Saturday, July 18, 2009

Infrastructure Green?

At the beginning of this year it was noted by CG/LA that infrastructure spending will account for 2.9% of world GDP, primarily in developed countries as part of their stimulus plan in response to the global recession. This has major implications in two areas: the way that these projects are developed and financed, and the way that "intelligent infrastructure" reduces the impact of energy use per capita and unsnarls traffic to cut pollution and emissions.

To quote: "(CG/LA) also predicts that, due to the global financial crisis, the US will begin to transition toward a more Spanish-style infrastructure financing model. In Spain, large engineering and construction firms with significant balance sheets, such as ACS and Ferrovial,
originate, build, operate and take equity stakes in national infrastructure projects".

"The existing infrastructure financing model in the US involves governments selling bonds to hire infrastructure developers that provide construction services but do not take equity in or operate the projects they help bring to fruition. This model, which (CG/LA) estimates to be sixty years old, is nearing extinction as financial players will increasingly join forces with large engineering and construction firms to create a more Spanish-style way of delivering infrastructure".

This new model is a private-sector at risk model, rather than traditional US public municipal bond issue financing, which has come into use in Europe with its more socialistic governance structures. The whole deliverables process under this model has just mutated...partnering has to be implemented in the structure of these projects. Partnering is a method whereby risk is shared by all parties -including the owner and the financing - and this is factored into the project budget. This model is also not currently legal in the State of California, and is problematic in the United States due to traditional design-bid-build structure that has evolved in this country which separates funding and ownership from even the more recent design-build process. So there's an uphill battle to put this kind of project delivery in place, and raises the issue of who owns the infrastructure for the public good. This impacts city/state/county funding models which have traditionally consisted of Dept. of Water and Power management and revenue generation at the local level. Now the infrastructure profits would flow to private entities that do not necessarily have transparency requirements or accountability to the public, but rather a duty to shareholders in those companies.

While regional publicly held utilities in California have been around for a long time (Southern California Edison, Pacific Gas and Electric), as well as private joint powers agencies for grid purchasing, aggregation, scheduling and management, this private risk/private profit model is a different balance.

Some of the larger design and construction companies in the United States have evolved towards this model for infrastructure projects Parsons (private), Fluor (public), Jacobs (public) and Sverdrup (private). This is due to the expansion of their businesses into Europe over the last 70 years, in addition to their traditional base of US Government infrastructure work.

The critical need for upgraded infrastructure in "smart grid" configuration (distributed power, for example) is driving this new kind of model which creates the efficiencies needed to conserve and manage energy, water and transportation systems on the large scale now required by cities and regions. But can "the commons" be preserved under this model? If everything goes towards private profit with no public accountability, what happens to the captured resources of wind, rain and sun? We all know what has happened to the land - once it's in private hands it no longer provides its natural functions. This has led to the environmental degradation that the evolving private-sector infrastructure model is supposedly mitigating.

There is therefore a requirement for a Natural Capital balance sheet which includes environmental and social capital as costs and benefits. It will need to account for a human population limit that can be sustained by the natural world and its diverse spiecies. It is a model of stewardship, a driver of "miniaturization" of human consumption and impact.

Otherwise the entire model moves the global balance into utter destruction of the natural processes that give us all life.