Dutch evidence suggests a restructure of the proposed independent infrastructure commission could result in a system that would gain the elusive public acceptance for major schemes. Martin Blaiklock explains.

UK media and the public have at last, seemingly, recognised that successful economies need efficient infrastructure and public services. Politicians, likewise, sensitive to past failures, promise investment and change. But public confidence in project choice, value for money, implementation to cost and timetable, and life-cycle management of the assets, remains elusive.

Why?

Are the perspectives and processes adopted flawed? Can we learn from other countries’ experience?

A re-structured National Infrastructure Commission could embrace this role for the UK. It could be similar to NAO, reporting to the Public Accounts Committee rather than Parliament, and would assess projects BEFORE, rather than AFTER, decisions are taken. It should also have a coordinating role between the public and private sectors of UK infrastructure development to ensure holistic planning and execution.

There are two key features of the UK, which differentiates the UK from other nations:-

• we are on the edge, not the middle, of a major market, Europe;
• and we are a crowded island, with much of the population and economic activity concentrated in one region, the South.

These two demographic features, however, are immovable. We accept them, or not. It raises the question, however, as to whether mega-projects have a place in the UK?

Arguably, the answer is, possibly or probably, “no” on a cost-benefit / value for money basis. More modest initiatives might provide better value and be quicker, cheaper and easier to manage and execute.

Modest initiatives

By way of example,

• do we need a £50bn high-speed rail link, when capacity is the issue, not speed?;
• does London need a mega-airport hub, when London is a collection of mini-cities spread over a wide area whereas European capitals are uni-centric cities, favoring a hub concept? and
• why build the £4bn Thames Water “Super Sewer” recommended 10 years ago as the answer to Tideway rainwater/sewage outflows when today there are arguments that it is not needed?

Such mega-project initiatives arguably reflect corporate and institutional vanity rather than common sense!

Additional impediments

On the other hand, there are some additional impediments to the development of UK infrastructure.

1. Much (ie 50-70%) is now owned and controlled by private companies, albeit independently regulated. Privatisation took place 25 years ago against a regulatory regime, which was based on economic, as opposed to financial, criteria. The regulators have no remit to intervene as to how utilities finance themselves, other than to ensure that they remain solvent, ie have “investment grade” status.

The result has been that

• much new investment in UK infrastructure and public service assets has to be sponsored by private companies, not government;
• many such private utilities are now loaded up with debt compared to shareholder equity, and are too weak to invest in major new projects; and
• the privatisation process has worked against interconnectivity across the range of services. Holistic planning of infrastructure development has been absent, for example  inland connections for ports and airports.

Whitehall mandarins will argue that the sector was structured thus to encourage “competition”. Yet they  - and their City advisors, - failed to understand that many, if not most, public services are tantamount to monopolies, if not locally, then regionally or nationally, however viewed.

Hence, understandably privatised utilities have protected the interests of their shareholders often at the expense of investing in long-term assets, ie infrastructureand the regulators have been helpless to intervene.

It is interesting to reflect that over 25 years no major privatised UK public utility has lost its licence as a result of failed performance.

2. The second flaw is “process”. With UK infrastructure development split between public and private sector entities, the planning processes have become:

• Administratively overweight [public inquiries and Parliamentary Private Bills are often lengthy and incomprehensible to the untrained eye];
• Unnecessarily complex, witness the 3000 page concession agreement for the London Underground PPP (2002); the current 5-700 page Contract for Difference document supporting an equally complex electricity market reform regime for power generation;
• There is a mix of economic and financial analytical techniques, employed inconsistently for both public and private proposals, leading to wrong decisions taken
• There is a  lack of transparency in the justification for project choices, and, in utility operations and financing, the use of complex “tax efficient”, - or arguably tax avoidance, multi-layered corporate structures, and
• There is a lack of public accountability of decision-makers and service providers, both public and private.

Final decisions often lie in the hands of Whitehall officials or lawyers, not experienced project developers, and any public consultation or Inquiry that might take place occurs after the authorities have decided which project they intend to implement, not before, as common sense would normally dictate.

The net result is endless conflict and argument over proposals, characterised by a lack of public trust in the decision-making skills of politicians and officials, not least by those directly affected by any decision. The process is sub-optimal in terms of time and cost to the public interest.

What’s to do?

The Sir John Armitt proposal for a National Infrastructure Commission provides part of the answer. But will it be truly independent? Further, it does little to cut down the bureaucracy and opportunity for political and factional influence.

Key to the process is early public acceptance and support for any proposed infrastructure development. The delivery of infrastructure and efficient public services should be apolitical. The timetable for implementation and the asset life of infrastructure span more than the lifetime of any one government.

Take a leaf out of the Dutch book. As here in the UK, an infrastructure project may be proposed by government, utility, or arise via public demand. Before a final decision is taken to proceed, however, a special independent, government-sponsored unit, with access to outside expert opinion, funded by the Ministry. of Economic Affairs but reporting direct to Parliament, assesses the value for money of the proposal AND considers any available alternatives to achieve the same or similar outcomes.

Their assessments are publicly available and discussed and, based on this, decisions taken. Public acceptability is thereby largely achieved.

A re-structured National Infrastructure Commission could embrace this role for the UK. It could be similar to NAO, reporting to the Public Accounts Committee rather than Parliament, and would assess projects BEFORE, rather than AFTER, decisions are taken. It should also have a coordinating role between the public and private sectors of UK infrastructure development to ensure holistic planning and execution.

A final piece of the jigsaw of public acceptability remains, ie the need to adequately compensate those adversely affected economically and socially as a result of any infrastructure development. Currently, the UK compulsory purchase regime has lost public confidence. It is viewed, rightly or wrongly, as being unfair.

Overall, the system may be bust, but not broken! As above, remedies are available!

Martin Blaiklock is a consultant in infrastructure and energy project finance. He is  the author of “The Infrastructure Finance Handbook: Principles, Practice and Experience”, published by Euromoney, Dec 2014.