Category Archives: Infrastructure

PwC: The Greenest Office in London

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Are environmentalists overlooking the impact of for-profit businesses on the greening of the world.

When PwC decided to refurbish its unloved central London office, it thought it would be doing well to achieve a BREEAM “excellent” rating. Then it realised it could do rather better than that …

Which office building has the highest BREEAM rating ever? Could it be the Co-op’s glamorous new headquarters in Manchester? Or that beacon of sustainability in London’s Docklands, the Siemens

Crystal? Or could it be Embankment Place, a nineties air rights scheme over London Charing Cross station that is so leaky it couldn’t be sufficiently pressurised to get a test reading?

Incredibly, the last building on this list has pipped the others with a chart-topping post-completion BREEAM score of 96.31%. This isn’t the first time occupier PwC has been at the top of the BREEAM charts. The professional services firm achieved the first BREEAM “outstanding” rating with its More London office near London Bridge in 2011. But making a brand new building super-efficient is relatively easy compared with a refurbishment, particularly this one, as Embankment Place is a post-modern warren of oddly shaped rooms and isolated eyries and is in one of the most congested parts of London, making the refurbishment particularly challenging.

According to PwC’s real estate director Paul Harrington, staff had mixed feelings about the office. “It’s a fantastic location but everyone hated the building,” he explains, adding that the entrance was particularly depressing. “It was heavy, monolithic and dark with a fountain that stank of chlorine.” Two atriums in the building were ringed by cellular offices, leaving the main floorplates devoid of any natural light. Vertical circulation was difficult and hidden away stairwells meant the only practical way to travel between floors was in the overused lifts.

The lease was due to expire in 2015 so PwC was faced with the choice of moving or refurbishing the building to make it more acceptable to staff. It plumped for the latter which included making the building much more energy and water efficient. Harrington says sustainability was a priority for PwC but an accountancy firm inevitably wants a return on its investment. “There is no point throwing money at something unless there is a good return,” he says, adding that measures to improve building performance must have a payback of less than four years.

The building entrance is below Charing Cross station, with the main building over the station

Initially a BREEAM “excellent” rating was targeted. “We had a clear aspiration at More London to get a BREEAM ‘outstanding’,” says Harrington. “Here we thought ‘excellent’ was the best we could get but as we developed our thinking we thought we could take this further.”

The BREEAM analysis has been done by services engineer ChapmanBDSP. “We looked at what the key credits were to get a BREEAM ‘outstanding’ and saw we didn’t have to go much further to achieve this,” says Darren Coppins, ChapmanBDSP’s head of sustainability. He adds PwC wanted an EPC A rating even though a BREEAM “outstanding” can be achieved with an EPC rating of B. This meant the primary focus was on energy. Coppins says a range of options was explored including covering the whole roof of the building with PV panels and wind turbines and using a fuel cell to provide heat and power.   The Greenest Office in London- PwC

pwc central london office2

Innovative Highway Bill Passes in the US

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US moves to address infrastructure building and repairs with innovative, one-off financing from the US Fed.  Important progress in infrastructure building and job creation.

The US  House of Representatives has passed a long-term U.S. highway funding plan, paving the way for the first multi-year transportation law since 2012.

Bankers also won a last-minute change that will use Federal Reserve surplus funds to pay for highway improvements, instead of reducing a payout they receive from the central bank.

“It cuts waste, it prioritizes good infrastructure, it will help create good-paying jobs. And it is the result of a more open process,” House Speaker Paul Ryan, a Wisconsin Republican, said at a news conference after the vote. “It’s a good start. It’s a glimpse of how we should be doing the people’s business.”

The Senate has passed its own version of the legislation, and a conference committee will try to resolve the differences before current highway funding ends Nov. 20.

The House measure would provide a six-year blueprint for spending on roads, bridges and mass transit projects and provide funding for three of those years. Companies that may get a boost include Caterpillar Inc., one of the top Ex-Im beneficiaries and the world’s biggest maker of mining and construction equipment. Contractors may feel secure enough to purchase new equipment after renting in recent years.

The $339 billion House highway plan, H.R. 22, would be financed in part by surplus capital from the Fed. That mechanism — sponsored by Representative Randy Neugebauer, a Texas Republican — was adopted just minutes before final passage of the highway measure. The Fed’s surplus capital comes from the nation’s 12 reserve banks, and totaled $29.3 billion as of Oct. 29.

