asce infrastucture report card

U.S. Aging Infrastructure

Which Sectors are Primed for Private Investing Growth?

Date

Ken HerbertV.P./ Partner

Business & Financial Services

Bernice LeeConsultant

Business & Financial Services

June 2, 2009

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CONTENTS

Market OverviewMarket Overview

Infrastructure Sector Focus

44 Conclusion

Public – Private Partnerships

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Infrastructure investing has always been a sector of interest for investors for its stable and long-term returns

Recently, a few major factors have combined to push infrastructure investing to the forefront:

PRIVATE CAPITAL

Public-private partnerships are

essential to bridge the gap between government

funding and infrastructure need

PRIVATE CAPITAL

Public-private partnerships are

essential to bridge the gap between government

funding and infrastructure need

CREDIT CRISISIn the midst of a credit crisis,

investors are eyeing infrastructure – a stable source

of return

CREDIT CRISISIn the midst of a credit crisis,

investors are eyeing infrastructure – a stable source

of return

LACK OF GOVERNMENT FUNDING

Obama’s stimulus package allocates $72 billion to

infrastructure

LACK OF GOVERNMENT FUNDING

Obama’s stimulus package allocates $72 billion to

infrastructure

AGING INFRASTRUCTURECurrent ASCE estimation of $2.2 trillion over the next five

years is needed for infrastructure

AGING INFRASTRUCTURECurrent ASCE estimation of $2.2 trillion over the next five

years is needed for infrastructure

Infrastructure Investing At-a-Glance

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Infrastructure Definition

Facilities, systems and equipment required to provide public services and support private sector economic activity

Transportation Infrastructure, Regulated Infrastructure, Communication Infrastructure, Social Infrastructure

Facilities, systems and equipment required to provide public services and support private sector economic activity

Transportation Infrastructure, Regulated Infrastructure, Communication Infrastructure, Social Infrastructure

Transportation Infrastructure

Bridges

Tunnels

Rails

Transit

Airports

Seaports

Transportation Infrastructure

Bridges

Tunnels

Rails

Transit

Airports

Seaports

Regulated Infrastructure

Electricity Transmission and Distribution

Oil and Gas Pipelines

Water

Waste Water

Regulated Infrastructure

Electricity Transmission and Distribution

Oil and Gas Pipelines

Water

Waste Water

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China: • Chinese government stimulus package of $586 billion stimulus (mainly to infrastructure, rural)India: • Plans to spend 8% of GDP a year on infrastructure projects

Australia:• Infrastructure deficit is estimated at A$20 billion• Australia is one of the first countries to embrace PPPs and expanding access to private infrastructure funds

UK & Europe:• For the EU, OECD estimates 4 trillion Euros will be needed with the bulk for the water sector• Estimate of 100 billion Euros of Public-Private Partnerships (PPPs) have been entered into in UK, Italy, Spain, Portugal, France•UK leads the PPP market while Europe continues to develop

Global Infrastructure Opportunity

USA:• ASCE estimates $2.2 trillion needed over five years for infrastructure• Government stimulus package allocate $72 billion for infrastructure•Infrastructure asset privatization is slower compared to other countries

Rest of World:• Latin America will need to invest $100 billion a year for the next 20 years for its infrastructure•South America’s biggest infrastructure needs are roads, bridges, waterways and ports to help lower cost of exporting•Africa’s infrastructure needs are estimated at $75 billion a year with power being the greatest infrastructure challenge

Source: ASCE, World Bank, ReutersSource: ASCE, World Bank, Reuters

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$2.4$5.2

$17.9

$34.3

$24.7

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

2004 2005 2006 2007 2008

Global Infrastructure Funds Raised

Global Infrastructure Private Equity Growth

$ in billions$ in billions

In the face of the liquidity crisis private

infrastructure funds were able to raise close to $25 billion

In the face of the liquidity crisis private

infrastructure funds were able to raise close to $25 billion

Source: Probitas PartnersSource: Probitas Partners

Currently 77 Infrastructure Funds are Seeking $92 Billion in Committed Capital

Four Out of The Top 10 Funds are U.S. Based – Seeking $19 Billion

Currently 77 Infrastructure Funds are Seeking $92 Billion in Committed Capital

Four Out of The Top 10 Funds are U.S. Based – Seeking $19 Billion

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GS Infrastructure Investment Group

GS Infrastructure Partners II

$7.75 billionRoads, airports, regulated gas, water & electrical utilities

Citi Infrastructure InvestorsCiti Infrastructure

Partners$4 billion

Transport, utilities, energy, social infrastructure

Kohlberg, Kravis Roberts & Co.

