Tom Foulkes Making Projects Happen June 2011

Tom Foulkes, ICE Director General ‘Making Projects Happen’ at Invaluable Infrastructure Conference, 22 June 2011

Thank you; I am Tom Foulkes, Director General of the Institution of Civil

Engineers, an independent, charitable body representing 80,000 professional

civil engineers around the globe.

As part of our obligation to act in the public benefit we look to corral our

members’ knowledge and expertise to inform the public policy debate.

So I’m delighted to be asked to give this address at this very important

conference.

The Institution of Civil Engineers has been engaged on the issue of funding and

strategic planning for many years now. I’d like to take the opportunity to place the

ICE view of where we currently are in a broader strategic context.

I’m also going to reflect upon the crucial six month period we are now entering

regarding the development of the second National Infrastructure Plan and the

updated Plan for Growth.

First I would like to take a step back and put into perspective how far the

infrastructure agenda has moved on in the past three years. In 2009 we saw the

creation of Infrastructure UK as a central government body to provide clarity and

coordination on infrastructure policy. Last year the first National Infrastructure

Plan was published. And this year the Government’s published its plans for the

Green Investment Bank – with a view to empowering the bank with borrowing

powers in 2015.

These three items alone show the pace of announcements concerning the

infrastructure in a relatively short period of time. Infrastructure is currently high on

the Government’s agenda; it is central in Government’s Plan for Growth and was

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cited by the Chancellor of the Exchequer as of the top four priorities in the 2010

spending review.

All of this has occurred despite the upheaval of the 2010 General Election and

the creation of the first coalition Government since the Second World War. The

recognition that Government has given, over the past three years to the

importance of infrastructure to our future economic performance and also to

effective and efficient delivery of projects is a credit for those involved.

So today’s conference takes place at one of the most dynamic times for the

public policy agenda as it concerns infrastructure. It could be said that though the

past three years have been important, the next six months will be crucial. So I am

glad to be able to speak to this audience at this time regarding the opportunities

and challenges for the infrastructure plan, for industry, investors and Government

alike and provide the ICE view of the next steps to be taken.

According to the assessment of the World Economic Forum’s annual Global

Competitiveness Report the United Kingdom is distinctly mid-table in the world

infrastructure rankings and many parts of our infrastructure are ageing quickly

and becoming outdated.

The case for a National Infrastructure Plan is clear, one of the best summaries of

the case was put forward in the plan itself last year, when it said that the United

Kingdom’s approach to infrastructure:

“[H]as been in general timid, un-coordinated, incremental, wasteful in

procurement and insufficiently targeted to support balanced and

sustainable growth in the economy – both economically and

environmentally”

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This unabashed statement of a decades-old problem has allowed for

Government and industry to begin a new chapter. Because – to be clear – the

challenges facing modern developed economies that fail to deliver infrastructure

effectively cannot be left unanswered any longer.

At the same time, attention is switching to the developing world where – because

of globalisation – emerging economies such as China and India are prioritising

infrastructure in order to compete with the established economies of the West. In

coming decades the United Kingdom faces a real challenge to compete in an

increasingly competitive global market.

At the same time the British Government is aware of the scale of the challenges

that climate change presents. Achieving ambitious carbon emissions targets will

require a new generation of low-carbon infrastructure and a development of

emerging technologies. And as climate change takes effect the adaptation of our

infrastructure networks so that they are more resilient to extreme events

becomes more important.

The increasing number of extreme events also mirrors our ever-increasing

reliance on technology that makes our infrastructure networks ever more

interdependent. As the 2007 and 2009 floods demonstrated in this country –

disruption in one area can cause unpredictable impacts on other sectors.

In short, trying to answer these challenges of the 21st century cannot be possible

if the United Kingdom continues its piecemeal approach to planning and

investment that we have seen in the 20th century.

Fortunately, as I laid out in my introduction, the past three years have witnessed

progress in the creation of agencies to enable a better way forward.

Having long-called for the creation of a Government body to provide a strategic

view of the national’s infrastructure needs ICE strongly welcomed its creation in

2009. The publication of the first National Infrastructure Plan in 2010 was a

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significant moment, but the next edition – NIP two point oh – will be even more

important.

