Cities Infrastructure: a Report on Sustainability

INFRASTRUCTURE

Cities Infrastructure: a report on sustainability

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KPMG INTERNATIONAL © 2012 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. All rights reserved. Contents

Responding to the urbanization challenge 2 Pressing questions and bold advances 2 Building the body of knowledge 2 Catalyzing change 3 Why sustainability? 4 Environmental sustainability 4 Financial sustainability 5 Asset sustainability 7 Five key sustainability challenges 8 Water 8 Transportation 9 Waste 9 Energy 10 Urbanization 11 Five Important Considerations 13 Accountability 13 Financing models 14 Sustainability as a strategic lens 16 Policy perspectives and initiatives 16 Government intervention 17 The forces of change 18 UN Framework Convention on climate change 18 C40 Cities initiative 19 Infrastructure developers 19 Industry certifications and awards 20 Popular pressure 20 Potential approaches to sustainability 22 Sharing best practices 22 Prioritizing innovation 22 Building capacity in the public sector 23 Encouraging direct investment 24 Exploring new models and approaches 24 Tapping into infrastructure funds 25 Bookshelf 26

Responding to the urbanization challenge

Urban infrastructure has become one of the most pressing questions also surround considerations challenges facing the world today. Already, the world’s cities such as policy development and tax, the are home to more than half of the global population; emit need for greater accountability, the role of the private sector, and the drive for more than 70 percent of the world’s greenhouse gasses; use improved sustainability. 80 percent of the world’s energy;1 and drive the vast majority of the world’s economic output. As a result, we have seen increasing activity to create ‘cities of the future’: So it is hardly surprising that political sustainable and highly-livable urban and business leaders are now keenly areas that balance the needs of the focused on cities and their impact on population and the economy with everything from economic growth and those of the environment. social well-being to climate change and sustainability. Building the body of knowledge At KPMG, we are privileged to have Indeed, in both the developed and the a global perspective on the work that developing world, cities are striving to urban administrations and national provide a raft of critical infrastructure governments are doing to develop to support their burgeoning – in some sustainable and achievable solutions cases unrelenting – growth; more to these challenges. We recognize the effective transportation systems, value of sharing insights and lessons reliable and low-carbon energy, safe and to help cities cultivate a clear approach secure water networks, and efficient to urban infrastructure development. and scalable social infrastructure will Indeed, we believe that one of our most all play central roles in the smooth sacred challenges as an industry must transition to urbanization. be to share the innovations and best practices that we gather from urban Pressing questions and bold advances infrastructure pioneers with those But these challenges cannot be viewed around the world who can benefit from in isolation. Difficult questions and our shared experience. complex considerations hold significant influence over the ability of governments One way in which we advance to provide the improved public services this goal is by publishing our firms’ and modern infrastructure that are professionals’ globally-applicable required. Investment is an obvious experiences, insights and advice as challenge for governments of both poor they work to advance the agenda and wealthy economies. But critical on sustainable cities. From ground- breaking research reports with leading

1 Insight: Urbanization, KPMG International, September 2011, p.6-7.

academics to in-depth analysis on key Catalyzing change urban development challenges, our We have developed this publication to member firms are focused on helping act as a further catalyst to change. Within city leaders to overcome the various this report, we have captured some of the challenges that stand on the road to most innovative concepts and practical sustainability. insights from our firm’s publications and presented them here to provide what – in KPMG is also proud to publish our opinion – is one of the most definitive Insight, one of the industry’s reviews of literature on the subject of preeminent magazines aimed at sustainable cities. helping governments, investors and developers cut through the And, as we continue our work with complexity of infrastructure delivery industry leaders, we hope to drive and renewal. Last year, the publication further innovation and action within the focused exclusively on the specific sustainable cities agenda, and help create infrastructure challenges being faced a new approach to urban infrastructure by city executives, engineering delivery that responds to the needs of all and construction firms, and urban stakeholders: governments, developers, infrastructure investors. And with a businesses, investors and – most special report that featured interviews importantly – the citizens themselves. with ten civic leaders and executives We encourage you to speak your from world-class cities around the local KPMG member firm for more world, we helped to advance the body information about our work on of knowledge on sustainable cities sustainable infrastructure for cities. and create new approaches to urban infrastructure development.

Nick Chism Stephen Beatty KPMG’s Global Head of Americas Head of Global Infrastructure Infrastructure Partner in the UK Partner, KPMG in Canada

Julian Vella Darryl Murphy Asia Pacific Head of Europe, Middle East and Asia Global Infrastructure Head of Infrastructure Partner, KPMG in Australia Partner, KPMG in the UK

Why sustainability?

Few could argue the need for new change. Already, our existing cities are approaches to the development and estimated to contribute approximately delivery of urban infrastructure. As 70 percent of the world’s greenhouse existing cities continue to explode at their gasses.2 But urbanization is also placing seams and new cities start springing up unprecedented pressure on other parts in previously- uninhabitable areas of the of the environment, particularly in the key world, governments and urban planners areas of water, waste and energy. will need to place a high priority on Against this backdrop, infrastructure achieving sustainability. will play a key role. “Infrastructure, And while there has already been if intelligently designed, planned significant talk of sustainability in and delivered, is probably one of the industry and world forums, few seem best hopes we have of achieving a to have really peeled back the hype to sustainable future against the impacts examine the actual imperatives behind of climate change,” notes Yvo de Boer, the movement. What does sustainability former Executive Secretary of the really mean for infrastructure? How United Nations Framework Convention should it be measured? What are the key on Climate Change and current contributors and drivers of sustainability KPMG partner.3 “On the global scale, in the urban context? governments are largely looking to infrastructure investments to deliver on To be sure, the issue of sustainability is most of their carbon reduction targets. highly complex and multifaceted. But Renewable and low-carbon power in our experience, there are three key generation, efficient transit, smart areas where concerted action and new electrical distribution systems: all of approaches can create a fundamental these are going to be designed, built step-change in the way that we approach and even operated by infrastructure urban infrastructure: environmental providers.” sustainability, financial sustainability and the sustainability of our physical assets. Clearly, environmental sustainability is about more than just ‘doing the right Environmental sustainability thing’. Indeed, the environment poses There is no denying the impact that dramatic challenges and implications for our urban areas have on climate the world’s cities. For one, a significant

