Infrastructure as an Asset Class

BARBARA WEBER is founding partner of B Capital Partners AG in Zurich, an investment advisory firm focused on institutional private equity portfolios and specialising in infrastructure and clean energy.MIRJAM STAUB-BISANG is CEO of Independent Capital Group AG in Zurich, an asset management and real estate investment company focused on sustainable investing across asset classes. HANS WILHELM ALFEN is chair of construction economics at the Bauhaus-Universität Weimar in Germany and general manager and founder of Alfen Consult GmbH, Weimar.

• List of Figures xiiiList of Tables xvPreface xviiA Note from the Publisher xixAcknowledgements xxiAbout the Authors xxiiiIntroduction xxvChapter 1 Infrastructure – An Overview 11.1 Demand for Infrastructure 21.2 Sustainability and Infrastructure 71.2.1 Sustainability and sustainable development – a brief history 81.2.2 The need for sustainable infrastructure 91.3 Definition and Characteristics of Infrastructure 101.3.1 Differentiation of terms: project – asset – facility 131.3.2 Characteristics 151.3.3 Cross-sector characteristics 161.3.4 Types of infrastructure companies 161.3.5 Role of the private sector 181.3.6 Value chain elements 191.3.7 Greenfield versus brownfield investments 211.3.8 Yield-driven versus IRR-driven investors 221.3.9 Sources of revenue and financing 241.3.10 Competition and regulation 25Chapter 2 Infrastructure Investments 272.1 Infrastructure as an Asset Class 282.1.1 Investors in infrastructure 292.1.2 Risk-return profiles of unlisted infrastructure investments 332.1.3 Benchmarking infrastructure investments 402.1.4 Portfolio diversification through infrastructure 462.2 Sustainable Infrastructure Investing 562.2.1 Concept of sustainable investing 562.2.2 Why invest in sustainable infrastructure? 622.2.3 How to invest in infrastructure sustainably 642.2.4 Challenges of sustainable infrastructure investing 682.3 Approaches to Infrastructure Investing 692.3.1 Listed infrastructure investments 692.3.2 Unlisted infrastructure investments 73Chapter 3 Organisational Model 873.1 Privatisation Models 873.1.1 Privatisation versus PPP 883.1.2 Formal privatisation 943.1.3 Functional privatisation 953.1.4 Material privatisation 963.2 Partnership Models 1003.3 Business Models 1023.3.1 Availability payment models 1033.3.2 User-driven payment models 1053.3.3 Direct-user payment models 1063.4 Contractual Models 1073.5 Financing Models 1103.6 Interim Summary – Various ‘Privatisation Paths’ 110Chapter 4 Characteristics of Selected Infrastructure Sectors and Subsectors 1134.1 Transport 1144.1.1 Cross-sector characteristics 1144.1.2 Road transport 1184.1.3 Rail transport 1254.1.4 Air transport 1334.1.5 Water transport 1414.1.6 Sustainability considerations 1494.2 Water Supply and Sewage Disposal 1524.2.1 Characteristics and organisation 1524.2.2 Sources of revenue and value chain elements 1584.2.3 Competition and regulation 1604.2.4 Private-sector involvement 1614.2.5 Sustainability considerations 1644.3 Waste Disposal 1664.3.1 Characteristics and organisation 1664.3.2 Sources of revenue and value chain elements 1724.3.3 Competition and regulation 1754.3.4 Private-sector involvement 1764.3.5 Sustainability considerations 1784.4 Energy – Electricity 1804.4.1 Overview 1814.4.2 Generation – renewable electricity – cross-sector characteristics 1864.4.3 Generation – solar energy 1914.4.4 Generation – wind energy – onshore 1934.4.5 Generation – wind energy – offshore 1954.4.6 Generation – hyrdoelectric energy 1974.4.7 Generation – bioenergy 1994.4.8 Transmission and distribution 2034.4.9 Electricity storage 2154.4.10 Sustainability considerations 2284.5 Energy – Natural Gas Networks 2344.5.1 Characteristics and organisation 2344.5.2 Transmission 2354.5.3 Storage 2364.5.4 Distribution 2374.5.5 Sources of revenue and value chain elements 2374.5.6 Competition and regulation 2384.5.7 Private-sector involvement 2394.5.8 Sustainability considerations 2404.6 Energy – District Energy Systems (DES) 2414.6.1 Characteristics and organisation 2424.6.2 Sources of revenue and value chain elements 2444.6.3 Competition and regulation 2464.6.4 Private-sector involvement 2474.6.5 Sustainability considerations 2484.7 Social Infrastructure 2494.7.1 Healthcare facilities 2504.7.2 Education facilities 2534.7.3 Administrative facilities 2554.7.4 Sustainability considerations 256Chapter 5 Risks 2595.1 Risk Management 2595.2 General Risks 2655.2.1 Market risk 2655.2.2 Interest rate risk 2695.2.3 Exchange rate risk 2705.2.4 Environmental, social and governance (ESG) risk 2705.2.5 Political, legal and regulatory risk 2775.2.6 Force majeure 2825.3 Project/Asset-specific Risks 2835.3.1 Planning, construction and completion risk 2845.3.2 Technical risk 2855.3.3 Financing risk 2875.3.4 Syndication risk 2885.3.5 Operational risk 2895.3.6 Contractual and counterparty risk 2905.3.7 Realisation risk 2905.4 Sector-specific Risks 291Chapter 6 Project Finance 2956.1 Project Finance Basics 2956.2 Project Finance and PPP 2976.3 Basic Structure of Project Finance 2996.3.1 Key characteristics 2996.3.2 Participants and other stakeholders 3026.3.3 Objectives and contributions of project participants 3086.3.4 Typical contractual framework for project finance 3106.4 Structuring Project Financings – Traditional and in PPPs 3126.4.1 Phase I – Advisory 3166.4.2 Phase II – Project assessment 3166.4.3 Phase III – Risk analysis and allocation 3186.4.4 Phase IV – Financing 3196.4.5 Phase V – Implementation and monitoring 324Chapter 7 Financing Instruments 3277.1 Equity 3287.2 Mezzanine Capital 3307.3 Debt 3317.3.1 Senior loans 3317.3.2 Bonds 3347.3.3 Short-term finance 3397.4 Government Support Schemes 3397.4.1 National development banks 3407.4.2 European Investment Bank (EIB) 3417.4.3 European PPP Expertise Centre (EPEC) 3437.4.4 Governmental export credit and direct investment insurance – ECAs 3437.5 Asset-backed Securities 3447.6 Sale and Leaseback 3467.7 Derivatives 3467.7.1 Futures 3477.7.2 Options 348Concluding Remarks 349Appendix A Sample Page from CDC Toolkit on ESG for Fund Managers 351Appendix B Credit List for Envision’s Sustainable Infrastructure Rating System 353Appendix C Infrastructure Sustainability Rating System (Australia) – Themes and Categories 355Appendix D National Appropriate Mitigation Actions (NAMAs) 357References 361Index 381