A national investment infrastructure bank {nib} presentation 1 11-11(01)
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This document discusses the potential benefits of establishing a National Investment Infrastructure Bank (NIIB) in Trinidad and Tobago to facilitate public-private partnerships for infrastructure projects. It outlines examples from Canada and the UK where similar models have worked well. A NIIB could help address budget deficits, leverage available funds, and promote long-term planning. It would give greater control and transparency over projects while reducing political and financial risks.
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A national investment infrastructure bank {nib} presentation 1 11-11(01)
- 1. A National Investment Infrastructure Bank {NIIB} A Preferred Approach to Public Private Partnership [PPP] for Small Developing Countries Eng. Winston Riley F.A.P.E. 02/11/11.
- 5. deliver energy security and
- 6. underpin the transition to a low carbon economy …
- 8. Develop new thinking on the future funding and financing of UK infrastructure
- 9. Unlock new sources of funds and ensure value for money from investment
- 11. Identify clear and secure funding streams
- 13. Create a NIB to contribute to these policy goals
- 15. (ACEC)
- 17. PPP is not a panacea
- 18. “ Properly executed, conventional delivery models can deliver many of the benefits of PPP.”
- 19. the greatest benefit for both the public owner and the private sector PPP partner generally occurs when the asset is large and the private sector is contracted to maintain and operate the asset for 25 to 35 or more years
- 21. Second, it necessitates the transfer of risk between partners. Arrangements that do not include these two concepts are not technically 'public-private partnerships' ”
- 22. NO FINANCING INVOLVED FINANCING INVOLVED Design-build Build-own-operate Management contract Joint development agreement Design-build-operate-maintain Design-build-finance-operate Build-operate-transfer Concession Asset Sale Table 1 Types of PPP Contractual Arrangements
- 23. NIIB & PPP
- 24. Table 2 PPP Projects Funded 1985-2004 (AECOM) PPP / NIB –Experiences of Canada and UK
- 26. Heavily indebted governments perceive an opportunity to close the infrastructure gap earlier.
- 27. The reluctance of Governments to raising taxes.
- 29. Savings from efficiencies using the variations of design-build delivery systems no more than under traditional approaches.
- 30. Design innovation and quality of PPP projects sometimes poor compared with projects under the traditional method.
- 33. PPPs only likely to be suitable where risk associated with future demand and usage of an asset can be efficiently transferred to the private sector.”
- 35. The lack of flexibility in long term contracts created major problems for Governments when demand changed.
- 39. Director, Metropolitan Infrastructure Initiative and present Advisor to the Obama Administration on a NIB
- 40. The Institute of Civil Engineers (ICE), Great Britain
- 41. General Manager Inter-American Corporation for Infrastructure Finance (CIFI)
- 44. First Caribbean International Bank
- 45. The Caribbean Financial Services Corporation.
- 47. Funds are available both in the local and international markets at extremely low interest rates.
- 48. The local financial Institutions are flush with funds with little investment opportunities
- 49. A similar situation exists internationally
- 50. In the period 2009-2010 there existed a clear trend towards implementing a PPP model in T&T
- 52. The preference for Design- build coupled with finance provides an efficient suction pump for foreign exchange to leave the country
- 53. The institutional and organizational infrastructure for delivery of physical infrastructure is in shambles
- 55. 1970 ’s as a result of the oil bonanza procurement was outsourced through a series of Gov’t to Gov’t arrangements
- 56. 1990 ’s inefficiencies in delivery by the public sector led to the creation of several Governments owned organisations in the private sector responsible for infrastructure delivery.
- 59. Table 3 Economic Intelligence Unit (2009 ) Evaluating The Environment for PPP In Latin America and The Caribbean Trinidad & Tobago Overall Laws Institutional Operational Investment Financial Index Regulations Framework Maturity Climate Facilities Ranking 12 8 (tied) 9 (tied) 19 6 5 (tied) Score 22.9 25 25 4.3 64.3 58.3
- 62. Better management of risk transfer mechanisms.
- 63. The existence of a NIIB promotes long term planning of infrastructure on a sector basis.
