The evolution of infrastructure and utility ownership and its implications

Abstract

The paper documents the significant changes of ownership since the infrastructure utilities were privatized and, in particular, the shifts from the initial focus on dispersed retail share ownership through takeovers to more concentrated ownership and the emergence of private equity and infrastructure funds. In the process, there has been substantial financial engineering and balance sheets have been geared up towards exhaustion, with major implications for financing future investment. Increased gearing has, on the one hand, introduced the discipline of debt upon management which had engaged in substantive diversification, and on the other provided an arbitrage between the weighted average cost of capital used to calculate the allowed return, and the lower marginal cost of debt. The paper shows how regulation has determined the allocation of risk, and facilitated the observed changes in ownership and financial structures. Three solutions to the exhausted balance sheets are considered to finance future investment: rate-of-return regulation; the split cost of capital; and a collapse back into not-for-dividend, mutual or state ownership. The default outcome already witnessed in the Welsh Water and Network Rail cases is the latter case, which is inferior to the second option.

Participation or Exploitation: How Can Concepts of Community and Privatization Coalesce around Water Efficiency Approaches?

“…There are other issues. Scaling up to include the involvement of the regulators, Helm and Tindall [39] go on to argue that the volumes of water involved do not figure in the landscape of the five year planning cycle for water pricing. Allen and Pryke note: 'Ofwat determines household water bills on the basis of how much the water companies invest, whether that is raised through equity or debt' [40].…”

The Potential of Private Institutional Investors for Financing Transport Infrastructure

“…While the grand scale of infrastructure investments naturally lend themselves to requiring significant amounts of leverage, caution must be exercised in ensuring an appropriate amount of leverage that is commensurate with the long term nature of the investment is upheld. For infrastructure companies where regulators calculate the allowed rates of return based on the weighted average cost of capital (WACC), a marginal cost of debt below the WACC would enable an arbitrage opportunity to be exploited (Helm and Tindall 2009). By extracting a return from the difference between the WACC and the marginal cost of debt, the resulting gain represents a transfer of wealth from customers to shareholders.…”

“…This short-term financial engineering strategy employed by private equity investors was badly exposed during the global financial crisis because of debt repayment demands severely compromising the ability to make capital investments in the assets. Such investors had little or no regard for the long-term quality and robustness of the infrastructure networks and have come under heavy scrutiny from stakeholders as an inappropriate way of financing infrastructure companies (Helm and Tindall 2009). …”

Gender responsiveness in infrastructure provision for African cities: The case of Kampala in Uganda

“…It is the physical, economic and environmental aspects of a given city that always take center stage in processes of integrating urban planning functions (Cappiello et al, 2011;Helm and Tindall 2009;Hoehner et al, 2003;Thompson, 2002). The gender and urban planning discourse too has for a long time largely focused on women-specific concerns within social service sectors (water, health and education).…”

Integration of hydraulic infrastructure in metropolitan São Paulo. Prospects of change in a context of growing vulnerability

“…Regulatory and managerial fragmenta-tion of networks has hampered the prospects of inte-gration and contributed to infrastructure vulnerability and disruption Graham 2010). To a large extent this is due to the market logic applied to each service even though full privatization in Brazil is not an issue as it is in the United Kindom and other European countries Guy et al 1997;Graham & Marvin 2001;Helm & Tindall 2009). In Brazil, utilities like telecommunica-tions and electricity have more direct private partici-pation than water supply, sanitation or urban drainage.…”