STRICTLY CONFIDENTIAL

The MacMillan Memorial Lecture

BRIDGING THE INFRASTRUCTURE

GAPBy

Gus Macdonald

THE INSTITUTION OF ENGINEERS AND SHIPBUILDERS IN SCOTLAND

2

INFRASTRUCTURE INVESTMENT NEEDS

Sector ($ US Billion)

Road 5,370

Telecoms 8,170

Electricity 4,210

Water 18,090

‘INFRASTRUCTURE TO 2030’ REPORT (OECD, 2006)

3

Airports 2,200

Port infrastructure 830

Rail (incl. maintenance) 5,000

Oil and Gas – transport 3,255

STRATEGIC TRANSPORT INVESTMENT NEEDS 2009 – 2030 ESTIMATES ($ BILLION)

Aggregate Investment: 2009 - 2030

4

4.4%

2.4%

9.5%

8.1%

3.2%

2.0%

4.6%

6.0%

2.6%

1.2%

3.8%3.3%

World OECD China India

2010-2015 2015-2030 2030-2050

GDP GROWTH RATES

Sources: IEA World Energy Outlook 2010, Energy Technology Perspectives, 2010. International Energy Agency

4.4%

2.4%

9.5%

8.1%

3.2%

2.0%

4.6%

6.0%

2.6%

1.2%

3.8%3.3%

World OECD China India

2010-2015 2015-2030 2030-2050

4.4%

2.4%

9.5%

8.1%

3.2%

2.0%

4.6%

6.0%

2.6%

1.2%

3.8%3.3%

World OECD China India

2010-2015 2015-2030 2030-2050

4.4%

2.4%

9.5%

8.1%

3.2%

2.0%

4.6%

6.0%

2.6%

1.2%

3.8%3.3%

World OECD China India

2010-2015 2015-2030 2030-20502010-2015 2015-2030 2030-2050

5

0

5000

10000

15000

20000

25000

2007 2015 2030

China

United States

India

Russia

France

Germany

China’s GDP to overtake US GDP before 2025.

WORLD ECONOMY SHIFTING EASTG

DP

($P

PP

Bill

ion

s)

Source: IEA World Energy Outlook, 2009. International Energy Agency

0

5000

10000

15000

20000

25000

2007 2015 2030

China

United States

India

Russia

France

Germany

0

5000

10000

15000

20000

25000

2007 2015 2030

China

United States

India

Russia

France

Germany

6

100

150

200

250

300

350

Port containers Air Freight Air passengers Global GDP

PASSENGER AND FREIGHT DEMAND-OUTLOOK TO 2030

Ind

ex B

ase

leve

l 201

0 =

100

2010 2015 2020 2025 2030

7

Selected countries to 2030

GDP PER CAPITA GROWTH

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

$70,000

2007 2015 2030

United States

Germany

France

Russia

China

India

8

This year the UK came 28th in international rankings. In terms of

productivity, this infrastructure deficit is as serious as our

budget deficitDavid Cameron

“”

9

Privatisation is again sweeping the world, with governments hauling in a

record $213bn in revenues last year

Financial Times

“”

10

GAS DISTRIBUTION COMPANIES

Company Ownership/ Main shareholders

1 Scotia Gas Ontario Teachers (Canada)Borealis (Canada)

2 Northern CKI (Hong Kong)

3 National Grid

Listed plc, UK

4 Wales & West

Macquarie (Australia)AMP Capital (Australia)CPPIB (Canada)Industry Funds Management (Australia)

1

2

3

4

11

ELECTRICITY DISTRIBUTION COMPANIES

Company Ownership/ Main shareholders

1 Scotland and Southern

Listed plc, UK

2 Scottish Power Iberdrola (Spain)

3 North West Colonial First State (Australia)JP Morgan infrastructure (US)

4 North East & Yorkshire

Berkshire Hathaway (US)

5 South Wales & South West and Central Networks

Pennsylvania Power and Light (US)

6 London, South & South East

CKI (Hong Kong)

1

2

2

34

5

5

1

6

12

WATER COMPANIES

RegionalCompany FDI shareholders

Northumbrian CKI (Hong Kong)Ontario Teachers (Canada)

Yorkshire Citigroup Infrastructure (US)GIC (Singapore)

Anglian CPPIB (Canada)Colonial First State (Australia)Industry Funds Management (Australia)

Wessex YTL Power International (Malaysia)

Thames Macquarie-led consortium (International)

Southern JP Morgan infrastructure (US)Future Fund (Australia)UBS Infrastructure (Swiss)CKI (Hong Kong)

13

Natural monopolies or high entry barriers

Predictable cash flows – inflation linked

INFRASTRUCTURE CHARACTERISTICS

Insulation from business cycle

Portfolio diversification

14

UK an attractive market for global investors

Foreign ownership (shareholding) around 40% and increasing

Investor opportunities for differing preferences

UK INFRASTRUCTURE – OWNERSHIP ORIGIN

Source: OFT

UK

Rest of World

Europe

15

Netherlands

Australia

United Kingdom

United States

Canada

Simple average

Japan

Spain

Germany

Italy

PENSION ASSETS AS % GDP- SELECTED COUNTRIES 2009

Source: OECD Global Pension Statistics

130%

82%

73%

68%

63%

36%

25%

8%

5%

4%

16

We are not going to save the planet by

putting our country out of business

George Osborne

“”

17

Curmudgeons and fault finders who hold forth on

the impossibility of renewals...the climate sceptics and armchair

engineersChris Huhne

“”

18

INSTALLATION VESSELS

19

Transition piece

INSTALLATION EQUIPMENT

Pile driving

Turbines loading

Turbine installation

Transport to site

20

OFFSHORE O&M

Offshore substation and accommodation platforms

Boat landing

Helicopter access

Mother-ship solution

O&M Vessel

21

ELECTRICAL

22

23

I wrote it because sustainable energy is

important. If you would like to have this book free, please help yourself: it is on the internet at

www.withouthotair.comProf. David MacKay

“”

24

BRIDGING THE GAP

Multilateral Funds

Sovereign Wealth Funds

GFC Stimulus Packages

Infrastructure Banks

Privatisation/PPP

Institutional/Pension Funds

Retail Infrastructure Products

Corporate Investment

User Payments

Taxpayer Support