Proposals by the UK’s next prime minister for a greater use of infrastructure project bonds underwritten by the state are a solution where no problem exists, the chief executive of the Pensions Infrastructure Platform has suggested.
Commenting on a speech by Theresa May – set to become UK prime minister on 13 June following the formal resignation of incumbent David Cameron – Mike Weston, of the pension fund-owned infrastructure platform, instead urged the UK government to employ more general project guarantees and build on the success of projects such as the Thames Tideway Tunnel.
“We struggle a bit to see whether project bonds would be the better or the best way of expanding government guarantees for infrastructure projects,” he said.
He spoke to IPE days after May’s only major policy speech during the race to succeed Cameron as prime minister saw her back the greater use of infrastructure project bonds underwritten by the UK’s Treasury.
Weston questioned the need to increase issuance of project bonds, which has been used in the UK in a number of cases, including to guarantee the majority of a £330m (€441m) issuance by the University of Northampton to fund a new campus.
“It’s almost a solution that doesn’t really have a problem,” Weston said of project bonds.
He said the government, rather than push ahead with more underwritten project bonds, should focus on general guarantees.
“There’s no shortage of money for projects,” Weston added, “but what we need are projects that are appropriately structured with the right risk/return balance.”
Weston reflected on the willingness of pension funds to invest in the £4.2bn Tideway sewer project, which has attracted funding from a number of UK and overseas pension investors and was aided by government guarantees.
Weston added: “From what Theresa May has been hinting, if the deficit will be less of a focus, that to us opens up the Tideway-type structure more widely.”
He said all such projects needed someone to shoulder the burden of “very low risk but very high impact” events, a role best suited to a government extending downside protection.
For his part, Fergus Moffatt, head of public policy at UKSIF, said May’s mention of project bonds marked a “step change” in the way both Cameron-led governments had approached economic policy.
“If the money raised is going towards green infrastructure, then we would absolutely support that,” he said.
Moffatt said such a focus on green projects could help the UK’s energy trilemma – improving reliability of energy delivery at a lower cost, while reducing carbon emissions.
However, Moffatt noted that May’s speech had only referenced two of the three areas, omitting ways to reduce carbon emissions.
He added that, following the Paris climate change agreement and the UK’s recent carbon budget – which targets a 57% cut in emissions by 2032 relative to 1990 levels – the infrastructure and energy debate would be linked.
Moffatt said he would be “concerned” if no further policies to lower emissions were forthcoming.
He argued that the development of carbon capture and storage (CCS) technology had been neglected by the previous government, which cancelled a planned £1bn CCS development competition in November last year, and said it would be one area UKSIF would be happy to see revived.
The European Investment Bank (EIB) has been a supporter of project bonds, using them as part of its strategy to attract investors to transport and energy projects.