House members agreed to abandon the Senate’s funding mechanism, which would reduce to 1.5 percent the annual 6 percent dividend national banks receive from the Fed. Banks vigorously fought that provision, and a group comprised of 27 banking organizations sent House leadership a letter Wednesday endorsing Neugebauer’s amendment.

Infrastructure

South Africa Needs to Play Catchup

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Acha Leke and Michael Katz write:  A paradox of Sub-Saharan Africa’s rapid economic expansion is the fact that the region’s most sophisticated economy seems not to be part of it. Since 2008, South Africa has recorded average annual GDP growth of just 1.8%, less than half the rate of the previous five years. Sub-Saharan Africa is porjected to grow at a rate of close to 5% next year, but South Africa is projected at about 1% growth. More worrying still, the country’s 25% unemployment rate  is one of the highest in the world.

Countries across the continent are constructing the roads, ports, power stations, schools, and hospitals.  They need to sustain their growth and meet the needs of their fast-growing and urbanizing populations.  They need most of all is expertise.

But while South Africa has highly capable architecture, construction, and engineering sectors, its current share of foreign-built projects in Sub-Saharan Africa stands at only 7%, compared to 32% for China.

The opportunities are not limited to the construction industry. South Africa has the know-how to meet Africa’s burgeoning need for a wide range of services, from banking and insurance to retail and transport. The country currently provides only 2% of Sub-Saharan Africa’s service imports – a market worth some $40 billion annually.

South Africa is home to several well-established, innovative banks that are well placed to offer low-cost, digital services to millions of currently unbanked African households and businesses. Indeed, South African banks already command a 12% share of Sub-Saharan Africa’s banking market.

South Africa has a highly developed insurance sector, with a long history of creating products for every demographic and income level. It is ideally placed to provide insurance to the rest of Sub-Saharan Africa, where just 1% of households have insurance of any kind.

South Africa also has been punching below its weight in merchandise trade.

The key to reigniting South Africa’s economic growth is an ambitious regional strategy driven by government and business leaders working in partnership. A massive scale-up of vocational education is particularly important, as this will provide young South Africans with the technical skills needed to support the expansion of export industries. Putting in place infrastructure to support growth – notably power generation, which currently lags demand – will also be crucial.

South Africa’s economic transformation since its transition to democracy two decades ago has been remarkable. But its renaissance is in danger of running out of steam. Only by boldly seizing the initiative can South Africa put itself at the core of Africa’s economic renewal, and only by embracing its role as regional leader can it revitalize its own prospects.

African growth?

 

State Dept. Keeps Keystone Pipeline in the Pipeline

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The State Department rejected TransCanada’s request to pause the review of the Keystone XL pipeline, after the company sought it earlier this week. The proposal from the company was seen as an effort to stall the process until after President Obama’s administration, as he is expected to reject it. 

TransCanada Corp’s request to the State Department for a delay was seen by many as an attempt to postpone the decision until after President Barack Obama left office and a new president more friendly to the plan took over in 2017.

The White House declined to comment on the State Department’s decision.

Keystone Pipeline

Financing Infrastructure

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Financing infrastructure is one of the most important challenges faced by governments worldwide.

Thomas Maier writes: Infrastructure – from roads and railways to ports and bridges – and economic growth go together. That is why international financial institutions need to answer appeals for greater investment to help close a $1 trillion global “infrastructure gap.” Our best chance of meeting the world’s growing infrastructure needs is to use multilateral development banks’ unique relationships with governments and the private sector to coordinate our response.

Consider, for example, the progress already being felt in emerging markets. In the past year, the World Bank Group, the Asian Development Bank (ADB), the Inter-American Development Bank (IADB), the African Development Bank, the European Investment Bank, and the European Bank for Reconstruction and Development (EBRD) have all created “project preparation facilities” (PPFs) to improve the quality of project development, while also strengthening the local capacity needed to ensure lasting results.

The various PPFs that have been launched can act as a model for public officials in emerging markets to emulate. The Infrastructure Project Preparation Facility, launched by the EBRD last year, is one example: by using pre-selected “framework consultants,” the facility can accelerate high-quality project preparation for both public-sector projects and public-private partnerships (PPPs). This dual focus is important: private-sector finance is critical, but the public sector still finances some 90% of all infrastructure investment worldwide.