KKR Infrastructure Fund

$4 billionNo sector focus given but current and past investments include: energy, waste management

JP Morgan Asset Management

JP Morgan Infrastructure

Investments Fund$3.1 billion

Bridges, tunnels, toll roads; pipelines, energy transmission and distribution; water and waste water systems; airports, seaports; rail; contracted power generation

Alinda Capital Partners LLC

Alinda Infrastructure Fund II

$3 billion

Roads, bridges and tunnels; airports, ports and rail; water supply and wastewater treatment; gas transportation, storage and distribution; power generation and electric transmission; and utility services for residential, commercial and industrial customers

Morgan Stanley Infrastructure Partners

Morgan Stanley Infrastructure Fund

$1.4 billion

Transportation, energy and utilities, communications, social infrastructure

A Sample of U.S. Based Infrastructure Funds

Fund ManagerFund Manager

FundFund

SizeSize

Sector InterestSector Interest

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Growth Opportunity

Growth Opportunity

ProfitabilityProfitability

LowLow

HighHigh

LowLow

HighHigh

Infrastructure Investing Outlook By Sector

Power & Clean Energy

Power & Clean Energy

Rail & Mass Transit

Rail & Mass Transit

WaterWaterWaste

Management

Waste Management

RoadsRoads

AirportsAirports

SeaportsSeaports

Bridges & Tunnels

Bridges & Tunnels

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FACTORS AIDING

Independence of infrastructure assets from

business cycle risk

Independence of infrastructure assets from

business cycle risk

Stimulus package by U.S.

Government

Stimulus package by U.S.

Government

Pension funds ideally matched for infrastructure

investing

Pension funds ideally matched for infrastructure

investing

States are cash-starved -

heightened need for private investment

States are cash-starved -

heightened need for private investment

U.S. PRIVATE EQUITY INFRASTRUCTURE INVESTINGU.S. PRIVATE EQUITY INFRASTRUCTURE INVESTING

Aging U.S. infrastructureAging U.S.

infrastructure

Market Forces Driving Infrastructure Investing

The Strong Market Dynamics Will Push Growth in Infrastructure Investing

A Growth Rate of 14-18% is anticipated

The Strong Market Dynamics Will Push Growth in Infrastructure Investing

A Growth Rate of 14-18% is anticipated

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U.S. Infrastructure Funding Need by Sector

Other includes: Parks & SchoolsOther includes: Parks & Schools

Source: ASCESource: ASCE

$ in billions$ in billions

$1.2 trillion over 5 Years is Needed via Private Capital$1.2 trillion over 5 Years is Needed via Private Capital

Aviation D

Bridges C

Dams D

Drinking Water D-

Energy D+

Hazardous Waste D

Inland Waterways D-

Levees D-

Rail C-

Roads D-

Solid Waste C+

Transit D

Waste Water D-

Overall D

2009 ASCE U.S. Infrastructure Report Card

2009 ASCE U.S. Infrastructure Report Card

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$72 Billion Stimulus Package Designated for Infrastructure$72 Billion Stimulus Package Designated for Infrastructure

U.S. Government Stimulus Package

Source: Committee on Appropriations SummarySource: Committee on Appropriations Summary

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CONTENTS

Public – Private PartnershipsPublic – Private Partnerships


44 Conclusion

Market Overview

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$2.2 trillion

Estimated Amount Needed For U.S. Infrastructure

Improvements Over Five Years

$2.2 trillion

Estimated Amount Needed For U.S. Infrastructure

Improvements Over Five Years

$975 billion

U.S. Government Funding of Infrastructure Need (Actual

Spend plus Stimulus Package)

$975 billion

U.S. Government Funding of Infrastructure Need (Actual

Spend plus Stimulus Package)

$1.2 trillion

Significant Gap in Funding

$1.2 trillion

Significant Gap in Funding

Public – Private Partnerships (PPP)

Public – Private Partnerships (PPP)

PPPs have the greatest advantage to tap private capital.

PPPs have the greatest advantage to tap private capital.

