Financing major projects in turbulent times: why government must prioritise, streamline and renegotiate – and be prepared to invest and innovate

13 July 2016

Perhaps more than ever before, today’s global environment for major public infrastructure projects is characterised by uncertainty and volatility. As a result, governments involved in these projects face a range of pressing questions: which projects to press ahead with, which to close down, how to keep costs down, and how to keep attracting investment.

These are not easy decisions to make. And they’re made all the harder by the fact that the various other participants in the projects ecosystem – ranging from project owners to investors, and from engineering & construction firms to multilaterals – are also facing their own tough choices.

However, while governments face many of the same challenges as businesses, their distinctive public policy and social objectives require different responses. And at the same time, the uncertain economic environment demands a new degree of readiness to flex and innovate.

What does this mean? Well, the basics remain unchanged: governments’ core tools of prioritising, streamlining and renegotiating are still all important. But in a world where economic conditions can deteriorate at unprecedented speed, governments are increasingly finding themselves called on to invest, sometimes in short order. And when projects do come under pressure, innovative approaches can help to attract private capital, as Mexico has shown recently in its energy sector.

The current environment also brings further implications for governments. One is that it’s imperative to develop a prioritised pipeline of future projects to avoid wasting public funds. Another is a need to streamline and accelerate project delivery to deliver policy goals such as lower transportation costs. Further cost savings can be achieved by renegotiating contract terms.

Also, governments – particularly in developing economies – can leverage multilateral development bank programmes to accelerate public-private partnership (PPP) projects, borrow at lower cost, and gain access to valuable international technical expertise. It’s no coincidence that the World Bank is moving to encourage more PPPs by producing a PPP reference guide and certification exams.

All of these developments – and more – are examined in detail in a new PwC report Capital Project and Infrastructure Spending Outlook: Agile Strategies for Changing Markets. And the overall message is clear: that countries need to be more careful in their spending choices, and must continue to improve their ability to structure projects with appropriate risk allocations and levels of return.

In the final analysis, any government looking to get PPP projects financed has to embrace transparency and fairness – and be willing to abide by the rule of law. Or else the deal will soon be off.

Richard Abadie  | Global Leader, Capital Projects & Infrastructure
Profile | Email | +44 (0)20 7213 3225

 

Comments

Verify your Comment

Previewing your Comment

This is only a preview. Your comment has not yet been posted.

Working...
Your comment could not be posted. Error type:
Your comment has been saved. Comments are moderated and will not appear until approved by the author. Post another comment

The letters and numbers you entered did not match the image. Please try again.

As a final step before posting your comment, enter the letters and numbers you see in the image below. This prevents automated programs from posting comments.

Having trouble reading this image? View an alternate.

Working...

Post a comment

Comments are moderated, and will not appear until the author has approved them.