Another important innovation is the online “PPP Knowledge Lab,” launched in June with support from multilateral development banks

Then there is the International Infrastructure Support System (IISS), an online tool directly supported by a number of international financial institutions during its initial start-up phase in 2015 and early 2016.

But any system is only as good as its participants. Responding to the need for more systematic and “standardized” learning, the World Bank Group, supported by the ADB, IADB, EBRD, and the Islamic Development Bank, has commissioned a new Global Certification Program for PPP Professionals. Emerging-market officials will earn accreditation by demonstrating the ability to apply their knowledge practically.

One useful tool in the effort is “Infrascope,”a benchmarking index created by the Economist Intelligence Unit that assesses the capacity of emerging-market countries across the Asia-Pacific region, Latin America, Africa, Eastern Europe, and the former Soviet republics in the Commonwealth of Independent States to deliver sustainable PPPs.

Another is the G-20’s new Global Infrastructure Hub, which shares international good practice and comprehensive data on infrastructure. The Hub has a four-year mandate to focus on five main areas: a network to share information on infrastructure projects and financing; better data on infrastructure investment; the G-20’s recommendations for voluntary lending; government officials’ capacity to share best practices; and a database to match infrastructure projects with potential investors.

It is easy to be daunted by the vast sums needed to close the gap between the infrastructure the developing world has and the infrastructure it needs to support sustainable, inclusive economic growth. But compare the world today with the world a century or more ago, and it is clear that the gap is so much narrower than it was. What will narrow it still more, and so sustain the gains in global growth, will be the spread of infrastructure know-how at the local level in emerging markets. We and our fellow multilateral institutions have a clear duty not just to increase our expertise, but also to share it.

Infrastructure

 

Monitoring Infrastructure Plans

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How government sifts through projects to determine their worthiness.  The Tiger grants from the US Transportation department illustrate how merit can be determined.  Lowell, Masschusetts has recently been awarded a Tiger grant.  Elizabeth Warren is one of the legislators behind the award.  The City of Lowell can acquire and replace or rehabilitate eight privately-owned bridges that carry vehicles and pedestrians over the City’s unique 5.6-mile network of canals. … Three of these bridges are currently closed to traffic in at least one direction and many are posted with weight restrictions which prevent school buses, transit buses, fire apparatus, or commercial trucks from crossing them, resulting in significant detours.

The Transportation Investment Generating Economic Recovery, or TIGER Discretionary Grant program, provides a unique opportunity for the DOT to invest in road, rail, transit and port projects that promise to achieve national objectives. Since 2009, Congress has dedicated more than $4.1 billion for six rounds of TIGER to fund projects that have a significant impact on the Nation, a region or a metropolitan area.

In each round of TIGER, DOT receives hundreds of applications to build and repair critical pieces of our freight and passenger transportation networks. The TIGER program enables DOT to examine these projects on their merits to help ensure that taxpayers are getting the highest value for every dollar invested through TIGER Discretionary Grants. Applicants must detail the benefits their project would deliver for five long-term outcomes: safety, economic competitiveness, state of good repair, quality of life and environmental sustainability. DOT also evaluates projects on innovation, partnerships, project readiness, benefit cost analysis, and cost share.

The eligibility requirements of TIGER allow project sponsors at the State and local levels to obtain funding for multi-modal, multi-jurisdictional projects that are more difficult to support through traditional DOT programs. TIGER can fund port and freight rail projects, for example, which play a critical role in our ability to move freight, but have limited sources of Federal funds. TIGER can provide capital funding directly to any public entity, including municipalities, counties, port authorities, tribal governments, MPOs, or others in contrast to traditional Federal programs which provide funding to very specific groups of applicants (mostly State DOTs and transit agencies). This flexibility allows TIGER and our traditional partners at the State and local levels to work directly with a host of entities that own, operate and maintain much of our transportation infrastructure, but otherwise cannot turn to the Federal government for support.

By running a competitive process, DOT is able to reward applicants that exceed eligibility criteria and demonstrate a level of commitment that surpasses their peers. While TIGER can fund projects that have a local match as low as twenty percent of the total project costs, TIGER projects have historically achieved, on average, co-investment of 3.5 dollars (including other Federal, State, local, private and philanthropic funds) for every TIGER dollar invested.

