Infrastructure Roundtable 2010: Part 3

PFI Infrastructure Roundtable 2010
48 min read

Chris Elliot: I think there is a lot of appetite in the generality of infrastructure, but it is not very even, the knowledge base, certainly when you get to PPP. The UK institutions understand PPP very well, a number of Europeans do, but if you go further afield, I think they really do struggle. But I think in raising equity capital, foreign infrastructure, I think we’ve got a little bit tainted with the private equity model and enormous fees, so I think there has to be a rebalancing of what the fees on an infrastructure fund should look like, not necessarily to replicate what we’ve seen in private equity.

But I think there is an appetite there. I think Graham’s point is quite well made: the timing of when they want to put their money to work is not continuous, and, you know, they’re pretty impatient people. They don’t want to invest in a fund that is not going to be invested for two to three years.

Rod Morrison: Is it more attractive to invest directly, a Gatwick or that sort of thing?

Chris Elliot: I think it is. If you go to the very major projects, I think there is an attraction to invest directly, but if you look around the generality of the PPP world, the average size of the deal, they wouldn’t even look at. So they have to go through intermediaries.

Rod Morrison: If we could move on to the market. Where do you see the opportunities, say, in the next couple of years in the UK and moving into Europe, given that on the one hand government budgets are under severe stress, but on the other hand they want to still keep economic growth going, which might benefit a PPP model.

Gershon Cohen: I think I would say it is probably the relationship between the projects that will derive faster economic benefit to the Exchequer and social projects that are required for social stability. So I don’t expect, for example, any major new motorways to be built in the UK. We have a reasonably good motorway network, but we have a very poor urban network of roads that are deteriorating and rapidly need upgrading.

Otherwise, the distribution of goods and services around the UK will create a competitive disadvantage for us. We need
prioritisation of projects. So, for example, the schools programme - further new building of schools is not likely to be a priority. I think the priority there on the social side is frontline teaching, not more new buildings right now. So I can see the new building programme of schools coming down the agenda, but urban network upgrades, highways upgrades, I think could move further up the agenda for
economic reasons.

If we take the waste sector, I think do nothing in waste is potentially an expensive option. We have serious obligations to deal with our waste under various directives, and the cost of utilising landfill is a heavy burden from a tax perspective and a cost perspective. I see there a requirement to make sure that it is high up on the agenda, because if we don’t then there is a costless benefit to the Exchequer.

I think that is the juggling act. I think on the other hand it is important that our social housing stock is maintained for social cohesion reasons, social harmony reasons. I do see some discussion around this, and people can take different views, but I can see social housing remaining relatively high on the agenda for a range of reasons.

So I think the trend in the UK is an absolute understanding that we are constrained, budget constrained, and that creates its own decision-making process. If you start off by saying: I have a very constrained budget, where do I need to go from here? I think it is the combination of economic benefits, social cohesion, and then you reprioritise your projects accordingly. I think there are question marks around some of the very, very large transportation projects, and very clear assessments are going to have to be made around: is that going to be a valued play for the Exchequer and for the country as a whole.

Europe is a slightly different picture. I think France is committed to some very large projects, but their funding route is different. I see there some quite large rail schemes still progressing. One has been cancelled, but I think there are a number still progressing. I think there are going to be very interesting developments in the Iberian Peninsula, simply because the constraints and the health of the sovereign position is quite acute, and that will force decisions. But they believe, it seems to me, politically, that concession-based finance via PPP is fairly core to getting projects done in the infrastructure space and getting infrastructure projects done is good for the economy.

We see some of that in the Benelux countries as well, where new PPP programmes are being put in place to stimulate the economy and be part of the process of improving the overall health of the economy. So I think it is a mixed picture.

I think the one thing I haven’t mentioned in all of that is, quite clearly, the requirement to invest in power and energy. We know from various studies in the UK and the US that we have a capacity shortage. I think there has been an overemphasis on the renewables space, that it will somehow provide a lot of answers to that problem. It won’t; it provides some of the answer.

