations — to a degree that few organizations have owners must be clear about risks, conﬁdent encountered before.

1 Climbing the curve: 2015 Global Construction Project Owners’ Survey, KPMG International, 2015.

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Those ultimately accountable for inevitably, be operational, maintenance and 4. Receive and act upon the right projects — boards of directors of private repair expenses, and risks to performance. information companies, and Cabinet Committees within A life cycle approach ensures that any When a board has passed everyday control government — have to recognize the risks investment evaluation takes into account to the project team, it’s important not within projects and ensure that everything is these ongoing costs and risks, as well as the to lose touch. By creating a mechanism in place to maximize the chances of success. upfront design and build charges. for receiving regular, reliable information, This means focusing on four key areas: ‘Warranties’ can apply to engineering, leaders can assess progress and make procurement and construction (EPC) contracts important investment decisions. Reports 1. Get your governance right and private-public partnerships (PPPs). In the and monitoring should be dynamic and Realistically, senior executives cannot be former, warranties cover pieces of equipment forward-looking, with strategies and expected to manage the day-to-day elements for a relatively short period after completion. In contingencies for addressing any risks or of a project and must cede responsibility the latter case, the entire asset performance challenges. to project management teams, while is warrantied for the life of the contract, with The best systems use visual aids such as maintaining strong management controls hefty financial penalties for under-performance; dashboards to compare actual performance and monitoring. The lead sponsor is a in effect transferring much of the risk to the and “earned value” against plan, as well as critical role, both to facilitate the project private provider. highlighting early warnings of problems. and integrate the project team within the owner’s organization. 3. Be aware of commonly occurring Building a more predictable future Good governance gives boards a clear line issues In the next 15 years, the world needs more of sight over project issues, and provides them An ability to learn from both successes and than US$60 trillion of global infrastructure with the right information, in the right format, mistakes is all part of developing a ‘corporate investment2 in energy, telecommunications, to make the right decisions at the right time. memory’ of good practice. buildings, roads and bridges, ports, Transferring certain risks to contractors and Boards may not fully appreciate the subtle transportation systems and water/wastewater. sub-contractors can reduce overall project risk. trade-offs between conflicting objectives, If project owners wish to avoid nasty shocks Many experienced practitioners preach the particularly between cost and schedule. Nor do for taxpayers and shareholders, not to mention benefits of a project charter, which defines they necessarily understand the potential risks reputational damage, then sound governance objectives and reporting, separates decision- that could slow down a project or cause extra and executive management can bring greater making and responsibility, and empowers the costs. Project objectives should, therefore, be clarity over project risks, predictability in project team with delegated authority. aligned with the owner’s business goals, and monitoring, and certainty in outcomes. A series of ‘approval gates’ divide a major with those of any partners and suppliers, with capital initiative into stages and provide an contracts focusing on performance and output. overall roadmap, clarifying what has been There tends to be a strong correlation Key questions achieved and what is to come. The key executive between advance planning and project decision-makers should not permit a project success. A comprehensive plan considers the — Does your organization have a clear to progress unless it has met specific goals needs of a full range of stakeholders, including governance structure for managing relating to regulatory requirements, stakeholder shareholders, public interest groups, citizens, capital projects? acceptance, construction and operations. employees and unions. Key risks should be — Do you take a whole-life cycle The Project board convenes regularly identified and monitored, with potential risk approach to investment appraisal? to go over monthly performance metrics. sharing with partners. Not only should the board be composed of Contracts are absolutely critical, not just to — Are your project objectives aligned suitably qualified personnel; it should also, strike a fair deal with suppliers and contractors, with the owner’s business goals? as needed, be supplemented by commercial but to establish an agreed, transparent working and technical experts. For an additional level relationship for the duration of the project. — How effective and consistent is your of comfort, a team of external specialists Collaboration between owners and bidders project reporting? can carry out independent assurance on the can smooth the path, aided by an independent project progress and governance. fairness auditor. Finally, the dedicated project team should This article is a concise version of Building 2. Take a life cycle approach have the right combination of commercial and on success; learning from failure, Governance Infrastructure assets are expected to last technical expertise, to plan and negotiate issues and executive management of major, capital for decades, during which time there will, that carry very significant financial implications. projects.

2 IJ Global and Top 100.

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By Mel Karam n this article, we asked Kevin Young, Managing Global Head of Asset Management E: [email protected] Director of Australia’s Sydney Water, to provide @KPMGuk Ihis perspective on customer centricity, asset management and the changing demands on today’s utility providers.

How do changes in customer behavior quality and reliability at a price that is affordable centric organizations then focus on these and preferences influence the way you and represents fair value. It also means having moments of truth to deliver a great customer manage your infrastructure asset? the confidence and trust of our customers. experience. When I first graduated in engineering a long We as an organization need to ensure At the strategic decision making end of time ago, the focus was all about infrastructure we understand these changing customer the business it’s about integrating the ‘voice and construction. After this I made my career in expectations and needs. Sydney Water no of the customer’ into decision making, and the asset management of infrastructure, driving longer sees itself as an organization that being able to make good decisions for future the best life cycle outcomes at agreed service manages infrastructure assets only — we generations based on the customer needs levels. This drove tremendous change but on are a customer-focused business that needs and aspirations of today. reflection, the service levels were set by the to understand what our customers value and Over the last 12 months we have undertaken industry for customers because we believed are willing to pay for. Our work, which is paid a major operating model review which led that we knew better. In essence we had an for by customers, must simply meet their to a mandate to shift the entire organization engineering focused, paternalistic industry needs in engagement, in responsiveness to a customer centric model. This focus that had to change. And it has. The vision for and in service delivered by our assets. means a new organizational structure, value our nations’ water association in Australia is chain (starting with the customer) and new “customer driven — enriching life”. We have What does ‘customer centricity’ mean in accountabilities and decision rights. The shift entered the ‘age of the customer’ and it’s an the utilities space? How does it influence means great efficiencies which allow lower exciting and compelling time. asset decisions and management? bills for customers but also allows the ability Customers today are more informed and Customer centricity means taking the to invest in new areas to drive customer value. more connected than they have ever been. asset out of the center of our business and Customers are time-poor, and want to interact replacing it with the customer. Being a 125- Why should utilities be focused on with a business at a time and using a channel year old water utility built on solid engineering becoming more customer centric? that is convenient to them. principles, that is no easy feat. More than a ‘nice-to-have’, being a customer Many of our customers are financially Customer centricity is about having the focused business is a ‘need-to-have’ in this constrained. Their water bills compete with right people, processes and systems in day and age. many other utility services’ bills. Customers place to deliver great outcomes for our Being a customer focused organization expect the services they get from Sydney customers. It’s also about having the right makes good commercial sense — and my Water to meet similar standards to other amount of customer insight, and the ability call to action to the industry is the same call service providers they deal with. to act upon it. to action that I gave to my own business: So the biggest change for our business is to At the operational level it’s about We need to step-up and provide value to provide valued water services to our customers. understanding the ‘moments of truth’ in the our customers in the products and services That means products and services of the highest customer experience. Successful, customer- we provide, and at the best possible price.

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Sydney Water no longer sees itself as an organization that manages infrastructure assets only — we are a customer-focused business that needs to understand what our customers value and are willing to pay for.

Kevin Young Managing Director, Sydney Water @SydneyWaterNews

We are living in a digital age where the In your opinion, how will the need to rate of transformation is greater than it has monitor customer behavior change the ever been. Innovations in technology are not way assets are managed in the future? just impacting how organizations are run but How will technology improve or facilitate also empowering customers to demand and that relationship? expect more from service providers. In the future we will need to be more If we do not keep up with customer proactive in how we manage our assets to expectations around the value we provide deliver good customer outcomes. Technology then we will not continue to operate as a will enable us to do this, but at the same successful business — it’s all about building time technology will empower customers customer trust and organizational resilience. to hold us to account. Improvements in sensor technology, the How do you balance customer demands/ internet of things, digital technology, advanced preferences against the objectives of the analytics and social media will all transform the organization? way that we monitor customer behavior and The core mission of our organization is to manage our asset operations. We will need provide essential water services to our to be smarter with how we use data, and customers — which includes water and make decisions and act in near-to-real time. wastewater, and in some areas stormwater The role that customers and the community and recycled water. In doing so we have three will play in shaping the future direction of key objectives — to protect public health, our business will continue to increase. protect the environment, while operating a We will see greater public participation in successful business. decision making that will be enabled by When we make decisions, whether it online platforms and social media. be capital prioritization of sewer overflow In parallel with this, we are seeing our infrastructure, treatment plant upgrades etc., it infrastructure becoming smart with lower has to strike the right balance between meeting cost sensors and mass connectivity. Our these three objectives, while keeping the future dream is that we know about problems customer at the heart of the decision making. before our customers do. In customer experience design we balance customer demands/preferences against What might other infrastructure sectors the objectives of the organization by asking learn from Sydney Water’s experience? ourselves three questions — Firstly do What did you learn? customers want it (value it)? Secondly, is The message for other infrastructure sectors it technically feasible? And finally does it is that the shift to customer centricity is not make good commercial sense? an overnight one. It requires a continual and We appreciate that there are balances to sustained process of change, with buy-in at be achieved. My performance agreement as every level of the organization — from front- Managing Director of Sydney Water has four line and back-office staff — right through to major metrics that measure my success (and the Executive and Board. that of the organization). They are as follows: I have learned a lot along the way, but the — Customers’ experience with Sydney Water most important lesson is the role of people — Customers’ level of trust with Sydney Water in making change happen. Strategy is all — The culture of our organization moving about change — finding new and better to a highly constructive and collaborative ways of doing business — and this means environment having the right culture in the business and — The financial value of our business. the right people with the right mindset.

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By Mel Karam Global Head of Asset Management E: [email protected] @KPMGuk

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If you have a team that believes in itself, it is infectious. But if they believe at the start that they are going to fail, you can bet they probably will.

Richard Price Director of Engineering and Construction, UK’s Southern Water @SouthernWater

f there’s a problem on a water project in Understand the problem the project life cycle, from project scoping and Southern England, you can be sure that With more than 300 individual projects on feasibility through to delivery and maintenance. IRichard Price knows about it. As the the go at any one time, Richard is keenly “We don’t want any projects to simply Director of Engineering and Construction focused on ensuring that everyone involved move through inappropriately on a ‘light at the UK’s Southern Water, Richard in a project is working from a ‘single view touch’ basis,” he noted. “You always need oversees a portfolio of around 300 individual of the truth’. “If everyone is looking at the to make sure that you have appropriate water and wastewater projects across Kent, portfolio of projects through the same lens, challenge on key decisions and the right Sussex, Hampshire and the Isle of Wight. we remove conflicting information and that level of rigor has been put into ensuring And while his focus is on delivering the allows us to then peel back the layers of that the decision aligns to the root cause company’s portfolio of asset investments, the portfolio to really examine projects at a analysis or customer outcome.” he also spends a lot of his time helping higher level of granularity,” he added. To ensure the right options are being asset owners and sponsors to improve (and While understanding and agreeing on a considered, Richard’s team also takes a ‘total sometimes to repair) the assets under their single view of the data and clear outcomes for expenditure’ approach that prioritizes the most control. Clearly, Richard knows a thing or the project are incredibly important, Richard efficient interventions to achieve the desired two about spotting and recovering projects also stresses the value of identifying the outcome or performance improvement. “We’re that have ‘gone off the rails’. root causes of issues right at the start. always looking at both the way the asset is “Understanding the root cause of the issue is operated and the available capital intervention A deeper view of success critical to assessing the potential interventions options when we make our decisions.” With more than 20 years of hands-on available to you,” he added. “Really identifying engineering experience, Richard subscribes that at the lowest level possible enables you Set up for success to the ‘three pillars’ of measuring project to select the leanest intervention to deliver the Richard notes the importance of leadership success: on time, on budget and at quality. performance that you require from an asset.” and culture in creating a flexible and results- But he also believes that project success oriented team. “The team needs to truly depends on a fourth dimension: customer Knowing when to intervene believe they can deliver the project on time excellence. Working in the water sector, a large part of and to budget,” he said. “If you have a team “Customer excellence is so important in Richard’s success depends on his ability to that believes in itself, it is infectious. But if they the delivery of projects,” he noted. “People meet and manage regulatory requirements. believe at the start that they are going to fail, often think you can trade one off for another The economic regulator — Ofwat — must you can bet they probably will.” but I think that’s completely wrong; in approve the business plan; the Environment Leadership is also critical to ensuring that fact, the projects that meet the desired Agency sets environmental outcomes that everyone on the team is pulling in the same customer outcomes are often the ones that must be met; and other important outcomes direction and collaborating on the delivery also have better cost records and better are set by the Drinking Water Inspectorate. mechanism. “You need to change the muscle on-site quality.” “We need to continuously marry our memory of those people in the team who may Most readers of this publication have likely customer-facing outcomes with the needs have operated in different environments for ‘lived through’ the equivalent of a sewer line of our regulators in terms of quality and many years or who may be unwilling to break or water mains repair in the past. So it goes environmental impact and then align that some of the paradigms of the past,” he added. without saying that minimizing the impact on view to the bottom-up needs of our asset Ultimately, Richard believes that keeping customers is a key measure of success for base,” he explained. “It’s that process projects ‘on the rails’ requires asset owners Richard’s team. that really tells us where we need to and project managers to follow some basic “It’s critical that we engage with the intervene either operationally or through principles: understand the outcomes you are community, explain what we are doing, an engineering and construction project trying to achieve; define the project scope how long we will be there and how we will to improve our performance.” well; identify the underlying root causes of minimize the disruption,” he explained. “But your issues; apply strong controls; and have just as important is to actually start when An appropriate response check-points throughout the project life cycle. we say we are going to start and finish With the firm conviction that keeping projects “There can be unexpected events that can when we say we will finish — we need ‘on the rails’ is easier than fixing projects that drive a well-planned project off the rails, but to plan our projects with clear customer have jumped the tracks, Richard focuses on do these things well and you should find a outcomes in mind.” implementing a series of smart checkpoints into clear path to success,” he added.