2 Insight: Urbanization, KPMG International, September 2011, p.6-7. 3 Striving for Sustainability, Insight magazine, Issue No. 1, 2010

number of the world’s largest cities lie Financial sustainability consumers and governments are able to in coastal areas and flood plains making For today’s governments and city bear in the long-term.7 them particularly vulnerable to the planners, financial sustainability is every In other words, financing approaches impact of rising sea levels caused by bit as important as environmental. undertaken today cannot unduly burden climate change. The Thailand floods in Facing tightening budgets and limited citizens in the future. When viewed 2011, for example, are now thought to resources, planners must consider the against the context of the rising cost of have caused more than US$20 billion in long-term costs of their infrastructure capital, uncertain economic forecasts damages, mostly to urban areas.4 assets. Two main challenges exist: and unrelentingly high unemployment financing and funding. Climate change and environmental in many jurisdictions, it becomes clear degradation drives up infrastructure As we discuss on page 14, the issue of that urban planners and government development costs as well. As infrastructure financing is considerable. budget holders must keenly consider the resources become increasingly scarce, With estimates suggesting that more long-term financial sustainability of their prices for raw materials rise and than US$40 trillion in investment will be financing decisions. competition becomes more intense, required around the world over the next Tied to this is the challenge of stretching infrastructure budgets 25 years6 – the vast majority of which funding ongoing operations of and increasing the cost of ongoing will be spent on urban infrastructure urban infrastructure. Here, too, we operations. And, as we discuss on development and maintenance – see complexity in ascertaining the page 8, water scarcity also has dire governments are increasingly looking affordability of existing and planned implications for the world’s cities. for new sources and approaches for assets. Public Private Partnerships (PPPs) securing debt and equity to deliver an What is clear is that there is a growing are gaining momentum as a viable way enormous range of assets. need for urban planners to understand to shift costs off of the public balance the implications of infrastructure within However, it is becoming abundantly sheet and onto private enterprise, but the context of their city’s environment clear that governments are no longer – ultimately – many of these costs will and resources. As Dr. Anne Kerr, able to dip into their balance sheets to be carried by consumers, once again Director of Sustainable Development at close the gap. As a result, a range of impacting urban infrastructure’s financial Mott MacDonald points out, collective financing models are being tested such sustainability. action and collaboration between as infrastructure bonds and user-pay Going forward, the ability to balance both people, companies and governments approaches. As a result, an increasing financing and funding sources to ensure will be critical in order to make a number of governments are starting sustainable, secure and appropriate positive change in the way cities to think about their spend in terms of investment within an overall affordability interact with the environment.5 the overall ‘affordability envelope’ that envelope will become a key capability for governments at all levels.

4 Thai Floods Test Yingluck, Bloomberg, October 5, 2011. 5 The sustainability challenge for cities, Insight magazine, Issue No. 2, 2011 6 Population Division of the Department of Economic and Social Affairs of the United Nations Secretariat (2009). World Population Prospects: The 2008 Revision. New York: United Nations. 7 Incentivizing Infrastructure, Insight magazine, Issue No. 3, Spring 2012

Asset sustainability at the outset. As a result, this will lead Governments, infrastructure developers planners and developers to place a and investors are also starting to consider higher value on environmental building the overall sustainability of their individual practices such as recyclable materials assets. In part, this requires overlaying and LEED-certification (see page 20 for questions of environmental and financial more on this). sustainability onto each asset they plan The issue of asset sustainability is and develop. How will the asset impact becoming particularly acute in areas or enhance the environment around of social infrastructure. Indeed, as it? How will future generations pay for populations start to shift and age in the the operation of the asset? How does West, many cities are finding themselves this influence the overall sustainability with unused and poorly situated stocks ‘footprint’ of the city? of school buildings and a dearth of But asset sustainability goes further healthcare facilities that no longer than this to take a more ‘whole-of-life’ meet the recent community focus of approach. This requires urban planners healthcare. The prioritization of asset and administrators to consider not sustainability would, therefore, naturally just the design and build phases of lead to facilities that can be ‘repurposed’ infrastructure development, but also the over time to match the needs of the local maintenance, upgrading and – eventually population. – decommissioning phases as well. And, as the world seems poised on This approach is most obvious in the the verge of a massive push towards energy infrastructure sector where the decarbonization of transport, urban decommissioning processes have planners must start to think about how (overall) been well planned for assets existing infrastructure can be leveraged such as nuclear power generation. But or upgraded to meet the demands the same thought process must now of new forms of transport. Indeed, be carried over into all sectors of urban governments will need to rethink many infrastructure. Developers and planners aspects of urban infrastructure: how, must ask how the assets that we are for example, will power grids handle building today will be managed once they the inevitable strain of hooking millions reach the end of their useful life. of power-hungry electric cars onto the existing network when – for the most These questions must be made early part – the electrical grid (transmission in the process and – ideally – posed and distribution) is not designed to at the design and planning stage in accommodate future innovations such order to ensure that ‘whole-of-life’ as mass produced electric cars.8 considerations are built into the plan

8 Decarbonizing urban personal transport, Insight magazine, Issue No. 2, 2011

Five key sustainability challenges

Over the next few decades, our and urbanization. And as these forces governments who (rightfully so) deem cities will be exposed to hundreds of begin to intertwine, they are creating access to water to be a basic civic right. environmental and social changes that complex and unpredictable challenges As a result, water is often wasted: in will bring both risks and opportunities for urban planners. Brazil, almost 40 percent of water is lost for urban planners and civic through leakage; Hong Kong loses more Responding to these challenges will be governments as they strive towards than 25 percent; Singapore, on the other critically important if we hope to develop sustainable growth. hand, wastes only around 6 percent.10 truly sustainable cities. And while the goal of many urban water Some, such as water scarcity, waste engineers is to capture and re-circulate management and rising energy demand Water 100 percent of water within cities, there are already being keenly felt in both the In much of the world, water scarcity is still much work to be done before this developed and the developing world. is fast becoming one of the greatest goal is realized. Others, such as the decarbonization sustainability challenges for cities. of transportation and rising rates of According to the World Economic A growing number of urban areas urbanization are still evolving and quickly Forum, “the impact of a changing are therefore starting to look to the moving up the urban agenda. climate on water availability and quality treatment of wastewater – also known as Treated Sewage Effluent (TSE) – as In particular, we have seen the rise is, in many regions, an immediate, 9 a viable way to expand their pool of of five key forces that are making an tangible and local risk.” usable water. Today, over 40 million indelible mark on the urban landscape: Adding to the complexity is the fact cubic meters of sewage is recycled water, transportation, waste, energy that water is often highly subsidized by

Figure 1: Increase in annual water demand 2005-2030

Billion m3 Change from 2005 Percent

China 178 300 54 532 61

India 338 89 40 468 58

Sub-Saharan Africa 320 28 92 440 283

Rest of Asia 243 117 80 440 54

North America 181 124 21 326 43

Europe 72 100 12 184 50

South America 89 68 23 180 95

MENA 85 6 9 99 47

Oceania 21 7 28 109

Municipal and Domestic Industry Municipal and Agriculture

Source: The 2003 Water Resources Group. (2009). Charting Our Water Future.

9 Expect the Unexpected, KPMG International, Page 23 10 At the nexus of urbanization and sustainability, Foresight, Third Edition, February 2012