Nuclear, quite clearly, is probably the source that is the most economically viable. But has its issues, obvious issues, and is some way off in terms of developing a whole new fleet of energy reactors. In the meantime, there has to be a space filled, and I happen to think that space will be filled with more conventional power programmes.

One of the overriding priorities for government is security of power supply and energy capacity. I think they are beginning to realise that, and what I think might be interesting is what kind of models will be applied to the power generation sector. Obviously, historically we’ve seen many different models. It would be interesting to see whether the evolution of concession and PPP may begin to encroach a bit into the sector, despite there being long, historic means by which those kinds of facilities are invested in and financed.

Rod Morrison: Mike?

Mike Gerrard: Just a couple of things. As far as the UK is concerned, I think one of the challenges that Infrastructure UK has got has been well summarised by Gershon. There’s work going on on a framework document for prioritising infrastructure investment, which is due to come out about the same time as the spending review in the autumn. The challenge is understood and there is a team hard at work pulling together that sort of methodology and framework. If you can only afford a new high-speed rail line or rolling out super broadband, what are you going to do first? These are important questions for the economy.

So far as Europe is concerned, having this new team inside EIB, the EPEC team, has been quite beneficial to getting a better understanding of PPP infrastructure investment across Europe, and specifically cutting through the difficulty that has bedevilled this whole area of how you combined structural funds coming out of the EU with private capital being invested at a project level that has hitherto been quite a blocker on some of this investment in Continental Europe.

My understanding is that is now quite close to resolution, so having colleagues in EIB and EPEC working with the Commission has led to some changes to the policy framework that is going to allow for co-financing, effectively, between structural funds and private
capital, which is very welcome indeed.

Rod Morrison: In terms of the UK, though, do we see a shift in IUK, and I guess PUK as well?

Mike Gerrard: Not for much longer.

Rod Morrison: From your focus, moving from PFI over the last 10 years to renewables over the next 10 years.

Mike Gerrard: The remit for Infrastructure UK - and we should really think about infrastructure UK in this context - is holistic. It is all infrastructure, howsoever funded and procured, so its complete - which is absolutely the right way to come at this.

So the legacy of what in life has been learnt on the back of the PPP programme has now contributed to that much wider landscape, which is good. You now have one team in Treasury who will be
overseeing the sort of policy framework and delivery support for that whole
programme. But, you know, it’s rationed space, as we’ve heard, so some really tough decisions are sitting out there in the spending review as to the order in which we do things.


Martin Lennon: It is right, they are totally focused at the same time as to how they bring private finance into answering those challenges.

Mike Gerrard: Absolutely, and understanding that whether the private finance is coming into a regulated utilities structure or some kind of contractual concession PPP structure is very often the same
institutions at the other end of the deal anyway, and we have to understand the market in its totality.

Rod Morrison: Is it attractive from IUK’s point of view in terms of the renewables sector that the money comes from us as electricity payers rather than companies?

Mike Gerrard: Well, the whole funding mix is, of course, one of those things that is being looked at and into that question come matters like the Green Investment Bank that has been announced by the government. There is a team hard at work on that as well. So all I can say is wait for the spending review and this will all be brought together as to what combination of different funding sources makes the whole thing affordable. That’s exactly what’s being tackled at the moment.

Rod Morrison: Chris.

Chris Elliot: In the UK, I think traditional markets, big health and schools, will not be around at all. I can’t see BSF surviving. On the health side, I think LIFT has been a success, I think LIFT will continue, I think the Express LIFT programme has quite a lot of things going for it and quite a lot of opportunity. I can see probably quite a bit more joint ventures between the public and the private sector. I can see the public sector investing assets rather than capital in some of those joint ventures to kick-start, which I think will be quite interesting.

Transport is very interesting space. I agree with Gershon that I can’t see many new motorways being built, but paying for the use of roads will come back on to the agenda. The ability of private capital and management to play a part there I think will be quite interesting.

Further afield, Europe, I think in most of the eurozone countries that we would look at, I think there are strong PPP programmes. France in particular, Italy, Germany, the Iberian Peninsula, they are all progressing, want to do, notwithstanding the budgetary constraints they have, they will produce quite a lot of deals in the next few years.