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function has become a real priority for achieve which greatly influences the way public sector organizations over the past they manage their asset. few years. Do you get the impression that BL: I’d argue that the public sector also politicians and finance departments are wants to achieve pretty clear returns on their now more focused on asset management investments but the ‘value’ is sometimes a and the value they get from their bit different. To the public, a road is worth infrastructure? more than the actual cost of its installation Bradley Leeman (BL): Absolutely. Asset and maintenance; it’s a path to a hospital, to Ross Homeniuk management in the public sector has work, to pleasure and parklands — even to KPMG in Canada traditionally been done in dark basements City Hall — so asset management can’t just E: [email protected] by public works types and operators. But be about getting the best financial returns. @ross_homeniuk over the past few years it has really come You really need to think about what the into the public discourse — politicians and ‘value’ of that asset is. the pubic really care about their infrastructure RH: The introduction of the ISO55000 and want to be sure they are getting value standards for asset management have for their investments and that means a focus certainly drawn attention to the need sset management is moving up the on asset management. for more rigorous asset management public sector agenda and attracting RH: I think the public sector has also capabilities. But I think people need the attention of politicians and A become much more sophisticated in their to recognize that it’s not a roadmap to citizens alike. In part, this is because people approach to asset management. It’s become ‘good’ asset management but rather want to know they are getting the best less about the nuts and bolts — though a way to establish alignment between value possible from their infrastructure those are certainly important — and more organizational goals and objectives on and their taxes. At the same time, the about whether the asset is being managed the one hand, and the practices and introduction of the ISO55000 standards appropriately to deliver the service that is approaches you take to managing your for asset management have provided required. assets on the other. clearer guidance to help private and public BL: Right. And so at the City of Edmonton, BL: I think of ISO55000 as something that sector organizations enhance their asset we think about our assets from a corporate helps define the ‘what’ and the ‘why’ of management programs. perspective rather than on a departmental asset management but not the ‘how’. If all Recently, Ross Homeniuk, KPMG in Canada, basis. We think about what our mission and you had was an ISO55000 document and sat down with Bradley Leeman, Director, vision is and how these assets are helping you knew nothing about asset management, Infrastructure & Funding Strategies us fulfil that mission. It’s all about thinking you’d probably end up with a pretty at the City of Edmonton in Alberta, holistically about what you are trying to good management structure and lots of Canada, to talk about the evolution of achieve and how you can best manage your documents and policy. But you wouldn’t asset management in the public sector, assets to do that. have really operationalized anything. There the impact of the ISO standards and the RH: I think it’s fair to say that, generally are other documents — like the International rising awareness of the need for improved speaking, the public sector tends to lag Infrastructure Management Manual — that asset management. behind the private sector in terms of the deal with the ‘how’ and these need to be rigor placed behind asset management. viewed in concert. Ross Homeniuk (RH): While asset And in large part, that is because the RH: The ISO is really intended to be management was always an important private sector has a clear financial return quite broad — to work in any type of operational discipline, it seems that the on investment they are expecting to organization — because it focuses on

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I think one of our biggest challenges is communicating the beneﬁts of asset management to help stakeholders understand what we are doing and why we are doing it.

Bradley Leeman Director, Infrastructure & Funding Strategies at the City of Edmonton @CityofEdmonton

high-level alignment whereas the ‘how’ cost of asset management. Do you think really needs to be quite specific. The there is now a good appreciation for the IIMM certainly helps in areas categorized discipline of asset management in the as public infrastructure — roads, parks, public sector? sewers, water and so on — but there are BL: The public is certainly more aware of their other standards out there that help with infrastructure but we still have a long way to the ‘how’ in other areas like oil and gas, go before they really understand what it takes logistics or energy generation. to look after these assets. In fact, I think one BL: And I would argue that the approach of our biggest challenges is communicating would vary depending on the size of your the benefits of asset management to help organization and what you are trying to achieve. stakeholders understand what we are doing A small town of 10,000 people probably is and why we are doing it. Not just so that we are less interested in the ‘why’ and ‘what’ and being transparent with our investments, but more focused on the ‘how’. The ISO really also because the asset management debate helps with ensuring alignment across large can sometimes become quite emotional when organizations and in securing funding for an people think you are changing something asset management program, but when it’s about their community assets. just three people in the organization you are RH: The City of Edmonton has certainly probably focused on just getting it done. managed to raise awareness of the value RH: Many of our public sector clients are of good asset management. What is talking about becoming ISO compliant but your advice to your colleagues in other few seem overly-focused on securing their jurisdictions who may not yet have the ISO certification. Are the requirements of same visibility? ISO certification too onerous or difficult BL: More often than not what you find in the to achieve in the public sector? public sector is one or two individuals working BL: Not at all. But I do think that some people are away and not getting much attention. But wary about the effort that goes into gaining — then all of a sudden it clicks in the minds of and then maintaining — an ISO certification. management and you go from being a lone To be honest, I don’t try to encourage people wolf to instead leading the pack. The point to get certified. What I encourage them to do is that it’s not always a high-profile position is read the statement, think about how it can and it doesn’t always get the attention it apply to their organization and do what they deserves, but be patient: the journey is can to embed the principles into their current worth the trouble. asset management program. Don’t be afraid of doing ISO55000 because of the certification; just take that off the table. RH: I’d like to come back to your point about the public and politicians becoming more aware of the relationship between their physical infrastructure, the associated services that are being delivered and the

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By Rajesh Ivaturi KPMG in India E: [email protected] @KPMGindia

You need to look at your long-term road map and then think about how you execute that in annual cycles because the environment is changing very quickly.

Mohit Bhargava General Manager, NTPC @mohitpoonam

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As infrastructure owners and operators start to shift their view from managing individual assets to instead focus on balancing a portfolio of inter-connected assets, many are struggling to create an integrated approach that spans strategy through to execution. And nowhere is this challenge more difﬁcult than in the electricity sector where rapid technological shifts and evolving policy requirements are heavily inﬂuencing the asset mix. For India’s largest power producer — NTPC — integrating asset planning and management is not just critical for the company’s future success; it is also vital for India’s future growth and development.

aximizing the value and performance General Manager with NTPC. “But we also influences where we invest and how we of a single asset can be complicated; recognize that India is currently experiencing structure our portfolio of assets going forward.” Mintegrating the management of significant power shortages and so, we are dozens of different assets can be overwhelming. also looking to rapidly add capacity to the Learning together And the problem compounds as the types of existing network.” While Mr. Bhargava and NTPC are creating assets diversify (consider the complexity of a uniquely Indian approach to solving the managing a fleet of same-model buses, for Integrating technologies country’s capacity shortages and meeting example, versus managing an eclectic fleet Ensuring a sustained and secure flow of their renewables targets, he notes that of buses, cars, trains and ships). power capacity across various technologies the organization benefits from studying In the power sector, the challenge is will also be a significant challenge for NTPC experiences in other markets that are also particularly acute. For one, new technologies going forward as intermittent sources such struggling with similar issues. such as solar and wind are rapidly evolving as wind and solar are brought into the mix. “We are looking at places like Germany, China and must be integrated into an existing “When we think about building a large and the US to find out how other countries system that is largely designed for older solar power station, for example, we also are tackling this problem and — as much as technologies such as coal-fired plants. The need to develop an equal amount of coal-fired possible — integrating their approaches and sector is also highly influenced by regulatory capacity to ensure we can provide power their technologies into our strategy,” added Mr. and policy requirements that often dictate 24/7,” noted Mr. Bhargava. “The cost of each Bhargava. “But I don’t think anyone has come the types of assets and mix of generation technology is certainly a factor, but we also up with a perfect approach to integrating new capacity that can be developed. need to think about how we integrate new technologies into the mix so I suspect we are sources into the grid at the right time and all learning together.” Diversifying the asset mix sequencing to keep power flowing and to For large, diversified power companies like meet the country’s growing demand.” Guided by a higher objective NTPC in India, the need to integrate asset Mr. Bhargava recognizes that the long-term management and planning across their various Managing constant disruption vision for the company and for the country is assets is clear. The company already operates Recognizing that some technologies — to deliver a low-cost, low-carbon and secure 18 coal-based stations (either directly or particularly solar, wind and electricity source of power to drive India’s development. through Joint Ventures), 7 gas-based stations storage — continue to rapidly evolve, NTPC And that objective, in turn, helps guide the and one hydro-based station. But by 2032, needs to balance the company’s optimal organization’s asset management and capital the plan is to diversify the fuel mix to about long-term asset mix against the realities of investment program. 56 percent coal, 16 percent gas and 28 percent a constantly changing cost, capabilities and “There are still a large number of people from non-carbon generation sources such as technology environment. in India with no access to energy and the nuclear, wind and solar. “You need to look at your long-term road government has set a goal of connecting “We are looking at what our goals and map and then think about how you execute the entire country with affordable power optimal fuel mix should be 10 to 15 years that in annual cycles because the environment by 2019,” he noted. “The next decade will out, knowing that we will need to integrate is changing very quickly,” he noted. “Just be an extremely exciting one for India and various technologies in terms of coal, gas, 5 years ago, the tariff for solar power in India particularly the power sector; what is clear solar, wind and nuclear to meet not only our was around 17 rupees per kilowatt hour and is that the opportunity and the complexity corporate objectives but also the needs of the today it has fallen to just over 4 rupees — that will be tremendous in the years ahead.” country as a whole,” noted Mohit Bhargava, is certainly great for the country but it also

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Gary Webster Global Head of Capital Project Leadership E: [email protected] @KPMG_Canada

t is often surprising that project owners blame unforeseeable events when they face signiﬁcant delays Iand cost overruns. My experience suggests that around 9 out of 10 project delays could be avoided if project owners were to pay better attention to the ‘external risks’ throughout the lifespan of their project.

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My experience suggests that very few project owners put any rigor at all into creating a formal program to monitor and manage external risks.

