The market for infrastructure is vast and, contrary to popular belief, the range of potential infrastructure investments is extremely broad. An investor who does not have a sufficient overview and insight into the infrastructure market or an awareness of the suitable investment opportunities and the risks they entail, will find it difficult to select the right investments. This book is a comprehensive guide to the subject, bringing together the topics of infrastructure investments, project finance and public private partnerships (PPPs), equipping investors with the necessary theoretical knowledge and background information as well as practical examples in order to further their understanding of the key aspects of infrastructure investments. It answers questions such as: How is infrastructure defined? Which sectors are classified as infrastructure, how are they categorised, and what are the differences between them? Is infrastructure an asset class in its own right? If so, what are its characteristics? What are the fundamental options for investing in infrastructure? What is a good starting point for institutional investors? How should infrastructure funds be evaluated? What risks do they entail and how can these risks be identified and assessed? How should they be structured in order to best allocate these risks? The book discusses the differing objectives and expectations of the parties involved and the conditions required by public principals and investors in order to enable these groups to overcome the "language problems" they largely encounter. In addition to background knowledge and information on the latest developments in the individual subject areas, the book also explains the methodology of project finance in detail, both for traditional project finance and in the PPP context, establishing the key differences to other forms of financing, guiding readers through the various phases of project analysis on a step-by-step basis using practical examples. Well structured infrastructure investments can serve to improve the risk-return profile of an investor's overall portfolio on account of their long term and their low level of correlation with traditional asset classes. This book will assist investors in their understanding of infrastructure investments, leading to a better informed portfolio. "A comprehensive and well-written overview of many relevant topics in the infrastructure sector; a useful guide for everyone involved or interested in the infrastructure area." Henk Huizing, Head of Infrastructure, PGGM "A comprehensive book that effectively marries the topics of infrastructure investing, project finance and PPPs as well as bridges the gap between the theoretical and the practical - the authors are to be commended on this work." Marc S. Lipschultz, Global Head of Energy and Infrastructure, Kohlberg Kravis Roberts & Co. "Quite a book and one that should definitely be part of the toolkit of those who are interested in the Infrastructure asset class. Had this comprehensive work been available ten years ago, no doubt, one or two of us certainly would have done things differently. So, let's keep it closely at hand as a guide for the future that helps us deliver even better outcomes for all stakeholders and enables us to further develop the asset class." Ron Boots, Senior Portfolio Manager - Co head Infrastructure Investments, APG All Pensions Group

Table of Contents

Figures.

Tables.

Preface.

Acknowledgements.

Introduction.

Background and Objectives.

Structure.

1 Infrastructure An Overview.

1.1 Demand for Infrastructure.

1.2 Definition and Characteristics of Infrastructure.

1.2.1 Infrastructure sectors.

1.2.2 Types of infrastructure companies.

1.2.3 Role of the private sector and PPPs.

1.2.4 Value added and value chains.

1.2.5 Greenfield versus brownfield investments.

1.2.6 Sources of revenue and financing.

1.2.7 Competition and regulation.

2 Infrastructure Investments.

2.1 Infrastructure as an Asset Class.

2.1.1 Investors in infrastructure.

2.1.2 Risk-return profile of infrastructure investments.

2.1.3 Portfolio diversification through infrastructure.

2.2 Infrastructure Investment Opportunities.

2.2.1 Listed infrastructure investments.

2.2.2 Unlisted infrastructure investments.

2.2.3 Direct investments/co-investments.

3 Organisational Models of Infrastructure Implementation.

3.1 Privatisation Models.

3.1.1 Formal privatisation.

3.1.2 Functional privatisation.

3.1.3 Material privatisation.

3.2 Partnership Models.

3.2.1 Public Private Partnerships (PPPs) as vertical or vertical/horizontal partnerships.

3.2.2 Partial material privatisation as a horizontal partnership.

3.3 Business Models.

3.3.1 Budget-financed remuneration.

3.3.2 User-financed remuneration.

3.4 (PPP) Contractual Models.