Rod Morrison: You don’t see the LIFT programmes being slow to take off?

Chris Elliot: I think it has been bedevilled because it has looked at very small transactions. But I think if you look at the unit cost of getting those deals done now under a LIFT environment as opposed to a traditional procurement or a PPP procurement, on the size they are, they seem to be very good value for money. I think where there are PCTs that have the capital to allow LIFT to develop, and the model is dependent on the PCT having some capital, they have been successful.

I think the other thing that is very good about them is they get the private sector and the public sector developing ideas together and working together from the same side of the table on the transactions. You overcome this sort of horrible zero sum game that
seems to hang over the whole of PPP and PFI.

Rod Morrison: I remember I read a report about LIFT saying that the cost of a doctor’s surgery, for instance, under LIFT was about three times more expensive than the tatty old surgery down the road, and therefore people look at it on that basis. It is unfair, but it is just …

Chris Elliot: I think if you look at the requirements to set up the LIFT structure, the first one or two deals would never be the cheapest: it is where you have a vision that you are going to do these things in the future. I think when you look at the subsequent ones that have been done, that vision has actually paid off. If you are setting up a business to do 40 investments, to say the first one was quite expensive seems to me not the right way to evaluate the system.

Rod Morrison: Richard.

Richard Abadie: Yes, I guess all of us are looking internally at our businesses and wondering what the future looks like. When I get asked the question within my own business, I think you almost have to look at it in cycles: we’re going to be in for a rough couple of years in terms of the level of investments in terms of infrastructure in this country, but we’ve been there before. We’ve probably come off the back, economically, of 10 to 15 years of boom times. There’s probably still insufficient money spent on infrastructure in this country, but nevertheless significantly more was spent than had previously been the case, and the environment in which we are now is a period of austerity.

The only saving grace is that if there is to be little money spent on infrastructure over the next couple of years, there’s going to be another boom cycle two or three years hence. It is a bit regrettable because infrastructures need to be a long-term steady play, spend money on a constant basis. But it is not a case that infrastructure investment is not needed, it is a question of whether it can be afforded, and I do think we’re in for a couple of difficult years.

I don’t see social infrastructure
being prioritised. I do see social services being prioritised and, yeah, if you have to make do with a tatty room for a doctor’s surgery, at least you have the doctor. So I do think we are going to go through a phase where there is more focus on the service rather than the infrastructure that enables that service over the next couple of years. As I say, don’t get me wrong, the investment requirement is still there, it is just a question of when it happens.

I think if you were asking a question around funding of infrastructure, renewables, does the user pay? I’ve reflected on this as well, and it’s quite easy to say: well, the general taxpayers can’t afford it; just let the user charge system be implemented. It’s one thing to do that for a road when there’s a discrete spending decision where you decide to travel on a road or not travel on a road and make
a spending decision.

When it comes to our utility space, as far as I’m concerned we’re all taxpayers and it’s exactly the same base that you are accessing in terms of payment. The fact it is based on usage rather than just a general tax is almost irrelevant. So, simply saying that we have to build a whole bunch of wind farms and the levy for the wind farms is going to go to the user doesn’t really make much difference in the bigger scheme of things. It is effectively another tax on all of us and the question you get there is: is it affordable, can people afford it?

So when it comes to utilities around water, around electricity, I do see lots of pressure on structures when it comes to the decision as to whether to use a road or to take an airport trip. That is a different discretionary decision there, you can understand more clearly the user charging aspects there. So I don’t see user charging as an automatic panacea for solving infrastructure repayment and investment.

You asked about Europe. I don’t see Europe being in a fundamentally different place to the UK. We might try and draw massive contrasts between the two. The reality is most of the big European countries are in the same place: overborrowed, overtaxed, under-invested in infrastructure. I think there’s no single European solution, but the issues that we face again in the UK are going to be similar issues that are faced across Europe. Maybe in Scandinavian countries they are in a slightly different position, but broadly mainland Europe, particularly Western Europe, is in the same place.