Given the enormous amounts of time, resources risks during implementation. And yet they to scan the horizon for broader trends that and capital going into these projects, I believe seem surprised when the project suddenly will affect a project. This can lead to what infrastructure owners need to be placing as suffers delays due to some ‘unexpected’ (yet can be termed strategic blind spots which, much focus on managing externalities as wholly predictable) external factor. if not addressed, can lead to dire outcomes. corporations do when looking at (and managing) Project owners should also be thinking external trends that can affect their bottom line. Put some rigor to it carefully about how the external life cycle Granted, monitoring and managing the wide risks are passed from one stage to another, The fallacy of unavoidable delays variety of potential external risks that could whether it is planning to design, design to Large capital projects and ‘megaprojects’ are impact a major project isn’t easy. There is, to construction, or construction into operations. notoriously difficult and complex to develop date, no slick software package or innovative All too often, projects are handed over and deliver. So it is, perhaps, not surprising that tool that brings together all of the risks into without the benefit of knowing the thought a large number of these projects suffer from one easy-to-view dashboard. Each potential process that underpinned the decisions delays. After all, most of these projects tend external risk needs to be reviewed individually or the assumptions that informed the risk to have 10- to 15- year timespans between the and then integrated at a strategic level to assessments. More must be done to ensure start of design and the delivery of the asset; assess the potential interdependencies. this transition is effective and past knowledge surely it’s inevitable that initial timelines will Regular monitoring and assessment are and judgment are brought to bear on later slip somewhat over that time. necessary to avoid the catastrophic outcomes stages of development. Yet the reality is that most projects fail, we all too often read about. Owners could also be doing more to not because of technical mistakes or risks, Part of the challenge is that these external establish formal governance and controls but rather because an external risk (or events can be triggered by a wide variety of over the management of external risks. In a basket of inter-related external risks) events or trends such as changing stakeholder some cases, this may involve adding external was not properly monitored and managed requirements, shifting economic and political risks to the project risk register or Enterprise throughout the life cycle of the project. realities, climate, industrial and market Risk Management process to ensure that pressures, regulatory environment and they are being reviewed at the appropriate Don’t just identify external risks; demographic trends. frequency and depth. It should also involve manage them Capabilities are also a potential challenge: setting the right checkpoints and conducting Experience suggests that most project many leaders of major capital projects robust reviews. owners do a fairly good job at identifying are gifted with technical or construction But ultimately, even with all the right tools and quantifying external risks at the start management, but often do not have and controls in place, much depends on the of a project. Indeed, when initially ‘scoping’ the broader experience to deal with the experience and view of the project leaders. out a new capital project, project sponsors, complexities of the complete project Those who have delivered significant and promoters and investors are often meticulous environment and understand how they can complex projects in the past tend to have a about detailing the potential technical and impact the end result. And because major stronger appreciation for the external risks: many of the external risks that could impact projects span such a long time frame, staff as the saying goes, “once bitten, twice shy.” their initiatives. and leadership tend to change, meaning that The problem is that these types of leaders The problem is that all of this work tends the thinking of the past is often lost and are hard to come by in today’s market: most to happen long before the ‘unknowns’ are there is a general breakdown in governance. are either now retiring or in fierce demand. known. Financial and environmental plans have yet to be reviewed by the regulators; How to stop delays before they start No more excuses land rights and environmental approvals Project owners are almost always equipped Investors and owners are starting to recognize have yet to be secured; and the longer-term with the right focus and ability to monitor the importance of a robust approach to impacts of economic or social change have technical risks in detail. The big question is managing external risks throughout the life yet to become clear. Simply put, almost why they aren’t applying this discipline and cycle of a major capital project. In the public everything will change between the time rigor to their external risks in the same way. sector in particular, watchdogs and government that the project is initially scoped and the To start, project owners and sponsors auditors are taking a keen interest in how time it is delivered. should be working at the board and executive project owners and leaders are identifying, Most project owners put little effort into level to ensure that project leaders understand monitoring and managing external risks. reviewing and monitoring these external risks the complexity of the project environment With few exceptions, there should be once the project is in flight. In fact, experience and have the ability to provide strategic little need for excuses for project delays. suggests that very few project owners leadership throughout the project life cycle. It’s time for infrastructure owners and put any rigor at all into creating a formal Technical brilliance requires intense focus leaders to start giving their external risks program to monitor and manage external which can limit the ability of a project leader the attention they deserve.

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By Stephen Andrews KPMG in the US E: [email protected] @KPMG_US Capital projects must always be delivered to exacting standards. But none more so than those that are developed to produce lifesaving pharmaceuticals and biologics. For life science manufacturers like Bristol-Myers Squibb (BMS), ensuring predictability around capital project delivery is key, not only to the organization’s future success but also to the safety of patient lives.

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The fewer people that you have to go to when you need to make decisions when things change, the faster you are going to be able to move.

Michael Furlong Project Director, Bristol-Myers Squibb @bmsnews

here are few capital projects as around the world and therefore must Integrating operations complicated or as sensitive as building comply with standards set by regulators While BMS is currently just starting the Ta new biologics facility. For one, the in the US, Europe, Japan and other major construction phase, the team clearly feed material for the operational facility will markets. recognizes that the ultimate objective is to consist of living cells, which makes process At the same time, the production of hand over a fully-operational, safe and efficient control critical. Contamination is a constant biologics requires highly sterile environments facility to an operations team by mid-2018. To risk so control systems, automated systems, and closed processes. “The plant will have ensure that the facility will operate optimally, data recordings and data histories must all be more than 70 kilometers of piping, 60 percent Mr. Furlong’s team is investing significant contained within a closed process. And, at of which is sterile, so there is a good deal of time into working closely with the various the end of the day, the final product will be complexity that has to be controlled within functional areas that will operate the plant. injected into humans — often to help treat very tight parameters on a day-to-day basis,” “We are already hiring and staffing the a serious disease — making every decision noted Mr. Furlong. operational teams that will take this facility a potential life-or-death scenario. over and they are helping us with important For Bristol-Myers Squibb (BMS), one of the Securing predictability elements such as factory acceptance testing world’s leading biopharmaceutical companies, Facing a massively complex and somewhat on newly installed equipment and facility the need to build a new biologics facility was rare undertaking, how is Mr. Furlong and the infrastructure layout and design,” he noted. clear. The company has enjoyed significant BMS team driving greater predictability in “It’s like a relay race: you really need the next growth in its range of products (introducing their project? According to Mr. Furlong, the runner to be pacing alongside you — moving 12 new medicines in the past 7 years alone) first — and possibly most important step — at the same speed — if you want to hand and — while they could rely on their existing was to ensure that the project was well over the baton efficiently.” facilities in the US to meet existing product understood and had the undivided support requirements — the organization would of the executive team. The right people with the right incentive need to add to its in-house network to “We spent a good deal of time making Mr. Furlong credited his team for much of the meet demand for the new biologics it had sure that everybody knew what we were project’s success and noted the importance in development. building, why we were building it and the of hiring the best possible people for key options for where it should be placed,” he positions. In particular, the team focused Not your average development noted. “We knew we needed to invest on securing a top-notch Project Engineering With a budget of close to US$1 billion and that time to make sure there would be Director, Automation IT Director and Head of their eyes set on a location in Cruiserath, no major changes once we went further Process Engineering. “We wanted people Ireland, BMS is now in the early stages of into design.” who didn’t just have the right experience, construction on their new large-scale cell The team also focused on determining but also the right outlook and a solutions- culture manufacturing facility which will be the stakeholders that would be allowed to focus,” he noted. “They had to want to work developed alongside a new lab and office influence decisions throughout the design, on something really important.” complex. The facility is expected to be construction and hand-over phases. “The At the same time, Mr. Furlong emphasizes operational by mid-2018. fewer people that you have to go to when the importance of having a strong partnership According to Michael Furlong, BMS’s you need to make decisions when things with the architectural engineering and Project Director for the construction change, the faster you are going to be able construction management firms. While program, capital projects of this size and to move,” he added. BMS broke the project out into two separate complexity are rare. “The last large-scale According to Mr. Furlong, the third key RFPs, it was Jacobs Engineering Group that biologics facility we built was in the US element that needed to be in place at the was awarded both contracts. in 2005,” he noted. “We’ve developed outset was a full understanding of the risks “We have great alignment with our EPCM a number of smaller lab complexes and and their influence on a variety of factors contractor and maintain a shared belief that development complexes over the past including costs, schedules and compliance we both need to succeed in order to make decade but something of this complexity requirements. “You need to factor in what this project work,” he added. “Both the Jacobs is few and far between.” you think you need plus an appropriate layer team and the BMS team are fully aware of Much of the complexity comes down the to reflect the known risks — not to sandbag what we are trying to achieve here — we execution and delivery to exacting standards the budget — but to ensure that you can are making it possible for people to receive required in the biologics manufacturing react to challenges appropriately without life-saving and life-changing medications for process. The new facility will serve markets putting the project in jeopardy.” decades to come.”

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sset managers are no strangers to analytics capabilities and cognitive computing data. Indeed, data and analytics has have fundamentally altered the relationship Aalways been at the heart of any asset between data and asset management. management program. Data is the lifeblood Now, it’s up to infrastructure owners and of our decision-making process, guiding operators to adopt these new ideas to drive everything from capital investments through unprecedented efficiency and customer to maintenance schedules. And significant service from their assets. emphasis is placed on the importance of data Mel Karam within the new global ISO5500 standards on A massive data dividend Global Head of Asset Management asset management. Infrastructure owners and asset managers are E: [email protected] Yet, recently, the ‘value’ of data has rapidly recognizing the massive benefits that @KPMGuk changed. New technologies, sophisticated are now becoming available through data and

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Infrastructure providers are also quickly gaining the skills and capabilities required to turn their data into insights and their insights into competitive advantage.

analytics (D&A). Toll road operators are already Intelligence (AI) technologies are allowing asset owners will likely need to integrate a using sophisticated D&A tools to monitor computers to learn on their own, using combination of solutions — hardware and capacity utilization in real-time and then take decades of data to essentially isolate the best software — depending on a variety of factors corrective action to avoid bottlenecks. Shipping response based on certain variables; basically such as the outcome they are trying to achieve, operators are using D&A to predict the optimal learning from our mistakes. And the ‘black the types of assets they are managing, the shipping route based on a broad basket of boxes’ aren’t just getting smarter, they are sophistication of their management team information including weather patterns, ocean also becoming more user-friendly with new and their cost restrictions. currents and port availability. Water companies visualization technologies, easy-to-use graphic are using D&A to accurately predict demand, interfaces and clean and clear dashboards. A journey to maturity allowing them to pump only the quantity of Infrastructure providers are also quickly The big secret to success in D&A is to not get water needed for that 24-hour period. gaining the skills and capabilities required to overwhelmed. There is a broadly recognized Where D&A is offering particular benefits for turn their data into insights and their insights maturity curve for D&A that infrastructure infrastructure providers is on the maintenance into competitive advantage. Building from owners and asset managers will need to evolve and operations side as operators leverage their existing internal capabilities, many through. It starts with gaining capabilities and data from sensors to move from ‘scheduled infrastructure operators are now starting confidence with what is called ‘descriptive’ maintenance’ to ‘on-demand maintenance’. to take a more formalized approach to analytics — essentially the reporting of events So instead of bringing a ship into dry dock for identifying and developing the new skills that happened in the past. Once that has 2 weeks each year for annual maintenance, and capabilities required in this technology- been mastered, organizations tend to move shipping companies can now see all of a ship’s enabled environment. And, as they gain on to ‘diagnostic’ analytics which focuses on maintenance requirements in real-time and more experience and confidence, these understanding the root cause of the event. decide on the proper corrective action. capabilities are spreading across the Today, many of the more mature industries Consider the benefits: hydro companies can organization. (such as retailers and technology providers) keep their turbines operating at optimal capacity are using ‘predictive’ analytics which allows for as long as possible; train operators can Business-led, technology-enabled executives to essentially predict — to a high replace rolling stock and parts based on need Be warned: no value comes from doing D&A degree of accuracy — what is likely to happen rather than on a ‘best guess’ schedule; and for the sake of doing D&A. And nobody ever in the future. The highest level of maturity across all sectors, safety can be vastly improved won the D&A ‘race’ by spending the most (that we yet know of) is called ‘prescriptive’ by enabling real-time and continuous monitoring money. Getting value from D&A takes time, analytics and goes one step further to provide of critical components and processes. patience and lots of hard work. And it takes the user with recommendations on the actions Data and analytics is also being used by a clear goal in mind. that should be taken. infrastructure owners and operators to improve It starts with understanding the specific As with any maturity curve, it’s nearly customer service and — in some cases — even problems you are trying to solve. Maybe you impossible to skip a step. Some can certainly be link the customer service issue to a particular are trying to reduce operating costs. Or maybe accelerated, but the reality is that infrastructure performance issue at a specific asset. This you want to increase capacity. Or you may owners and asset managers will need to go allows a direct link between customer contact, want to improve the customer experience. through each level of maturity in sequence in the customer issue and the asset causing the The point is to isolate the problem you are order to reap the full benefits of D&A. In fact, problem, providing the insight required to help trying to solve or the question you are trying we believe that each step should be embraced identify and then eradicate the root cause. to answer. and exploited rather than rushed and forgotten. The next step is to identify the data that The future is here is needed to provide that answer or insight. Time to act All signs suggest that D&A will become Significant value can be harnessed from Data and analytics is not a fad or the product increasingly pervasive in the infrastructure existing operational and performance data, of hype. It is an evolutionary capability that sector. In part, this is because the cost of but very often additional insights can be holds the power to unlock massive benefits D&A tools and systems is dropping quickly. generated by overlaying external data such and unprecedented asset performance for High-quality, sophisticated sensors can be as weather patterns, supplier data or even infrastructure owners and users alike. But purchased for less than one US dollar. Mind- social media streams. The challenge here is securing these benefits will require significant blowing processing capacity can be acquired to create the right controls and governance effort, investment and vision. on demand and at scalable quantities. Terabytes to ensure that the data being used is fresh, Being able to make good decisions based of data storage can be found for pennies in reliable and accurate. on accurate data is critical to managing the cloud. And as costs drop, the return on With a firm understanding of the business infrastructure assets efficiently and effectively. the investment for asset managers grows problem you are trying to solve and confidence And being able to harness the right data at exponentially. in the data at your disposal, it is now time to the right time to answer the right question At the same time, the tools and algorithms think about technology. And the reality is that will be key to driving value. The tools, data that underpin D&A are becoming much more there is a wide variety of solutions, tools and and technology are all available; now it is sophisticated. Machine learning and Artificial technologies to choose from. Infrastructure time to act.