3.4.1 PPP contract models in social infrastructure.

3.4.2 PPP contract models for roads and highways.

3.4.3 Interim summary: various 'privatisation paths'.

3.5 Financing Models.

4 Characteristics of Selected Infrastructure Sectors and Sub-Sectors.

4.1 Transport.

4.1.1 Cross-sector characteristics.

4.1.2 Road transport.

4.1.3 Rail transport.

4.1.4 Air transport.

4.1.5 Water transport.

4.2 Water Supply and Sewage Disposal.

4.2.1 Characteristics and organisation.

4.2.2 Sources of revenue and value added.

4.2.3 Competition and regulation.

4.2.4 Privatisation, private sector involvement and PPP.

4.3 Waste Disposal.

4.3.1 Characteristics and organisation.

4.3.2 Sources of revenue and value added.

4.3.3 Competition and regulation.

4.3.4 Privatisation, private sector involvement and PPP.

5 Project Finance.

5.1 Project Finance History and Basics.

5.2 PPP and Project Finance.

5.3 Basic Structure of Project Finance.

5.3.1 Characteristics.

5.3.2 Project participants and other stakeholders.

5.3.3 Objectives and contributions of project participants.

5.3.4 Typical contractual framework for project finance.

5.4 Structuring Project Finance Traditional and in PPPs.

5.4.1 Phase I Advisory.

5.4.2 Phase II Project analysis.

5.4.3 Phase III Risk analysis and allocation.

5.4.4 Phase IV Financing.

5.4.5 Phase V Implementation and monitoring.

6 Financing Instruments.

6.1 Equity.

6.2 Mezzanine Capital.

6.3 Debt.

6.3.1 Bank loans.

6.3.2 Bonds.

6.3.3 Short-term finance.

6.4 Government Support Schemes.

6.4.1 National development banks.

6.4.2 European Investment Bank.

6.4.3 European PPP Expertise Centre (EPEC).

6.4.4 European Commission.

6.4.5 Governmental export credit and direct investment insurance ECAs.

6.5 Asset-Backed Securities.

6.6 Sale and Leaseback.

6.7 Derivatives.

6.7.1 Futures.

6.7.2 Options.

7 Cash Flow Calculations and Sensitivity Analyses.

7.1 Items Requiring Inclusion in Cash Flow Analysis.

7.1.1 Cash flow modelling.

7.2 Present Value and Discount Rates.

7.3 Analysis of Financial Covenants.

7.4 Sensitivity Analysis.

References.

Further Reading.

Index.

Author Biography

Dr. rer. pol. Barbara Weber, Lic. oec., MSc is the founding partner of BIBS CAPITAL AG, an investment advisory firm focused on institutional private equity, portfolios, specialised in infrastructure and clean energy, and offering a broad range of strategic and asset allocation services to institutional clients. She has over 12 years of direct and fund investment experience in these areas gained during several years with Dresdner Kleinwort Benson, PolyTechnos and, since 2003, with BIBS CAPITAL AG. She previously worked for the private sector development group of the World Bank in Washington DC on Russia. Barbara lectures at the European Business School and regularly writes for various academic and non-academic journals. Barbara wrote her Ph.D in Economics at Harvard University and University of St. Gallen. She holds an MSc in Business & Operations Research from Warwick University and a post graduate degree in International Relations from Mannheim University.

Prof. Dr.-Ing., Dpil.-Wirtsch.-Ing. Hans Wilhelm Alfen is head of the chair of Construction Economics at the Bauhaus-Universitat Weimer in Germany, General Manager and founder of Alfen Consult GmbH, Weimar, and Partner of BIBS CAPITAL AG, Zurich. He has more than 20 years of practical experience in developing and investing in infrastructure as well as researching and teaching in more than 25 countries in Africa, Asia, Europe and Latin-America. Before joining the Bauhaus-Universitat Weimer he worked in leading positions in the construction as well as in the consulting industry. Professor Alfen is significantly involved in the German PPP standardisation process as researcher and advisor. He can refer to a long list of national and international publications.