Introduction: The Operations and Maintenance (O&M) Imperative :
The Global Infrastructure Gap
The global infrastructure gap is a pressing issue
The global demand for infrastructure investment is huge and estimated at about US$ 3.7 trillion annually.3 In developing countries, it is driven by growing population, economic growth, urbanization and industrialization. In the developed world, a particular concern is that so much legacy infrastructure needs maintenance and rehabilitation, owing to the ageing of assets, stricter environmental regulations and the globalization of supply chains.
The high demand is not being met, however, as only about US$ 2.7 trillion is invested each year.4 The supply of new infrastructure cannot keep pace with demand because of various impediments; notably, the public sector’s budget constraints following the global financial crisis, and the reluctance of private financiers to commit capital to long-term and risky projects. In addition, the delivery of infrastructure programmes is hampered by several issues in the project origination and preparation phase, including biased project identification and prioritization, low-quality master-planning, slow permit and procurement processes, and inadequate risk allocation and delivery models.
Figure 4: The Global Infrastructure Gap and Levers to Close the Gap
1. Including economic and social infrastructure 2. Infrastructure to 2030 (Volume 2): Mapping Policy for Electricity, Water and Transport, June 2007. Paris: Organisation for Economic Cooperation and Development (OECD) 3. IHS Global Insight Construction Database, March 2012 4. Using $70T as global GDP, non-PPP adjusted (2011)
In short, the growth of the infrastructure asset base is failing to keep up with society’s needs. The global road network, for example, has expanded by 88% since 1990, which might sound impressive, except that global road freight traffic has increased 218% over the same period.5 Across all sectors of economic and social infrastructure, the global infrastructure investment gap amounts to at least US$ 1 trillion per year, which corresponds to about 1.4% of global GDP6 (Figure 4). To make matters worse, much of the existing asset base is wearing out: many of the infrastructure assets in the European Union (EU) and North America were built in the 1950s-1970s, and many, approaching the end of their expected lifespans, are becoming structurally deficient or functionally obsolete. For example, the average age of the 607,380 bridges in the US is currently 42 years, and that of the 84,000 dams is 52 years.7 And in Germany, about a third of rail bridges are over 100 years old.8 In fact, most developed countries have neglected to modernize their infrastructure, as infrastructure spending has declined over recent decades, and priority has often been given to building new projects.
To narrow or close the infrastructure gap, governments can pull three levers
Governments can reduce infrastructure demand, build new assets or optimize existing infrastructure assets (Figure 4).
Reduce demand. Reducing demand for infrastructure services is sometimes a viable option, if user needs for these essential public services can be satisfied in other ways. Electricity consumption can be reduced through systematic promotion of energy-saving devices. However, many services, such as transport, cannot be feasibly reduced without jeopardizing economic and social development.
Build new assets. The most obvious and widely discussed solution is to build new infrastructure facilities. (The required actions were described in the Strategic Infrastructure Initiative’s previous two reports.9) However, the solution is resource-intensive, complex and prone to delays – unappealing characteristics in a world of tight fiscal budgets and limited private long-term lending/investing.
Optimize existing infrastructure assets. An underexploited opportunity is to upgrade the existing asset base by optimizing the O&M of the infrastructure assets, i.e. making them more effective, cheaper or longer-lasting. While this lever has often been neglected by policy-makers in the past, it commands attention now in the current context of constrained finance, ageing facilities and rising demand. The Swiss transportation policy, for example, explicitly stipulates that optimal management of existing capacities has priority over capacity expansion.10
This report aims to examine the role that O&M best practice can play in narrowing the global infrastructure gap, while recognizing that a comprehensive and sustainable approach to closing the gap will require government action on all three levers.