Infrastructure (also known as "capital goods", or "fixed capital") is a platform for governance, commerce, and economic growth and is "a lifeline for modern societies".Esmaeili, Behzad, et al. "Inclusion of an Introduction to Infrastructure Course in a Civil and Environmental Engineering Curriculum." Journal of Professional Issues in Engineering Education and Practice (2016): 04016020 It is the hallmark of economic development.Goldsmith, H. (2015). Actors and innovations in the evolution of infrastructure services. The Economics of Infrastructure Provisioning, 23-94.
It has been characterized as the mechanism that delivers the "..fundamental needs of society: food, water, energy, shelter, governance ... without infrastructure, societies disintegrate and people die."Hart, Steven D., et al. "Infrastructure and the Operational Art:A Handbook for Understanding, Visualizing, and Describing Infrastructure Systems" US Army Engineer Research and Development Center, (2014) Adam Smith argued that fixed asset spending was the "third rationale for the state, behind the provision of defense and justice."Tatom, J. A. (1991). Should government spending on capital goods be raised?. Federal Reserve Bank of St. Louis Review, 73(3), 3-15. Tatom was citing Smith (1937), Book V. part 3, especially p. 682. Societies enjoy the use of "...highway, waterway, air, and rail systems that have allowed the unparalleled mobility of people and goods. Water-borne diseases are virtually nonexistent because of water and wastewater treatment, distribution, and collection systems. In addition, telecommunications and power systems have enabled our economic growth."ASCE Critical Infrastructure Guidance Task Committee. "Guiding principles for the nation's critical infrastructure." American Society of Civil Engineers, 2009.
This development happened over a period of several centuries. It represents a number of successes and failures in the past that were termed public works and even before that internal improvements. In the 21st century, this type of development is termed infrastructure.Hart, Steven D., J. Ledlie Klosky, and Scott Katalenich. "Conceptual models for infrastructure leadership." Journal of Management in Engineering 30.3 (2013): 04014003. Infrastructure can be described as tangible capital assets (income-earning assets), whether owned by private companies or the government.Kliesen, K. L., & Smith, D. C. (2009). Digging into the infrastructure debate. The Regional Economies, 4-9. Accessed at . The article emphasized the distinction between capital assets or capital stocks and capital flows. The latter is the annual or quarterly change in the capital stock, otherwise known as fixed investment, which is part of Gross Domestic Product (GDP). This article focused on capital stocks.
Ownership and financing of infrastructure
Infrastructure may be owned and managed by governments or by private companies, such as sole public utility or railway companies. Generally, most roads, major ports and airports, water distribution systems and sewage networks are publicly owned, whereas most energy and telecommunications networks are privately owned. Publicly owned infrastructure may be paid for from taxes, tolls, or metered user fees, whereas private infrastructure is generally paid for by metered user fees. Major investment projects are generally financed by the issuance of infrastructure bonds, specialized long-term bonds, which (often) offer interest and tax benefits.
Hence, government owned and operated infrastructure may be developed and operated in the private sector or in public-private partnerships, in addition to in the public sector. In the United States, public spending on infrastructure has varied between 2.3% and 3.6% of GDP since 1950."Money for Public Projects", The New York Times, November 19, 2008 Many financial institutions invest in infrastructure.
Infrastructure debt
Infrastructure debt is a complex investment category reserved for highly sophisticated institutional investors who can gauge jurisdiction-specific risk parameters, assess a project’s long-term viability, understand transaction risks, conduct due diligence, negotiate (multi)creditors’ agreements, make timely decisions on consents and waivers, and analyze loan performance over time.
Research conducted by the World Pensions Council (WPC) suggests that most UK and European pensions wishing to gain a degree of exposure to infrastructure debt have done so indirectly, through investments made in infrastructure funds managed by specialised Canadian, US and Australian funds.
On November 29, 2011, the British government unveiled an unprecedented plan to encourage large-scale pension investments in new roads, hospitals, airports, etc. across the UK. The plan is aimed at enticing 20 billion pounds ($30.97 billion) of investment in domestic infrastructure projects.
Infrastructure as a new asset class for pension funds and SWFs
Pension and sovereign wealth funds are major direct investors in infrastructure. Most pension funds have long-dated liabilities, with matching long-term investments. These large institutional investors need to protect the long-term value of their investments from inflationary debasement of currency and market fluctuations, and provide recurrent cash flows to pay for retiree benefits in the short-medium term: from that perspective, think-tanks such as the World Pensions Council (WPC) have argued that infrastructure is an ideal asset class that provides tangible advantages such as long duration (facilitating cash flow matching with long-term liabilities), protection against inflation and statistical diversification (low correlation with ‘traditional’ listed assets such as equity and fixed income investments), thus reducing overall portfolio volatility. Furthermore, in order to facilitate the investment of institutional investors in developing countries' infrastructure markets, it is necessary to design risk-allocation mechanisms more carefully, given the higher risks of developing countries' markets.Koh, Jae Myong (2018) Green Infrastructure Financing: Institutional Investors, PPPs and Bankable Projects, Palgrave Macmillan.