I think that part that worries me, just from social cohesion, is I’m not sure what happens to Eastern Europe. GDP is a lot lower, there’s less ability to pay for infrastructure, they are heavily, heavily reliant on Western Europe and subsidisation effectively through support. You may find a drop off in Eastern European infrastructure spend, potentially cliff-edge stuff unless there is continued support from Western Europe. But it is environment where Western European economies can’t continue to pay that type of levy or
dividend to the East.

I do think, stating the obvious, we are in for a difficult couple of years in the infrastructure space. But, as I say, I may be a bit blasé but I do see it as a cycle that we’re going to come out of. If it is not tomorrow or next year, in two or three years time we will be back to where we were before.

I always try and find statistics about the level of infrastructure in any given country versus GDP and I never can track them down. The reality is, we continue to under-invest in infrastructure. When the economy starts growing again - which again is a big question - when the economy starts growing and tax take increases, that’s the point at which you will have turned the cycle and government can
put cash back into infrastructure. Let’s just hope it is sooner rather than later, and focus on growth rather than spending cuts.

James Butters: I agree with a lot of what Richard has said. Going forward in the next couple of years, there will be a lot of emphasis on repair and renewal rather than doing new brand spanking facilities. There will still be works of improvement but certain schemes might get cut, certain schemes might get looked at. Justifying a new capital expenditure will be very much part of what the public sector has to do.

I think one of the big factors that we’ll have to face going forward will be managing a cycle, because obviously you gear up, you prepare to undertake a certain amount of work, and then all of a sudden the work then tails off. That doesn’t help projects because projects could be smoother. I think we’re a victim of suffering something that’s intrinsic to the British way of undertaking projects that other countries actually we see globally have a better way of coping with.

In a sense, we are a victim of actually doing what a lot of people across Europe do, which is chasing bank funds to finance project financing rather than actually cultivating an investor market for bond debt. So, if you look at the US, they have a very healthy bond debt market that they could actually tap where the government ceases to want to pay or where the banking finance drops away.

One of the things that I think we are becoming aware of is that in some countries projects are still going on. In actual fact, in some countries projects aren’t involving the same restrictions on go-ahead due to finding a bank, organising a meeting with the government to check whether or not the funding could be in place via an organisation like TIFU.

I think in Europe they follow that pattern the same as we do with the exception of France, where tolling is much more culturally embedded. I think it is something that we will see here that we have to look at tolling. We have to look at some of the demand risk elements that come through, but, as I say, not as a fix. It is going to be project per project as proposed to an overall fix.

I think one of the things that we’re becoming acutely aware of is that our work is now becoming very dependent upon development structured or project financing, much more so than it ever has been in the past. We have to think about all the counterparty implications that we face on that, be it as a subcontractor, as an investor, even in procuring our security package.

It is something that we look at and think: there are certain countries that are probably managing this in a way that perhaps could be almost described as better than the current model in the UK is dealing with. I think here we are now falling behind in terms of progressiveness. If you look at the US example, there is a market there; they can finance projects even through a difficult patch. Here we can’t.

Rod Morrison: Is that just a function of the US bond market as the world’s biggest bond market?

James Butters: I think it is but…

Marc Bajer: It’s the history.

James Butters: It’s the history of the bond market there and it’s the point of actually cultivating the bond market here. If we look at what we did traditionally during the 10 good years of PFI - we had a lot of the bond offtake going to asset swappers instead of real money investor…

Marc Bajer: Correct.

James Butters: …and in actual fact, the skills were never built up and a requirement to actually look beyond the credit rating was never actually incorporated into the pension funds or insurance or institutional investors within the UK.
So, I think the point I was making was that the US and other markets, depending on what their particular slant is - whether it is tolling or if it is actually bond placement - has cultivated this sort of history of expectation that looking for finance for projects does not come from the government.

Marc Bajer: Yes, there is no question in the US, the municipal bond market finances virtually everything. There is a huge, long history of financing through munis. Virtually all of the financing is provided by retail investors, so retail investors, individual mom and pops, are the ones who buy all these bonds historically, because they are all tax-free.