daily,11 with some locations – such as to a lack of proper consultation and should help planners to explore the Windhoek (Namibia) and Singapore – community impact analysis. relationship between innovative even utilizing TSE for direct or indirect technologies and the ability of the Urban sustainability is also greatly potable re-use. electrical grid to deliver both the influenced by the issue of congestion. ‘electricity fuel’ needed for electric cars Water usage is also inextricably linked Reducing congestion is important for while still protecting the integrity of the to climate change. According to Dr. a number of reasons; a clear winner electrical grid for its primary purpose. Anne Kerr of Mott MacDonald, “cities would be the environment, but traffic Governments will need to start thinking can dramatically reduce their carbon congestion also impacts the quality of about how they provide appropriate footprint by working with consumers life for those living or working in the city. infrastructure to support these new to bring water use down to a more All of this has led many urban areas to technologies and how they might move sustainable level – somewhere in the focus on renewing their development of these innovations into higher polluting range of 150 liters per capita per day.”12 mass transit systems. sectors such as freight and transit.15 Achieving this, however, will require Indeed, there has been a flurry of civic policy makers to both incentivize activity on mass transit in major urban Waste water conservation, and find ways to areas around the world, as we see While the issue of waste has been make existing facilities more efficient. from the work recently completed or on the urban agenda for decades, currently underway in Vancouver, Rio management of waste continues to be Transportation de Janeiro, Singapore, Mumbai and a challenge for many cities, both in the One of the greatest (and most talked Brisbane.13 developed and the developing world. about) challenges facing cities lies in But it is worth noting that connectivity Indeed, waste management has a connectivity. But when one starts to and transportation does not always massive influence on a wide range of look at decarbonizing transportation, require new subways or metros to related infrastructure challenges; poor urban infrastructure development achieve sustainability.14 For example, waste management impacts health, often becomes a much more complex Bus Rapid Transit systems are economic growth, environmental paradigm. In part, this is because the increasingly being seen as a simple sustainability and land values. development of mass transit systems way to provide low-carbon transport In the developed world, advances in often takes a number of decades to within the existing urban infrastructure. recycling and waste diversion have mature and – even then – tends to also Municipalities are also starting to look reduced the strain on existing waste require significant cultural changes in at urban renewal as an efficient way to facilities and provided some much- the way that populations interact with increase density within close proximity needed breathing room for urban their environment. to commercial areas, thereby reducing planners. Even so, it seems clear that Developing urban transportation travel times and the need for extensive waste management will continue to networks also requires planners to transportation networks. influence the overall sustainability of strike a delicate balance between Certainly, in the battle to reduce a city’s developed cities as land-fills begin the traditional expectations of the carbon footprint, the introduction of to hit capacity and are forced further community and the needs of a modern hybrid cars will also help. But it will be and further out of the city centers. At transportations system. There are the development and consumerization the same time, the continuing debate already a number of examples where of their still-emerging cousin, the around incineration will likely increase as proposed Bus Rapid Transit lanes and all-electric vehicle, that will have landfill options become more expensive light rail transportation systems have a far greater impact on the urban and environmentally unacceptable. threatened to divide communities due infrastructure landscape. Current In the developing world, however, the technologies such as ‘smart grids’ situation is often much more dire. With

11 Global Water Intelligence, Municipal Water Reuse Market 2010 12 The sustainability challenge for cities, Insight magazine, Issue No. 2, 2011 13 Insight: Urbanization, Issue No 2, 2011 14 At the nexus of urbanization and sustainability, Foresight, Third Edition, February 2012 15 Decarbonizing urban personal transport, Insight magazine, Issue No. 2, 2011

almost 40 percent of urban dwellers Energy offering a real opportunity for cities to in Asia living in slums with little to no By some accounts, cities now consume both reduce carbon emissions and (for waste collection or removal services,16 more than three quarters of the those with little to no access to carbon the challenge will only become more world’s energy. And while a number fuels) develop a secure and sustainable acute. And as urban populations in of jurisdictions are moving slowly power supply. the emerging markets achieve higher towards alternative and renewable In balancing the demands of levels of wealth, urban planners will sources of energy, most continue to environmental and financial increasingly need to focus on managing depend heavily on oil, coal and gas in sustainability, the jury still seems to the detritus of consumerization. order to keep the lights on. But new be out on renewable energy. Stripped technologies and environmental policies However, this provides an opportunity away of all the national subsidies and are changing the very fundamentals of for emerging cities to innovate from the tax incentives that currently make many the way our cities and urban consumers beginning of their planning processes. of these technologies economically use and generate power. Lessons from around the world can viable, most renewable sources tend serve as the template for best practices For example, the introduction of smart to be somewhat expensive when in waste management and new and meters – and the smart grids they will compared to other generation options, evolving technologies can be used to eventually enable – will not only alter and often deliver unreliable base loads avoid many of the historic mistakes of consumption patterns, they will also to the grid.18 Governments will need the developed world. In many ways, allow power generators to balance out to work closely with power generators emerging economies can become true their capacity peaks.17 At the same time, and distributors to find effective ways to world leaders in the use of developing new forms of renewable generation incorporate renewable sources without waste management technologies. capacity are rapidly coming to market, inflating consumer prices.

16 Slumdog Millions, Economist, March 24, 2010. 17 Unlocking the power of smart metering, Insight magazine, Issue No. 2, 2011 18 Up Front: Energy, Insight magazine, Issue No. 2, 2011

What is clear is that cities must consumer, either a first time home Urbanization adapt to new technologies that make owner or a commercial tenant, will Over the past century, mankind has infrastructure more energy efficient. In expect it. As a result, leading developers made a mad dash for the city: in 1900 many cities, facilities such as hospitals, have already begun to recognize the only 13 percent of people lived in urban schools and administrative buildings commercial sales benefit of truly energy areas; today that number is 51 percent. are already enjoying the benefits of efficient buildings. And while North America and Europe lower energy consumption through the were the focus of this historic growth, In a growing number of cases, use of low-energy HVAC, lighting and the balance has now shifted to the governments and infrastructure building materials, and similar advances East. By 2050, the urban population is authorities are starting to build energy are under way in the development of expected to jump by more than 3 billion, efficiency goals directly into the everything from transportation and concentrated in Asia and Africa. In India procurement and contracting of their water networks to telecommunications. alone, urban populations are expected assets, creating strong incentives for to increase by at least 700 million, the At the same time, the use of renewable developers to innovate. For example, in equivalent of about 500 new cities.19 based sources of distributed generation designing the tender and bid process will allow many modern buildings to not for the Melbourne Royal Children’s The urbanization process will be a only benefit from clean energy sources, Hospital, the government included an difficult challenge for urban planners but will also lessen the demand on an Energy Risk Sharing regime into the and policy makers. In most cases, new already overtaxed distribution system. contract that bound the developer to urban migrants will find themselves Similarly, energy friendly building design deliver and maintain the facility at a attracted to urban centers that are should soon become the standard certain level of energy usage. already struggling with high levels of for future development because the unemployment, decaying infrastructure

19 Asia Economic Analyst, Goldman Sachs, July 6 2007.

and a lack of affordable housing. At the economies over the next decade, but so will conservation, the creation of same time, many parts of the world most cities are facing an infrastructure national standards, and a host of other are struggling with a growing poverty funding shortfall in the billions of dollars. issues that are critical to the national gap, made all the more keen by the agenda. The traditional approach to urban impact of the economic crisis. If things infrastructure cannot sustain the Governments of all levels will have to continue on their current trajectory, the present, let alone the future demands develop consistent and complementary vast majority can expect to end up in of the emerging cities. Part of this policies that strategically deal with the slums, toiling as unskilled labor or in the burden will be on urban planners and emerging urban centres throughout informal economy. infrastructure developers who will need the world. Lessons learned need to City governments should be to completely rethink their traditional be shared openly and equally with concerned.20 Massive urban migration approach to designing and populating both mature and emerging centres of will put incredible pressure on city communities. Politicians will also population, to ensure that past mistakes services, economies and infrastructure. have a role to play by creating policies are not duplicated, or compound the Even assuming jobs and affordable that encourage private investment already insurmountable financial strain housing can be found for all of the new and set a vision for the future that on an urbanizing planet. urbanites (and that is highly improbable), challenges status quo of urban city planners will need to fundamentally development. Even individual citizens rethink their approach to urban will be central to achieving a successful infrastructure. urban environment by changing their expectations of what it means to be part It is not a case of simply building more of a modern urban environment. roads and pumping more water. Land is at a premium, water is increasingly However, the challenges of urbanization scarce and – likely the most limiting cannot be left to city governments to factor – finances are already strained sort out alone. Urbanization is a national simply trying to maintain the existing issue and demands a national strategy.21 infrastructure. Indeed, barring a Funding is certainly one area that will miraculous recovery of national require inter-governmental cooperation,

