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Resilience and recovery

Infrastructure sector in Asia Pacific

Resilience and recovery

Sharad Somani | Leadership,

As clients and their customers adapt to a new reality due to COVID-19, the sustainability of new operating models and customer interfaces throughout the infrastructure sector is vital.

In our COVID-19 Guide to maintaining Enterprise Resilience, we look at how enterprises in Asia Pacific can manage — and work towards alleviating — the impact of the pandemic. We cover the three areas of financial, operational and commercial resilience, setting out practical suggestions for short, medium and long-term considerations. The guide includes an interactive questionnaire, generating recommendations unique to each enterprise.

COVID-19 has deeply affected the infrastructure sector. Movement restriction orders and social-distancing measures, although necessary, have compounded the economic effects of the pandemic, leading to unprecedented falls in demand in addition to the associated operational impacts. This has created an urgent need for the sector to conduct stress tests and scenario analyses to strengthen their financial, operational, and commercial resilience. Here are some key considerations.

Financial resilience

Beyond just the drop in demand from a lack of use — toll roads are a prominent example — heightened uncertainty is also affecting demand in other areas. Until and if full freedom of movement returns, near-term liquidity planning should be prioritized. Infrastructure companies should develop multiple short-term scenarios and assess their financial impacts, for instance, on margins, costs of materials, cashflow, and debt repayment. This will provide a clearer picture that will allow for quicker adaptation as the situation evolves.

Shoring near-term finances may also mean seeking out additional lines of credit and renegotiating longer-term contracts — such as concessions. This includes negotiating with creditors, which should be done proactively and transparently before conditions deteriorate further. The industry is highly leveraged by nature, which, coupled with upcoming covenant reporting, will make such negotiations a necessity. It’s better to start sooner rather than later.

Finally, because it is possible that the very fundamentals of the industry will be affected, exploring new business model options and innovative methods of obtaining funding is paramount, particularly over the medium to longer term.

Operational resilience

The current need for remote working presents operational challenges to infrastructure companies, especially given the highly complex nature of the industry’s operations. In the near term, identifying critical suppliers, assessing potential vulnerabilities, and then communicating and collaborating to mitigate risks will be crucial to minimize disruptions across the supply chain. Contracts may again need renegotiation, and clauses — such as those relating to force majeure — will need to be scrutinized.

Day-to-day operations will also require adjusting, particularly when it comes to risk-monitoring systems, supervising employees, and mitigating threats — which include cyber-threats in addition to the usual suspects like environmental and physical threats. On the manpower front, there will be a need for process optimization and possibly retraining to adapt to the “new normal” of remote working.

Looking beyond the short term, future-proofing the business by leveraging technology must be a priority. Digital transformation has been high on the agenda — and the methods for doing so will vary depending on the specific subsector — but the current pandemic has highlighted just how important it is for the long-term operational resilience of the infrastructure sector. One example that is already happening, but perhaps needs to be expedited, is increasing automation levels system-wide.

Commercial resilience

Commercially, the infrastructure sector has seen a fall in demand across the board, with some subsectors affected much more than others. While there can be no one-size-fits-all solution to the commercial challenges precipitated by the pandemic, using technology to deliver a seamless customer experience — even amid the ongoing operational complexities — will likely be key in maintaining commercial viability, especially in the near term. Communication and managing customers’ expectations are also areas that cannot be ignored.

Part of this involves exploring new service-delivery models, particularly online alternatives. While this is especially challenging for the infrastructure sector — and in many cases, some services will never achieve a state of being 100 percent online — exploring areas that can be migrated online will be vital.

Other than mitigating the shorter-term commercial impacts, companies should also look toward how the environment will evolve in the future and position themselves accordingly. For instance, governments may look to infrastructure projects as a means of fiscal stimulus — a boon for the sector. E-commerce and logistics, an area which benefited from the pandemic, will likely continue its uptrend. And looking toward the future, things like autonomous vehicles and smart infrastructure may become the norm rather than the exception. Positioning early will go a long way toward establishing long-term commercial resilience.

KPMG member firms are standing shoulder to shoulder with clients to ensure you receive timely, informed and practical guidance, drawing on the latest industry insights and experience from specialists across the global KPMG network. You can complete this interactive questionnaire to help you assess the completeness of your immediate response to COVID-19. Questionnaire responses are generated for your own use and are kept anonymous, so do share your report with your local KPMG contacts if you’d like to discuss the results. Explore the COVID-19 Guide to maintaining Enterprise Resilience.