Supranational and public co-investment with institutional asset owners
The notion of supranational and public co-investment in infrastructure projects jointly with private institutional asset owners has gained traction amongst IMF, World Bank and European Commission policy makers in recent years notably in the last months of 2014/early 2015: Annual Meetings of the International Monetary Fund and the World Bank Group (October 2014) and adoption of the €315 bn European Commission Investment Plan for Europe (December 2014).M. Nicolas J. Firzli : ‘2014 LTI Rome Conference: Infrastructure-Driven Development to Conjure Away the EU Malaise?’, Revue Analyse Financière, Q1 2015 – Issue N°54
Foreign ownership of 'public assets'
Some experts have warned against the risk of "infrastructure nationalism", insisting that steady investment flows from foreign pension and sovereign funds were key for the long-term success of the asset class- notably in large European jurisdictions such as France and the UK
Comparison of private versus public investment
An interesting comparison between privatisation versus government-sponsored public works involves high-speed rail (HSR) projects in East Asia. In 1998, the Taiwan government awarded the Taiwan High Speed Rail Corporation, a private organisation, to construct the 345 km line from Taipei to Kaohsiung in a 35-year concession contract. Conversely, in 2004 the South Korean government charged the Korean High Speed Rail Construction Authority, a public entity, to construct its high-speed rail line, 412 km from Seoul to Busan, in two phases. While different implementation strategies, Taiwan successfully delivered the HSR project in terms of project management (time, cost, and quality), whereas South Korea successfully delivered its HSR project in terms of product success (meeting owners' and users' needs, particularly in ridership). Additionally, South Korea successfully created a technology transfer of high-speed rail technology from French engineers, essentially creating an industry of HSR manufacturing capable of exporting knowledge, equipment, and parts worldwide.Kao, T., Yung-Cheng, L, and Shih, M. (2010). Privatization Versus Public Works for High Speed Rail Projects. Transportation Research Record: Journal of the Transportation Research Board. Issue: 2159. Pp. 18-26.
Planning and management of infrastructure
Infrastructure asset management
The method of infrastructure asset management is based upon the definition of a Standard of service (SoS) that describes how an asset will perform in objective and measurable terms. The SoS includes the definition of a minimum condition grade, which is established by considering the consequences of a failure of the infrastructure asset.
The key components of infrastructure asset management are: Definition of a standard of service Establishment of measurable specifications of how the asset should perform Establishment of a minimum condition grade Establishment of a whole-life cost approach to managing the asset Elaboration of an Asset Management Plan
After completing asset management, official conclusions are made. The American Society of Civil Engineers gave the United States a "D+" on its 2017 infrastructure report card.
Engineering
Most infrastructure is designed by civil engineers or architects.Amekudzi, A. A., and S. McNeil. "Infrastructure reporting and asset management: Best practices and opportunities (Transportation & Development Institute (American Society of Civil Engineers). Infrastructure Systems Committee., Trans.)." Reston, Va.: American Society of Civil Engineers (2008). page 2 Generally road and rail transport networks, as well as water and waste management infrastructure are designed by civil engineers, electrical power and lighting networks are designed by power engineers and electrical engineers, and telecommunications, computing and monitoring networks are designed by systems engineers.
In the case of urban infrastructure, the general layout of roads, sidewalks and public places may sometimes be developed at a conceptual level by urban planners or architects, although the detailed design will still be performed by civil engineers. Depending upon the height of the building, it may be designed by an architect or for tall buildings, a structural engineer, and if an industrial or processing plant is required, the structures and foundation work will still be done by civil engineers, but the process equipment and piping may be designed by industrial engineer or a process engineer.
In terms of engineering tasks, the design and construction management process usually follows these steps:
Planning and Preliminary Engineering Studies In general, infrastructure is planned by urban planners or civil engineersAmerican Society of Civil Engineers (ASCE), Policy Statement 131 - Growth and Development-The Civil Engineer's role is to plan, design and implement the built environment in service to society. at a high level for transportation, water/waste water, electrical, urban zones, parks and other public and private systems. These plans typically analyze policy decisions and impacts of trade offs for alternatives. In addition, planners may lead or assist with environmental review that are commonly required to construct infrastructure. Colloquially this process is referred to as Infrastructure Planning. These activities are usually performed in preparation for preliminary engineering or conceptual design that is led by civil engineers or architects.
Preliminary studies may also be performed and may include steps such as: Determine existing and future traffic loads, determine existing capacity, and estimate the existing and future standards of service