20 The Urban Imperative, Insight magazine, Issue No. 2, 2011 21 Getting the job done, Foresight, Fourth Edition, March 2012

Five important considerations

In facing a range of new challenges and Accountability imperatives related to sustainability, All too often, issues of accountability urban planners and civic governments and ownership dilute the impact of must also grapple with a set of key urban infrastructure investment and considerations that will influence their delivery. In many cases, accountability urban infrastructure strategies. for urban infrastructure is fractured between multiple government These considerations may – in many departments and agencies that – cases – alter the very fundamentals without a holistic plan – tend to lose of urban infrastructure planning and sight of the broader, more strategic, delivery, while others will create new objective of long term asset planning and valuable benefits for cities that are and deployment. able to overcome their challenges to turn adversity into opportunity. In Delhi, for example, a handful of institutions including the Home All, however, will require governments Department, the Lieutenant Governor, to show political fortitude and vision. the Mayor and the Chief Minister But many of these considerations all hold a level of responsibility for can be effectively managed – if not infrastructure.23 fully overcome – by developing and formalizing a national infrastructure Coordinating infrastructure strategy.22 development – especially funding – across multiple levels of government In our experience, the following can often be a massive challenge, considerations must be dealt with particularly when your city spans directly and with a sense of urgency multiple jurisdictions.24 In some of the if governments hope to achieve more most mature and developed cities of the sustainable urban development. world, jurisdictional disagreements can

22 Getting the job done, Foresight, Forth Edition, March 2012 23 India’s Great Urban Infrastructure Challenge: A Round Table discussion on the need for transformation in India’s Infrastructure sector 24 Brisbane’s blueprint for urban infrastructure, Insight: Urbanization, Issue No. 2, 2011

(and often do) delay or derail even the Financing models most critical infrastructure projects. When it comes to financing urban infrastructure, the reality is that Cities like Brisbane seem to have largely governments only really have two overcome these challenges, as has options – taxation or user fees – and Singapore where a centralized agency both require taxpayers to foot the has been tasked with developing a bill in the long-run. As a result, urban single, coordinated plan that takes into authorities are increasingly seeking account all aspects of urban growth new approaches to financing. Given such as housing, recreation, water the financial pressures that most and transport. Mr. Chew Hock Yong governments are now facing, private (CEO of Singapore’s Land Transport financing for project development has Authority) credits the LTA’s ‘whole of become ever more important. government’ approach to development for Singapore’s urban infrastructure Public Private Partnerships help relieve success. “This means that we have the financial strain on city governments a single vision of where we need to by mobilizing untapped resources advance to and how we can get there from the local, regional or international to meet the growing demands of our private sector, which continuously seek population,” he noted .25 investment opportunities.27 Essentially, the availability of private funds acts Governments must also create as leverage for increased and better infrastructure agencies with the power social services. City governments are and accountability to coordinate spend thus able to redirect their limited funds and planning. “It doesn’t just mean towards other important projects that deciding what the specifications are it are not well suited to PPP financing. means controlling the procurement.”26 In return, instead of developing one project under the traditional method of

25 The secret to Singapore’s infrastructure success, Insight magazine, Issue No. 2, 2011 26 Extract from James Stewart’s Keynote address to the PPP Days 2012 27 Financing the growth of your city, KPMG International, 2012

contracting, PPPs allow governments to Rather than the traditional approach develop two to three projects with the to evaluating projects, we are seeing same amount of financial resource. the rise of new models that focus on achieving growth and wider economic But the simple truth is that – in benefits such as increased tax many markets – the infrastructure proceeds, new jobs and enhanced GDP. finance market remains dependant on commercial banks. Moreover, the In the UK, for example, the Greater world’s urban areas are experiencing Manchester region has led the charge an overall dearth of syndication or towards a new approach that started bond market options for greenfield with civic leaders thinking about infrastructure projects, which has regeneration programs as a way to exasperated a situation that has become improve business connectivity, and more acute since the financial crisis housing programs as a means to removed much-needed liquidity from improve labor markets. Rather than the market. Banks are also under simply building out inter-regional increasing pressure not to lend long- transportation systems in order to debt tenors, particularly in the face of reduce commuter travel times, they the impending implications of Basel III.28 began to think more clearly about how housing, planning and transport Multilateral and Bilateral Financial can be improved to not only boost Institutions (MFIs and BFIs) such as the labor markets, but also to deliver a Asian Development Bank (ADB) and catalyst to communities that were less the World Bank (WB) can also provide connected.29 viable avenues for accessing low-cost, long-tenor financing for infrastructure Essentially, what it comes down to projects, and can provide additional is the question of what investment value by sharing global best practices will deliver the most potential for job and experience in project development creation and productivity. And suddenly, and financing. rather than deciding on the value of a single mass transit system, the field But measuring the economic benefits is thrown wide open to also include of infrastructure at a city level is civic planning, business promotion, notoriously difficult. In part, this is urban regeneration and a host of other due to the influence of a wide range approaches and investments that may of external forces that alter the value deliver a bigger bang for the investment of infrastructure from an economic buck and – as a result – greater perspective. economic development. More importantly, however, it is because However, our experience shows that infrastructure tends to be approached there is no ‘off the shelf’ solution on the as fairly simple equations responding horizon; no one-size-fits-all financing to a specific challenge (“we need to models for urban infrastructure. move people and goods faster and Rather, there are a number of potential more reliably”, “we are running out of scenarios and positive solutions generation capacity”, or “we cannot go emerging across the sector that – with on polluting our rivers”). What’s more, concerted effort and collaboration – investment is generally rationalized may help to close the growing urban using sector-specific methodologies infrastructure finance gap.30 (such as road users’ value of time saved in traffic versus net costs to taxpayers).