The TIGER program enables DOT to use a rigorous merit-based process to select projects with exceptional benefits, explore ways to deliver projects faster and save on construction costs, and make needed investments in our Nation’s infrastructure that make communities more livable and sustainable.

Lowell. Mass. Infrastructure

California Out of Coal

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California Governor Jerry Brown has had a busy week.  California pension funds will no longer invest in coal,  a big step forward to a better environment.

The new law will affect $58 million held by the California Public Employees’ Retirement System and $6.7 million in the California State Teachers Retirement System, a tiny fraction of their overall investments. The funds are responsible for providing benefits to more than 2.5 million current and retired employees.

De León pitched the measure as a way to emphasize more secure, environmentally friendly investments.

“Coal is a losing bet for California retirees and it’s also incredibly harmful to our health and the health of our environment,” he said in a statement.

In response to the news, executive director of 350.org May Boeve, whose group has led the charge for institutional divestment, championed the effort in California.

“This is a big win for our movement, and demonstrates the growing strength of divestment campaigners around the world,” said Boeve. “California’s step today gives us major momentum, and ramps up pressure on state and local leaders in New York, Massachusetts, and across the U.S. to follow suit—and begin pulling their money out of climate destruction too.”

Jerry Brown Ends Coal Investment

Enhancing EU Capital Markets

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Jonathan Hill writes:  Europe needs stronger, deeper capital markets. Our economy is about the same size as America’s, but our equity markets are less than half the size of theirs — and our debt markets less than one-third.

In the US, small and medium-sized companies raise about five times as much funding from capital markets as in the EU. If European venture capital markets were as deep as those in the US, our companies could have raised an extra €90bn over the past five years. And the differences between EU countries are even bigger than those between Europe and the US.

The benefits of stronger capital markets are also clear. We could give Europe’s businesses more choices over funding, helping them to invest and grow; increase investment in infrastructure; draw in more funding from outside the EU; help businesses sell into bigger markets; and help those saving for their old age. And, by reducing reliance on bank funding, we could help make the financial system more resilient, particularly in the eurozone.

All 28 members of the EU share this view. So does the European Parliament.

Some of the big questions are longstanding. How will we encourage investors to make cross-border investments when national insolvency laws are so different? How can investors gain access to comparable credit information on SMEs? How do we overcome national barriers, such as “passporting fees” if businesses operate in multiple countries?

Here are some clear priorities for early action.

To help free up banks’ balance sheets, making it easier for them to increase lending, I am proposing a new EU framework, with lower capital requirements, to encourage simple, transparent and standardized securitization. We need to make it more attractive to invest in infrastructure. A new infrastructure asset class that will attract lower capital requirements under the Solvency II regime for insurers.

Start-ups in need of capital should not be forced to go to the US, so I propose measures — including changes to legislation — to encourage the European venture capital scene to thrive. We need to make it easier for companies to raise funds on the public markets, too.

To channel more investment from Europe’s citizens to its businesses, we need to improve retail financial services. This means looking at them from the consumer’s point of view.

The creation of a capital markets union is a big opportunity for Europe. The UK, as Europe’s leading financial services centre, has a major contribution to make.

This is a good example of the practical benefits that membership of the single market can bring. But to make the most of it, and to help influence the rules which will set the terms of engagement for years to come, the UK needs to be shaping the system — not looking on while others set the rules.

EU Capital Markets

US Banks Panic Over Highway Funding Proposal

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Peter Schroeder writes:  The banking industry is scrambling to kill a provision in the Senate highway-funding bill that would reap billions of dollars in revenue by cutting a century-old system that has reaped annual awards for banks.

Industry lobbyists say they were blindsided by the inclusion of the provision, which would help policymakers cover the bill’s cost by cutting the regular dividend the Federal Reserve pays to its member banks.

One lobbyist went so far as to reread the Federal Reserve Act of 1913 after getting wind of the proposal to determine what was at stake.

In a Congress where lawmakers are always hunting for politically palatable ways to raise revenue or cut costs to cover the expenses of additional legislation, the Fed provision was a novel, and rich, one. The proposal is estimated to raise $17 billion over the next decade, and is by far the richest “pay for” included in the bill.

Lobbyists said they were not aware of any previous time when lawmakers had attached the language to a piece of legislation, which would scrap a perk banks have come to expect for over a century.

