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Funding the Northern Powerhouse

Julie Hurley | 05 Jul 2017 | Comments

The establishment of Transport for the North (TfN), is an exciting prospect for the north of England. It has the potential to bring about transformational change which will drive forward and capitalise on the region’s strengths and successes, and see it become one of the world’s most competitive economies.

To achieve this, it’s important that we think differently about the way we do things, attracting private investment into transport infrastructure programmes and looking at alternative models of funding.

TfN is moving beyond rhetoric and will become the first sub-national transport body by March 2018. The pace has been swift – moving from an informal group of northern politicians, Local Enterprise Partnerships, central government and national agencies, to a statutory body that has produced a Northern Independent Economic Review, Strategic Transport Plan and Implementation Programme, in what will be just over three years. We need to make sure that our approach for securing investment in the crucial infrastructure which will drive connectivity and economic prosperity in the North is equally ambitious.

Organisations such as TfN will not be able to rely on government funding alone and competition for funding is fierce. Private sector investors can bring new approaches to efficiency, value for money and innovation.

Furthermore, technology companies are in the transport space and may well be the transport providers of the future, providing the infrastructure and vehicle investment, tipping the balance of public and private money. At the moment, the industry is watching and waiting for someone to make that first big move which will change the funding model. Certainly, if these transformational plans for transport are to be delivered, then organisations such as TfN will have to reverse out of the Treasury funding cul-de-sac and find a new route.

To incentivise investors in the Northern Powerhouse, we can:
• Embrace the potential powers that devolution can bring to secure the decision-making responsibility needed from central government
• Focus on funding and financing options at the pre-feasibility stage of a project, as part of the establishment of a robust business case, building confidence that programmes of work are ‘real’ and have the support of the enabling stakeholders
• Provide clarity and purpose of vision so that potential investors can explore the optimum way of supporting a project and understand how they can earn money on potential investments
• Keep the momentum going – maintaining the interest of the business community during the long gestation period of large scale infrastructure projects
• Show a willingness to do things differently, to think agilely, to provide a more efficient route to ROI
• Provide confidence that projects will be completed to deadline and that they are as low risk as possible.

Sponsors and promoters of projects need to ensure that sound pre-feasibility and due diligence work, including market demand analysis and financial modelling, is undertaken well in advance before engaging potential investors. Despite the perception that investors are waiting with large amounts of capital ready for investment in government-backed or supported infrastructure schemes, competition for finance is high and investors will not entertain poorly tested proposals.

A robust investment case must demonstrate clarity in terms of:
• Transparency in project scope and the distribution of responsibilities and risks among stakeholders
• Clarity when distinguishing between funding and financing, where a blend of the two is required (especially large scale, complex projects)
• Options for structuring finance which optimise cash flows, maximise investment returns and accelerate delivery
• Carefully targeting the right investor for the right project by having good market knowledge of differing investor appetite for different types of projects (e.g. brown field v green field infrastructure)
• Measuring and capturing revenue from project-based investments
• Identification of the most appropriate procurement and delivery model for the project in hand, including consideration of asset transfer and balance sheet treatment
• Setting out robust evidence which demonstrates value for money including key decision-making metrics, such as comparative cost of capital and economic impact (job and economic output).

The Northern Powerhouse is presented with a unique prospect to yield substantial economic returns through an approach which genuinely integrates the planning, funding / financing and delivery of infrastructure schemes, with the latent land-use and development opportunities such investments will release. By following this approach, some of the value created by investment in infrastructure schemes can be more readily captured to enhance or ensure the viability of projects.