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By Andy Garbutt KPMG in the US E: [email protected] @KPMG_US

When Elon Musk — founder of Tesla Motors, PayPal and SpaceX — posted his idea for a new ‘ﬁfth mode of transport’ in 2013, the transportation sector took note. Musk had already fundamentally disrupted the payments, automotive and space sectors; nobody doubted that his idea could potentially revolutionize the way the world views transportation.

usk’s expectations for the new Hyperloop One’s approach is based on Believe the hype system were almost unbelievable; four basic concepts. The first is that the Since Musk’s announcement, the Hyperloop Mhis system would offer immunity system is housed in an enclosed, low-pressure concept has been heavy on hype. But if from weather, cars that never crash, average environment which removes air resistance Lloyd’s team is successful, the hype will speeds twice that of a typical jet, low power and, in doing so, reduces the energy required be extremely well-founded. His group has requirements and the ability to run 24- to move an object at high speeds. The second already proven that the technology is capable hour operations. “The basic concepts are concept is that the system is using magnetic of moving people or objects at speeds of very simple and it’s really a very elegant levitation, thereby reducing the friction almost up to 1,100 kilometers per hour, crossing architecture that creates massive advantages entirely and resulting in less wear and tear from San Francisco to Los Angeles in just over existing transportation methods,” boasts and maintenance. The third concept is that 35 minutes. That’s 15 minutes to go from Rob Lloyd, CEO of Hyperloop One, a company it uses a linear synchronous motor to propel Manchester to London or from New York founded expressly to bring Musk’s idea the vehicles in the tube and the final concept to Boston. into reality. is that smaller ‘pods’ are used to transport “If it took just 15 minutes to get to a major people or freight in a ‘packetized’ and on- city 300 kilometers away, how would that What exactly is Hyperloop? demand fashion. change the way you interact with that city?” he The basic concept behind Hyperloop (as Musk “We will move people and goods at very asks. “When you start to look at transportation named the technology) is rather simple. Low- high speeds, with very little energy, no noise based on time rather than distance, you pressure tubes to remove air-drag significantly pollution and a very small footprint, all of which change everything — where you live, where allow pressurized capsules to dart great gives us something that is ultimately faster, you work, how you manage logistics, how distances at unprecedented speeds using safer, cheaper and greener than other current cargo is priced — it will be a truly amazing electric motors and air compressors. transportation alternatives,” argues Lloyd. shift for society.”

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member ﬁrms of the KPMG network are afﬁliated. When you start to look at transportation based on time rather than distance, you change everything — where you live, where you work, how you manage logistics, how cargo is priced — it will be a truly amazing shift for society.

Rob Lloyd CEO, Hyperloop One @Rob_Lloyd

While some in the transportation sector The Hyperloop concept is also gaining industrial prototypes — moving people and may view Hyperloop as a potential disruptor, significant support from the public who freight — in 2020 and 2021.” Lloyd argues that the technology will seem eager for an alternative to current Lloyd credits the organization’s success actually improve the efficiency of existing transportation options. “Traffic is getting and speed to market to the skills, tenacity infrastructure. Imagine, for example, if cargo worse, airports are at overcapacity, shipping and experience of his team. Not surprisingly, coming into ports could immediately be is slow and hard on the environment; it feels his organization attracts some of the world’s shunted to an inland customs clearance like the world is cheering for something new top talent who are looking for opportunities facility where land costs are lower and and we believe that Hyperloop is the thing to make a real difference in the world around processes more efficient. Or if airports in they are cheering for,” says Lloyd, who had them. On average, the organization receives the same region could move passengers served as President of Cisco Systems prior upwards of 500 applications for every job from one airport to the next as if they were to joining Hyperloop One. they post. moving between terminals. “We’re hiring some of the world’s brightest “Hyperloop is a fifth mode of transport — it Creating the right environment minds — people who know how to come up doesn’t replace other existing transportation Of course, introducing an entirely new form of with innovative ideas and have the experience modes, it connects them,” he argues. “We transportation into a world ruled by regulation to implement them,” notes Lloyd. “We’re look at it as a new backbone that enables us to and constrained by incumbent thinking will creating a culture of builders rather than connect other infrastructure and transportation not be an easy task. “We can’t be regulated theoretical designers.” systems together in a very cost effective and by existing regulations that were designed Technology is also playing a key role in environmental way.” for technologies that are now more than a driving Hyperloop’s rapid development and The other reason that Hyperloop could century old,” argues Lloyd. “I think regulators deployment. Under a blue tent at the company’s be a ‘game changer’ is that — unlike trains have both a challenge and an opportunity to Nevada test site, the organization is currently and planes that move between terminals — create new rules that properly encourage running what it calls ‘Robot University’ where AI- Hyperloop is envisioned as a ‘packetized’ new and emerging modes of transportation.” enabled robots learn unique welding techniques system that goes directly to its intended Lloyd also acknowledges the cost challenges and processes from the organization’s “Master destination. “The idea is that we move smaller associated with developing and scaling up a Welder”. Once they have learned their trade, units of cargo and passengers point to point completely new technology with no existing they’ll be brought out to the desert to start and that’s what is going to make this so supply chain or ecosystem. But this also working on the new prototype. disruptive in the end.” presents an opportunity for the group to develop “We are finding ways to do things differently, the technology with a systems-based approach to design, test and build much faster than An idea whose time has come rather than a component-based approach. “A anyone would have anticipated,” Lloyd notes. While there were initially many sceptics, systems-based approach will help us reduce “Linear development cycles may have made the work being conducted by Lloyd’s team the overall cost and will allow us to better sense when engineers were improving old and others has turned many into believers. integrate new software and hardware more technologies, but we need to move much “Investors love it,” coos Lloyd. “And regardless rapidly which is pretty exciting for bureaucrats.” faster and learn lessons much more rapidly of how hard the technologists try to invalidate than before.” the engineering, they can’t — the engineering Deploying at hyper-speed is certain.” Maybe the most amazing thing about Get ready to think differently The company has already raised more than Hyperloop is the speed at which the While some questions may still remain about US$100 million in funding from investors eager technology is being developed and tested. the application and cost of the new technology, to see the technology move from concept Lloyd’s organization is already running tests what is already very clear is that Hyperloop to full-scale prototype. And they have had at their purpose-built Propulsion Open Air is more than just a radical new concept. It expressions of interest from markets in the Test facility in North Las Vegas and expect is a new way of thinking about distance and Middle East, from Russia and from Singapore to have their full-scale Development Loop travel; it is a new approach to transportation; where the value of being able to ‘leapfrog’ the Test up and running by 2017. “People think it and it is a demonstration that new ideas can mature markets with a new technology can will take a decade or more to operationalize be rapidly tested and deployed when the right be particularly alluring. an idea like this, but we’ll have the first minds and effort are put behind it.

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James Stewart Global Infrastructure Chairman E: [email protected] @jaghstewart

t has been just over one year since G20 leaders met in Brisbane, Australia to establish the Global IInfrastructure Hub. To ﬁnd out how the initiative is shaping up and what it hopes to achieve through its mandate, James Stewart, KPMG’s Global Infrastructure Chairman, sat down with Chris Heathcote, Chief Executive Ofﬁcer of the Global Infrastructure Hub in Australia.

James Stewart (JS): The G20 meeting in matching up. The members of the G20 Australia made it clear that governments saw an opportunity to help bridge that gap were getting serious about tackling the by helping governments around the world global infrastructure deﬁcit. How did create the right environment and structures that focus lead to the establishment of to attract private investment and the GI Hub a Global Infrastructure — or GI — Hub? was born to facilitate that. Chris Heathcote (CH): I think the G20 JS: That is a massive undertaking. How recognized that infrastructure is one of the is the GI Hub expected to achieve that? best available levers to encourage economic CH: It certainly is. And we are not as large an growth. But they also recognized that — operation as the World Bank or other multilateral while there was a wall of money available for initiatives with similar objectives. But our role infrastructure ﬁnance and a wall of projects is to focus on breaking down the barriers to that needed money — the two were not entry for infrastructure players, to help them

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. enter new markets and be more effective in module. What this means is that the private those markets. And that means we need to sector will be able to search for projects not help build capacity in the markets with the only by size, scale and location, but also based greatest need for private investment. on which projects have international advisors JS: So establishing best practices and or where feasibility studies have already been The past year has making them available to governments? completed. certainly reinforced the CH: Yes, but we need to be very mindful of JS: Will those platforms not also lead the particular circumstance in the country. to improved transparency into private fact that infrastructure There’s no point giving Malaysia the UK’s sector performance? only improves outcomes risk matrix and telling them to go take it to CH: Absolutely right. The platforms are a bank; that’s just not going to work. But designed to not only provide governments when it is selected there is plenty of really good data available with a better picture of how they are properly and procured about the process of procuring infrastructure performing, but it will also shine the light and of building infrastructure — studies of on the effectiveness of the private sector — efficiently. production costs, timelines and outcomes, for and the national development banks — example — and this type of information can as well. I think these types of initiatives certainly help governments understand how should encourage the private sector and to improve their infrastructure procurement. development banks to think about how JS: Your mandate includes working to they can be more effective going forward. address data gaps. What are some of JS: Have governments been receptive to these data gaps and how do they impact the advice and support? infrastructure investment? CH: I think you’d be surprised to know how CH: I think there are lots of different data many countries are frankly bewildered about gaps that are important. One that could make why they are not attracting investment. But Chris Heathcote a huge difference is if we were able to do what I have found is that governments are CEO, Global Infrastructure Hub ‘in-flight’ reassessments of government cost also very interested in knowing what the @GI_Hub benefit analyses on projects. Then you would private sector thinks about them and what be able to start a positive feedback loop that our process does is give them a bit of a could help governments improve the way they nudge in areas where the private sector conduct their cost benefit analysis in order has some concerns. We have also kicked off some important to better understand real project benefits. JS: Are there prerequisites that the GI research over the past year. One recent Another data gap is around the operational Hub looks for before engaging with a piece looked at the views of private sector outcomes of a piece of infrastructure. We government? participants across various markets with know a lot about how to procure and build CH: For us to work with a country, we really regards to infrastructure investment. The data it, but we don’t really have a lot of data on need to be confident in a few areas. The is just in, but it shows that 65 percent of how it then performs. Collecting that data most important is that they are committed the largest institutions want to increase would be a significant step towards turning to delivering infrastructure. Sometimes our their exposure to infrastructure, and that infrastructure into a formal asset class that advice is that they need to improve the clarity there is a growing interest in the emerging attracts institutional investors. of decision making, set clear procurement markets. With US$106 trillion of funds under JS: What will the GI Hub realistically processes and develop an infrastructure management, the desires of these investors be able to achieve within your 3-year plan. And we try to provide countries with is important. mandate? best practices and global advice at each of We are also looking again at the CH: We have a specific target which is to those stages. Once those elements are in infrastructure needs of countries. There unlock US$2 trillion of investment by 2030, place, we are in a better position to really has been good work done in the past looking but we also need to be realistic about what catalyze change and improvement. at the global shortfall in infrastructure, we we can achieve in 3 years. One of the goals JS: You were named CEO of the GI Hub intend to look more closely at the countries we are working towards is to create two in June 2015. Have you had any major and understand what their individual profiles new platforms to help bring together private accomplishments in the past year? look like as well as understanding the sector participants and governments. CH: I think just setting up the GI Hub with proportion of their needs that is likely to The first is what I’ll call a ‘capacity framework’ an office and a fantastic staff of 20 was an be met. Interesting data for the country that helps governments identify their strengths accomplishment in and of itself. We’ve also and potential investors alike. and weaknesses and — at the same time — made great progress in building support JS: What have you learned from your provides the private sector with a way to track within the G20 and outside of it. experience over the past year? the progress countries are making towards We have accomplished some very visible CH: I don’t know if it’s a new lesson, but the improving their procurement process. achievements with valuable results over the past year has certainly reinforced the fact The second is a global pipeline catalogue past year. For example, we held a conference that infrastructure only improves outcomes where countries and national development in Shanghai for public-private partnership (PPP) when it is selected properly and procured banks can upload their project pipelines for units in early 2016 that drew great attendance efficiently. I’ve also become an evangelist private sector participants to review. What is and sparked tremendous discussion among for sharing information; if we are going to different about this, however, is that we are the various governments represented. And be as effective as possible, we need to embedding it into an IISS platform, which is we have made great progress on the data share information and data. Data drives essentially a World Bank procurement guide platforms that I mentioned earlier. performance.