- 64. Plays a defining role in improving the Operational Maturity of the country
- 65. Financial institutions can now play a more defining role in the development process
- 67. Greater control over the use and monitoring of foreign funds for investment in infrastructure
- 68. Promoting of planning through existing organisations and the setting up of organisations
- 69. A more organized and sustainable construction sector by ameliorating the boom and bust scenario
- 70. A stable labour market
- 71. Maintenance of a skilled labour force
- 72. Standardisation and industrialisation of design, construction and maintenance processes.
- 74. A cost benefit analysis (COBA)
- 75. The social return on investment (SROI)
- 77. Mapping outcomes
- 78. Evidencing outcomes and giving them a value .
- 80. Calculating the SROI .
- 81. Reporting, using and embedding .
- 82. TAX AS A MECHANISM FOR FUNDING A NIIB More Productive use of Government Subsidies . It will be imprudent to remove subsidies and at the same time impose fuel taxes. Examine how subsidies can be reduced e.g some of the funds that go to Petrotrin be placed as assets in the NIIB to go towards road infrastructure projects
- 84. Encourages medium and long term planning
- 85. Supports job security in the construction sector
- 87. Promotes the engagement of local professionals
- 88. Thank You
Editor's Notes
- In keeping with its code of ethics the Association of Professional Engineers of Trinidad and Tobago as a body “ owes a duty to the public … and shall act at all times with fidelity to public needs.” In this regard it is the duty of our professional body to harness its expertise for the benefit of the public. This is in keeping with the mandate of the engineering profession worldwide.
- THE UNITED KINGDOM-[NIIB] In keeping with its fidelity to public needs, the Institute of Civil Engineers (ICE) In the United Kingdom as ‘the voice of Infrastructure’ has made a strong case for the establishment of a National Investment infrastructure Bank in the United Kingdom.
- In addition, ICE believes that (1) “ there is consensus across the political spectrum in the UK that investment in infrastructure must be maintained in order to ensure the UK's future economic competitiveness, deliver energy security and underpin the transition to a low carbon economy …
- - (2) "the scope for direct government investment will be constrained in the short to medium term.“ ..."In the last year the ICE has therefore been working with organisations across industry and civil society to develop new thinking on the future funding and financing of UK infrastructure" ..."This work has also examined how the UK can improve the process for strategic planning and the prioritisation and co-ordination of infrastructure development" ICE believes that this is central to unlocking new sources of funds and ensuring value for money from investment. The ICE Executive Summary concludes: “ The UK needs robust and resilient infrastructure to underpin the economy and society as a whole. In order to ensure resilient and robust infrastructure the UK needs to increase the total availability of long term funding available to support new and upgraded infrastructure and reduce the cost of finance for projects
- Action is required to: (1) "Reduce the perception of private investors (both UK and International) that infrastructure projects carry a high degree of political risk." (2) Identify clear and secure funding streams to underpin investment (3) Provide improved mechanisms for …investors to direct savings towards infrastructure investment (4) Provide a center of expertise, accessible to the public sector, for infrastructure investment, (5) Create a national Infrastructure Investment Bank (NIIB)..to contribute to these policy goals….”
- CANADA- [PPP] In Canada the Association of Consulting Engineering Companies (ACEC) established a Task Force to explore Public Private Partnership (PPP) and the implications for consulting engineers, and to recommend strategies to support its membership. A report titled Understanding Public Private Partnership in Canada was commissioned by ACEC to synthesize the key information about P3s in a single document.
- The most important conclusions outlined in the ACEC report that are of interest for our deliberations are: (1) “ PPP is a valid form of project delivery when used in the appropriate circumstances.” (2) PPP is not a panacea. Owners must carefully assess each project to determine whether a conventional delivery model like 'design bid build' will deliver greatest value for money.” (3) “Properly executed, conventional delivery models can deliver many of the benefits of PPP.” (4) “Experience in Canada shows that the greatest benefit for both the public owner and the private sector PPP partner generally occurs when the asset is large and the private sector is contracted to maintain and operate the asset for 25 to 35 or more years in addition to designing, building and providing the financing for the asset.”