When banks join the Federal Reserve system, they are required to buy stock in the central bank equal to 6 percent of their assets. However, that stock does not gain value and cannot be traded or sold, so to entice banks to participate, the Fed pays out a 6 percent dividend payment.

The Senate proposal says it would slash that “overly generous” payout to 1.5 percent for all banks with more than $1 billion in assets. While the summary language outlining the proposal said that change would only impact “large banks,” industry advocates argued that banks most would identify as small community shops could easily have assets in excess of that amount.

Banks are working to mobilize against the provision, even as lawmakers are pushing to pass a highway bill before program funding expires at the end of the month.

Senate Banking Committee Chairman Richard Shelby invited Fed Chairwoman Janet Yellen to opine on it when she appeared before his panel earlier this month.

She told lawmakers that if the dividend payment is reduced, some banks may not want to buy into the Fed.

“This is a change that likely would be a significant concern to the many small banks that receive the dividend,” she said.

While banking advocates make the policy argument, they also acknowledge they are facing a hard political reality — $17 billion is hard for members to pass up to help cover costs in a must-pass bill.

“It’s difficult to have a policy discussion when people are looking for a pay for,” said Ballentine. “That’s the issue we’ve been running into.”

The Senate bill is facing an uphill climb towards enactment, as House leaders from both parties have pushed the Senate to instead take up its short-term extension of highway funding and continue working on a longer-term proposal.

Inrastructure Funding?

Risk Necessary for Growth?

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Robert Litan writes:  We’re going to hear a lot from 2016 presidential candidates about the need for faster economic growth. Jeb Bush says annual growth of 4% would be his goal; that’s almost double the 2.2% U.S. growth rate since June 2009. Hillary Clinton has called for “inclusive” growth, or economic expansion that is distributed more fairly. (I suspect that many Republicans agree with her objective, while differing on what government should do to achieve it.)

Presidential elections are occasions for debating government’s role, so it’s natural to focus on things government can do to affect economic growth, such as simplifying the corporate tax code, removing distortions, and, for some, lowering rates; investing more in infrastructure and early-childhood education; and easing regulatory burdens, especially for new businesses, which have been the source of many major technological advances.

While some or all of these things should help growth, government has limited ability to influence the appetite for taking risks among entrepreneurs, investors, and larger companies. And without risk-taking, we are unlikely to see the kinds of major new innovations that will propel our economy toward a higher growth trajectory.

Two recent essays define this challenge. One is a thoughtful piece by Bloomberg View’s Barry Ritholtz on the decline in publicly traded companies in the U.S., from a peak of more than 7,300 in 1996 to just 3,700 in 2014. After surveying multiple possible causes for the nearly 50% decline–including the much-criticized Sarbanes-Oxley Act, which tightened public company reporting rules–Mr. Ritholtz cites academic research showing that mergers have played an outsize role in reducing the number of public companies.

This is important because when big companies swallow up others, it signals that acquiring companies have essentially outsourced their ideas rather than growing internally. It also suggests that the safer thing to do is to buy someone else rather than develop new products and services yourself. The merger trend is a sign of a collective failure of nerve, the risk-taking that historically contributed to much higher economic growth rates, such as the roughly 4% average from 1948 to 1973.

\Fortune editor Alan Murray reports that revenues of the Fortune 500 companies combined equal 71.9% of U.S. gross domestic product, or more than twice the 35% it totaled in 1955. In other words, despite continuing turnover in the Fortune 500′s composition, big companies are more important than ever as a share of the overall economy.

This wouldn’t be so worrisome for future growth were it not for the decline in the start-up rate, or share of new companies in the number of overall firms, which I have written about before. Despite the continuing emergence of new billion-dollar start-ups (“Unicorns”), the execs of big companies don’t appear to be especially worried. According to the Fortune survey, only 20% think their greatest challenges will come from start-ups.

At the top of their worry list, Fortune found, is the “rapid pace of technological change,” which is ironic since, so far, hype has exceeded reality. As Princeton professor Alan Blinderhas noted, productivity growth since 2010 has clocked in at just 0.4% a year, down from 2.6% over the preceding 15 years.

Unless a big boost in start-ups puts real pressure on large companies, the answer to the growth challenge lies mostly with large companies and those who head them.

startup-cartoon