28 Examining the bank’s perspective of infrastructure finance, Insight magazine, Issue No. 3, Spring 2012 29 Taking a holistic view of economic growth, Insight magazine, Issue No. 3, Spring 2012 30 Foreword, Insight magazine, Issue No. 3, Spring 2012

Sustainability as a strategic lens compliments the city’s environmental Sustainability is quickly becoming strengths.32 the strategic lens through which Mr. Osorio suggests that this focus on both governments and businesses growing within their environment is one are viewing their respective futures. of the major reasons that the city will For government, it is increasingly host three of the world’s biggest events important to look at achieving their to take place in the next five years: the objectives through the strategic lens of 2012 UN Summit on Climate Change, sustainability.31 “That means creating the 2014 FIFA World Cup and the 2016 policy that encourages long-term Summer Olympics. planning, and refocusing procurement approaches to reward sustainability,” said Yvo de Boer. “It also means Policy perspectives and initiatives securing funding that recognizes the The development of sustainable ‘whole of life’ cost of infrastructure cities requires governments and city rather than just the design and build administrators to focus on creating phases.” a supportive policy environment that encourages both financial and Sustainability may also provide proactive environmental sustainability. Indeed, cities with a valuable benefit by thinking there is a growing recognition that – more aggressively about environmental across the spectrum of infrastructure sustainability as an engine of economic – different sectors often require very growth. There are already countless different policy approaches. examples of nations and regions that have capitalized on environmental Some policy must be set on a regional trends to spawn new industries and or national level. For example, many drive more efficient industrial activity – countries still lack a strong policy to and with the right financial engineering encourage the development of public – the economic rewards can benefit the private partnerships. As a result, some public and private sectors, as well as cities, particularly in the developing developed and developing nations alike. world, are largely unable to take advantage of private investment to drive For infrastructure providers, climate financial sustainability. change and sustainability issues should be seen less as a risk to manage, and Policy will also be critical in catalyzing more as an opportunity for innovation transformative change in many sectors. and competitive advantage. Many The move towards renewable energy, providers are already winning contracts for example, can be encouraged based on their ability to deliver a and supported by policy. The UK more sustainable project than their government, for example, has used competitors, and this trend is only going policy levers to create a Green to continue. Investment Bank with a mandate to invest in projects that support the In Rio de Janeiro, for example, city country’s ‘green’ objectives such as administrators have placed a large renewable energy sources.33 focus on leveraging their environmental strengths to drive growth. According Creating supportive policy must also to Carlos Roberto Osorio, Secretary happen at the city-level in order to of Conservation & Public Services for overcome local challenges. For example, Rio de Janeiro, the city places a high in Mumbai, the local government priority on developing infrastructure that has created policy that incentivizes

31 Striving for Sustainability, Insight magazine, Issue No. 1, 2010 32 Rio prepares to host the world, Insight magazine, Issue No. 2, 2011 33 The Greening of Infrastructure Finance, Insight magazine, Issue No. 2, Spring 2012

developers working on infrastructure limited and often non-existent. This projects to build tenement housing for challenges governments of emerging some of the 60 percent of residents that economies to find the balance currently live in slums.34 between government backing and the complexities of multilateral private Policy is also critical at the tactical level. sector participation. Both privatization35 and the creation of Regulated Asset Based structures36 If governments plan to meet their demand governments to develop infrastructure obligations, they will robust policy frameworks in order to need to take more of a role intervening ensure that both investors and users are in the market to catalyze private properly protected. sector capital towards infrastructure.37 Some may choose to simply provide Politicians must strive to take a more grants to sectors of the market that pragmatic approach to infrastructure either lack proper pace or are seen as development to ensure that priority is uneconomical in the near-term. Other given to policies that encourage both tools may include revenue subsidies, sustainability and economic growth. price or volume guarantees, tax This will require a greater focus on incentives or reductions. Governments policy integration between levels of will also need to place a particular focus government as well enhancing the on creating the enabling conditions public sector’s ability to understand and for private sector investment, such as operationalize proper urban land use strong central planning capabilities and planning to accommodate sustainable transparent policy. development. Timing and scope of the intervention Government intervention are also critical questions. Too small Achieving a long-term vision for an intervention, and governments infrastructure is a significant challenge run the risk of achieving little for their for governments. The financial crisis investment (many of the infrastructure and the consequential impact on projects funded by the US’s economic the availability of capital and the risk stimulus plan in 2009 may have suffered appetite of the private sector means this fate). Too large an intervention not that governments can no longer sit back only wastes precious public finances, and wait for the markets to solve their but may also cause false economies problems. in markets or create unsustainable financial obligations (such as Spain’s Many of the private sector financing solar panel subsidies which were markets are increasingly incapable slashed in 2008). of supporting the massive funding requirements that urban infrastructure Unfortunately, there is no magic demands, forcing governments to yardstick by which to measure intervene in a variety of ways. Recent interventions. Indeed, judging the examples would be the guarantee appropriate level of intervention is an mechanisms in France, the discussions incredibly difficult thing to do and is around a National Investment Bank anything but an exact science. Much will in the US and the proposals for an depend on the state of the local market, Infrastructure Debt Fund in India. the availability and willingness of private capital to invest and the pace at which The challenge is much tougher in the government is seeking to achieve emerging economies where current their objectives. private sector debt capacity is very

34 Mumbai: taking a regional view, Insight: Urbanization, Issue No. 2, 2011 35 The Art of Privatization, Insight magazine, Issue No. 3, Spring 2012 36 The rise of the Regulated Asset Based model, Insight magazine, Issue No. 3, Spring 2012 37 Incentivizing Infrastructure, Insight magazine, Issue No. 3, Spring 2012

The forces of change

Clearly the movement towards the UN Framework Convention on development of sustainable cities is climate change gaining pace. On a global scale, we have Through global agreements such as the seen a range of players – both public and Kyoto Protocol and many of its market- private – take action to catalyze real and based mechanisms such as emissions sustainable change. trading, the UN Framework Convention on Climate Change and Sustainability Meaningful activity is underway on (UNFCCC) has been highly successful a wide range of levels. For example, in driving the issue of environmental the UN Framework Convention on sustainability as a political priority. Climate Change and Sustainability has been successful in moving national In part, the UNFCCC has encouraged governments towards setting goals for national governments to set targets the reduction of greenhouse gasses for reducing their greenhouse gas that will trickle down to the city level. emissions which – as a result – has For their part, cities themselves are strengthened political resolve around beginning to share common goals and the need for greater sustainability best practices in forums such as the C40 within urban areas. The UNFCCC has Cities Initiative. also created an international dialogue on the need for increased cooperation Infrastructure developers are also between regions that has encouraged starting to recognize the benefits of many jurisdictions to share and adopt being proactive in setting sustainability best practices from around the world goals and – as a result – are not only within their own cities. helping civic authorities change the paradigm of sustainability and But achieving these targets will require infrastructure, but are also winning government and business to work contracts due to their ability to reach together. Indeed, the scale of what is beyond the environmental and financial required is massive and simply isn’t requirements set out in RFP’s. possible to achieve within the tight budgets and capacities of government More importantly, grassroots pressure alone. The growing popularity of PPP is coming from the residents of the models for infrastructure projects cities themselves, who are increasingly are a great first step, and there will becoming aware of the urgent priority of need to be a lot more activity from achieving a more sustainable lifestyle.