- PPP IN THE CANADIAN CONTEXT “ Public-private partnership" carries a specific meaning in the Canadian context. The Canadian Council for Public-Private Partnerships (CCPP) defines PPP as follows: “ First, it relates to the provision of public services or public infrastructure arrangements. Second, it necessitates the transfer of risk between partners. Arrangements that do not include these two concepts are not technically "public-private partnerships " The definition embraces a spectrum of models that progressively engage the expertise or capital of the private sector. “At one end, there is straight contracting out as an alternative to traditionally delivered public services. At the other end, there are arrangements that are publicly administered but within a framework that allows for private finance, design, building, operation and possibly temporary ownership of an asset” Table 1 shows different contractual arrangements (Delivery Systems) which may or may not be financed by the contracted party.
- Contractual Arrangements means for our deliberation Delivery Systems
- NIB &PPP In this paper PPP and NIIB are brought into focus as institutional arrangements for mobilising private capital to support the development and maintenance of public infrastructure in Trinidad and Tobago. THE MOBILISATION OF PRIVATE CAPITAL IS WAHT IS CENTRAL TO THIS DELIBERATION not (THE BUNDLING of DESIGN, CONSTRUCTION FINANCING and OPERATIONS INTO A SINGLE LONG TERM CONCESSION or ANY VARIATION OF DELIVERY WHICH IS LINKED TO FINANCE UNDER ONE CONTRACT OR ONE ENTITY. PPP was the institutional form which initiated the mobilization of private capital. In the traditional forms of PPP the mobilisation of private capital is linked to a project delivery system such as design-build. Table 2 gives details of PPP projects by type funded worldwide between 1985 and 2004.
- PPP In Canada started in the 1990's. During the 1990's and the early 2000's PPP in Canada was not without problems. The failures during this period served as a learning experience such that Canada is now considered one of the leading players in the PPP market. Projects reaching financial closure grew from 6 in 2005 with a capital value of US 3.4B to 15 in 2007 and 10 in 2010 with capital values of US 3.4b. The average debt financing was 77% . nted Kingdom since 1992 the scale and number of projects initiated under PPP is unprecedented, in fact The United Kingdom initiated the bundling of design, construction, financing, and operations into a single long term concession (DBFO) which is now the most globally acceptable model for PPP. The UK now has the most sophisticated institutional framework for PPP in the world and has remained the most active partner in the marketenditure of Projects reaching financial closure in 2005 had a capital value of US 7B. In 2007 capital value of projects reached US 21B and was down to US 7.0B in 2010.
- What Fuels PPP PPP is fuelled by (1) the lack of financial resources of Governments to maintain and expand infrastructure networks vital to achieving economic development and stability. Heavily indebted governments through PPP perceive an opportunity to close the infrastructure gap earlier. (2) Government's reluctance to raising taxes. These two factors have led to the creation of an investment climate for conglomerations of firms such as banks, construction companies, consulting agencies and lawyers to mobilise in an attempt to close the infrastructure gap through the financing and commodification of public needs. There is at present a large network of international firms involved in infrastructure financing supported by a global network of international PPP agencies. Private sector investment is attracted to the DBFO model because of low risk, long asset life, large investment scale, low operating cost, fixed term contracts with inflation protection and monopoly control. The UK as initiator, most active country, with the best institutional infrastructure for PPP after 30 years of experience in PPP arrangements is now the leading critic of PPP arrangements in their present form because of performance issues. As a result, the House of Commons through its Treasury Committee, commissioned a review of PPP initiatives in the UK
- The House of Commons Treasury Committee reported the following: (1)"Private financing organised by PPP project entities is in the order of (4%) more expensive than government borrowings. (2) efficiencies by using the variations of design-build delivery systems is no more than that that under the traditional approaches. (3) From the point of view of design innovation and quality, PPP projects in some instances performed poorly compared with projects under the traditional method.
- (4) The remaining advantages of PPP which have nothing to do with value for money are (a) PPP debt can be considered off balance sheet (b)?Government departments use PPP to leverage up their budgets (5) The incentives unrelated to value for money need to be removed and stricter rules and guidelines governing PPPs must be introduced. PPPs are only likely to be suitable where the risk associated with future demand and usage of an asset can be efficiently transferred to the private sector.”
- In addition to the concerns expressed by the Treasury Committee there are : (1) Transparency issues leading to lack of community involvement with its ‘knock-on’ effect on Urban Planning and accessibility to basic information. In the UK the courts were approached to get basic information which should lead to changes in the Freedom of Information Act. ( UNISON report to House of Lords on Private Financed Projects paragraphs 19 and 20 ) (2) Lack of flexibility issues. Lack of flexibility in long term contracts which are demand driven can created major problems for Governments when demand changes. PPP locks the owner into inflexible contractual arrangements with little room for variation. Once the contract is signed the owner loses control of the project. The financial arrangements, the design, construction, operation and maintenance are now almost exclusively under the control of the PPP operator.
