Private sector must get actively involved in developing infrastructure, based on the PPP model

With governments around the world instituting stimulus packages to try and jump-start growth, public infrastructure is receiving a significant infusion of public funds. The level of direct government funding proposed, however, will meet only a tiny fraction of global infrastructure needs, according to two new reports issued by Deloitte.

Moreover, the reports found that this gap may be increasingly difficult to close as the global recession and tightened credit markets have dramatically altered the landscape for infrastructure funding and finance.

These economic trends and their impact on infrastructure funding, particularly with regard to the prospects for public private partnerships (PPPs), are the focus of the Deloitte reports, “Partnering for Value: Structuring Effective Public Private Partnerships” and “The Changing Landscape for Infrastructure Funding and Finance.”

The reports show that if infrastructure gaps are to be narrowed, the public sector must implement more innovative funding methods and flexible solutions that evolve with the changing environment.

“The need of infrastructure is much greater for an emergent country like Romania,” underlines George Mucibabici (photo), Deloitte Romania Chairman and leader of the local public sector specialized team.

“At the same time, the public funds available for such development are much lower. Also, the generic term infrastructure not only refers to road infrastructure, but also to multiple public utility facilities (sewage systems, street lighting, waste treatment, entertainment and sports facilities, education facilities, hospitals, prisons etc).”

The Ministry of Transport plans to develop up to 2,000 kilometers of highways by 2013, with one kilometer of highway involving costs of up to €5 million. At the same time, the infrastructure gap in other areas is similarly large, so total related costs are almost impossible to cover through public and European funds.

“Thus the alternative to finance through a partnership with the private sector, a model that has generated remarkable results all over the world,” George Mucibabici continued.

Such initiatives recently launched in Romania (some already with signed contracts) represent a positive signal. “We can mention the Bacau Airport concession, the Bucharest-Brasov highway, the Bucharest ring road, the underground parking project in Bucharest, the NetCity project or the touristic area development project for Padina Cave,” Mucibabici pointed out.

Deloitte reports conclude that over the next five years, infrastructure will become a more important factor in determining where investors locate their operations, as tightened credit markets are posing an obstacle to raising debt finance for infrastructure delivery models.

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