Now and Next

Editor Paul Jarvis takes a look at some of the trends of 2021, and where the market is heading in 2022 and beyond

It may have been another year of lockdowns and rising uncertainty, but for infrastructure 2021 has held out some promise.

The emergence of vaccines to blunt the danger of Covid-19 towards the back end of 2020 has meant that governments around the world are increasingly starting to look to the future and are seeking ways to restore their finances that have taken such a pummeling as cash was required to support those forced out of work by government safety measures.

In the P3 market, that has led to some significant new opportunities emerging.

Over recent years, infrastructure banks have been all the rage, with lots of talk about how they can be key drivers of the economy. To date, the evidence remains patchy on that promise, but 2021 saw the most positive signs yet that Canada’s version might offer a real solution to funneling private investment into the more risky public sector projects.

Where Canada has already started to walk, the UK is now following. 2021 saw the establishment of the UK Infrastructure Bank (UKIB) and its first investment. It will be closely watched in 2022 to see what it does next - and in particular whether it can begin to flex its equity investment muscles to create some real impetus on some of the cutting edge green technology developments that UK government rhetoric seems so keen to encourage.

These banks may also start to drive new models of investment, as they foster new ways of thinking about infrastructure delivery and look to encourage private finance through a range of approaches.

North America is ahead of the game here, with Canada and Ontario in particular focusing on what it’s calling the ‘progressive’ model, in which the private partner is brought into the process at an early stage in order to deliver a better long-term outcome. Early contractor engagement is certainly something that procurement authorities around the world are increasingly keen on. 

Over the course of 2022, we can expect to see more procuring authorities consider different approaches to entice private partners to their projects. In part, this is a natural reaction to the fact that the industry will be in great demand around the world, as authorities everywhere seek to rebuild their economies through infrastructure. 

With contractors and investors in such great demand, it will be up to authorities to present attractive opportunities - often meaning reconsidering the way risk is transferred in order to create a more appealing balance on both sides.

Nowhere will this be more apparent than in the US, where the recently signed Infrastructure Investment & Jobs Act will, in the words of one source, create a lot of “low hanging fruit” that contractors will be keen to go at, rather than take on more complex P3s.

Playing into this narrative is the continuing volatility surrounding inflation and the rising cost of both materials and labor. Structuring deals in this environment won’t be easy, but the outcome could be more sustainable and successful frameworks for the future of the P3 market.

Speaking of sustainability, we may have said goodbye to the COP 26 discussions in Glasgow in November, but the green agenda has never been more to the fore. The ‘build back better’ mantra of countries such as the US and UK mean that investment into technologies to drive down carbon emissions will be more critical than ever.

And this is not a mantra being pushed solely by governments. Investors are increasingly aware of the need to have a low carbon portfolio, meaning projects that can demonstrate a positive impact on the environment will find it easier to gain investment.

It won’t just be in traditional P3 places like Europe and North America where this push will gain traction. We have increasingly seen a recognition in Middle Eastern countries that they can no longer rely on oil revenues to prop up their economies, and countries like Saudi Arabia are finally embracing P3 as a way to deliver their infrastructure.

In emerging markets, there is renewed hope as we enter 2022 that the bold visions put forward by world leaders will begin to translate into real projects on the ground. Efforts to use multilateral development banks to stimulate economies through P3 investments are gaining traction, overlaid by such initiatives as US President Joe Biden’s Build Back Better World and the European Union’s Global Gateway.

There will, of course, be one other issue that dominates the industry in the UK over 2022, and will provide some interesting viewing for the rest of the P3 world: contract expiry and handback.

With the UK having been such a strong proponent of the PFI model up to 2010, there are a large number of contracts that are scheduled to expire in the coming decades and working out how to deal with them - as well as the assets that remain once the contract ends - is taking up an increasing amount of time for advisors, asset managers, investors and public authorities.

There are a lot of lessons that can be learned from this process - not least for countries currently drawing up new projects, who are eager to see whether contracts can be drafted in ways that will avoid difficulties when deals are due to expire. The bold experiment that was PFI may be over in the UK, but how those deals are wound down will provide yet more learning for other countries looking to do it better.

This is an issue we will be devoting some attention to, with a Handback Report and Summit planned for January. To learn more, click here

Finally, a nod to something a bit different. 2021 saw the successful crowdfunding of £4m to develop new electric vehicle charging infrastructure in Manchester, England. In December, a second fundraising round was announced, as the company behind the initiative - Iduna - sought to take advantage of the model.

While these sums are small, there is interest both in the UK and in the US over the potential for crowdfunding to have a big impact on the P3 market, by bringing members of the public into the ownership of infrastructure projects. Some have suggested the model could be used to raise money for early works, meaning the big investment for a major project could then be brought in once a site is shovel-ready.

This is just one example of how the P3 market is evolving and changing, and I expect to see much more of this over the course of 2022.