- As part of the Joint Consultative Council for the Construction Industry [JCC]’s response to the 2010 – 2011budget presentation, a paper The Case for a National Investment Infrastructure Bank for Trinidad and Tobago (NIIB TT) was developed. The paper was submitted to the JCC to be used as a working document for the hosting of a two day conference in Trinidad and Tobago. The Caribbean Development Bank [CDB} was approached and requested that the theme be changed to “A New Approach to Financing Infrastructure, Critical and Necessary for the Caribbean .” It is interesting to note CDB’s suggestion that we consider New Approach to Financing Infrastructure, Critical and Necessary for the Caribbean.
- Commitments for participation through presentations were received from the International Finance Corporation (IFC), Caisse des Depots of France, Mr. Robert Puentes, Senior Fellow and Director, Metropolitan infrastructure Initiative and present Advisor to the Obama administration on a National Infrastructure Bank, a representative from the Institute of Civil Engineers (ICE), Great Britain, Mr. Roland Trujillo General Manager Inter-American Corporation for Infrastructure Finance (CIFI), and Mr. Antony Maughn, Caribbean Financial Services Corporation (CFSC). Commitments for financing were received from Cassie des Depots of France, First Citizen Bank, First Caribbean International Bank, and The Caribbean Financial Services Corporation. This initiative lapsed because of funding and timing arrangements of presenters.
- The question to be answered is, why a National Investment Infrastructure Bank for Trinidad and Tobago? The answer is founded on the following facts: (1) The budget of 2010-2011 projected that Trinidad and Tobago will experience its second year of deficit financing. The budget 2011-2012 projects our third year of deficit financing. (2) Funds are available both in the local and international markets at extremely low interest rates. The local financial Institutions are flush with funds with little investment opportunities. A similar situation exists internationally. (3) In the period 2009-2010 there existed a clear trend towards implementing a PPP model on a massive scale in Trinidad and Tobago. The National Trunk Road Project was initially proposed to be delivered under a design-bid-build delivery system with phasing taking into account acquisition and utility location issues. This approach allowed for the effective involvement of the local construction and manufacturing sectors This approach was changed drastically by the former Minister of Works and Transport by: (a) Bundling projects and operational components to attract large international construction firms and financiers. (b)Changing the delivery system from the design-bid-build to design-build. Designs, tender documents and phasing plans were already in place when tendering on a design-build basis was initiated.. (c)Requesting that the contractor give an option to provide financing. ,
- (4) The lack of control over the foreign exchange component of projects. For example The Request for Proposals on the Trunk Roads Projects stated “The selected contractor for each package shall be required to execute the works under its contract utilizing at least 30% local content, excluding materials but including labour and services, engaged either directly or on a sub-contractor/consultancy basis, in connection with both design and construction.” It is common knowledge that it will be difficult for any contractor on a road project in Trinidad and Tobago to achieve a local content of less than 60% (5) The preference for Design- build coupled with finance provides an efficient suction pump for foreign exchange to leave the country. The situation is further exacerbated with Chinese firms. These Chinese firms come with all the components of PPP and have the biggest suction pump because of their predilection to bring in labour. In addition their entry is facilitated by Government to Government Arrangements aiding the bypassing of existing procurement legislation. (6) The institutional and organizational infrastructure for delivery of physical infrastructure is in shambles. In parts 1 and 2 o
- The Politics of Procurement, papers I have authored on procurement practices, they show that the breakdown is rooted in the mode of funding utilised in procurement. In small countries the mode of funding can have transformational effect on the country’s institutional and organisational arrangements for delivering infrastructure. In the 1960s the funding conditions of the World Bank and the IDB privileged the private sector. This led to trained and experienced personnel leaving the public sector for the private sector. The deterioration of public sectors organisations such as the Ministry of Works and Transport was the end result. In the 1970’s as a result of the oil bonanza procurement was outsourced through a series of Government to Government Arrangements. The National Insurance Property Development was formed to manage the process. In the 1990’s because of inefficiencies in delivery by the public sector the government created several Governments owned organisations in the private sector to be responsible for These organisations also served as agents for off balance borrowings. There has been no improvement in delivery of infrastructure facilities. (7) There is no national plan in the Transportation sectors. There is no prioritisation of projects. Congestion on roads is now nationwide. Flooding is also nationwide and responses only have temporary effect
- The JCC has through seminars papers and meetings promoted since 2000 the setting up of a National Roads Authority in Trinidad and Tobago. The Association of Professional Engineers has made repeated calls for the setting up of a Transit Authority and a Drainage Authority to facilitate the planning process. Implementation to date has been poor. The JCC for the past 8 years has been active in the promotion of procurement reform in Trinidad and Tobago. The legislation is not yet in place. The procurement legislation if enacted in the manner proposed by the JCC and other private sector bodies will go a long way in providing a foundation for the regulatory framework necessary for the setting up of the NIIB. Table 3 shows Trinidad and Tobago readiness for PPP.
