Infrastructure: UK OpportunitiesH.E. Paul MaddenBritish High Commissioner to Australia

Investment

Discussion Group

The UK Economy (1)

Interest rates

Jobs created in last 2 years

0.5%

1,000,000Competitive

currency

£

22%Corporation tax

(by 2014)

25%Cut in UK deficit

already

Positioned for Growth

Return to GDP growth in Q3

2

1%

The UK Experience (1)UK PFI Projects (Source: HMT)

Data for current projects is for all those still under contract; projects which have expired or terminated are not included.

3

19911992199319941995199619971998199920002001200220032004200520062007200820092010201120120

1000

2000

3000

4000

5000

6000

7000

8000

9000

0

10

20

30

40

50

60

70

80

Capital Value (£m) Number of Deals

Capi

tal V

alue

(£m

n)

Num

ber o

f Pro

ject

s

The UK Experience (2)Development of PFI in the UK

1989 Government begins to actively promote private finance in public services

1990 First PPP-style project reaches financial close

1992 Private Finance Initiative (PFI) is launched

1997 New Government elected: continues and increases the use of PFI

2009 Treasury establishes an Infrastructure Finance Unit (TIFU) to support PFI’s impacted by the Credit Crisis

2010 New Government elected

2011 – July Government announces a plan to make £1.5bn in savings from the existing stock of operational PFI contracts

2011 - November Intention to reform PFI is announced

2012 – December Conclusions of the PFI review announced

• The UK has closed over 730 PFI projects worth more than £54bn.

• Projects have been delivered across a number of sectors including schools, hospitals, roads, prisons, housing, defence and waste facilities.

4

The UK Experience (3)PFI Reform, Call for Evidence

Over 150 submissions, with

around 100 bilateral

engagements and roundtables

Academics3%

Advisors15%

Construction10%

Finance15%

Individuals10%

Industry Bodies14%

Insurance2%

Other4%

Public Sector15%

Services12%

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The UK Experience (4)PFI Reform

• Procurement: unnecessarily long, complex and expensive

• Services: in need of reform• Transparency: existing provisions

are adequate• Equity returns: favoured the sharing

of equity returns

• Lack of transparency• Returns too high• Contracts too inflexible• Inappropriate transference of risk

between public and private sector

Call for evidence National Audit Office and Parliamentary concerns

6

The National Infrastructure Plan (1)

1. A vision for the UK’s infrastructure

• Extensive performance and cost analysis

• Long-term ambitions for each sector

2. Funding & financing infrastructure

investment

• New approach to private investment

• UK Guarantees Scheme

3. Focusing on delivery

• Prioritising major projects through Cabinet Committee

• Bringing down costs in planning and through the Infrastructure Cost Review

7

The National Infrastructure Plan (2)

TransportEnergy

Commu-nications

WasteWater

Flood0

20

40

60

80

100

120

140

Infr

astr

uctu

re in

vest

men

t, £

billi

on, 2

010-

11 p

rices

UK Infrastructure Pipeline: sector overview

Sets out over 500 public and

private infrastructure projects worth

over £250 billion

8

9

UK Offshore Round 3 Projects

Seeking £4bn of capital

Offshore Wind Example, Scotland

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The National Infrastructure Plan (3)UK Infrastructure Pipeline: sector overview

60% of UK infrastructure investment is

already funded by the private

sector

10

The National Infrastructure Plan (4)Detailed performance and Cost Analysis

Transport• Service quality and reliability have markedly improved

Energy• The UK has one of the most reliable electricity transmission networks in the world

Communications• Broadband coverage, speed and cost compare well to Western European

economies

Environmental networks• All water performance indicators have continued to improve

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Foreign Ownership in the UK (1)

Approximately 40 per cent of

mapped infrastructure is held by foreign

investors UK - 62%

Rest of World - 20%

Europe - 18%

Foreign Ownership

Source: OFT

12

Foreign Ownerships in the UK (2)

Colonial First State (Aus),IFM (Aus)

Macquarie (Aus), AustralianSuper (Aus), QIC (Aus), QSuper (Aus), et. al.

Macquarie (Aus), AMP (Aus) IFM (Aus) Macquarie (Aus)

AMP (Aus),Access Capital (Aus)

Infratil (NZ)

Future Fund (Aus)

Future Fund (Aus)

Future Fund (Aus)

Infratil (NZ)

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Foreign Ownerships in the UK (3)

• Inward investment into the UK economy created or secured more than 100,000 jobs in 2011/12

• The UK attracted FDI from 58 source countries in 2011/12

• The UK attracted more foreign direct investment (FDI) than any other EU country.

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Funding Routes

1. UK Guarantees Scheme

•£40bn of Guarantees•Non patronage/demand risk•Over 60 expressions of interest•Case by case approvals process

2. UK Pension Funds Infrastructure

Platform

•UK Pension Funds pool and diversify their infrastructure investments•A wide range of projects and sectors•£700m / £2bn raised already

15

Additional Measures

1. Green Investment Bank•Capitalised with £3bn (£15bn by 2015)•Accelerates capital flow into green/sustainable infrastructure•Lends a percentage of the total capital sought

2. Energy Reform Bill

•£110bn power infrastructure needed•Contracts for Difference•Capacity market•Consumer levy

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Conclusion

1. The UK welcomes more institutional investment in infrastructure

2. A strong pipeline of high quality UK projects

3. A robust and stable investment environment

4. Innovative approaches and support to foster investment

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UK Policy Specialists visiting 1st Quarter 2013

If you would like to register your interest to meet the team, please contact us:

Paul Webster, Director of Investment Australia and New Zealandpaul.webster@fco.gov.uk02 8247 2234

Craig O’Kane, Head of Institutional Investmentcraig.okane@fco.gov.uk07 3223 3205