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Barring a global economic meltdown or apocalyptic event, 2016 has already been a year of fundamental transformation for the infrastructure sector. The signs of this transformation are everywhere: in new sources of capital and new funding approaches; in rapidly-growing capabilities in asset management, cyber security and public procurement; in the growing activity and boldness of governments seeking to catalyze economic and social beneﬁts; and in the growing alignment between the ‘macro’ needs of governments and the ‘micro’ decisions of consumers.

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. ver the past 4 years, KPMG International has tracked the key trends that — in our opinion — will influence the world of infrastructure going Oforward. Some of the trends that we have identified in the past persist — governments continue to struggle to unclog their pipelines; emerging markets continue to face funding gaps; the optimal relationship between the public sector, the private sector and taxpayers continues to evolve. This is to be expected; massive changes to fundamental problems do not happen overnight. As this year’s Emerging Trends in 2016 suggests, however, the industry is now standing on the cusp of greater change. The development and interaction of many of these trends could very well transform the way governments, businesses and users interact with and invest in infrastructure. More importantly, if managed properly, they also hold the power to solve many of the biggest challenges facing our industry today.

Macro risk environment shifts: ‘No normal’ is 1 the ‘new normal’

Last year, we noted that political and regulatory uncertainty was creating challenges for infrastructure investors. But today, uncertainty is everywhere. Simply put, the stable conventional wisdom that once underpinned infrastructure planning and investment seem to no longer apply. Interestingly, it’s largely the emerging and developing markets that are using this uncertainty to make big plays. China’s ‘One Belt, One Road’ project and the Asian Infrastructure Investment Bank (AIIB) initiative; Japan’s signiﬁcant investments into India’s manufacturing and infrastructure sectors; Singapore’s championing of the ASEAN community; and the Gulf States’ continued investment into western assets all carry suggestions of power politics at work and more change on the horizon.

The The reality is that ‘no normal’ will probably be the ‘new normal’ for the long foreseeable future and investors will need to get comfortable with uncertainty view: and learn how to properly price these new and emerging risks.

2 Competition for investments heats up

Competition for ‘investable’ infrastructure projects has reached fever-pitch. In part, competition is being driven by institutional investors eager to put their capital to work. It is also being impacted by increased investment activity by multinational and sovereign sources. But competition is also pushing down the yields that investors can achieve on well-understood and low-risk infrastructure investments. In response, a growing number of the more sophisticated and active institutional investors are starting to leverage their deep experience to take on a wider range of projects that offer the potential to deliver higher yields. Clearly, this is good news for project owners around the world. However, governments and owners still need to understand that private capital will only be attracted (and sensibly priced) to markets that create a predictable and stable investment environment.

The Over the long term, we expect this shift to permanently alter the dynamics of who takes what risks, when they take the risks and how; this may also long be the tipping point that ushers in 50 years (or more) of prosperity as capital view: starts to match up with projects.

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Focusing on the larger benefits to Asset management 3 unclog the pipeline 4 gets sophisticated We expect (and hope) to see governments focus on getting projects out the As infrastructure owners shift their focus from buying door rather than trying to perfect the risk balance. In fact, many governments new assets to maximizing the performance of their are already starting to recognize that — by striving to take a minimalist approach existing assets, the need for more sophisticated asset to risk or to achieve structural and contractual ‘perfection’ — they have in fact management has risen up the agenda. been missing the point and, in doing so, have been making projects more In part, this is because owners are keen to not complicated, less attractive to investors and slower to take to market. only achieve the full expected lifespans of their Interestingly, it has been the developed economies that have most often assets, but also to get more productivity out of their trended towards interventionist activities and these markets are driving existing operations. Advances in technology and data/ procurement innovation. But over the coming year, we expect to see many analytics are also adding to the sophistication of asset developing markets follow in their footsteps. management. We believe that asset management will start to become a key discipline for asset owners, enabled by The Essentially, governments are starting to recognize that it is smart technologies, more sophisticated approaches long the public sector that needs to energize projects and, as such, and greater insight into the actual operations and we expect to see governments start to become more active performance of their assets. view: in influencing and catalyzing their infrastructure markets.

Given the pace of advancement in areas such as Internet of Things (IoT), robotics and data/analytics, it seems The clear that technological advances Technology rockets up the long will continue to drive efﬁciency in 5 infrastructure agenda view: infrastructure operations and should lead to better productivity, longer Infrastructure has remained largely untouched by the technology revolution asset lives, fewer catastrophic underway around the world. We still use the same assets we did 50 years failures and improved safety. ago. And we still follow the same basic assumptions we did 50 years ago. But the reality is that the technology revolution is now upon us. And it is rapidly and fundamentally disrupting the way we plan, design, develop and operate our infrastructure. Interestingly, much of the demand for technological advancement is being driven by consumers and by the growing alignment between ‘macro’ Security becomes a infrastructure requirements (such as reducing emissions) and the ‘micro’ mainstream issue consumer decisions (such as investing in web-based home thermostats). 6 Every government, regulator, owner and operator should The This isn’t about buying into the newest technologies and be worried about the security of their infrastructure. The consumer demands. This is about understanding the direction, threat of cyber-attacks on infrastructure is increasing, long pace and impact of technological change to make informed and the risk has been compounded by the growing view: long-term decisions around investment, business models interconnectedness of systems. and customer service. Part of the challenge is that few infrastructure executives truly understand their risk proﬁles and controls; fewer still fully understand the cyber element of the risk. The bigger challenge, however, is one of cost. Improving security (particularly for existing assets) will require investment across the life cycle — from the design and planning phase right through to operations and (in the case of nuclear facilities, for example) decommissioning.

With political unrest on the rise in many parts of the world and The several high-proﬁle, cross-border infrastructure projects underway or long currently being planned, the physical view: and cyber security of assets will only increase in importance, particularly to individuals and users.

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Innovative new ways The gap between public and private to fund infrastructure narrows 7 8 emerging Since the 1980s, most governments have operated under the assumption that As responsibility for investment into infrastructure starts the private sector outperforms the public sector when it comes to procuring to devolve to state and city-level governments, many and delivering infrastructure. But this can no longer be taken for granted. are starting to look for new ways to unlock capital flows. The reality is that public sector capability and capacity has significantly improved We expect to see governments sharpen their focus on and we expect to see the knowledge gap between public and private sectors bringing forward and capturing both the current ‘stores’ continue to shrink as the cycle of interaction, experience and improvement continues. of value and the future value that they expect their That is not to say that the private sector’s role in infrastructure is diminishing — projects to deliver in order to fund its development. quite the opposite. In fact, the last few years have seen the rise of a phalanx of Yet, to achieve this, a clear and compelling logic for the global developers and operators in key segments as governments continue to use of the proceeds of monetization — well articulated leverage the specialized expertise of the private sector to drive improved results. to the population — is an absolute prerequisite. At the same time, we expect to see new innovative ways of ‘value capture’ emerge and public authorities will The movement towards privatization and public-private get tougher and smarter with private developers who The partnerships (PPP) over the past few decades has proven own land surrounding projects. long to be a catalyst to public sector improvement and should view: continue to drive both public and private sectors to achieve ever-higher levels of performance. Over the long term, we expect to see the more progressive The emerging markets quickly adopt long these methods, both at the local and view: at the central level, with the more risk-averse markets following up in 9 The institutional debt market takes off a ‘second wave’ of value capture. All signs indicate that 2016 will see institutional debt markets really start to take off. Yet much will depend on how the multilateral banks choose to use their capital. Most now believe that their capital would be better put to work by leveraging multiples of private sector capital through financial instruments that enhance the credit of the senior debt portion of the financing and, in doing so, give access to the full extent of the capital markets. The result should be a massive injection of institutional debt over the coming years. That being said, changes in policy often take some time to translate into action so there may be some delay before the acceleration in investment takes hold.

The The big question is whether the multilaterals will be able to long take the right steps at the right time to truly unlock private investment. If they are able to, the world should enjoy the view: massive beneﬁts that will ﬂow from a more-liquid debt market.

10 China and India have arrived Over the past year, it has become increasingly clear that China and India are successfully making the leap from ‘emerging’ markets to ‘developed’ markets. Interestingly, China’s shift towards a developed economy is largely being driven by the country’s corporate sector: China’s companies (both state-owned and private) have rapidly adopted the technologies and approaches of others to quickly build their capabilities. In India, however, the shift is being driven by entrepreneurs: no longer mere subcontractors to ‘western’ services ﬁrms, the country’s entrepreneurs increasingly play the role of principal. In particular, we expect growing inﬂuence from India in the provision of professional services, leveraging its low cost base and access to skilled people.

The While this story is only just formulating, it seems clear that the center of gravity in the global infrastructure market is long fundamentally shifting towards the East. Over the long-term, expect more and increasingly sophisticated competition view: from these markets.

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As technology starts to play an increasingly valuable — and highly disruptive — role in markets, government and society, KPMG in Australia partnered with the Chartered Accountants of Australia and New Zealand (@Chartered_ Accts) to explore how new technologies will change the way we plan, fund, deliver and operate infrastructure around the world.1 The following is a summary of the partnership’s ﬁndings. Get ready for a glimpse into the future.

echnology has changed the challenges and across asset classes results in optimal of infrastructure. It has become a utilization of existing and new assets. Tdisruptive — and powerful — source 3. Disruptive technology innovation: Unless we carefully of innovation and renewal for the industry. The Disruptive technology innovation in way that priorities are set and met has been infrastructure has the potential to alter consider the impact transformed by the collaboration of technology both demand and supply dynamics. in infrastructure. Disruptive technology has the potential technology will have The problem is that — while governments to drive efficiencies and in some cases on our communities, and communities can usually identify what make existing infrastructure obsolete. infrastructure should be developed and 4. Technology impacting how people use businesses and society, where — the impact of technology on infrastructure: Technology innovation we run the risk of our future infrastructure requirements is will drastically impact how people often missing from the conversation. This use infrastructure and therefore what planning and building is a shame: technology is already reshaping infrastructure is needed. infrastructure that is national infrastructure requirements and will 5. Technology impacting how businesses increasingly influence how businesses and use infrastructure: Technology innovation is outdated or unnecessary individuals use infrastructure. and will continue to impact how businesses use infrastructure and therefore what even before it is Disruption is upon us infrastructure is required. operational. How technology is influencing the way we plan and prioritize infrastructure is evolving. Improving the value of rail Not all technology is the same and different innovations will impact infrastructure GE is working with one of the major US differently. According to our report, there railways to install sensors on tracks and are five themes that collectively capture locomotives to fine-tune the flow of rail the technological trends reshaping national traffic. Initial results show an increase in infrastructure requirements: average speed of about 3 kilometers per 1. Embedding technology: Embedding hour, resulting in annual savings of about 2 technology into infrastructure assets can US$200 million. Paul Foxlee have a significant impact on improving KPMG in Australia asset performance, enabling asset owners Planning on a new world order E: [email protected] to be continually informed of their asset’s While the specific impacts of these trends @KPMGaustralia condition and the use of those assets. may not be immediately apparent, it is 2. System integration and management: entirely likely that future infrastructure Optimizing infrastructure networks through requirements will be dramatically different system integration and management within than they are today.