governments – and a lot more funding to the survey, representing over 1,200 from the capital markets and private million metric tons of CO2-equivalent, investors – to make any significant a figure roughly equivalent to the total headway.38 emissions of a country like Japan or Germany. The good news is that governments are clearly focused on change. The The survey showed strong commitment 2009 United Nations Climate Change from government and policy makers; Conference in Copenhagen yielded nearly every responding city reports the

aggressive CO2 reduction targets. involvement of their senior leadership Action plans were submitted from in taking responsibility for climate every major industrialized nation and at change and many made special note least 35 developing nations – together of their efforts to engage local citizens, accounting for more than 80 percent of businesses and other stakeholders in 40 energy-related CO2 emissions. climate change-related decisions. The UNFCCC now also includes a formal The survey also showed that – while set of policies and actions, known cities have made a strong start – there as Nationally Appropriate Mitigation are still a number of areas where more Actions (NAMAs), that developing support is needed. Challenges remain countries can undertake as part of their for many city governments looking to commitment to reduce greenhouse build on the low carbon movement. For gas emissions. The term NAMAs example, cities are using many different recognizes that different countries methodologies to guide them in their may undertake different actions and GHG measurement activities and will emission-reduction projects according clearly benefit from coordinated efforts to their specific national circumstances. to standardize these protocols to make It also emphasizes the need for measurement of emissions easier, financial assistance from developed more transparent, and more comparable countries to developing countries between cities. to help reduce their emissions. As a result, many developing world cities are Infrastructure developers increasingly looking to take advantage Sensing increasing demand for of NAMAs to help spur the development sustainable infrastructure development, and financing of sustainable urban a growing number of contractors, infrastructure projects.39 engineering companies and developers have taken a more proactive approach to C40 Cities initiative sustainability. Driven by a common belief that city According to Mr. Baldomero Falcones, governments play an important role in Chairman and CEO of FCC (a Spanish- reducing global carbon emissions, a based multinational infrastructure group of large cities (known as the C40 and municipal service provider), most Cities) have come together to create an cities are facing a scarcity in economic effective forum to support collaboration resources as a result of the global and information sharing between cities financial crisis, a constant need to and demonstrate leadership. integrate new city residents seeking a In 2011, the C40 Cities collaborated with better life in urban areas, and growing the Carbon Disclosure Project (CDP) demand for more environmental policies on research to measure the climate and practices. This requires us to come impact of each participating city as well up with innovative solutions for the as their plans for action. An impressive infrastructure that we construct.” 72 percent of the C40 Cities responded

38 Striving for Sustainability, Insight magazine, Issue No. 1, 2010 39 Expect the Unexpected, KPMG International, Page 140 40 Cities’ pivotal role in the climate change debate: CDP Cities 2011 Progress Report, Insight magazine, Issue No. 2, 2011

“We strive to do more with fewer systems for the design, construction resources by, for example, applying and operation of high performance efficiency related criteria to both the green buildings. construction and design phases of Similar programs are growing in infrastructure development with the popularity around the world. In the UK, ultimate goal of reducing construction the Building Research Establishment and maintenance costs, or using (BRE) established a measurement rating innovative materials to reduce costs and for green buildings known as BREEAM carbon emissions.”41 (BRE Environmental Assessment It seems clear that infrastructure Method) in 1990. The Green Building providers have been stepping up to Council of Australia created a similar deliver on carbon emission targets. scheme known as Green Star, and For example, in designing the Energy the Association pour la Haute Qualité Environmental Experiential Learning Environnementale in France developed Building at the University of Calgary the Haute Qualité Environnementale. in Canada, the project’s architects A growing number of industry used building’s façade to maximize associations are also placing renewed the amount of natural light inside the emphasis on environmental design. building to dramatically improve energy KPMG in the UK headquarters in Canary efficiency. When combined with the Wharf, for example, was honored by earth-tube stem to regulate heating, it is the UK’s Royal Institution of Chartered anticipated that the building will be 50 to Surveyors (RICS) for its commitment to 60 percent more efficient than a typical sustainability at its new Canary Wharf lab building.42 headquarters.

Industry certifications and awards In reviewing the building’s credentials, With the rise of environmentally Saba Nayab, one of the London RICS sustainable design principles, there has Awards judges, said: “This project is been a growth in the number of industry an exemplary exercise in recording certifications and awards focused on and monitoring against Sustainable sustainable development. Performance Indicators. Within this huge, user-friendly building the concept For example, since 1998, more than of protecting the environment clearly 7,000 projects in more than 30 countries remains paramount.” have gained LEED certification including a number of infrastructure Popular pressure developments. Developed by the US One of the most significant forces Green Building Council, Leadership driving the move towards sustainable in Energy and Environmental Design cities comes from the inhabitants of (LEED) consists of a suite of rating

41 Urban infrastructure from the contractor’s view, Insight magazine, Issue No. 2, 2011 42 Infrastructure 100, June 2010, Page 11

the cities themselves; citizens are are commonplace in modern urban increasingly recognizing the impact of design. What is even more encouraging not only their actions, but those of the is that in the developed world, people world in which they live. are willing to pay for this form of sustainability. One only need look at the significant uptake in recycling programs during International bodies such as the United the 1990s or the exponential growth Nations, The World Bank and others in low-carbon vehicles to realize that need to develop the financial tools the general public is – for the most that will ensure this same interest and part – willing to dedicate finances and accountability in the emerging cities time towards ‘doing their bit’ for the throughout the world. Private sector environment. investors will become the catalyst for this change if their investments are Similar trends are starting to become protected from political challenges. evident in the emerging markets as The global marketplace for strategic well. According to the TUV SUD Green infrastructure investments is becoming Gauge 2010 survey, a vast majority of smaller as the financial markets become urban Chinese consumers (94 percent) more global. Emerging cities offer a considered green certification to be new and exciting marketplace for global an important factor in their purchasing infrastructure investment and it is up to decision. the international community to help set The explosive growth of social media the ground rules of this development sites has allowed consumers to share from both a financial and political perspectives on sustainability and perspective. ensure a public platform for debate and Ensuring a normal marketplace for discussion. The ability of this medium investment and requiring sustainability to influence public policy should not be in this same marketplace can infuse taken lightly. Many policy and decision much needed capital while, at the same makers are part of this phenomenon, time, ensuring that sustainability is the and already use the communication benchmark by which the investment is attributes of social media to test measured. Taking lessons learned from and share possible solutions to this the developed countries, emerging worldwide dilemma. cities can create an environment where Todays consumers want, and have financial interaction between the public come to expect, that urban planning and private sector is clearly understood and development decisions in their and where expectations for this communities are sustainable. The use of investment are clearly aligned with long modern renewable energy technology term sustainable development. and distributed generation facilities

Potential approaches to sustainability

Developing sustainable cities will understanding of infrastructure’s role in require governments and civic driving sustainability. authorities to undertake a wide range of One way in which we do this is through approaches. Some are well established Infrastructure 100, a special publication and provide clear precedents and that focuses on recognizing individual lessons; others, however, are still projects that exhibit ingenuity, promote maturing and – with dedicated action progress and inspire the industry and encouragement – will contribute to to imagine, finance and build the the growing body of knowledge in this foundation for sustainable cities around sector. the world. For governments, infrastructure This type of inspiration is critical to the developers and investors, there is a public discourse on infrastructure.43 clear case for innovation and creativity Too often, infrastructure comes across in seeking the most viable path forward. as forbidding and complex to the very But each city is unique and, in our people who use it every day. We believe opinion, there is no universal path to that if the public is to truly become development. engaged in global consensus building What is clear, however, is that in each – and no doubt they must – then we all case, authorities will need to work need to do a better job at demystifying closely with the private sector and the what we do and how we do it. public at large to articulate and execute their vision of sustainability within Prioritizing innovation44 urban areas. This will require close There is little doubt that the world collaboration and – inevitably – debate requires a massive infusion of and trade-offs on a local, regional and investment to meet the urban international level. infrastructure challenges ahead. But the Through our work with key stakeholders reality is that – when we actually start to around the world, we have identified talk about the changes that must occur a number of potential approaches – we seem to struggle to transcend the that can provide a strong framework incremental. for achieving the goal of developing This is a significant problem. For one, sustainable cities. this type of short-term perspective means that we rarely (renewable Sharing best practices power aside) put our minds towards One of our challenges as an industry discovering new solutions to our must be to share the innovations and existing problems. Is building more of best practices of urban infrastructure everything really the right way to solve pioneers with those around the world our most critical challenges like power, who can benefit from our shared transport and urbanization? Indeed, experience. some would argue that the incremental addition of new infrastructure assets in KPMG’s Global Infrastructure Practice the 1970s, 80s and 90s has led us to the strives to be a catalyst for enlarging environmental conundrum that we are this body of knowledge. We believe now in. that – through our work with leading infrastructure developers, governments, Taking incremental steps also means investors and urban leaders – we that we are often stumbling ahead can help cross-germinate ideas and without noticing some of the important achievements to advance the world’s warning signs that hover just above our view. A good example of this lies in the

