In order for investors to see the potential in developing long-term attractive infrastructure assets, projects must be well prepared. The lack of such primed projects is a major obstacle for ramping up global infrastructure, particularly in developing and emerging economies.
This is one of the priorities for the G20, as Argentinean President Mauricio Macri emphasized in December 2017: “Infrastructure for development” will be one of the key issues of focus during the country’s G20 Presidency and it will “…seek to develop infrastructure as an asset class by improving project preparation.”
SOURCE as a solution
Project preparation is an issue that can and is being addressed by a number of initiatives from the G20 and the multilateral development banks (MDBs), both individually and collectively. One of the collective solutions is the online platform SOURCE—a tool jointly developed and funded by major MDBs and the Sustainable Infrastructure Foundation (SIF), with contributions from a number of industry players from across the infrastructure market.
Tested internationally in six pilot countries between 2013 and 2015, it was launched globally in January 2016 and is now used by 40 governments.
The first step for governments considering embarking on a project is to complete market-specific questionnaires depending upon what stage they are in the process. The questionnaires will then lead them to find an advisor, applying for funds for feasibility studies, and identifying issues.
Attracting investors through collaboration and building confidence
In the G20 priorities statement, Argentina points out that “The global infrastructure gap projected from now to the year 2035 amounts to $5.5 trillion…while institutional investors around the world have $80 trillion in assets under management, typically offering low returns.”
It is perhaps no surprise that the largest spending gaps tend to be in countries with developing and emerging economies where there is more uncertainty and it’s harder to take a long-term view on the viability of projects and certainty of financial returns.
These gaps will continue to widen if governments can’t bring well-prepared projects to the market.This is why SOURCE, which enables collaboration between all the stakeholders (MDBs, development finance institutions, infrastructure investors, consultancy firms, contractors and lenders), is so important. The processes that are put in place provide potential investors all the information and security they need to finance assets.
Currently, the platform hosts the preparation of 154 infrastructure projects that are worth more than $30 billion in disclosed value. For the next stage, SOURCE is looking to significantly increase the number of projects published on its platform with the aim of becoming a global data center for the private sector and to further attract potential investors in infrastructure.
Improved project preparation is a triple winner
What is clear about SOURCE is that the scale of the possibilities, opportunities and impact is enormous, and the desire to use SOURCE to improve project preparation is infectious, as we are seeing more and more organizations wanting to get involved. I describe it as a triple winner: for governments, the private sector, and the end user.
As an infrastructure practitioner for over 20 years, I decided that supporting SOURCE was a no-brainer as its proposition was so compelling. I am sure we all have examples of badly prepared projects that went to market. I have certainly come across a few where I wish SOURCE had been available at the time to assist.
In one case, the relevant government launched a project that was unbankable and uninvestable and implemented it with no outside support. The project was canceled, but a number of bidders had spent a significant amount of time and money in considering the project. In the end, the government sought assistance from the MDBs and the project was relaunched in a much better state for the market.
At Pinsent Masons, we have been supporting the development of SOURCE with other private sector stakeholders by helping to develop the templates that are used on the platform and we are continuing to support its goals by our participation in SIF’s strategic committee.
I urge MDBs and governments to continue to support SOURCE by using it for their projects, and for the private sector to contribute its knowledge and expertise to further refine the platform.