Last week, DCFR hosted Fluor’s Troy Ailshie and Sarah Soong of Hunt Consolidated to discuss infrastructure development and finance. Mr Ailshie noted that the U.S. spends less of its GDP on infrastructure than its main competitors, a 50% decline since 1950. He also mentioned that funding availability is becoming more constrained with traditional lenders facing challenges in 2013 and beyond.
With infrastructure development and energy being linked, trends in energy and electricity consumption indicate increases in all regions, but the fastest growth occurs in non-OECD countries (61%) to OECD growth of 18%, according to the U.S. Energy Information Administration’s 2012-2035 forecast. Doing business in developing countries requires more creativity of project developers and sponsors; there are more diverse ranges of political risks and a lack of standard documentation and precedents.
On the financing front, Ailshie relayed that project bond financing is gaining momentum and institutional players are also filling the funding gaps. Another noteworthy trend is that regional financiers are financing projects that would have normally been supported by traditional European banks in places such as Oman and South Africa. The European debt crisis has shaken up this part of the industry. In the future, private investment via private-public partnerships are expected to play a more meaningful role to fund infrastructure projects. Government coffers are not sufficient to fund the infrastructure needs of entire economies.
Ms. Soong focused her comments on the financing of Yemen LNG. She mentioned that when the project started, there were no banks available for commercial lending, so all of the sponsors were international investment grade sponsors. This project was financed under the wire of the 2008 global financial crisis. Today, most of the funding sources used back then would not be viable. Soong also mentioned that it is vital to bring the host country of board for a successful outcome. The Yemen LNG project took great care to uphold high environmental standards in the development of the project, even transplanting coral to ensure it continued to thrive on the nearby pristine ocean floor.