1 Will technology disrupt our existing and future infrastructure? KPMG Australia and Chartered Accountants Australia and New Zealand, September 2015 2 (Source: Movement Planner System, GE Transportation, 2012)

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. Consider, for example, how the combination and will technology significantly reduce our take urgent action to harness the power of of driverless vehicles and the establishment of future infrastructure requirements?” technology and recalibrate infrastructure plans secondary employment hubs could significantly and strategies as the world swiftly evolves. reduce the number of vehicles on the road and, Rethinking regulation Demographic change, workforce mobility and therefore, the need for more road infrastructure. Focusing on the right questions will not be easy. technological change are creating a perfect Or how advancements in eHealthcare Our governments and societies are addicted storm for infrastructure. combined with innovative service delivery to infrastructure and are always looking for Without a commitment to understanding models will lead to improvements in health more. And investing into technology driven how our infrastructure needs have and will solutions that may reduce the requirement for capacity improvements offers fewer photo change and a willingness to invest in innovative expanding traditional hospital infrastructure. opportunities than opening a new plant. Yet thinking, we will find ourselves pedaling Unless we carefully consider the impact changes to how services and infrastructure are backwards and investing in projects that will technology will have on our communities, delivered promise to provide greater choice to be underutilized in the long term. businesses and society, we run the risk of users, reduce costs and allow governments Our paper calls on communities, businesses planning and building infrastructure that is to essentially do more with less: a winning and governments around the world to take outdated or unnecessary even before it is situation for everyone. notice of how the times are changing, why operational. With the prospect of declining However, governments also increasingly they’re changing and what needs to be living standards, people will look to alternative recognize that new technologies have the considered in the response. locations for opportunity. potential to disrupt the entire business and We firmly believe that the community, With this in mind, it seems clear that regulatory model of monopoly services. The business and government will need to the conversation on future infrastructure transmission and distribution of electricity embrace innovation and change to meet the requirements needs to be reframed from using ‘poles and wires’ is a typical example. infrastructure challenge. At the same time, “How much more infrastructure do we need to Solar generation and battery storage electricity future infrastructure projects with long-term build?” to “How can technology improve the is creating unprecedented uncertainty in the payback periods must be reviewed now to infrastructure we have, how will technology electricity supply sector. ensure that precious capital is not being influence what new infrastructure is required However, to date, regulatory frameworks for wasted on infrastructure which, through infrastructure services have not been designed advances in technology, may not be required. The end of the road to address either planned or unexpected The winners will be the countries and An OECD study modelling the use of self- service or infrastructure obsolescence. New organizations that can adapt and lead driving cars in Lisbon found that shared technologies have the potential to disrupt improvements and innovation throughout ‘taxibots’ could reduce the number of cars regulatory paradigms too and this is an issue the infrastructure asset life cycle and drive needed by 80–90 percent. A reduction in that regulatory policy makers have yet to tackle. better outcomes with their scarce resources vehicles on the road will impact the demand for their communities. The race is on to see for constantly increasing road capacity Can technology save us? who can do it! on specific routes and make some road While there remains significant uncertainty To read more, visit: projects obsolete.3 as to what the future will bring, what is charteredaccountantsanz.com/ immediately clear is that we all need to futureinfrastructure

3 (source: http://www.abc.net.au/news/2015-05-21/powerwall-solarbatteries-to-transform-electricity-industry/6488230)

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Lewis Atter Said Hirsh KPMG in the UK KPMG in Australia E: [email protected] E: [email protected] @KPMGuk @KPMGaustralia

If everyone agrees that investment into infrastructure drives economic growth, then why are decisions being made without a view on the true economic value that those investments deliver? And, without these considerations, how is anyone effectively prioritizing their investments to ensure they are putting the right money in the right places to achieve their economic objectives?

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. e believe that current infrastructure a project will impact the real economy (growth In many cases, governments may have appraisal and prioritization and jobs), land values and tax revenues, other specific policy objectives that they hope Wmethodologies are frequently and what this means for overall project to achieve (reducing the carbon footprint, nowhere near sophisticated enough to affordability for the taxpayer. for example, or improving job prospects for allow governments to make truly informed the poorest 25 percent of the population). decisions about their investments. It’s Taking a broader view These must also be understood, measured time to rethink the way we appraise and Another major challenge is that most and assessed. prioritize infrastructure, and forge better governments today tend to manage their links between decision making, growth infrastructure investments in departmental Better decisions and better outcomes and thus the revenues that ultimately pay silos or (in the case of strategically important With this information in hand, governments for what is built. projects and megaprojects) on a project-by- should be in a position to start making The unavoidable fact is that demand for project basis. And, as such, there is often more informed decisions about how they infrastructure is growing exponentially while — little awareness of the relative value that invest their budgets to optimize their policy in most markets — the ability of government each project delivers to the government’s objectives. The role of politicians, therefore, to fund these investments is dwindling. In overall economic objectives which, in turn, would be to set the right policy objectives response, many governments recognize the makes it very difficult for governments to and decide the right balance between them sense in prioritizing those investments that properly balance their investments to get which, in turn, will enable the bureaucrats to seem likely to drive economic growth. Most the best returns. properly evaluate and prioritize investment seem to understand that improved economic The project-by-project view also risks accordingly. growth is ultimately about productivity, and ignoring important interactions between The latest developments in the UK that improved productivity will increase tax projects, which can only be addressed by suggest this may not mean one all- revenues without the need to raise tax rates. looking at whole programs and across silos. encompassing appraisal metric based on In the real world, no program is ever exactly an opaque set of shadow prices, but parallel Reassessing the true value of the sum of its parts. appraisals addressing key objectives and, infrastructure in the case of the real economy, long-term Our experience suggests that very few Political vision, not political meddling affordability. governments are able to properly assess the In the absence of data, methodologies and Just as importantly, governments need actual economic value that their investments a program view, our experience suggests to start thinking about their infrastructure deliver. In part, this is because current that politics gains much more influence in as a portfolio or program rather than as infrastructure appraisal and prioritization the government investment decision making a set of discreet projects. This should methodologies tend to take a very narrow process. Indeed, quite often, we find that allow decision-makers to better understand view of value. As our report ‘Assessing the project appraisals are used as a means the relative value — and the necessary true value of infrastructure investment’ towards an end, rather than as a way to trade-offs — of each option which, in turn, illustrates, in some markets, appraisals assess various options. should drive improved prioritization. The are simply based on a mix of feasibility Politicians, for example, may decide that program approach can also help deliver studies and (occasionally) economic cost/ a new airport is needed and appraisals balance between objectives and help deliver benefit analysis. In many cases the appraisal will be conducted to find the best way to minimum outcomes, which is impossible is a way for individuals to get what they deliver that airport, or to clear a particular at the project level. want rather than helping decision-makers approvals hurdle. Very rarely does anyone understand which combination of projects question whether an airport truly delivers the Time to make a change merit investment. best economic outcomes when compared We believe that governments and policy Those — like the UK — that do include against, say, high-speed rail or improved makers need to embrace change and more sophisticated business case urban mobility projects, or a fundamentally encourage more innovative approaches to requirements into their investment process different economic strategy based on a set infrastructure appraisal and prioritization. often focus narrowly on calculating what of interventions in other sectors. Creating and implementing a new approach expected revenues can be generated from to infrastructure appraisal and prioritization users and the welfare benefits to these A new approach is needed will not be easy. In some cases, the right users (i.e. their untapped willingness to We believe that it is time for governments data may not be available. In other cases, pay) for an improvement, usually against the to start focusing on evolving their governments may face opposition from background of an assumption that the ‘real infrastructure appraisal and prioritization stakeholders with a vested interest in economy’ is fixed. In some sectors, such processes to reflect the real economic maintaining the status quo. as transport, appraisals now incorporate an value and thus long-term affordability of However, we firmly believe that — to estimation of the wider economic benefits infrastructure, and focus on programs achieve the best returns on their investments, that a fixed economy, welfare based appraisal rather than projects. to achieve their policy objectives and to might miss. To start, governments must find a way to achieve better affordability for infrastructure — While that is a step in the right direction, explore and measure the broader basket of governments must start to evolve their this ‘missing piece’ approach is too narrow, benefits that their investments can deliver. approaches and methodologies. And, given and fails to provide a complete picture of The calculation for economic benefit should the current funding gap for infrastructure, the impact a project may have on the real include not only traditional metrics such as most would be well advised to start right now. economy, since inevitably there are overlaps ‘time saved’ or revenues generated, but also To read more on ‘Assessing the true between the welfare and real economy views aspects such as impact on tax revenues and value of infrastructure investment’, visit of the world. A better question would be how land value changes. kpmg.com/infrastructure.

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Stan Stavros Paul Foxlee KPMG in Australia KPMG in Australia E: [email protected] E: [email protected] @KPMGaustralia @KPMGaustralia

he two previous articles deliver a And we believe we have a fairly good around the world — analysts have attached convincing argument to encourage grasp of the link between infrastructure a massive figure to the infrastructure Tgovernments to think more holistically and quality of life. ‘deﬁcit’ in Australia: AUD770 billion (around about how they prioritize and plan their Yet even in Australia, we have allowed US$550 billion). infrastructure investments. Here’s what we our economy to outpace our infrastructure. Clearly, more can be done to ensure that think governments should be doing next. We are the world’s 12th largest economy, Australia’s infrastructure is creating a more yet the World Economic Forum ranks our productive and competitive economy. But we In Australia, we spend a lot of time talking infrastructure at 35th out of 144 countries. also recognize there are limitations on how about infrastructure. We are passionate We ranked 32nd for our railways, 38th for fast and how much new infrastructure we can about our ports and roads. We are committed our ports and 43rd for the quality of our build — ﬁnancial limitations, resource limitations to our local hospitals and communities. roads. And — much like any other market and capacity limitations to name a few.

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. That is why we believe that governments for energy storage has the potential to radically focus on the range of outcomes to be should be balancing their attention between reshape the power sector and the related enabled by a project at the strategic building new infrastructure and driving efficiency infrastructure investment requirements. Or assessment phase to help ensure project across all aspects of the infrastructure life how — by embedding sensors and navigation solutions are robust and aligned with the cycle to drive incremental and valuable technology — Patrick Ports in Brisbane has public policy settings. Placing particular improvements. enabled driverless container handling, which focus on the key drivers for a project has increased capacity and delayed the need at the very early stages will ensure a Rethinking our priorities for new infrastructure investment. strong foundation before moving into In part, this will require governments to Clearly, technology has the potential to business cases. reassess the way they prioritize infrastructure drive a radical shift in the way governments investments to better reflect societal welfare plan, develop, maintain, fund and regulate — Building new infrastructure is not and real economic impacts. As Lewis Atter and infrastructure and, ultimately, can deliver always the best answer — we need Said Hirsch argue in their article on page 72, massive productivity improvements. to build better business cases: Create the current approach used by governments more effective business cases by to appraise and prioritize projects is generally Turning old assets into new assets succinctly defining and understanding not on the basis of the economic value they Another — equally holistic — approach the problems government is trying to add, but on other factors. governments can take to maximizing solve, and the suite of solutions available For example, the benefit to cost analysis investment is to ‘recycle’ their assets to them. For example, instead of building typically adopted on transport projects tends to in order to fund new infrastructure a new road, the same outcome (and focus on the value to transport users — primarily development. In New South Wales, Australia, often a more cost effective solution) measured in direct benefits such as improved the government has created a ‘Rebuilding could be achieved through extensive journey time, less congestion, improved NSW’ infrastructure plan that includes an traffic light sequencing to increase safety and reductions in environmental asset recycling initiative that is expected to road productivity. Too quickly we’re externalities. It does not however, capture add some AUD20 billion (US$14.3 billion) deciding to build new infrastructure all of the benefits to the economy such as in funding to deliver road, rail and social instead of looking at all the options increased land valuations near the transport infrastructure across the state. to address our infrastructure needs terminals, improved economic activity and We recently sat down with New South including getting the most out of our access to jobs, and all of the tax revenues Wales Premier Mike Baird to talk about the existing infrastructure. that are created as a result. initiative and the drivers behind it. “We had Rather than centering their assessments nothing near the funds we needed to address — Embrace technology: Embed technology on conventional benefits, governments the infrastructure backlog we inherited. So in current infrastructure and/or to manage should be strengthening their approach we had to take a new approach. We looked a suite of infrastructure assets to drive by measuring real economy impacts of at the balance sheet and asked ourselves, efficiency and cost improvements. For infrastructure projects and prioritizing can we turn our old assets into new assets? example, transport management systems projects that deliver broader productivity The AUD20 billion program is a once-in-a- are used to effectively manage traffic impacts. This could work side-by-side with generation opportunity to get ahead of the flow across a road network, which drives the current appraisal approach to provide infrastructure curve,” he told us. productivity by reducing congestion and a more robust consideration of the value As with most new infrastructure increasing safety. created by competing investments. initiatives, the impact of the New South Wales asset recycling approach will only be — Encourage and adopt innovation: Leveraging technology known in hindsight. The shorter-term impact Innovation provides an opportunity to Governments must also focus on ensuring of the New South Wales construction improve outcomes and productivity. they are making best use of — and responding stimulus will be observable over the next Infrastructure payment mechanisms, for appropriately to — technological change. As 5 years, but the greater (and arguably example, can better reflect a fairer funding the article on page 70 clearly explains, new more important) outcome of improved paradigm by encouraging greater user pays technologies are set to change the way productivity will only be known in 10 to and outcomes-based payments. Innovation governments plan, fund, deliver and operate 20 years. also means introducing greater competition infrastructure. Simply put, technology changes to the delivery of public services to increase everything: It has the potential to enhance What can governments do? performance and drive efficiencies. the productivity of our current infrastructure With this in mind and against the backdrop of leading to a lower long-term investment the two previous articles, here are a few steps All governments now recognize that requirement; it impacts what infrastructure that governments can start taking in order to they can’t increase national productivity we will require for the future; and it impacts unlock greater value from their infrastructure without improving their infrastructure. all of our funding and regulatory frameworks investments: Those governments that can get the most into the future. out of their infrastructure, existing and Consider, for example, how the adoption of — Create a clearer narrative around new assets, will have a powerful equation solar and the development of solar batteries project outcomes: Place a deeper for growth.

