10/8/11

Get the F out of infrastructure

The 'F' in question is, of course, 'Finance'. As in the Design, Build, and Finance (“DBF”) of public infrastructure projects by the private sector (as is common nowadays for Ontario hospital projects).

Europe is wobbling towards another financial crisis as the banks begin to show signs that they are afraid to lend to each other. Governments are already spending billions to prop up banks in one way or another, but a trillion dollars or more may be needed, some suggest. The Economist has called for "simultaneous injections of capital into the region’s banks" as soon as possible.

As with the last go around (just three years ago) no one knows which businesses will make good on their promises, and which will fail. That drives up the cost to finance infrastructure through private finance relative to public finance. As a result, a financial crisis will drive up the costs of public private partnerships (P3s) -- aka "DBF" projects.

Of all the attempts to escape this problem, the simplest, removing private finance (the F) from the infrastructure deals, is pooh-poohed by the financial industry. Instead, they come up with more and more elaborate schemes to try to save P3s (and keep their profits flowing).

A pity: we cannot afford private finance of public infrastructure at the best of times. And definitely not if we fall back into a financial crisis.


2 comments:

  1. I was thinking this was a trenchant demand for expanded inrastructure...

    ReplyDelete
  2. It's a different demand Kevin, but trenchant nevertheless!

    ReplyDelete