So there is this gigantic market that exists in the US, which basically has been this tax-free bond market. Every mom and pop and every individual in the United States, including myself, has muni bonds sitting in their retirement portfolios, school, university, financing for their children portfolios. It’s incredible, but that has been going on for 80 years in the US.

Rod Morrison: Marc, where do you see your opportunities?

Marc Bajer: Well, for us it’s a bit different. I echo what Richard said. I view the UK and Europe as just being one big pipeline and I don’t really differentiate between the two. It is a purely cyclical issue in terms of how many projects there are today versus how many there were three or four years ago per annum.

The total number of projects, certainly in Europe as a whole - referring to some DLA Piper stats that they have come out with recently - is lower by, I think 15% or 20% across Europe, but the total number of projects is still enormous. So, yes, it has gone from 1,600 projects to 1,400 projects, or something like that, but there are still an enormous number of projects.

I agree with what James has said: there is a change in emphasis, perhaps, but I think that will wash out when the economy starts to recover, when the government fiscal position starts to recover. For us, the emphasis is quite different anyway, because there is a big refinancing opportunity that is going to arise over the next two, three, four years for us. That pipeline is just as big as the greenfield or new issue pipeline. So we don’t perceive there to be a problem of supply for our business, because it’s not only new projects, it’s also refinancing.

Rod Morrison: Martin.

Martin Lennon: I think we all wait to see in the autumn what Infrastructure UK comes out with, really, because that will give us an indication of what the UK focus will be. I don’t know if you saw the Institute of Civil Engineer’s report recently about the state of the UK Infrastructure where they highlighted that energy and transportation were pretty damning. “At risk” was the calculation they gave that. So maybe that’s where the sentiment of focus will be, more economic infrastructure, network infrastructure, as opposed to social infrastructure. I expect to see that reflected.

The Green Investment Bank is an interesting new development. The independent Green Investment Bank Commission report out this week suggested what I think the original prior government’s focus was on, an equity reinvestment fund more than a bank. I think the potential products and offerings that the commission report indicated were quite vast, and where that’s going to play in the space will be very interesting.

I think the report indicated something like about £550bn of investment needed by 2020 to meet our green targets. That’s big money and clearly, you know, will excite those of us that do invest in the renewables space, irrespective of your views on the different forms and models of financing in that sector.

One thing that hasn’t been said is planning. Again, this week as we have seen the Infrastructure Planning Commission abolished. Planning for those who have been in this world for a long time has been a big issue in the speediness in delivery of new greenfield infrastructure. There’s a new unit planned. We’ll have to see what that means, because that’s been a very key issue in delivering infrastructure and in contributing to costs of infrastructure delivery over the years as well.

I’m just going to make one comment on Europe, actually, on Spain, because I think the Iberian Peninsula has been mentioned by at least a couple of people. The recent disruption to the energy market, and in particular the renewable energy market in Spain, that has come about through the Spanish government’s - “failure” is probably too strong a word - reluctance to actually say that retroactive tariff actions are going to take place has been very damaging.

We still live, in that market, in a period of uncertainty. If that is not resolved satisfactorily from an investor’s viewpoint, that could have very large implications for investment in Spain, not just in the renewables sector; it will affect the PPP programmes, which are quite large. Actually, I think that will also put into investors’ minds: gosh, we have got political risk again, haven’t we, and Spain is in a bad spot and they’re going to retroactively change tariffs.

Why won’t the UK, why won’t others? It has not been reported perhaps as largely as it might have been, but the implications are quite large. I hope by the end of the year it will be resolved positively, but if it is not, it will send ripples across the whole European space.

Richard Abadie: They are not going to cut the subsidies; is that right?

Martin Lennon: Now they are saying they are going to roll it into the whole energy market and now come out in December. Days ago they were saying: actually, we are going to do the 991 plants, we are going to be retroactive, which was quite tough for some of the early investors in the market to stomach.

Richard Abadie: Even some of the feedback we’re getting in the UK is around the uncertainty from switching to a ROC regime to a feed-in tariff regime. That is not anything like the Spanish retrospectivity, but regulatory change does create uncertainty and does impact investor appetite, particularly when people can go and invest elsewhere. There is an open question as to whether the ROC regime is the right regime, but nevertheless, if you are going to change it you need to change it based on consultation and support from the market, because they are going to be the people who give you the cash.

