Foreword by the World Economic Forum
Today’s global infrastructure demand is estimated at about US$ 4 trillion in annual expenditure with a gap – or missed opportunity – of at least US$ 1 trillion every year. One of the most important areas for investment globally is indeed infrastructure. This specific asset class should be put into perspective when addressing the needs of the fastest growing populations, namely, Africa and Asia. In spite of the growing gap in building new infrastructure it should be emphasized that the worldwide stock of existing infrastructure is worth about US$ 50 trillion, which is of the same order of magnitude as the global stock market capitalization (US$ 55 trillion) and comparable, to a certain extent, to the global GDP (US$ 72 trillion). This existing stock offers a tremendous opportunity to narrow the infrastructure gap if governments are capable and willing to optimize the operations and maintenance (O&M) of their infrastructure assets.
A country’s competitive economic advantage clearly depends on a properly articulated infrastructure vision and long-term planning. Government leaders must inspect their project portfolios critically and decide which ones to accelerate first based on their strategic importance, independently of the restricted duration of a political cycle. However, vision and planning are not sufficient and it is fundamental that governments learn how to assess and select an appropriate infrastructure delivery model at the early stages of the project preparation process and are fully aware of the implementation consequences in terms of whole life-cycle cost. In addition, governments need to develop a holistic and long-term strategy for operating and maintaining their physical assets that may represent a considerable financial burden for future taxpayers.
The World Economic Forum’s Strategic Infrastructure Initiative is a collaborative reflection of the steps required to efficiently and effectively deliver economic infrastructure projects. The Initiative, with its linkages to the B20 and G20, and its cumulative track-record of pan-regional engagement of the private sector, government and civil society, has identified the following key challenges to date: the prioritization of infrastructure projects in a robust and bankable project pipeline; the acceleration of the project preparation process; and the selection of the most adequate project delivery model. However, these challenges are often only the tip of the iceberg given that these infrastructure assets will be operated for 20, 30 or more years after initial construction. In fact, governments have to properly manage their stock of public infrastructure but are often much more interested in building new assets. This tempting choice may not be optimal given the opportunity of better managing the existing infrastructure stock by optimizing their utility and lifetime – at a reasonable cost. In reality, many governments struggle to achieve high O&M performance due to insufficient funding, weak capabilities and inadequate O&M governance.
This report assumes that infrastructure assets have already been built, after being selected and prioritized on the basis of a country’s infrastructure vision and plan, and delivered with the most adequate procurement model – whether a public-private partnership or not. In this context, the four best-practice areas concerning O&M covered in this report are: (i) increase utility; (ii) decrease total cost; (iii) increase lifetime value; and (iv) policy enablers. For each of these best-practice areas the report identifies and illustrates three critical success factors that governments should be aware of and should seriously consider for their O&M strategies.
The Strategic Infrastructure Initiative – and its Knowledge Series Reports – has been providing a roadmap to steer governments and key stakeholders to comprehensive frameworks and actionable best practices that cover the whole infrastructure life-cycle, namely, origination, preparation and implementation of physical assets. This report is the last volume in this series and is focused on project implementation, namely the O&M of existing infrastructure assets – an often neglected and yet critical practice. The future of the World Economic Forum’s work will fold into the broader umbrella of the Global Strategic Infrastructure Initiative, which will continue to carve out an exceptional space for a number of regional and national discussions in the years to come, including Latin America and Asia and also Europe and North America. These efforts will continue to substantiate the globally acquired body of knowledge and experience into concrete measures that contribute to boosting strategic infrastructure development.
This report is a direct result of a cooperative process with leaders from government, civil society and the private sector, particularly the engineering and construction, financial services and investors industries. In this regard, we would like to thank and acknowledge the World Economic Forum partner companies that served on the Strategic Infrastructure Initiative Steering Committee: ABB; Alcoa; AMEC; Arup; Bilfinger; CCC, CH2M HILL; CVC Capital Partners; Danfoss; Fluor Corporation; GE; Hindustan Construction Company; Kokusai Kogyo (Japan Asia Group); Leighton Holdings; Prudential; Punj Lloyd; The Rockefeller Foundation; Siemens; SNC-Lavalin Group; Toshiba and Welspun Corporation. We would like to give special acknowledgement to Hamish Tyrwhitt (Chief Executive Officer, Leighton Holdings 2011-2014) for his relentless interest and commitment to serve as chair of the Strategic Infrastructure Initiative from spring 2012 to spring 2014.
