Infrastructure investments: “A big step in the right direction”

Claus Fintzen is a portfolio manager in Allianz Global Investors’ infrastructure debt team in London. We spoke to him about the role of private investments in public assets. 


Mr. Fintzen, all of a sudden, everywhere we look we read about Germany's ailing infrastructure, and the fact that private investors can help with modernization in this respect. As an investor, this must please you.


We're glad about the interest, of course. The discussion shows that people recognize the importance of the topic. However, here in Germany the provision of infrastructure is still far too often viewed as a government responsibility. Other countries have a different perspective and tradition in this respect: France and the UK have implemented many more successful public-private partnership (PPP) projects than we have. They have come to realize that private investors can also offer services to the public.


Interestingly enough, in Germany the approach to using the private sector differs from sector to sector. Energy and telecommunications networks, for example, are already privately financed. Düsseldorf airport is another example.


Isn't it true that being financed by private investors is more expensive?


In the current debate, the total costs are sometimes unfortunately being confused with the pure financing costs. In most cases, the pure financing costs of a private investor are higher than those of a government, but not by as much as one might think. The financing costs of the A7 motorway in the German state of Schleswig-Holstein were under 3 percent.


And what would you take into consideration?


First and foremost, risks are transferred to a private investor. If something unexpected happens or goes wrong in a public project, tax-payers foot the bill. As citizens, we normally only find this out when we read about increased costs in the media. In a PPP it can be agreed that the private investor will take on the risk of cost overruns.


In addition, many costs are lowered by handing a task over to a private principal, for example because the public sector has to take a much wider variety of interests into consideration. Studies incorporating a large number of variables that were conducted in the UK have shown there are advantages of PPPs. Firstly, the likelihood of the project adhering to schedule and budget is higher than with traditional projects. Furthermore, the additional investments don't just drive innovation, but the economy as a whole, too.


Are there projects that aren't suitable for PPP?


Of course not all projects are suitable for PPP. Also, not all partnerships are advantageous simply because some of the responsibility is transferred to the private side. Long-term projects require long-term partnerships, with partners who have experience, know-how and capital. These are all prerequisites. In the clearest terms possible: certainty lowers costs, uncertainty causes costs to rise. Suitable projects include roads, hospitals, universities and public buildings such as ministries.


Could you give us an example of a successful PPP?


The so-called A-Model in Germany has provided some good examples of well-functioning private highway financings. The Federal Audit Office amongst others voiced some criticism of the A-Model, but the projects nevertheless convinced due to the projects achieving completion with superior quality, in a shorter time frame and at a fixed price, when compared to publicly financed projects. The contracting authorities also acknowledged this.


What criteria do you use to measure the suitability of a project for of PPP?


A clearly defined project is especially important for us. Furthermore, the risk should be calculable. Infrastructure projects can quickly become a bottomless pit; this can be avoided if it's decided in advance whether or not the risk is acceptable and whether we are a suitable partner for the project.


What do you hope will come out of the current public discussion?


It's important to give the public the opportunity to develop their own view of PPPs and other forms of private investment. An objective and informed discussion of the advantages and disadvantages without resorting to blanket statements would definitely be helpful here. Looking at individual aspects in isolation is of little use. In an objective discussion, the criteria for investment projects can be set in such a way that all parties involved benefit. The fact that the discussion is taking place on a European level might turn more attention to successful examples outside of Germany. Seen from this angle, Germany is hopefully taking a big step in the right direction.

Claus Fintzen: Long-term projects require long-term partnerships, with partners who have experience, know-how and capital.
Claus Fintzen: Long-term projects require long-term partnerships, with partners who have experience, know-how and capital.

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Michael Matern
Allianz Group
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