43 Infrastructure 100, Insight: Infrastructure 2050, Issue No. 1, 2010 44 Taking a Giant Leap for Mankind, Foresight, First Edition, February 2012

UK’s nuclear energy program. Since the so busy worrying about the debate that Building capacity in the public sector last plant was commissioned in 1985, they failed to see the challenge that was The first step towards developing the UK has spent the better part of three clearly looming ahead. sustainable urban infrastructure must decades debating the merits of nuclear be to enhance delivery capability in The reality is that we must start to power. And now that the country has the public sector.45 The fact is that place greater emphasis on innovation decided to develop new nuclear assets, governments are – and will continue to and finding new ways to resolve they are suddenly starting to realize be – the top promoters of infrastructure old challenges. Simply maintaining that – even if they are able to secure the around the world. What’s more, given the status quo is a recipe for certain necessary levels of funding – they now the pressure on budgets and the disaster, as we are increasingly face an even bigger challenge: skills. criticality of most infrastructure projects, learning. We must spend more time it is vitally important for public sector Think about it: a nuclear technician who asking ‘Why’ and ‘How’ rather than agencies to enhance their effectiveness was 30 years old (a relative novice in ‘When’ and ‘Who’. and efficiency to ensure they get it right. a highly technical field) when the last But we must also start to think about After all, infrastructure is a long-term nuclear plant was built is now closer to how our past and current decisions strategy with wide-ranging national and 55. In just a few years, they will retire. are changing the realities of the future. economic implications. Since 1985, the UK has trained precious Otherwise, we will forever be taking a few nuclear technicians to replace them For one, the public sector must have small step for man, rather than a giant and now, as we look to the future, there a clear and holistic view of the vision, leap for mankind. is a sudden realization that they were priorities and delivery mechanisms

45 Getting the job done, Foresight, Forth Edition, March 2012

required to achieve their national Encouraging direct investment ability to meet their obligations in the goals. National infrastructure plans are As governments and infrastructure long-run. As a result, many projects that critical to helping those responsible for sponsors struggle to attract new include unquantifiable risks, particularly infrastructure delivery to understand sources of financing towards urban political instability or regulatory risk, are their spending priorities and how infrastructure, the concept of direct often turned down by all but the most their activity and actions advance the investment is quickly becoming one aggressive of direct investors. national objectives. Moreover, national of the industry’s ‘hot topics’. And Another challenge is human and infrastructure plans create stronger rightfully so: direct private investment financial capacity. Making the most of alignment and coordination between into infrastructure offers a number of a direct investment often takes a fair the various national and state bodies significant benefits to both investors amount of hands-on management and to ensure that funding is being spent and developers that – if properly governance,46 and – increasingly – an effectively without costly overlaps or managed – could potentially change the ability to maximize returns.47 missed opportunities. infrastructure funding paradigm. What is certain is that governments Public sector capability will also be But – to date – attracting direct and project sponsors will need to work enhanced by greater use of public investment from deep pocketed closely with potential direct investors to private partnerships (PPPs). And while investment funds has proven to be create the right environment to drive the it should be clear that PPPs are not a exceedingly difficult. There have been market. And while this will take close panacea to the world’s infrastructure a few notable successes, particularly collaboration and much discussion to challenges, they certainly provide an in the Regulated Asset Based (RAB) find a common ground, the benefits important tool to enhancing capability. markets in the UK and Australia, but for – for both governments and investors – Simply put, the private sector has a direct investment to make a significant will almost certainly be significant. wealth of experience in structuring, impact on the infrastructure-financing procuring and managing the delivery gap, investment will have to be of massive projects and – overall – has significantly increased in all regions of Exploring new models and access to a wider range of resources the world, especially in the emerging approaches and skills. communities. New infrastructure financing schemes have been popping up around the world. Even with greater use of PPPs, What is slowing the flow of direct This is a positive trend: governments’ governments will still need to place investment into infrastructure? In large and sponsors’ experimentation with much greater emphasis on investing part, it is a matter of scope. Most private innovative approaches to funding in their own resources and processes investors lack the depth of balance creates a wealth of best practices – to meet the massive task ahead. sheets to make a material investment and hard-learned lessons – that will Public sector agencies must have into what are often highly expensive undoubtedly help the infrastructure the capability to not only manage the (both in capital and operational) projects. industry evolve and mature. complex web of projects that are on the Those with greater financial capacity table, but also to effectively structure The simple truth is that – in many have also often been exceedingly and monitor their activity to ensure markets – the infrastructure finance risk averse. This is not surprising: the timely, cost-effective and efficient market remains dependant on benefactors of Pension and Insurance infrastructure delivery. commercial banks providing debt funds will not look kindly on any investment for the sector. But the investment failures that threaten their reality is that the market still requires

46 Talking to Pension Funds about Direct Investment, Insight magazine, Issue No. 3, Spring 2012 47 Maximizing returns in infrastructure investment, Insight magazine, Issue No. 3, Spring 2012

new models and innovative schemes right mix of incentives and approaches uncertainty in the region. So while to be developed to fill the funding and to properly respond to their unique Greece has put – or is about to put financing gap. situations. – more than 50 assets on the block and Ireland has made overtures in the One such scheme, the UK’s Green port, airport, gas, electricity and utility Investment Bank (GIB), will be keenly Tapping into infrastructure funds sectors, many fund managers are watched by infrastructure investors Infrastructure funds have recently 53 sitting on the sidelines worried that an around the world. The GIB should, been roaring back into action. We are, investment that is made in Euros today in practice, lend much-needed however, seeing a number of significant will saddle them with liabilities in some confidence to investors concerned changes and trends in the industry that other currency in the future. about the potential for funding gaps are starting to alter the fundamentals of in the renewable energy market and, the managed infrastructure fund model. That said, the managed fund model is as a result, speed up the pace of For example, most infrastructure funds certainly not disappearing any time soon investment.48 have started to place an almost single- with some two-thirds of LPs indicating they still intend to invest in unlisted Much action is also underway in the minded focus on investing into core infrastructure funds, demonstrating emerging markets. India’s Infrastructure infrastructure (such as regulated utility a strong future for the growth Debt Fund shows significant promise in assets or regulated transport) which, and development of future funds, helping that country bridge their funding in turn, has driven some fairly feverish particularly from the managers that have gap and bring new sources of both activity around some of these assets, already raised and deployed second and domestic and international investment many in the urban infrastructure sector third funds. into the sector.49 In China, investors are (HS1, OGE, Vattenfall, Endesa). also starting to evolve their approach There has also been increased Infrastructure – and urban infrastructure to investment and are rapidly building momentum in the trend towards in particular – is clearly building a capacity for investment into foreign developing and emerging market reputation as a unique asset class in its infrastructure projects.50 investments evidenced by a rising own right and we see a strong future for infrastructure investors overall. New models are also emerging in number of funds focused on Asia, and Europe. Finland’s experimentation with in particular, China and India. There is Australia’s Alliancing model is already also ample evidence that the trend showing results for infrastructure will extend to other emerging markets development.51 The way infrastructure as well. In South America, a growing is taxed is also being reviewed within maturity in PPP structures is starting Revenue Agencies around the world.52 to spin out a strong secondary market of urban infrastructure assets in Clearly, governments are increasingly countries like Chile and Brazil, which are recognizing the need to create practical starting to attract the attention of fund incentives for the market to drive managers, and Peru and Columbia seem infrastructure development. But, with set to follow. a variety of different financing models now on the table, governments will However, the ongoing debt crisis in need to start to focus on identifying the the Eurozone has created significant