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The 2010 administration budget provides a National Infrastructure Bank to expand public-private sector spending

• Initial funding expected to be $5 billion and increase to $25 billion by 2019

The federal stimulus package will also give help to pension funds by creating investment opportunities for their infrastructure allocations

• CalPERS• In the past CalPERS grouped its infrastructure investment with other alternative assets

such as private equity• CalPERS has stated it would allocated up to $7.2 billion for infrastructure with a net

target return of 5% over inflation over a period of five years

Successful examples of PPP investing• In 2006, leasing of the 75 year old Indiana Toll Road for $3.8 billion to Statewide

Mobility Partners and Macquarie Infrastructure Partners• In March 2009, Florida closed a $1.6 billion concession to develop toll lanes on I-

595 with Madrid-based ACS Infrastructure Development

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Over half of U.S. states have legislation authorizing PPPs transactions for

Long-term leasing of existing infrastructure New development of transportation infrastructure

Public – Private Partnership Outlook

Examples of Current Deals in Development

Examples of Current Deals in Development

California’s Port of Oakland: 50 year $700 million transaction to specific port facilities with Ports America Group

California’s Port of Oakland: 50 year $700 million transaction to specific port facilities with Ports America Group

Wisconsin’s Mitchell International Airport: Investigating feasibly of a long-term lease to raise $1 billion for transit system over 50 years

Wisconsin’s Mitchell International Airport: Investigating feasibly of a long-term lease to raise $1 billion for transit system over 50 years

Wisconsin’s Water Works: In an effort to reduce city tax increases and budget cuts, the hope is to raise more than $500 million for leasing of water system

Wisconsin’s Water Works: In an effort to reduce city tax increases and budget cuts, the hope is to raise more than $500 million for leasing of water system

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Potential Risks to U.S. Infrastructure Investing

U.S. Government regulations could hinder private investment in infrastructure projects

U.S. Government regulations could hinder private investment in infrastructure projects

Extent of time to bring a project to fruition could also miss the window of opportunity of viable investors

Extent of time to bring a project to fruition could also miss the window of opportunity of viable investors

The slow evolution of PPPs in the U.S. could see investments moving towards other parts of the world

The slow evolution of PPPs in the U.S. could see investments moving towards other parts of the world

U.S. Government reallocation of infrastructure budget and resources to other higher priority initiatives

U.S. Government reallocation of infrastructure budget and resources to other higher priority initiatives

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Infrastructure Investing Outlook

Opportunities are available for the savvy and disciplined investors

Increasing ROI due to price moderation

Less leverage available

U.S. Government fiscal budget shortfalls are apparent

Combined with budget shortfalls, the increasing awareness of failing infrastructure leads to more PPP opportunities

President Obama administration is focused on infrastructure and clean energy

Independence of infrastructure assets from business cycle risk – relatively recession resistant

Tangible, real assets are more attractive if global stimulus leads to inflation

Political FactorsPolitical Factors

Economic FactorsEconomic FactorsCredit Crisis Factors

Credit Crisis Factors

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CONTENTS

Infrastructure Sector FocusInfrastructure Sector Focus

44 Conclusion

Market Overview


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Municipal Water and Wastewater

Market Dynamics

EPA estimates and investment of $390

billion for waste water municipalities

Municipalities for safe drinking

water face $11 billion shortfall this

year

Current Size of North American market is $2.74

billion

Market emphasis on water reuse and recycling

Forecasted five-year CAGR is

7.04%

• Strict drinking water and

effluent quality regulations

are forcing utilities to

upgrade current systems.

• Increasing U.S. population

growth is forcing

municipalities to consider

expanding current

facilities.

• Gap between investment

required for infrastructure

development and funds

received by EPA is

constantly increasing.

Current funding is only $6

billion.

Municipal Water and Wastewater Infrastructure

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Market E

nh

ancers

DriversDrivers

Market In

hib

itors

Expansions Triggered by Population Growth &

Consumption

Expansions Triggered by Population Growth &

Consumption

* Length of arrows indicate impact and relevance of driver / constraint

Municipal Water and Wastewater Infrastructure

Upgrades & Improvements

Needed

Upgrades & Improvements

Needed Sizeable Customers/Scale

Efficiencies

Sizeable Customers/Scale

EfficienciesTechnology

Enhancements

Technology Enhancements

Operational Cost

Operational Cost

Performance Failures

Performance Failures

Budgetary Restraints

Budgetary Restraints

Reliance on Self-

Sufficiency

Reliance on Self-

Sufficiency

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Power Generation Market Dynamics

Future investment is estimated at $900 billion over next 15

years

60% of circuit breakers are 30+

years old

Current Size of North American

market is in excess of $750

billion

70% of transmission and

power transformers are

25+ years old


3.9%

• The U.S. Government fiscal

package allocates $32 billion

to transform energy systems

by allowing for smarter and

improved grid and focusing

investments on renewable

technology.