My view on the challenge of the Green Investment Bank is if they do follow - let’s call it a KfW route, because that’s the best proxy I can find for KfW or European Investment Bank, I don’t see how a government can structure an entity that gears itself up heavily without that counting against national debt and therefore puts a torpedo straight into that organisation. So there’s no magical solution as an alternative to government borrowing with the Green Investment Bank.

Rod Morrison: There is a bit of alchemy about that report. They talk about sort of putting guarantees in for £100m to £400m and getting an investment back of £3bn. I wish I could do that. Anyway…

James Butters: But the point is correct: you are looking at either the government doing something to balance out the risk, so to substitute whatever there was before to make a product that’s worth investing in. Or you are looking at the base product limiting your scope, looking at doing some limited tolling over an asset and just doing a straight project financing, so real project financing. Sovereign risk becomes very real again. It is not just the risk of default on a straight payment; it is actually behavioural. So for us looking at different countries, it is a big selling point for the UK and the US where behaviours are very, very good.

Richard Abadie: The experience if you take somewhere like Australia, is the inverse. If you take all the investors in that market and all the lenders, they are saying don’t send us tolled assets, give us availability-based assets. So I do think if we specifically talk about the road sector, moving down a tolled motorway system is not necessarily a great time to be launching a programme like that when investors and lenders have been burnt.

So I’m not sure. I know the new government said that they’re going to scrap user charging as a policy. I do believe people are going to have to pay to use our motorways in some shape or form, but I think wholesale tolling, like we have on the Continent, in the current environment is not a great policy to be launching.

James Butters: I agree, unless it is something new. The Australian example makes it very difficult, and actually for the works that are going to be done in the UK as an example, it is going to be very much more locally at some of the local road infrastructure, not necessarily only at the motorways. There, tolling would be completely inappropriate.

Rod Morrison: David.

David Lee: Looking at the market, I divide the market in two. I divide the market between new infrastructure, which is really what we’ve been focusing on, and existing infrastructure. I think for the UK, I agree with everything that’s been said about uncertainty. It’s a bit like 1997, when we had the government elected in May and it wasn’t until October/November when actually there was a real shakedown in what the government was planning and moved beyond.

This time around, at least, the austerity language leads to positive growth ideas. Clearly, at a macro level there seems to be an emphasis on economic assets. I’m not sure exactly how you divide economic infrastructure from social infrastructure.

Gordon Brown was talking in a great deal of detail for long periods of time about the need to educate our citizens better so we could catch up economically with the Chinese and the Indian programmes. Quite why education isn’t important for a nation’s economic growth I don’t quite understand, but I’m sure there’s more mileage in those sorts of discussions.

It’s not all bad news, though, because if you read the budget - and for me, as a lawyer, of course language is very important - this time around, one of the most encouraging things I think about it is front and centre of what’s being said is the stress on the importance of infrastructure.

For me we’ve never really seen that in the context of an austerity based budget. I think there has been a radical shift in governments throughout Europe in that they are looking differently at infrastructure compared with overall government expenditure.

Previously when government has decided to cut expenditure, it was very much: take 25% off your budget, whatever the profile of the budget. This time in the UK - and I think it’s the same for other governments - there’s much more analysis of what the money is going to be used for. For me that’s an encouraging sign. The emphasis on the low carbon support is an encouraging sign. It’s interesting to read, for example, the Infrastructure Planning Commission statements, where there’s a regular use of the term energy infrastructure. I think that’s a theme we’re going to see more of. One subset of that, of course, is the OFTOs but, again, energy infrastructure, I think, will be a big part of new development.

Across Europe as well, I think France is a very good example of an active market where we’re doing a lot of work on the rail deals. I think we’re on all the rail deals and for us it is a successful market. If somebody told me 10 years ago that I would be going to speak to a French military school about opportunities to introduce PPP into the French Defence industry, I would have thought they were absolutely mad.