#inframorality | INSIGHT | 75

By John Kjorstad KPMG in the UK E: [email protected] @JohnKjorstad

ohn Kjorstad, KPMG in the UK, sat of information and data across public evaluation of the data we already have — down with Alex Murray, University departments that are too often working in opening it up to allow proactive analysts JCollege London (UCL), to talk about his silos at different stages of asset life cycles. the chance to link datasets across asset experience sorting through the complex layers The constant calls for evidence-based policy life cycles and form their own insights and of data in public-private partnerships (PPPs). in the UK over the last few years have been innovative solutions. This in turn will push answered to varying levels of success. the public sector to develop more expertise The importance of good data However, these individual and isolated efforts internally and avoid an overreliance on the It’s hard to ignore the data and technology were not then embedded into civil service private sector. revolution that is driving disruption in processes for on-going policy evaluation. To achieve this, the traditional realities established business models. Yet, when it To illustrate this point, a high-ranking of communicating and operating within the comes to convincing governments to evolve government official confessed to participants public sector need to change. Government their thinking on infrastructure, the political of an industry summit earlier this year that organizations that don’t regularly face spirit may be willing, but the bureaucratic he gets more information from the media the commercial coalface are likely to fall structure is often weak. about what his colleagues across different behind in terms of even basic information For 7 years, Alex Murray has been transport departments are doing then management and data analytics for improving researching public procurement and the seemingly occurs in direct communications decision making and ongoing investment whole-life cost of infrastructure at UCL in the with those departments. Such honesty is planning. However, those that engage UK. In his quest to benchmark the operational refreshing as the official is almost certainly more directly with the private sector have performance of PPPs against traditional forms not the only public leader in the world seen their internal capability and capacity of public procurement — particularly for dealing with this problem. significantly improve. social infrastructure — he has encountered This is the paramount observation from Murray stressed the varying nature of more than a few challenges, data labyrinths Murray’s experience of collating public competence he has observed in his dealings and stubborn viewpoints driven by political datasets to assess the whole-life cost with the public sector as there are genuine ideology. performance of the Private Finance Initiative pockets of expertise. For example, through This has made it difficult for him to answer (PFI) and conventionally procured public the merger of Infrastructure UK, the Major the one question that has underlined his service assets. While the in-house data Projects Authority and the Cabinet Office time at UCL: “Does procurement impact analytic capabilities of the UK civil service is construction team into the all-encompassing the whole-life cost of infrastructure?” lacking (varying over functions), it’s actually Infrastructure and Projects Authority, the While a definitive answer may elude him, public sector silos that pose the greatest UK is already seeing initiatives to improve the insights from his quest are invaluable barrier. Improving the communication, data analytics both horizontally across for governments trying to create the right consistency and collaboration of data departments and vertically along asset environment to more effectively evaluate between government departments is the life cycles. However, he waits with baited public infrastructure funding and the total key to making any progress with information breath to see what will actually come cost of ownership. Not surprisingly, the management. It remains the government’s from this. first and most salient lesson he learned responsibility to collect and analyze the is the importance of data and good asset data on the assets its departments have Transparency drives understanding management. procured — how else can the public assess In whole-life cost assessment you need the effectiveness of capital investment? transparency and insight on both the Tearing down the silos This is not necessarily about creating new upfront capital costs (CAPEX) and ongoing Murray says there needs to be more open, datasets. Murray says we must strive for operational costs (OPEX) of public service consistent reporting and better coordination more integration and better post-occupancy assets. The poor integration of data between

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. We are entering a new era of human history where innocent privacy can be confused with shameful secrecy, and any information can be leaked or hacked.

Alex Murray Teaching fellow, University College London

these functions makes obtaining reliable with limited capital at risk under traditional figures a real challenge as total cost of business models. This is further fuelled ownership approaches have traditionally by the lack of transparency and people not been adopted in less outsourced forms forming firm conclusions based on poor of delivery via public finance. As a result, data. We should be less concerned about it is difficult to establish the true impact private sector profits and more focused on of this infrastructure within the broader bringing costs down and improving the budgets in which the assets reside and overall efficiency of public investment. To compare them like-for-like to determine achieve this, we need more transparency of value for money. CAPEX and OPEX costs as well as uniform As the world moves into digital data and asset management standards that documentation, all of these challenges track spending and performance throughout should become easier to manage. The the whole-life of an infrastructure asset. confluence of information technology and Following the leak of the Panama Papers society’s complex web of infrastructure in April, what political risk consultant Ian will improve performance as well as Bremmer called the “biggest incidence of transparency. It should also save money. forced transparency in world history,” the New technology and concepts like building perception of unpaid taxes and a public information modelling (BIM), data and scorned has driven political leaders to open analytics, and even artificial intelligence the books on their personal finances. We will allow infrastructure owners to become are entering a new era of human history more sophisticated stewards of our where innocent privacy can be confused public service assets. Peak operational with shameful secrecy, and any information efficiency, better management of demand can be leaked or hacked. The public clearly and capacity, reduction of maintenance value transparency over commercial costs and improved customer service are all sensitivity and any company or individual possible as a result of these advancements. engaging with public infrastructure should However, governments cannot drive these be prepared to share data and face public innovations alone. Private companies — scrutiny. including technology firms, investors, The crux of PPPs has always been about consultants and traditional contractors — raising the standard, improving quality should be encouraged to collaborate to and thinking about long-term value. Better promote quality, consistency and more data, asset management flexibility and transparency. more transparency will help the public To date, most of the bad press and and the private continue down this path. criticism that has surrounded private finance The challenge will be avoiding the short- and PPPs tends to focus on the profits term distractions caused by pipelines that private finance takes by putting their never materialize, fickle annual budgets capital at risk in public projects. Curious, and turbulent political cycles that prevent given that private organizations have long a balanced debate on the whole-life cost been making profits on public contracts of infrastructure.

#inframorality | INSIGHT | 77

ocial media is both a driver and an enabler of change. It is beyond simply a Pranya Yamin broadcasting platform, and individuals and organizations that recognize this KPMG International Sare the ones that are truly able to harness its power. Social media drives E: [email protected] conversations about infrastructure; it amplifies social reaction and sentiment; it @pranyamin encourages transparency and empowers individuals. Simply put, social media should not be ignored. So here is what you need to know.

What is social listening? and social listening by James Griffin and infrastructure. We analyzed over 400,000 Gregory Daniel on page 38. tweets and conversations and here’s Social listening involves tracking and analyzing what we heard: what is being said on various social media Are there tools or apps that help with platforms about a particular issue, person social listening? Talking about cities or organization. When analyzing the data, There are countless applications and When people talk about urban infrastructure, emphasis is placed on who is saying what software tools that promise to deliver what cities are they talking about most? (are they reliable or influential sources, for insight from social media. Some of the more example) and the tempo of the discussion. 1. Bangalore sophisticated enterprise tools certainly It goes beyond monitoring interactions via 2. City of London offer value. That being said, technology is your social profiles — and allows you to only part of the equation; effective social 3. Washington, DC examine broader trends. listening comes from combining technology 4. Mumbai If you are simply monitoring your with experienced professionals. Linking notifications, you are missing a huge piece 5. Manhattan real-time data with market expertise is of the puzzle; individuals that may be talking 6. Delhi where you really draw on the value of about you, your organization, and the issue social listening. 7. Toronto in question as a whole. For a deeper look at 8. Liverpool social listening in the infrastructure sector, Over the past six months, KPMG’s Global take a look at the article, What infrastructure Infrastructure practice has been ‘listening’ 9. Hamilton players need to know about social media to social media conversations related to 10. San Francisco

Taking a neutral tone Did you know? of social media conversations Nearly half of all social media are neutral in tone but almost conversations about infrastructure 1 in 9 is negative are happening ‘on the go’ 89% on mobile devices 40% Positive Neutral Negative

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© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. A male-dominated conversation The infrastructure sector has always struggled with gender equality. Our data suggests that — possibly as a result — the conversation about infrastructure is largely dominated by men over 35 years of age.

Audience demographics 80% 20% Male Female

13–1718–24 25–34 35–54 55+ 13–1718–24 25–34 35–54 55+ Ages Ages

Follow the influencers Social media ‘influencers’ are individuals social media. Whether you are managing media, you probably want to be following or organizations that — for one reason or a sophisticated enterprise social listening some of these well-known infrastructure another — punch above their weight on program or just getting started on social influencers.

1. Network Rail 5. The Value of Water 9. InfraInvestment @networkrail @TheValueofWater @infrainvestment 2. Vinayak Chatterjee 6. Urban Transportation 10. World Economic Forum @Infra_VinayakCh @UrbanTranspoRRt @wef 3. InfraAmericas 7. IBTTA @InfraAmerica @IBTTA 4. World Bank Group PPP 8. Smart City Feed @WBG_PPP @smartcityfeed

#Hashtags to remember Hashtags essentially ‘tag’ a tweet or a post considered to be a ‘trending’ topic. You can views on an existing topic. Here is a sampling for others to follow. When a hashtag becomes use hashtags to search for relevant posts, of recent popular hashtags that are being particularly popular on social media, it is to create a new conversation or to air your used in infrastructure related conversations:

1. #infrastructure 6. #investment 11. #renewableenergy 2. #HSR 7. #construction 12. #ﬂintwatercrisis 3. #energy 8. #transport 13. #smartcities 4. #cop21 9. #SDGs 5. #water 10. #cities

Infrastructure morality As of the time of this publication, widespread industry is not talking about infrastructure drive the conversation, and listen to what conversation around ‘infrastructure morality’ morality as a holistic concept, and from our others are saying. (or #inframorality) as a topic is not taking ﬁndings this wrings true on social media. As decision makers in the infrastructure place. That is not to say that themes and As you may have gathered by now, we industry, you can use real-time social data related topics around this issue are not believe that it is important to have this to bring intelligence into your organization. being discussed. Topics around ‘social dialogue. As an infrastructure practitioner, Paired with a deep understanding of your responsibility’ and ‘ethics’ are some of the whether you are just getting started on social market, the insights you glean from social themes that emerged when conducting our media, or already immersed, share your media can empower you to make better recent social listening exercise. At the outset thoughts and updates concerning this topic informed choices about what is next. of this publication, we highlighted that the and use the #inframorality hashtag — help

Source: Sprout Social Spredfast Intelligence social listening tool #inframorality | INSIGHT | 79

© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member ﬁrms of the KPMG network are afﬁliated. To access the publications listed here, visit: kpmg.com/infrastructure Bookshelf: or email us at: [email protected]

INSIGHT: THE GLOBAL GLOBAL CONSTRUCTION INFRASTRUCTURE MAGAZINE SURVEY SERIES Insight is a semi-annual magazine that provides a broad scope The Global Construction Survey monitors engineering and of local, regional and global perspectives on many of the key construction issues to provide timely insights that help clients issues facing today’s infrastructure industry. make informed decisions.