ICE believes that the next version of the National Infrastructure Plan must set out

some clear and credible commitments from Government. The next plan will be a

crucial opportunity to building confidence that the Government is committed to

securing the infrastructure the UK needs.

Failure to deliver an improved plan could consign it to irrelevance; indeed a poor

National Infrastructure Plan – one which does not unite industry and Government

– would be worse than no plan at all. The plan will also need to identify policy

risks and set out methods for reducing that risk.

The commitment to publish a 2 year rolling programme of public sector projects

is a good step but the next version of the National Infrastructure Plan must help

identify a strategic “pipeline” of programmes so that industry and investors can

plan ahead invest strategically for the market rather than tactically on a project by

project basis. This approach should reduce costs and unleash innovation.

ICE has put forward some recommendations as to how this can be achieved and

could work.

These can be considered through four main headings:

First, we need clear and more detailed long-term objectives for each

infrastructure network. The 2010 plan began the process as it laid out

broad long-term goals in each area – the 2011 plan should build upon this.

Second, the plan is an opportunity to set out Government’s view on how

the five year, £200 billion investment envisaged in the first NIP can be

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secured. I’ll come to how ICE believes a positive investment environment

can be secured shortly.

Next, the plan should help improve management of our current asset

base. If we are to get the most out of planned infrastructure investments a

step-change in available data is needed. Understanding the condition of

individual assets and networks will be needed by Government and

investors alike, and the next plan should set out how this can be best

achieved.

Finally, in order to maintain credibility of the National Infrastructure Plan,

government should establish clear political accountability for strategic

planning and investment at Cabinet level. As with other areas of policy,

the Minister responsible would be required to provide regular public

reports on progress against the goals and deliverables set out in the Plan.

A plan along these lines would provide for wider benefits in project delivery. Poor

information on future demand has been a bugbear in my industry for decades,

contributing to a stop/start pattern of work flow that has held down investment in

skills development and innovation, which in turn has affected value for money

from investment.

Turning to investment.

As we are well aware, we are in a period where the UK needs a huge investment

in its critical national infrastructure. Infrastructure UK have acknowledged that the

demand for infrastructure investment in the UK is expected to be in the range

£40-50 billion per annum until 2030, and possibly beyond.

And the scale of financial risk associated with the construction phase of truly

nationally significant infrastructure projects is enormous. The experience of the

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Channel Tunnel Rail Link (HS 1) is instructive. Even in the relatively benign

financial climate of the late 90’s and early 00’s government had to make several

interventions, including backing London and Continental Railways Bonds to

support the first phase of construction and eventually bringing LCR into public

ownership in 2009.

Clearly, few projects are on this kind of scale – where problems could threaten

the existence of the delivery partners but government does need to continue to

be realistic about the potential for risk transfer in the construction phase.

In the 2010 Budget it was announced that the CTRL is one of the assets to be

sold to provide initial capital for a Green Investment Bank, and this may also be

indicative of future practice, with government taking a stake to get strategically

important projects moving.

As operational projects are more attractive to investors, including long term

investors, it should be possible for government to sell its stake in more mature

assets, freeing funds for further investment.

This is why the creation and future of the Green Investment Bank will be of

critical importance. Though it does not yet have full borrowing powers the banks

creation does mark a significant point in that Government has provided not only a

strategic level plan for infrastructure, but also a realistic mechanism with can

encourage investment in it.

But securing the investment required does not only depend upon a successful

Green Investment Bank. There are a number of widely recognised barriers to

securing private investment into infrastructure. Government does need to

consider what other actions it can take to deliver a positive investment

environment.

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To summarise the challenges:

We are still in post financial crisis world. Lending and appetite for risk is

constrained

Matching investors need for a return with lifespan of projects remains

difficult

We have not yet cracked the challenge of increasing the attractiveness of

infrastructure to long term investors such as pension funds

And don’t forget that in all of this investors have many options, UK must

make itself attractive or see funds go to our competitors

So how do we overcome these problems?

In its 2010 State of the Nation report the ICE identified a number of requirements

if private sources of investment are to be encouraged. The United Kingdom has

pioneered a number of innovative funding models. Infrastructure investments

vary considerably in terms of risk and return, and a mix of funding models will

help investors and industry choose those most suitable for any individual project.