- Table 3 shows Trinidad and Tobago readiness for PPP. The table shows that Trinidad and Tobago is ranked 12th out of 19 countries surveyed. What is revealing is that on Operational Maturity Trinidad and Tobago came 19th with an index of 4.3 Operational Maturity reflects the country’s track record for project implementation. The history of public procurement has shown that funding has played a transformational role in procurement which to date has had negative effects on our institutions and organisations response to delivery. In this regard, now is the time for a NIIB for it is indeed possible for funding to play a positive transformational role. The inability of governments in small countries to fund the infrastructure gap without the support of the private sector remains persuasive. The issue now becomes how can the private sector remain involved in funding public infrastructure without the experience of the negatives outlined by the UK parliament. A NIIB for Trinidad and Tobago is of emended value in this regard. In fact funding the infrastructure gap on a long term basis naturally leads to the setting up of infrastructure funds. An independent entity that would use government funding to attract major private investment in public infrastructure projects is what an NIIB can do by leveraging both on the local and international markets. Capital expenditure ca be leveraged and turned into current expenditure on the National Accounts. The NIIB can take up the responsibility of raising bonds and the international banks can become equity holders in addition to lenders lending credibility to the bank. China can become equity holders in the bank, support the raising of loans for the bank. .
- The NIB approach itself is a Public Private Partnership and in the view of JCC is a preferred option to financing infrastructure private and public money for the following reasons: 1. It allows the private sector to be involved in funding public sector projects and is an improvement on relying on current modes of Public Private Partnership (PPP) arrangements as it delinks the financing from the contractual arrangements. Once the contractual arrangements are linked to the financing under design build delivery systems the owner loses control of the project on signing of the contract. The recent reviews coming out of the United Kingdom and Europe on current forms of PPP arrangements demonstrate that the negatives associated with PPP arrangements arise from the linkage between financial and contractual arrangements under design build delivery systems. .
- With this delinking through a NIB, the positive effects are: (1) Greater owner control over the process during the design, construction and operating stages of the project which should lead to increased confidence in the NIIB procurement and delivery processes. (2) Better management of risk transfer mechanisms. The underlying principle of PPP is that risk is transfered to the private sector. With a NIIB in place the issue of risk transfer is now the NIIB's concern and not the Governments’. Risk can now be more efficiently transferred because of the inherent controls outlined at (a) above not sure what this is (3)The existence of a NIIB promotes long term planning of infrastructure on a sector basis. (4) Operational Maturity of Trinidad and Tobago is the single biggest negative for private sector financing. A NIIB set up by statute and invested with decision making authority over all processes delivery as well as financing gives the opportunity to be insulated from issues that negatively affect Operational Maturity. (5) The financial institutions can now play a more defining role in the development process leading to improvement in the local capital market
- With a NIIB in place it allows for the setting up of a tighter institutional framework necessary for the reduction of political risk. 4. It also allows for greater control over the use and monitoring of foreign funds for investment in infrastructure. With the development of the local capital market, foreign funding could be limited to the foreign exchange requirements of projects. 5. A natural outcome of a NIIB is the promoting of planning through existing organisations and the setting up of organisations such as a Roads Authority. Projects available for funding in each sector will have to be prioritised based on some scientific criteria and must meet the NIIB conditions for funding. This will facilitate the shift away from the proliferation of state owned project management organisations incorporated under the Companies Act. An infrastructure bank also keeps politics out of the equation. Careful procedures will be established to ensure that projects that receive loans or loan guarantees are based on merit and are of national significance. 6. Such long term and medium term planning will lead naturally to a more organized and sustainable construction sector. The boom and bust scenario of the construction industry could be ameliorated. The outcomes will be a stable labour market, the maintenance of a skilled labour force, the standardisation and industrialisation of design, construction and maintenance processes.