Infrastructure Reconsidering the Regulation in an asset recycling: A drive to depoliticize era of change: A Renaissance Man infrastructure roundtable with An interview with An interview with energy regulators Mike Baird Sir John Armitt Page 38 Page 18 Page 20 Issue No. 7 — Who controls 2015 Global Construction INSIGHT GLOBAL CONSTRUCTION SURVEY 2015 The global infrastructure magazine / Issue No. 7 / 2015 our infrastructure? Climbing Survey: Climbing the curve Who controls our the curve infrastructure? 2015 Global Construction This edition explores some of the big Project Owner’s Survey In the ninth edition, we focus on the With a special feature on kpmg.com/building The global KPMG INTERNATIONAL rail sector challenges and trends inﬂuencing the challenges facing owners as they debate around infrastructure control. It strive for a balance between power, also includes a Special Report on Rail, responsibility and control. This report a sector often at the epicenter of the gauges the views of over 100 senior debate around control. executives of leading private and public organizations from around the world.

Don’t panic Beyond Malthus: Managing growth An interview with Sustaining population in developing Hans Rosling growth world cities Page 8 Page 16 Page 20 Issue No. 6 — Population 2013 Global Construction Survey: INSIGHT GLOBAL CONSTRUCTION SURVEY 2013 The global infrastructure magazine / Issue No. 6 / 2014 This edition takes a closer look at Ready for Ready for the next wave? Population the next the unprecedented population and big wave? With a special feature on kpmg.com/building The 2013 report catches the industry in Asia Pacific’s infrastructure demographic shifts currently underway KPMG INTERNATIONAL a more upbeat mood after gauging the market and the infrastructure needed to meet views of 165 senior executives of leading those challenges. It also includes engineering and construction firms from a Special Report on Asia Pacific’s around the world to determine industry infrastructure market. trends and opportunities for growth.

GLOBAL INFRASTRUCTURE REPORTS FORESIGHT: A GLOBAL INFRASTRUCTURE KPMG member ﬁrms are privileged to work across many PERSPECTIVE sectors and at various stages of the life cycle of infrastructure. Foresight is a series of articles that feature our take on the We continuously seek to share the insights we are gaining in most recent topics, trends and issues facing our ﬁrms’ clients. the process. Assessing the true value of SPECIAL EDITION: Emerging Assessing the Foresight infrastructure investment A global infrastructure perspective trends in 2016

true value of Special edition — January 2016 infrastructure Based on global research and supported by In the fourth edition of this special report, 10 emerging trends investment case studies, this report provides valuable three of KPMG’s Global Infrastructure Global Infrastructure in 2016 Trends that will change the insights on the current infrastructure world of infrastructure over the leaders share their views on new next 5 years

Barring a global economic meltdown or apocalyptic event, 2016 is already assessment and prioritization process in shaping up to be a year of growing momentum for the infrastructure sector. trends that will inﬂuence the world of The signs of this momentum are everywhere: in new sources of capital and new funding approaches that promise to unlock trillions of dollars in new equity and debt investment; in growing asset management KPMG International capabilities, cyber security and public procurement, which are ushering in a real step-change in the way operators and owners manage assets; in the growing boldness of governments seeking to catalyze economic and kpmg.com/infrastructure Brazil, India, South Africa and the UK. social beneﬁts; and in the growing alignment between the ‘macro’ needs infrastructure in 2016 and beyond. of governments and the ‘micro’ decisions of consumers.

Foresight/January 2016

© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member firms of the KPMG network are affiliated. The future of cities Nuclear power: Is small really The future This article series addresses the Foresight A global infrastructure perspective beautiful? of cities: challenges and opportunities facing cities 42nd edition — April 2016 Nuclear power: is small really beautiful? Anurag Gupta looks at the important role creating By Anurag Gupta, KPMG in the UK Small modular nuclear reactors (SMRs) could play an important role in generating clean, affordable power. They promise faster construction than conventional nuclear plants at much lower cost, to a vision as urbanization changes the dynamics of provide electricity, heat and fresh water for cities and industries. With global demand for electricity set to double by 2040, and The ‘modular’ approach to building SMRs is another positive. small nuclear reactors (SMRs) can play in climate change high on every government’s agenda, nuclear Many of the constituent parts (as much as 50 percent) could power is increasingly seen as a viable, low-carbon option to be assembled in a factory setting, and then transported traditional fossil fuels. to the site, which should enable faster and more efficient Nuclear reactors currently provide approximately one-tenth of construction. This should allow costs to become repeatable the world’s electricity, but, like gas- and coal-powered facilities, and more predictable, with less chance of the overruns that our world, and how we can work together many are approaching the end of their lives. The overwhelming have bedeviled conventional nuclear power stations. majority of current nuclear plants will need to be replaced by A smaller, more flexible manufacturing process also enables 2035–40, which presents governments with a huge financing manufacturers to match capacity more closely to demand generating clean, affordable power as they challenge. curves, freeing up capital. Smaller ‘modular’ reactors, or ‘SMRs,’ could help bridge the All of this makes SMRs attractive, in theory, to investors, who gap — especially in locations and countries where larger stand to gain returns sooner at lower risk, which should reduce power stations are impractical, due to smaller populations. the cost of capital. They’ll be less exposed to inflation and They are a useful way to power cities or districts, or large be able to recycle capital over shorter periods of time. Such industrial users like data centers and mines. benefits could increase the number of interested developers to create better, more sustainable places SMRs are typically less than 300 megawatts (MW), compared and reduce the reliance on government support mechanisms to the 1000-plus MW output of most existing nuclear plants to encourage investment. (some are more than 3000 MW). With a projected cost of offer faster construction at a lower cost around US$1 billion for a typical SMR, the required investment Making SMRs a reality is projected to be far less than a traditional reactor, and roughly By 2035, the potential size of the global SMR market could comparable with a large offshore wind farm. Initial studies be 65GW-85GW according to some industry estimates; suggest that SMRs could produce electricity at a similar or that’s around 300 plants, which would require at least lower cost to conventional reactors. in excess of US$300 billion of investment. Desalination KPMG International SMRs don’t just generate power. The excess heat produced by applications alone could be worth over a hundred billion to live and work. dollars of investment. The highest demand is anticipated a plant can provide domestic heating for nearby urban areas or process heat for industry — indeed, this is one key attraction from the US, China and Russia, followed by the UK, Brazil of a SMR. And, with water scarcity a growing reality in many and India. than conventional nuclear plants. kpmg.com parts of the world, the plants could offer a cost-effective way In the past few years, a number of major nuclear reactor to drive desalination of sea water. Russia already uses a SMR manufacturers have stepped up their SMR development, to power a desalination plant on its Black Sea Coast. bringing this technology closer to fruition.

Foresight/April 2016

© 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member ﬁrms of the KPMG network are afﬁliated. Infrastructure 100: World Visualization: The future of Foresight Markets Report A global infrastructure perspective decision-making in capital

INFRASTRUCTURE 100 41st edition — March 2016

In this third edition, KPMG highlights key Visualization: the future of decision-making in projects capital projects

By Puneet Narang, KPMG in India

Virtual video tours of construction sites, complete with compelling 3D graphics, are set to World trends driving infrastructure investment revolutionize project management and increase the chances of on-time, on-budget outcomes. How often do senior executives of major project owners interacting parties, in the form of owners, engineers, request a first-hand view of the construction site — only contractors, suppliers, consultants, equipment Puneet Narang explains how visualization to receive a vast report full of unintelligible data? manufacturers, operators and assemblers. Interactions are often non-linear, meaning that minor changes can be Thankfully, this is all about to change. Rapid adoption of disproportionately impactful. visualization means that virtual ‘tours’ will soon become the norm, offering short videos that provide a high-level Critically, solutions cannot always be imposed; rather picture of what’s going on — and indicating where the they emerge from circumstances and continuous around the world and a global panel of most urgent action is needed. analytical reviews, as project managers encounter issues and bottlenecks. If we want to stay within striking Increasing interconnectedness, not just between people distance of desired outcomes, we need to keep abreast techniques such as drone monitoring of and processes, but also between physical objects and Markets of ongoing progress. their environment, is changing how we look at the world. Many of us already use mobile phone apps to Having studied many such projects at close hand, in calculate how many kilometers we should walk to burn boardrooms and onsite, I firmly believe that technology off lunchtime calories, set the temperature for our living can make a sizeable difference to success rates. By room when we arrive home, and predict the weather for providing a more accurate view of what’s happening on independent industry experts identify 100 that upcoming family barbecue. the ground, overlaid with visual analysis, managers get a single version of the current and projected state. As tech-enabled interfaces become a more integral part When it comes to technology and automation, the capital construction projects can help of daily life, they feed into our intrinsic human desire to engineering and construction industry is fast losing its tag of predict and control the future. To do this effectively, we ‘late adopter,’ and embracing innovation across the project Report need to physically see what lies in store, and compare lifecycle. Where it falls short is in reporting, monitoring, this with current states to project expected outcomes. reviewing and controlling capital projects through The same is true of large capital projects — only more so, construction and commissioning up to handover stage. given that millions or even billions of dollars rest on their of the world’s most innovative and impactful Yet it is only at the site that everything converges, for successful completion on time and on schedule. the final planner or field superintendent to execute. Today’s mega projects are hugely complex, with an Construction is typically the most time- and effort- owners and contractors save time and incredible array of interdependencies. They involve many consuming activity, deploying a wide range of

Foresight/March 2016 projects. © 2016 KPMG International Cooperative (“KPMG International”). KPMG International provides no client services and is a Swiss entity with which the independent member ﬁrms of the KPMG network are afﬁliated. money.

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Nobody knows infrastructure like KPMG. Every day, our network of more than 2,500 highly-experienced professionals work shoulder-to-shoulder with infrastructure leaders across more than 150 countries to share industry best practices and develop effective local strategies. Our clients see a difference. They recognize that we won’t just apply traditional methodologies to new problems because infrastructure projects are unique and often require tailored solutions. We challenge infrastructure to be better, integrating innovative approaches and deep expertise to help clients succeed transparently, sustainably, ethically and commercially. Our clients are confident KPMG’s Global Infrastructure professionals will provide trusted insight, actionable advice and market-leading services across advisory, tax, audit, accounting and regulatory compliance. We inspire confidence and empower change in government organizations, infrastructure contractors, operators and investors. Our member firms help clients ask the right questions that reflect the challenges they are facing at every stage in the life cycle of infrastructure assets and programs. From planning, strategy, finance and construction through to operations, divestment and decommissioning, our Global Infrastructure professionals apply passion and purpose to help clients solve some of the most significant challenges of the 21st century. By combining valuable global insight with hands-on local experience, we understand the unique challenges facing different clients in different regions. By bringing together numerous disciplines — economics, engineering, project finance, project management, strategic consulting, tax and accounting — KPMG’s Global Infrastructure professionals provide integrated advice that achieve effective results and help clients succeed. For further information, please visit us online at kpmg.com/infrastructure or contact:

James Stewart Stephen Beatty Julian Vella Global Infrastructure Americas and India Asia Paciﬁc Head of Chairman Head of Global Infrastructure Global Infrastructure Partner, KPMG in the UK KPMG in Canada KPMG in China E: [email protected] E: [email protected] E: [email protected] @jaghstewart @stephencbeatty @jp_vella

kpmg.com/infrastructure

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. © 2016 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International. The views and opinions expressed herein are those of the interviewees and authors and do not necessarily represent the views and opinions of KPMG International or any KPMG member firm. Designed by Evalueserve. Publication name: Insight magazine — Infrastructure Morality. Editors: Peter Schram, Pranya Yamin, Aleksandra Masionis and Dane Wolfe. Publication number: 133530-G. Publication date: June 2016.

Infrastructure is one the biggest and most complex challenges of the 21st century. An estimated US$78 trillion of investment will be needed by 2025 to sustain global growth. KPMG’s Global Infrastructure practitioners, on site in 150 countries, advise governments, developers and investors across the life cycle of projects — from strategy and financing to delivery and hand-back.

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