KPMG :Emerging trends that will change the world of infrastructure over the next five years

2012 was a challenging year for the infrastructure sector. Many governments around the world struggled to bring projects to market and, as a result, pipelines were thin. Financing markets continued to be tight, economic stability remained allusive and activity subdued. Looking ahead, the foundations for future growth are being laid and – for many markets – the prospects are exciting.

In a special edition of KPMG’s “Foresight” publication, three of KPMG’s infrastructure leaders - Nick Chism, James Stewart and Stephen Beatty, look back at 2012 and share their views on the ten trends that are expected to change the way infrastructure will be delivered in the future. Overall, governments have remained under pressure this year, facing financial uncertainty and mounting demands for infrastructure renewal and expansion. Many are also still trying to reconcile the need for long-term planning against short-term electoral priorities. One outcome of this struggle has been the beginning of the transfer of cost from taxpayer to consumer, forcing consumers to come to terms with the need to pay for the infrastructure they use.

“The past year showed that the sector is starting to evolve. For one, infrastructure planners started to take a more holistic view of their assets to understand the productive potential of their projects and understand the full benefits of their investment. At the same time, technology has allowed investors to manage their assets differently and operators to gain significant efficiencies from their existing assets, better long-term performance, longer lifespan and less downtime,” says Daniela Nemoianu, Executive Partner, KPMG in Romania, specialist in infrastructure and PPPs.

“Priorities are manifold while the budget remains strapped for Romania in 2013 – 2020,” adds Daniela Nemoianu. “Whether it is about Pan-European transport corridors IV or IX, the development of alternative energy projects, Cernavoda reactors 3 and 4, rehabilitation of irrigation systems or about improvement of river channels for flood prevention and control, modernization of ports, airports and railways, the ELI mega-research project, health and education infrastructure, to which we can add regional and local projects, all require an extended exercise of long and medium term, systemically sustainable strategic projections, extended administration and management capabilities from the public authorities and institutions, specialised resources dedicated to this major sector (including through the establishment of a separate entity to manage and supervise the development of complex infrastructure projects), the capacity to come forward with lucrative, viable and eligible projects for the absorption of European money, as well as efficiency and transparency at all levels and during all the stages.”

As Daniela Nemoianu adds, “We are pleased to see that the first steps have been made for implementing a new PPP formula under the aegis of the Ministry for Large Projects – and we will actively monitor the impact and closely follow the progress of the first projects in this category that will start in 2013/2014. Romania can always learn from other countries’ success or failure in developing PPPs and is in the privileged position of being able to tailor the best practice and adapt the most advanced technologies to the specifics of our local environment. Authorities should rely on specialized advice to make this know-how transfer and remain anchored in the local and international business and financial environment, as competition to attract funds grows stronger between countries.”

PPPs remain a viable solution and can lift the pressure off the state budget (especially in the context of pre-determined fiscal constraints imposed by the current financing agreements and the effects of the economic downturn), as long as the associated intricacies and risks are managed in a sensible, transparent and sound manner. Several examples of successful pioneering projects can become the driving force of a mechanism that will be equally functional and lucrative for the state, investors and society as well, which is ultimately the beneficiary of progress, thus positively confirming what now is only a forecast.

The white paper has identified and analyzed ten key trends and opportunities facing the sector in 2013 and beyond:

• The cost burden is shifting to the consumer: All around the world, consumers are feeling the pinch of infrastructure-related costs.

• Governments are having to become more active: Governments are recognizing the need to take a more significant role if they hope to meet their citizens’ infrastructure demands

• Pipelines are subdued but will return: The past year has seen a dearth of infrastructure deals moving through the pipeline.

• Focus is moving to cities: Cities have become the crucibles of a nation’s economic activity.

• Making the most of existing assets: As project owners struggle to get new projects off the ground, more focus is being given to existing assets.

• Resilience is rising up the agenda: Protecting valuable assets from the impact of disasters – natural or otherwise – is key to economic and political stability.

• New infrastructure models are emerging: The desire for greater operational efficiency is catalyzing a shift in infrastructure models.

• The pace of technology is quickening: Technology has the potential to solve many of the world’s most critical infrastructure challenges.

• Cost reduction is coming into focus: The desire for investment far exceeds the world’s ability to fund it.

• The war for talent and skills is heating up: One of the greatest and least appreciated difficulties is a lack of available skills and talent.

“We believe that we can play an active role in developing the global infrastructure sector by sharing our insights and experiences from around the globe. Having advised infrastructure organizations in more than 130 countries in the past year, our infrastructure professionals are ideally positioned to deliver practical advice and actionable insights to support the full range of infrastructure activity across the asset life-cycle,” said Nemoianu.

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 156 countries and have 152,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such. KPMG in Romania and Moldova operates from six offices located in Bucharest, Cluj-Napoca, Constanta, Iasi, Timisoara and Chi?in?u. We currently employ more than 650 partners and staff; Romanians and Moldovans as well as expatriates.

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