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Responding to Current Market Conditions in Infrastructure Development

Jeremy Barker, KPMG Director, discusses infrastructure investment in the context of the current market conditions.

There's a big problem out there for global infrastructure. There aren't many deals getting done - those that are getting done are, are really struggling to get there.

One of the biggest issues is trying to maintain the private interest in the sector to try and attract the pensions and insurance companies. That may mean governments acknowledging that they have to adjust the risk position - or accept they might have to pay a slightly higher price.

There are some good examples of people taking slightly unusual approaches. Our firms' attention as advisers at the moment is really just making sure we can think of those options. It can be anything from small tweaks in contracts which just get banks over the line to things like the UK governments' infrastructure bank.

In France they have a large proportion of the debt which is government backed. The Belgian governments done for example two things; underwriting liquidity risk for the banks; and taking re-financing risk which really stimulated their market - so that banks could lend much shorter term for long term projects.

Infrastructure is still very much a live market. It's quite surprising the difference between the headline press it's doom and gloom and actually speaking to individual banks and finding out well actually no we can still lend and we have been allocated a pot of money and it is quite a large pot of money.

I'm an optimist so I think the position will be much better next year. I'm certainly hoping that KPMG firms have come up with some good ideas to attract the pensions and insurance company's money into the infrastructure space. Then hopefully that makes the whole market that much more fluid and dynamic and we introduce again a bit of competitive tension between funders.

© 2010 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative, a Swiss entity. All rights reserved.

KPMG International Cooperative ("KPMG International") is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.