Business not as usual | KPMG | CA
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Business not as usual

Business not as usual

In an era of megaprojects, there is often no "traditional" development path.



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Infrastructure players are increasingly recognizing that the traditional path to procurement will not always lead to the delivery of assets. In an era of megaprojects and grand regional initiatives, there is often no ‘traditional’ path to development at all.


In this environment, we have seen project owners take big steps and overcome massive challenges to deliver much-needed projects. Some have created ‘coalitions of the willing’ and multilateral partnerships to leverage international ideas and mitigate future challenges. Others have created an entirely new pathway — recognizing their own unique complexities — to deliver on their objectives. And in each case, they have upturned the status quo.


Take, for example, the UAE Nuclear Energy project, an initiative we highlighted in our 2010 edition of Infrastructure 100. As a new nuclear development in the Middle East, the project could have become caught up in the non-proliferation quagmire of global geo-politics. But instead, the UAE selected KEPCO, Korea’s power company and growing nuclear developer, to build and operate the facility and — importantly — to source and contract the required nuclear fuel. Construction will be completed in 2020.


The Nord Stream project offers a similar case in point. When the project was first announced, it was against a backdrop of significant energy tension and security concerns across Europe. Rather than see the project delayed by challenges and environmental concerns, the Nord Stream team chose to incorporate — indeed, surpass — the highest standards and expectations in the world. Tremendous expense went into protecting the environment. Massive political capital went into soothing national and regional concerns. And much thought went into structuring and financing the project through international organizations. The first pipeline opened in 2011 and a second in 2012.


Some projects are so large and so transformational that there are no ‘traditional’ routes to development. The Square Kilometer Array is one such project. As we noted in our 2014 edition of Infrastructure 100, the project is one of the largest endeavors in history with installations planned in South Africa, Australia and, eventually, eight other countries in Africa. While the project has still not secured its full funding requirements for Phase 1 (some US$900 million), it has attracted the support of 10 key countries including China, India, the UK, the Netherlands, Australia and Canada. This, plus the strong support of the scientific community, has helped the project pass several key milestones. Construction is now anticipated to start in 2018.


In the US, demand for two new bridges across the Ohio River gave local authorities the opportunity for an interesting experiment. One of the Ohio River Bridges was structured as a 35-year public-private partnership (PPP) concession while the other was developed through traditional means — a tax-exempt, bond-funded, design-build model. Pundits hoped to finally discover which approach would deliver better results. In the end, however, both succeeded equally well. The real test in the experiment would have been if either (or both) projects had experienced delays or cost overruns. Both projects achieved substantial completion in 2016, reinforcing the fact that governments now have multiple options available when developing large infrastructure projects.


As the forces of globalization continue and countries become more comfortable with international suppliers and operators for critical infrastructure, we expect to see governments and infrastructure owners make bigger efforts to overcome the roadblocks to delivering much-needed assets. It will no longer be business as usual.

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