If the UK is to respond positively to what is widely agreed to be a pressing need for a new approach to infrastructure investment – i.e. building some rather than continuing along the downward spiral of austerity – a lot needs to happen.
It looks unlikely that investment on the scale required to undo the damage done to the UK’s hospitals, transport networks, energy provision, water supply and treatment network, schools and just about everything else, can be funded without the help of private sector investors. The prospects for substantial private investment in utilities have taken a knock following a meeting reported to have been held in the offices of magic circle lawyers Slaughter & May between government ministers, including environment minister Steve Reed, and overseas investors like sovereign wealth funds.
They reportedly made clear that UK utilities are not regarded as investable partly due to the unpredictability of regulators. They were apparently responding to worries that the UK regulators like Ofwat might eventually, after many years of failing to make utility operators toe the line and do what they are being paid to do, actually enforce something. Thames Water’s predicament – not being able to catch up on a massive backlog of investments without politically unacceptable price hikes – is apparently being cited as an excuse to avoid the UK.
If the reports are accurate and overseas investors won’t put their money into the UK without being able to behave as Thames Water has over many years the the question arises whether these are investors that the UK wants – or can afford. Many projects were successfully completed under PFI but it was never a cheap option. Some 150 PFI projects are due to revert to the public sector over the next five years and warnings are being issued by the Association of Infrastructure Investors in Public Private Partnerships, among others, that a lot of disputes are going to arise over the hand backs.
The use of adversarial advisers in negotiating future deals should be avoided, says AIIP. A reset mechanism should be built into contracts to ensure amicable resolution of disputes. Good luck with drafting those clauses; if they work they would be a long awaited holy grail.
Whoever fronts up the money for the UK’s much needed infrastructure the problem will remain of how to efficiently procure and manage the projects. HS2 could have provided a model for large scale project delivery but has descended into a well known case study in how not to do it, as a report from the Institution of Civil Engineers (ICE) highlights.
Cancellation of the northern leg of High Speed 2 has left a gap in the UK’s transport network and weakened confidence in the country’s ability to deliver major infrastructure projects, the report – 5 Lessons from the Cancellation of HS2’s Northern Leg – says.
The government cannot afford that lack of confidence with infrastructure being key to meeting so many of its objectives, says the report. The project got off to a poor start, says ICE, as there was never a consensus about why it was needed or what benefits it would bring. Some high quality engineering gone into HS2 but organisationally things just got worse as the project went along.
Potential investors will be reading the report carefully when considering whether the UK is a good place to put their money. Much depends on their answers.
Nick Barrett
Editor