Infrastructure Business
Infrastructure projects shape our lives because they provide the basics that we need for everyday life, such as water, energy and transportation. But it is about more than these basics – it is about valuable, holistic solutions that are sustainable over time and that make peoples’s lives better.
Our people shape our projects – they are our most valuable asset. Many of them are technical and thought leaders in the industry. Their breath of knowledge, range of skills and global understanding is extensive and unmatched.
We listen to our clients in order to develop a thorough understanding of their unique businesses, needs and challenges, often leading to new solutions. Our ultimate aim is to improve the lives of the end-users of our projects and services. We value public consulation and strive to develop infrastructure solutions that are welcomed by local communities. Sustainability runs through everything we do. We seek to make people’s lives better tomorrow – not only today.
Our infrastructure businesses comprise airports, bridges, energy, geotechnics, highways, hydro and thermal power schemes, major projects, maritime, rail, site development and regeneration, tunnels and water schemes.
Origins
The growth of some companies has its origins in recent deregulation and privatization. Privatization has prompted such companies as British Gas and British Telecommunications to seek additional shareholder profits in overseas ventures. Some investors are driven by a need for secure supply. Germany’s largest gas company, Ruhrgas, is investing in countries key to regular supply—countries in Eastern Europe and the former Sovie Union. Other companies are taking advantage of historical head start. French water companies, for example, areexploiting their long experience in operating private water companies at home in newly private ventures abroad.
Many companies competing in private infrastructure markets are publicly owned at home, such as Electricite de France. Telefonica of Spain and France Telecom bid aggressively for telecommunications companies in emerging markets. And firms from emerging markets are themselves poised to become developers. Tribasa, a Mexican construction company, building on its toll road experience, acquired the capability to arrange financing and is branching out into other infrastructure ventures, including water supply and waste disposal.
Companies such as Asea Brown and General Electric. Traditional equipment suppliers for public and private utilities, are diversifying into project development so as to benefit from control over the entire project, rather than only bidding for the equipment contract in the final stages. Along with equipment suppliers, engineering companies such as Fluor Daniel and Black & Veatch are taking a more active role in financing projects previously in the public sector and in some cases are functioning as developers. And companies such as Hopewell Holdings have built on their experience as project managers to become project developers; able to build good working relationships with governments, they can expedite complex contractual arrangments in uncertain regulatory and legal environments.
Approaches
From these origins , infrastructure companies are adopting a range of competitive strategies, from sectoral diversification based on core functional skills to a focus on sub sectors and single funstions:
- Municipal Focus. France’s Compangnie Generale des Eaux focuses on developing and maitaining relationships at the municipal level and has expanded into other municipally oriented services such as hospitals, cable television, parking facilities, passenger transport, and urban property development. Citizens Utilities in the United Staes is beginning to explore the potential for efficient distribution and delivery of an integrated range of services to the household, including gas, power, water and telecommunications.
- Regional Focus. Telefonica de Espana, in its aggressive pursuit of Latin American telecommunications privatisations, can be seen as capitalising on its knowledge and common understanding of the consummers’ culture and language. Hong Kong-based Hopewell Holdings’ familiarity and trust with the Chinese government resulted in opportunity to develop two power plants in China.
- Vertical Development. Some companies are hoping to realise vertially integrated infrastructure networks. Tribasa plans to develop intermodal transport corridors in Mexico with ports, toll roads and service facilities that improve logistics for manufacturing firms relying on just-in-time delivery methods.
- Construction Focus. Large construction companies such as Grupo Mexicano de Desarrollo have focused on projects with significant construction components. Such as toll roads and waste water distribution systems to take advantage of their expertise.
- Narrow Segment Focus. Enron of the United States bases its strategy around natural gas, concentrating on gas trnsport and distribution and as-fired power plants. Its financial and risk management skills have allowed it to develop innovative financing schemes and tap new classes of investors.
Risks
Infrastructure companies face three key challenges.
First, as companies adopt more of an ownership approach to infrastructure projects, they must have the ability to pull the deal together and connect the network of companies that will supply services. Development costs – mostly staff time and travel to put the deal together – can be 3% to 5% of the cost of projects worth several hundred million dollars.
Second, to conclude a deal, companies must also be able to arrange a favourable financing package. Companies have approached the issue in a variety of ways. Asea Brown Boveri makes full use of export credit for its projects. Enron constantly pushes the frontier in tapping capital markets.
Third, although development teams breathe a sigh of relief once a project is funded and construction begins, regulatory problems may be just about to start. Highly visible problem cases have been Cogasco, a natural gas pipeline project in Argentina that went awry in 1982, and the more recent troubles of the Bangkok Expressway. In both instances, regulatory authorities failed to live up to the spirit of the contract. Whether the trend toward private infrastructure is sustained will depend on transparent and competitive solutions that render price regulation unnecessary or, where that is not possible, price regulation that balances the interest of developers, consumers, and governments. Ultimately, it is in the developers’ interest to help establish the system that will regulate their behaviour. Such companies as AT&T of the United States, Germany’s RWE and Hong Kong’s Light and Power have actively helped to develop regulatory solutions, which allowed them to deflect pressure for nationalisation.
Chester Agencies is an international service provider delivering major infrastructure projects and programmes in the sectors of infastructure emerging markets.
We provide dynamic solutions to both Public and private sectors throughout Africa including innovative design and planning, supply chain management , in-house training and specialist resources.
With skills in most infrastructure sectors we provide total solutions to meet and exceed our customers’ expectations, from traditional contracts through to full partnering agreements.