We would also like to thank the many experts who contributed to the report through their role on the Strategic Infrastructure Initiative Advisory Committee: Norman Anderson (CG/LA Infrastructure); Gordon Brown (Prime Minister of the United Kingdom 2007-2010); Victor Chen Chuan (University of Sichuan); Nathalie Delapalme (Mo Ibrahim Foundation); Angelo Dell’Atti (IFC); Clive Harris (World Bank Institute); Franziska Hasselmann (ETH Zurich); Rajiv Lall (IDFC); Yves Leterme (OECD); Clare Lockhart (Institute for State Effectiveness); Thomas Maier (EBRD); Mthuli Ncube (African Development Bank); Aris Pantelias (University College London); Mark Romoff (Canadian Council for Public- Private Partnerships); Douglas Stollery (Stollery Charitable Foundation); Shamsuddeen Usman (Minister of National Planning Commission of Nigeria 2011-2013) and James Zhan (UNCTAD).
Nicolás Mariscal Torroella (Chairman, Grupo Marhnos) and José Fortes Méndez (Director of Infrastructure, Grupo Marhnos) are kindly acknowledged for discussing and providing us with the material necessary for the preparation of the O&M case study on the Tlalnepantla Hospital. Roberto Roy, Minister for Canal Affairs, Panama, is also acknowledged for the fruitful discussions in Panama City in October 2013 which served as the basis for the O&M case study on the Panama Canal Authority that is included in this report. Jorge Quijano, Chief Executive Officer, Panama Canal Authority, is also acknowledged for granting us access to his technical staff and carrying out interviews using the O&M checklist developed in this report.
Finally, we would like to thank the cross-fertilization brought about by the members of the Global Agenda Council on Infrastructure, chaired by Thomas Maier (EBRD) and the Global Agenda Council on Long-term Investing, chaired by Danny Truell (Wellcome Trust).
The experience, perspective and guidance of all the above people and organizations contributed substantially to a number of remarkable discussions with particular highlights at the World Economic Forum on Africa, Cape Town, May 2013, at the Summit on the Global Agenda, Abu Dhabi, November 2013, and the World Economic Forum Annual Meeting 2014 in Davos-Klosters.
Head of Centre for Global Industries (Geneva)
Pedro Rodrigues de Almeida
Head of Infrastructure & Urban Development Industries
Foreword by the European Bank for Reconstruction and Development (EBRD)
Over the past several years, the discussion with respect to infrastructure investment has been punctuated by calls for more resources to be made available to close the “financial gap” between the current global levels of investment compared with the estimated global need. Systemic uplift in the levels of investment must happen to drive global economic growth, job creation and improved competitiveness. The work of the World Economic Forum, in close coordination with the Russian and Australian presidencies of G20 and B20, has helped to forge a new consensus on the drivers for the infrastructure gap and its underlying issues. While financing is, of course, essential, the infrastructure gap can mostly be explained by other overriding factors, namely insufficient numbers of projects that come to the market and which are based on adequate structures and optimal life-cycle costing, and are driven by a solid underlying economic case.
This report makes a valuable contribution to the debate by highlighting and explaining the importance of operations and maintenance (O&M) of existing infrastructure stocks. Given the sheer value of these sunken assets, the report rightly points out how countries and cities, particularly in the emerging markets, can extract high economic value by ensuing that the full asset value of these assets are extracted over the entire planned life-cycle of each asset. Indeed, if existing infrastructure is not well-maintained, countries often face a costly conundrum of political and social pressures to pursue much more costly greenfield projects, some of which may have been avoided (or at least postponed by several years) if rigorous approaches to O&M had been implemented from the outset. Given the general state of fiscal constraints prevailing in many countries today, the importance of O&M aspects is brought into stark relief.
Finally, it is crucial to remember that proper O&M is part and parcel of high-quality service orientation for users, and this user-based focus is what drives their willingness to pay for services and thus underpins funding sustainability. As such, effective O&M and asset management approaches for existing infrastructure provide a blueprint for sustainable greenfield investment of the future.
While the report recognizes that the set of answers towards improving the status quo is by nature complex and multifaceted – and touches on the need for example to deepen institutional strengthening and capacity across the board – it also makes a valuable contribution towards highlighting a host of tried and tested guiding principles and best practices that have been shown to produce good results. In that respect, it deserves wide dissemination both among the public and private sectors, and across the broad spectrum of investors in infrastructure.
GAC Infrastructure Chair and Managing Director of Infrastructure,
European Bank for Reconstruction and Development (EBRD)