Main themes
Urban Infrastructure
Sustainable Cities
Property Tax
Land

Title
Innovative mechanism of financing urban infrastructure in sustainable cities

Focus
The magnitude of the infrastructural investment challenge runs far beyond the capacity of the public sector alone and interventions are required to create the conditions conducive to private sector investment through partnerships models.

Issues which the lecture addresses
Despite the success of PPPs in many countries, there is, as yet, no consistent view across governments of how to measure the benefits of these arrangements (AMP Capital, 2011). This goes a long way to explaining the uneven acceptance of PPP structures in developed economies. Additionally there can be problems associated with managing the transfer of economic risk from the public to the private sector and these problems threaten to limit the penetration of this efficient means of asset delivery. Infrastructure assets are very often regulated by government either through a regime set by a regulator or through long-term concession agreements. According to Liu and Lin (2013), two schools of thoughts exist among policy makers and investors as to why the long-term capital does not flow into infrastructure. Policy makers argues that investors are risk-averse, e.g. preferring to have more liquid assets. Whereas investor believes that the main problem resides with lack of assets, i.e. there are simply not enough bankable projects in the market that investors could consider.

Short analysis of the above issues
The quantitative insight derived from the IJ database is complemented by interview discussions in London and India captured the perspective of stakeholders involved in infrastructure investment and financing. The findings from the analysis highlight structuring of debt and equity funds to maximise the efficiency and minimise the risks associated with infrastructure delivery. Furthermore, the finding indicate optimal use of more innovative – hybrid models (debt and equity) for sustainable and balanced funding frameworks for essential infrastructure. The hybrid funding framework proposed in this paper is readily applicable in annuity based as well as other types of PPP projects.

Propositions for addressing the issue
This work reviews the public-private partnerships in infrastructure sector and analyse the financial structure (debt-equity and risk-return) characteristics of partnership models across the different stages of the infrastructure provision at pre-development, development and post-development stages. This research utilises synthesis of structured interviews from financial institutions (banks, private equity and debt funds, policy makers and infrastructure development companies) and Infrastructure Journal (IJ) data to suggest infrastructure delivery mechanism and potential applications to attract investment in infrastructure sector in India.

The talk is structured as follows. Firstly, we highlight the infrastructure market size, rist-return debate, regulatory framework and finance structure in Indian infrastructure development and investment. Secondly presents the methodological approach including data sources – IJ Online and Structured discussions on the issues emanating from the current debate on bridging the huge infrastructure gaps. Thirdly discusses the various funding structures under debt and equity models and identifies the key gaps in the existing financing methods. Finally we conclude by suggesting the potential for hybrid financing mechanisms like mazzanine funding which can be structured as either equity or unsecured debt.

Additional Reading Materials
Deloitte (2013) Funding the Infrastructure Investment Gap. Deloitte Touche Tohmatsu India Private Limited (March, 2013)

Ernst & Young (2011) Financing Australia’s Infrastructure Needs. Report for the Financial Services Council.

Haran, Martin, Adair, Alastair, Berry, Jim, , Hutchison, Norman, Kashyap, Anil, McCord, Michael, McGreal, Stanley (2013) Financial Structure of PPPs Deals Post-GFC: An International Perspective, Journal of Financial Management of Property and Construction, Issue 18 Vol 2

Infrastructure Journal. http://www.ijonline.com/ (Accessed, 2014).