It’s a long way away, but just having the interest is a good illustration, I think, of what the guys around this table have produced in terms of depoliticising PPP as a method of procurement. People don’t see it as a political idea any more; they see it as a tool for delivery of assets. I think that’s a tremendous achievement, and that’s certainly how other governments look at it.

I think the other great thing about PPP is it allows governments to direct particular investment expenditure. I think in some places PPP will play a role in the delivery of energy infrastructure going forward, so I think the methods and structures we’ve developed will be of huge benefit.

Just quickly, existing infrastructure. Everything set out in the budget about asset sales obviously was copied from the previous pre-budget report on asset sales, and clearly that will be a sign of economic transactions going forward. HS1 of course, the student loan portfolio, trust ports, all of those I think will deliver deals.

Graham Beazley-Long: I don’t think there’s anything else to add on which sectors might be having deals going forward, but just a couple of thoughts. I think government will be looking to finance deals that are self-financing or have efficiency savings or spend to save type schemes. So I think in the past we have built all these nice assets where the government has moved their current operations into them and there were opportunities for efficiency savings, but they haven’t been taken.

I don’t know, but I think this government will be looking much more to embed those efficiency savings into transactions, which may mean that some of those opportunities for restructuring fall to the private sector. I think, also, they are looking for service delivery outcomes rather than capital spend. So Ken Clarke was saying yesterday on the prison programmes, they want more on re-offending rates and less on whether we can keep the prisons available.

So I think there will be some new types of models coming out of that. Whether they are financeable in the traditional way or whether they do just require a very short-term construction and some sort of pay back from land sales - or some efficiency saving somewhere - will remain to be seen.

Rod Morrison: The industry obviously developed as an SPV type financing on the equity side. How, over the next two or three years, do you adapt? Obviously you are looking at new markets, Canada and Sweden.

Graham Beazley-Long: Well, the funds that investors currently invest in have certain criteria, and I don’t expect they will adapt. They are looking at secondary assets from the 800 or 900 projects already out there, or buying out our co-shareholders or whatever. There is an opportunity for all of us fund investors around the table to raise a slightly different type of fund with a much wider remit. Martin and Chris have already raised funds that have a much wider remit.

Whether the industry wishes to do that, and the time is right to try and raise those types of funds, remains to be seen in a year or two. Until the government says what it wants to do, it is quite a hard sell to go around investors and say: we think there is an appetite for government to do this or that, we don’t know quite what it is yet, but give us some money, it will require a bit of time and interest among the managers of industry and the investors.

Rod Morrison: You are involved in one of the rolling stock deals, aren’t you?

Graham Beazley-Long: Yes, we’re backing Siemens on Thameslink. We are shareholders in the Dutch high-speed rail. Both of those deals are at heart availability deals. Although they have a lot of operating risk, and they are completely different, they do have a structure of underlying government certainty, so they do fit in with the funds and the types of deals that industry likes to invest in.

Gershon Cohen: Can I just make one comment to finish. First of all to thank you all. I’m partly responsible for getting you here, along with Rod, so we appreciate it. The other thing I would say, I’ve done a few Roundtables. We spend most of our careers obviously trying to do lots of good business, but we also have inflicted ourselves with conferences and seminars and one thing after another, which, looking back I don’t think had a great deal of value, but they were interesting networking opportunities and always good fun and so on.

I think now more than ever, a point that Graham picked up on, until UBS or Deutsche tells government to do something, it won’t do it. I think actually it is incumbent on us, and these are now probably good forums to take some of the conclusions and discussions we have and push them very hard into the Treasury and into government to help inform.

I think they are looking for that. I think they are as bemused and caught in the headlights of the economic situation as anybody else. There is no magic to them being able to just come up with the right answers, and, of course, a lot of what
we do depends on government in terms of coming up with programmes and opportunities for us.

I think now more than ever these sessions have great value if we can extract from them some consistent themes and try and direct some of those into government. I actually think there is a great deal of value in something like this and, if you like, cometh the moment, cometh finally the right opportunity to have a seminar like this from which we can extract some real value.