Above all to encourage investment Government should look to tackle cost. For

cost read risk. Government should be applauded for grasping that it has itself

been a cause of high funding costs and subsequently taking concerted action to

reduce political risk.

Regarding the planning process itself – we are pleased that the Government has

committed to preserve the special process for National Significant Infrastructure

Projects. There are too many cases I could cite about the delays which the

previous planning system delivered: Heathrow Terminal 5 took seven years and

37 applications; ThamesLink 2000 - eight years and 30 consents; and

Southampton Docks: four years and then rejection.

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The fact that the Infrastructure Planning Commission will be preserved as a unit

within the Planning Inspectorate under Sir Michael Pitt should also encourage

confidence in investors. If the new process for major infrastructure planning is

successful another major cause of risk and cost to projects would be reduced,

but failure to add predictability to the planning process would result in private

investors looking to invest their money abroad.

ICE has been taking an active role in engaging with Government and opposition

parties as the Localism Bill proceeds through Parliament. Indeed as it is currently

being considered and amended by the House of Lords at committee stage this

section may be overtaken by events as the Bill changes.

To date the Government has taken forward proposals by the ICE and other

professional membership bodies that the Duty to Co-operate between local

councils on strategic infrastructure should be strengthened if larger-than-local

infrastructure needs are to be answered.

ICE welcomes the preservation of the essential parts of the major infrastructure

planning process is to be welcomed. We understand the decision of Government

to place the ultimate decision on such planning applications to an elected

member of the Government.

ICE has also engaged on provisions in the Bill related to sub-national projects

and alongside other bodies - such as the RTPI has – raised issues and asked for

clarification where it has thought necessary.

Without getting into too much detail, the ICE Localism Expert Panel is looking to

ensure that proposals for changes to the Community Infrastructure Levy do not

end up reducing this crucial source of funding for new infrastructure projects. ICE

has also expressed concerns to ensure that plans to allow for local referendums

will not interfere with the proper planning application process - otherwise they

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could serious add to the cost and risk for infrastructure delivery. For the same

reason ICE is resisting calls for any third party right of appeal to be allowed in

infrastructure decisions.

However, I should add that ICE does recognise positive features of localism and

welcomes aspects of the easing of central direction - whilst recognising that this

can also create new challenges for infrastructure development. As with any

planning applications, companies involved in delivering infrastructure projects

should look to develop best practise to ensure that local communities are

properly consulted and their views are taken into consideration.

Too often attempts to provide much-needed infrastructure become victim to

unnecessary developer versus community dynamic. Projects such as waste

incinerators will remain controversial – here early consultation, financial

incentives, greater transparency and providing better opportunities for local

communities should all be encouraged on such projects.

Industry has a central role to play in all of this.

On a local and national basis achieving planning consent requires an industry

which is ready and willing to engage to respond to concerns of the electorate.

Government cannot offer leadership on the infrastructure agenda in isolation

from industry.

Similarly - implementation of the National Infrastructure Plan and realising the

ambitions of the Plan for Growth will require the new partnership between

Government and industry to continue and develop.

Reducing infrastructure costs could save government and private investors

billions of pounds - or, more can be built with the same level of funding,

benefitting society as a whole. This would be a worthy objective at any time, but

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during a time of austerity delivering “value for money” has never been more

important.

For the measures in the plan to be successful it will require the public and private

sectors to continue to work together, therefore ICE will be coordinating a series

of implementation groups, each headed by a “champion” drawn from across

industry. These designated working groups will be the focus for collaboration

going forwards.

The Implementation Plan also referred to the forthcoming publication of a Charter

to establish the high-level objectives and behavioural changes needed by clients

and the supply chain to reduce the costs of infrastructure delivery. This will be

another welcome step to improve behaviour and partnership in delivering these

complex infrastructure project on time and on budget.

So in summary, I believe that the progress made over the past three years has

been significant and positive. Unlike previous economic downturns the

Government has explicitly recognised the central role of infrastructure in its Plan

for Growth.

However, as we look ahead to the second version of the National Infrastructure

Plan later this year, we should recognise that the next six months will be a crucial

period that will have a decisive impact on the success of efforts to date. Those of

you who have been involved in the industry as long as I have may remember

other opportunities we have had to layout a vision for UK infrastructure ten years

ahead and beyond.

Documents

Tom Foulkes Making Projects Happen June 2011