By Len Rodman, Chairman, President & CEO, Black & Veatch
This time of year is traditionally packed with major conferences that bring top industry leaders together. Events sponsored by groups such as the Edison Electric Institute, the American Water Works Association, or the Singapore International Water Week are some of the best ways of getting a pulse on how clients are thinking about critical human infrastructure.
The overall tenor I picked up at these events is that the global economy is still challenged in the short run and will likely continue that way through the rest of 2012. These circumstances seem to have a damping effect on the growth drivers that typically are a precursor for some of our projects. That said, we are still seeing projects resulting from the need to meet regulatory drivers, to improve overall efficiencies or to accommodate the dynamic nature of technology. Projects also result from the deterioration of existing infrastructure and, yes, due to the shifts in fuel pricing and resource availability.
After visiting with many clients and listening to scores of presentations, I can’t help but feel that we’re at a crucial point in deciding how to finance infrastructure in the coming decades. It is well documented that trillions of dollars will be needed as the world faces both staggering population growth and urbanization. There is the inevitable need for capacity building in energy, water and telecommunications at the same time we replace aging infrastructure and address the need for greater optimization. These are distinctly different issues, but with a common need – significant investment.
What seems to be lacking at this juncture is the ability to innovate in the area of project financing. Innovative project financing is every bit as vital as innovation in project engineering, delivery or construction methods. But the days of abundant financial resources are seemingly only a fond memory, and we need to replace that void with new ways of getting the projects funded. Delaying this innovation process will only escalate the price tag of infrastructure and, at the same time, postpone the benefits to those needing reliable electricity, safe water, enhanced communications and security.
The willingness to adopt new policies and take on risk is very challenged right now. If the economy were in better shape, then it would be reasonable to expect a higher level of risk tolerance – but in light of today’s global economic conditions, this just is not the case. That does not mean the money does not exist – quite the opposite. A vast amount of capital appears to be sitting on the sidelines. Ironically, that money is attracting very little in interest, since rates are at historic lows. Instead, the money is simply being parked. And that is a sad situation, one that should be rectified.
But there were many other topics on the minds of these global leaders at the various events. Attendees continue to be intrigued by the potential for natural gas to be the energy source of the future. The predominant feeling is that it can reshape (and to an extent, already has) the key energy drivers in parts of the world. Yet in other places, coal is the fuel of choice because of its availability and cost. Overall, natural gas has never been this cheap and available in the United States, but never more expensive in other parts of the world. So long-term value and supply/demand factors are shaping the future for these energy resources.
There were also discussions about the growing status of the middle class across the globe. The world’s population is approximately 7 billion now, and of that total, less than 2 billion are in the middle class. It is projected that the middle class will grow to 5 billion by 2030. This middle-class shift will put a whole new lens on the buying preferences of the population. They will have higher living standards, and utilities will need to deliver on those expectations. The world as a whole will have more of a view of what some see today. Yet all regions of the globe are crying out for more infrastructure – whether it is for new facilities or replacing decades-old infrastructure that has already been extended well beyond its original life cycle.
We know that our overall infrastructure must become more intelligent, and even today, we are seeing some moves in this direction as different industries converge and further realize the growing benefits that exist when one looks at a broader set of solutions. From various discussions, I surmise that utilities are intrigued by the many possibilities that a “smarter” infrastructure system offers. Yet it represents a significant investment, and they are still searching for ways to find the long-term efficiency and optimization that can justify such an outlay.
Yet, as we talk about the future and a smarter infrastructure, the bleak reality hits us – millions and millions of people still lack basic clean, safe, potable water. Millions have not experienced the benefits of electricity. Far too many can’t communicate, even a few miles away. All of this means that critical human infrastructure still has a long way to go, and yet, at the same time, has a bright, technologically based future ahead of it. Let’s get creative and innovative on the funding, let’s look at the true business case of these interrelated resources, let’s educate key stakeholders on the value, and let’s boldly meet the growing needs of developed and developing nations alike.
Mr. Rodman is the recipient of the 2008 Award for Contributions to International Commerce and/or Community Service, from the International Relations Council.
The above article originally appeared in Solutions magazine, Issue 2, 2012, and is reprinted with permission of Black & Veatch. Copyright 2012. All rights reserved.
http://solutions.bv.com/ability-to-finance-infrastructure-now-at-a-crucial-junction/