48 The Greening of Infrastructure Finance, Insight magazine, Issue No. 2, Spring 2012 49 India’s Infrastructure Debt Fund, Insight magazine, Issue No. 3, Spring 2012 50 Will the Year of the Dragon bring a flood of Chinese investment into western infra markets?, Insight magazine, Issue No. 3, Spring 2012 51 Building Alliances to share risks and realize efficiencies, Insight magazine, Issue No. 3, Spring 2012 52 Disentangling Infrastructure Tax, Insight magazine, Issue No. 3, Spring 2012 53 The Evolution of Managed Infrastructure Funds, Insight magazine, Issue No. 3, Spring 2012

© 2012 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. All rights reserved. 26 | Cities Infrastructure – a report on sustainability Bookshelf A selection from our library of global infrastructure reports and insights. To access these publications and more, please visit: www.kpmg.com/infrastructure or email us at: [email protected]

Insight – The Global Infrastructure Magazine

Insight is a semi-annual magazine that provides a broad scope of local, regional and global perspectives on many of the key issues facing today’s global infrastructure industry.

Insight: Infrastructure 2050 – Insight: Urbanization – First Edition Second Edition The first edition of Insight explores one The second edition of Insight explores of the great universal challenges of the the infrastructure challenges currently 21st Century – infrastructure. In this being faced by cities, and includes issue, our professionals share insights feature interviews with key city leaders from global experiences, across and private sector executives from many sectors, and throughout the around the world to shed light on how infrastructure lifecycle. they are responding to the infrastructure challenge.

Expect the Unexpected: Insight: Infrastructure Building business value in a Investment – Third Edition changing world This edition turns the spotlight onto In this report, KPMG analyzes a system the complex world of infrastructure of ten sustainability megaforces, finance with opinions and insights from including infrastructure, that will impact infrastructure investors, developers each and every business over the next and sponsors. 20 years.

Infrastructure 100 Financing the growth of From KPMG and Infrastructure your city Journal – a look at 100 of the most This paper highlights alternative exciting infrastructure projects financing mechanisms and structures underway globally. A distinguished for urban infrastructure financing. These group of judges selected these financing options, including Public Private game changers from hundreds of Partnerships (PPP), could help cities gear submissions. up to not only meet the challenge of rapid growth but also become global cities with world class infrastructure.

Project Delivery Strategy: Success and Failure in Urban Getting it Right Transport Infrastructure What are the various project delivery This joint report with University of options available to owners? What are London College explores the findings the factors that might influence the of nineteen case studies from cities selection of one method over another? around the world, including New York, This paper explores the options. London, Hong Kong, Singapore, Dublin, Bogota, Manila, Manchester, and Bangkok.

KPMG-Economist Intelligence Unit (EIU) Survey Series

During 2009 and 2010, KPMG International commissioned a series of surveys with the EIU into issues and the way forward for infrastructure development worldwide. The three resulting surveys show a clear consensus of opinion by business leaders, infrastructure providers and government officials that as infrastructure ages around the world, we are making insufficient investments to protect our future.

Bridging the Global The Changing Face of Infrastructure Gap: Views Infrastructure: Public Sector from the Executive Suite Perspectives A survey of 328 C-level executives and Survey of 392 public sector board members from 22 countries. infrastructure policy developers and The majority of respondents expressed procurers from 50 countries worldwide. concern about the adequacy, quality and The majority of respondents agree availability of infrastructure to support that the politicization of infrastructure both their business growth and that of priorities and lack of funding are their national economies. biggest impediments to infrastructure development.

The Changing Face of The Great Global Infrastructure: Frontline Infrastructure Opportunity: Views from Private Sector KPMG Global Construction Infrastructure Providers Survey 2012 A survey of 455 executives from The last three years have, without a 69 countries worldwide. The majority doubt, been full of uncertainty for many of respondents expressed concern in the engineering and construction regarding governmental effectiveness industry. Interviews with senior inhibiting infrastructure development. executives from 140 of the world’s leading engineering and construction companies highlights that one constant is the insatiable demand for energy and infrastructure in all forms.

INTRODUCING FORESIGHT A Global Infrastructure Perspective In the complex world of Infrastructure, hot topics of conversation and industry ‘buzz’ are constantly changing. Foresight: A Global Infrastructure Perspective is a new e-blast we’ve developed to feature our take on some of the hot topics, trends and issues facing our firms’ clients.

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KPMG is pleased to announce the Infrastructure 100: World Cities Edition, a detailed Infrastructure 100: publication that will showcase the most fascinating urban infrastructure World Cities Edition projects from around the world. Coming July 2012

Find out more: www.infrastructure100.com

What will cities of Download the first Infrastructure 100: the future look like? Global Projects Report www.kpmg.com/infrastructure100

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When it comes to infrastructure, KPMG firms know what it takes to drive value. With extensive experience in most sectors and countries around the world, our Global Infrastructure professionals can provide insight and actionable advisory, tax, audit, accounting and compliance-related services to government organizations, infrastructure contractors, operators and investors. We help our clients to ask the right questions that reflect the challenges they are facing at any stage of the life-cycle of infrastructure assets or programs – from planning, strategy and construction through to operations and hand-back. At each stage, KPMG’s Global Infrastructure professionals focus on cutting through the complexity of program development to help member firm clients realize the maximum value from their projects or programs. Infrastructure will almost certainly be one of the most significant challenges facing the world over the coming decades. That is why KPMG’s Global Infrastructure practice has built a practice of highly-experienced professionals (many of whom have held senior infrastructure roles in government and the private sector) who work closely with member firm clients to share industry best practices and develop effective local strategies. By combining valuable global insight with hands-on local experience, KPMG’s Global Infrastructure practice understands the unique challenges facing different clients in different regions. And by bringing together numerous disciplines such as economics, engineering, project finance, project management, strategic consulting, and tax and accounting, KPMG’s Global Infrastructure professionals work to consistently provide integrated advice and effective results to help our member firms’ clients succeed. For further information, please visit us online at www.kpmg.com/infrastructure or e-Mail: [email protected]

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