There must also be a concerted effort by project developers to make project delivery more cost-efficient, productive and financially viable to mitigate risks for investors While considerable attention has been focused on increasing the supply of infrastructure financing, we also need to think about how we can “get more for less” by optimising the project delivery value chain. Improving project implementation processes McKinsey has estimated that productivity of the infrastructure value chain could be increased to achieve 40% savings, if project sponsors globally adopt proven best practices. This would translate to an average of $ per annum in infrastructure cost savings over the next 18 years. Such best practices may include having processes in place to select projects that best address infrastructure needs, finding innovative ways to structure and execute these projects, as well as maximising the use of existing capacity. This is not just a regulatory or public sector issue. On the part of project developers, greater attention has to be paid to productivity improvement across the entire value chain. Put simply, project developers must find ways to deliver projects on time and on budget, boost asset utilisation and undertake proper maintenance. If investors have confidence that there is “less leakage” from cost overruns, this will help to reduce financial buffers and in turn the required hurdle rate. There are various ways in which sponsors can enhance their delivery of projects. They could invest in project design at an early stage to avoid costly subsequent changes.
The scale of spending required is significant; it raises questions on whether and how our financial system can deliver the required financing. Policy-makers recognise this; international fora such as the G20 and APEC have made long-term investment a priority agenda topic this year. A key challenge is how we can better channel capital flows towards infrastructure development, a major element in countries’ pursuit of sustainable, equitable growth. To address this challenge, we must pursue enhancements in three areas – first, to catalyse private sector involvement in project financing; second, to optimise the project delivery value chain; and third, to build capabilities in both the public and private sectors. Private sector investment in infrastructure is critical, and solutions must be created to support a necessary shift in sources of financing over time Let me first turn to private sector investment in infrastructure. At present, governments drive about 60% of infrastructure spending globally. But growing fiscal pressure means that public balance sheets will not be able to sustain the current or even higher level of spending that is needed. Bank lending has been the other main source of infrastructure financing, but this is increasingly constrained by macroeconomic factors and potentially regulatory developments. The global project finance bank loan market registered a 7% fall y-o-y in 2012. The Eurozone  BIS central bankers’ speeches  1  crisis saw many prominent project financing banks deleverage and become more selective with clients and transactions, while Basel III may lower the volume and raise the costs of project finance loans.