• There is an existing gap

between production and

consumption of electricity

due to limited capacity—

hence need for new

investments.

• Developments in renewable

energy generation are

expected to drive power

generation infrastructure

investment.

Power Generation Infrastructure

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Market E

nh

ancers

DriversDrivers

Market In

hib

itors


Power Generation Infrastructure

Aging Power Plants

Aging Power Plants Environmental

Regulations to Reduce Air

Pollution

Environmental Regulations to

Reduce Air Pollution

Increasing Power

Demand

Increasing Power

DemandEPAct 2005 Tax Benefits & Incentives

EPAct 2005 Tax Benefits & Incentives

Increase in Renewable

Energy to Boost Turbine

Development

Increase in Renewable

Energy to Boost Turbine

Development

Increased Raw

Material Costs (Steel,

Copper)

Increased Raw

Material Costs (Steel,

Copper)

Insufficient Capacity

Insufficient Capacity

Lack of Power Project

Financing Due to Long

Payback Period

Lack of Power Project

Financing Due to Long

Payback Period

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Airport Industry Market Dynamics

FAA estimates $49.7 billion is

required for infrastructure

development in the next five years

U.S. government stimulus package

allocates $1.3 billion in funding

Current size of North American market is $15-20

billion

Over the past 30 years passenger

air traffic has increased seven-

fold

Forecasted five-year CAGR is 5%

• Capacity issues will either

push airports to expand or

new airports to be built – a

clear indication of the

future outlook of the airport

industry.

• U.S. airports will

continually be facing a

fluctuation of demand, and

at the same time receiving

modest funding increase.

• There is a clear

opportunity given the gap

of government funding and

the need for private

investors.

Airport Infrastructure

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Market E

nh

ancers

DriversDrivers

Market In

hib

itors

Air Traffic Growth

Air Traffic Growth

Asset Management

Asset Management Real Estate

Management

Real Estate Management

CapacityCapacity Operations

Efficiency

Operations Efficiency

Commercial Revenues

Commercial Revenues

Crises & Risk

Crises & Risk

Congestion & Slot

Allocation

Congestion & Slot

Allocation

Safety & Security

Requirements

Safety & Security

RequirementsSunk Costs

Sunk Costs


Airport Infrastructure

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Road Industry Market Dynamics

ASCE estimates $186 billion per year is needed for road

development

36% of roads in the U.S. are continually congested costing $63 billion in time and wasted fuel

U.S. highway road system is valued at $1.75 trillion

34% of roads are in poor or mediocre condition


between 5 - 6%

• Passenger and commercial

travel on U.S. highways

continue to increase every

year.

• The American Recovery and

Reinvestment Act only

allocates $27 billion for

roads. The Highway Trust

Fund has a balance of $16

billion, mostly derived from

user fees. The funding gap

needs to come via private

investment.

• PPP toll road establishment

has been proven in the U.S.

(ex, Chicago’s Skyway,

Orlando Orange County

Expressway)

Roads Infrastructure

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Market E

nh

ancers

DriversDrivers

Market In

hib

itors

Passenger and

Commercial Travel Growth

Passenger and

Commercial Travel Growth

Road Congestion

Road Congestion

Aging Highway System

Aging Highway System

Increased Population

Growth

Increased Population

Growth

Continual Maintenance

Expense

Continual Maintenance

ExpenseLack of

Prioritization by

Government on Road

Rehabilitation

Lack of Prioritization

by Government

on Road Rehabilitation

Road Safety Requirements

Road Safety Requirements

Increased Fuel Costs

Increased Fuel Costs


Roads Infrastructure

Private Investment via

Toll Roads

Private Investment via

Toll Roads

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CONTENTS

ConclusionConclusion44

Market Overview



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Strong growth is anticipated for private infrastructure investing due to the $1.2 trillion shortfall between:

An estimated $2.2 trillion over 5 years is critical for upgrading/replacing current U.S. infrastructure

$975 billion U.S. Government is spending on infrastructure projects

Priority will be given to projects that are in need of “gap funding”

Public – Private Partnerships have the greatest advantage to penetrate private capital

Over half of states have legislation authorizing PPPs with other states seeking approval of pending legislation

Conclusion

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asce infrastucture report card

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