- In the paper “The Case for a National Infrastructure Bank for Trinidad and Tobago” [2010}, the mechanism for funding a five (5) billon dollar highway project was outlined. In that paper the essential criteria for determining prudent investment in public sector infrastructure projects through a NIB was not stated and did not reveal the fundamental difference in priorities between the private and public sectors. These differences will be taken into account through the metrics of the project evaluation system. The important metrics are: 1 The return on investment (ROI) = (Gain from Investment - Cost of Investment)/ Cost of Investment The ROI is the measure that is of primary concerned to the private investor. 2 ThedCost benefit analysis (COBA) is a technique for assessing the monetary social costs and benefits of a capital investment project over a given time period. The principles of cost-benefit analysisOBACBA) are simpleefined by dividing the projected benefits of a program by the projected costs. This is one of the primary concerns of the st.te. 3 The social return on investment SROI is informed by a set of principles that are designed to ensure that process is robust, transparent, and informed by stakeholders. The principles inform a six-step methCost
- Establishing scope and identifying key stakeholders . Clear boundaries about what the SROI will cover, and who the will be involved are determined in this first step. Mapping outcomes . Through engaging with stakeholders, an impact map, or theory of change, which shows the relationship between inputs, outputs and outcomes is developed. Evidencing outcomes and giving them a value . This step first involves finding data to show whether outcomes have happened. Then outcomes are monetised – this means putting a financial value on the outcomes, including those that don’t have a price attached to them. . Establishing impact. Having collected evidence on outcomes and monetised them, isolate those aspects of change that would not have happened anyway (deadweight) or are not as a result of other factors (attribution). Calculating the SROI . This step involves adding up all the benefits, subtracting any negatives and comparing them to the investment. . Reporting, using and embedding . Easily forgotten, this vital last step involves sharing findings and recommendations with stakeholders, and embedding good outcomes processes within the organisation. This metric taken from the New Economic Foundation is of primary use to the State. When one looks at the set of metrics together, it becomes clear that the State has interests other than that expressed by the ROI. The difference in benefits can be used to reflect the type of shares held by the public sector relative to the private sector
- TAX AS A MECHANISM FOR FUNDING A NIIB The paper “The Case for a National Infrastructure Bank for Trinidad and Tobago” proposed the reinstating of The Road Improvement Tax as a mechanism for funding through the NIIB. The present position is that our fuel subsidy for the year 2011-2012 is $4.1B. We are in effect subsidizing ‘deportee’ vehicles, increases in our carbon footprint, increased traffic congestion which has a direct effect on prices of goods and services and increased road maintenance cost, negative driver behaviour and crime. The negative fallout from well-intentioned policies has run its course and now must stop and give way to more productive use of government subsidies. It will be imprudent to remove subsidies and at the same time impose fuel taxes. The challenge therefore is how can the subsidy be reduced and some of the funds that go to Petrotrin, for example, be placed as assets in the NIB to go towards road infrastructure projects In addition the Government owes Petrotrin large sums of money. A NIB, if in place, could take on the responsibility of discounting Government receivables to Petrotrin at better rates than the commercial banks and using the discounted amount to fund road projects.
- SUMMARY Therefore against the background of other countries our own historical and social imperatives, we are in a favourable position to develop a NIIB model tailored to our needs that:- (1) Brings medium to long term planning back to national development in a manner that minimizes political interference when there is regime change (2) Reduces boom and bust cycles and ensures job security in the construction sector (3) Affords greater transparency and accountability in project financing and greater efficiency in project delivery (4) Builds the trust of the local private sector and strengthens their involvement with their society (5) Promotes the engagement of local professionals in all aspects of sustainable growth and development as funding is generated not only for infrastructure projects but for the development and application of green technology