>tt a Glanice - *.S .... as, *.-,,,,,............................`. Note No.49 The Private Infrastructure Industry Company Approaches Jae So and The global private infrastructure industry has treatment plants and waste-to-energy ventures Ben Shin experienced rapid growth over the past fifteen to its waste management repertoire. years and attracted some 1,700 companies. In- The first edition of frastructure was generally managed by national, This Note briefly surveys the origins of some this Note, issued in single-sector utilities, but technological and of these global infrastructure companies (see June 1995, was based on data collected to regulatory change has allowed companies to table 2 for the ten most active ones) and shows December 1994 in the cross traditional boundaries. Although core how major companies are diversifying across Bank's Private lnfra- competencies in specific sectors are still im- sectors and regions (tables 1 and 5). It also structure Prolect Database. This edition portant, companies are beginning to exploit gives a flavor of the approaches companies use reflects data collected new sources of competitive advantage, such to compete in the evolving market and dis- through early Septem- as the ability to efficiently manage an integrated cusses some of the risks they face.' her 1995. See also updated Note No. 45. network of diverse services (table 1). Electric utilities in Germany-RWE, Viag, and Veba- Origins are entering telecommunications markets on the strength of their extensive cable and elec- The growth of some companies has its origins tricity distribution networks and their experi- in recent deregulation and privatization. Many ence operating massive, companywide internal U.S. utilities, faced with an increasingly ma- telecommunications networks. WMX Technolo- ture home market, are taking advantage of the gies of the United States is adding wastewater Public Utilities Holding Companies Act of 1992, TABLE 1 COMPANIES' SECTORALDIVERSIFICATION, 1984-SEPTEMBER 1995 Company Gas Power Telecom Transport Waste Water Bechtel Group, inc. (United States) * U . U Bouygues SA (France) * * * * Actual projectsU Compagnie Genurale desEaux(France) * U * U * U Electricite de France * * * * Potential Grupo ICA (Mexico) Cl * U *e Lyonnaise des Eaux-Dumez {Francel U * * * Severn Trent Pic. {United Kingdom) i * i Siemens AG (Germany) 0 D * 0 U Soidati (Argentina) £ i * - Tractebel SA (Belgium) U U U * S'oorce.WVort Bank, Private Infrastructwe Project Database. Private Sector Development Department . Vice Presidency for Finance and Private Sector Development The Private Infrastructure Industry-Company Approaches which allows them to venture into new markets. TABLE 2 TOP TErED~~~VEIJOPERS Privatization has prompted such companies as BYNUP4uER9Fj~ROJflT$YBritish Gas and British Telecommunications to seek additional shareholder profits in overseas ventu-res. Some investors are driven by a need Vrn=-3-=,,5=--C-=g3pas_.-S->'''.'-='- Pfor secure supply. Germany's largest gas com- £emjagsi. G~6rs1wdes Eatc Frbn:o~ pany, Ruhrgas, is investing in countries key to ea4ntwPo~~stieektnndon$ 49 ~ regular supply-countries in Eastern Europe WMX Tetbn~4ogt4ncAUoited$!fttos}and the former Soviet Union. Other compa- Lyonoai*e des E,ux-Diimoz(Frantel nies are taking advantage of a historical head start. French water companies, for example, are SpriatCerpAUnitelState4 33 = ~ g = - exploiting their long experience in operating twdabie cowmnnrcatiensiakiuwteittatosi _ _ _ 31 private water concessions at home in newly AT8JlUoitedStateaY ~~~~~~~private ventures abroad. TtIe-Ktomunica$ns Inc.lUftite $teta4Many companies competing in private infra- structure markets are publicly owned at home, Souw&t~thtB*Ni *lnfratn#s$uePrprctDathnpa.such as tlectricitd de France (see table 3 for ~ ~ the top ten developers with state ownership). Telefdnica of Spain and France Telecom bid ~~19844SWflMBER$S9S ~~~~~~aggressively for telecommunications companies in emerging markets. And firms from emerg- ing markets are themselves poised to become Dempsey Ipeiteent) Pro~~~ects developers. Tribasa, a Mexican construction 2 soft ~~~~~~~~~~~~~~company, building on its toll road experience, ilecwiciti is fianceK 100 ~~~~~acquired the capability to arrange financing and retet6~tiea -eL4aitpsrj& n is branching our into other infrastructure ven- ChhntherqatinolTrst rnwlavesrnontt. leatures, including water supply and waste dis- DeatseheTteknmttjennAnyb~ ~ n~yj posal (see table 4 for the top ten developers RWEAQ{Garmany) from emerging markets). TRIndre:qt (l"}tal?y l 'MI deelpes And Companies such as Asea Brown Boveri and General Electric, traditional equipment suppli- Singapow Telocom ~~~~~~~~~~ers for public and private utilities, are diversi- fying into project development so as to benefit --kre&W~rIdB~dIvPatffIiifrnskiictiir0PrniecWtahn. ffrom control over the entire project, rather than only bidding for the equipment contract in the final stages. Along with equipment suppliers, 1984-SEVrEMBERISSS ~~~~engineering companies such as Floor Daniel COm an Pip je$s~~~~~~~~ and Black & Veatch are taking a more active 7 ~~~~role in financing projects previously in the pub- GrupcdCA{NWxico) 16 ~~~~~~~lic sector and in some cases are functioning as TribesaSAlM?exico) so ~~~~developers. And companies such as Hopewell Gptpe Mexicne deDesarrlto4WexicojHoldings have built on their experience as China Intproazinnatrwst~~and ~ proj.ect managers to become project develop- N7aviema Perez Compaac4Argentma) ers; able to build good working relationships Etepmee Naciool do lectneisd SARbitejwith governments, they can expedite complex -compania'gena d~ Snerncui,,rectnca ~contractual arrangements in uncertain regula- Snipe-Macri tArgenirna) ~~~~tory and legal environments. Tecfin GopahaTenic ItorecinaltArontajApproaches SM,rc:Woddwik~Pnvatlnfrenwnuo ~roctQ~ baseFrom these origins, infrastructure companies are adopting a range of competitive strategies, TABLE 5 COMPANIES' GEOGRAPHIC DIVERSIFICATION, 1984-SEPTEMBER 1995 Latin Amediia Eashm North and the Erope - Middle East America Caribbean OECD Europe and CIS and Africa Asia and the Pacific FRANCE TELECOM US$13,300 Canada Arentina Germany Poland Central Guinea tndia United States Mexieo Greece Russia African Israel Japan Italy Turkey Republic Madagascar New Portugal Chad Mali Zeah Spain :DibouRti Mayone Pakistan United Egypt Morocco Vanuatt Kingdom Equatorial Niger Guinea RMunion Gabon South Airica CABLE AND WIRELESS PLC (UNITED KINGDOM) US$3,949 United States Barbados France United Belars Babrain Australia Republic Jamaica 6etmany Kingdom ugaria Republic of Bangladesh Of KOrea Ptire Rico Ireland Kazakhstan Yemen -China SomDon Trioiad Italy Latvia Seycheles Hong Kong slands and Tobago Netherlands Russia Sierra Leone Japan Taiwan Sweden South Africa Madtves -(Cfta Pakistan Vanuamt COMPAGNIE GEERAE DES EAUX (FRANCE) US$28,227 Canada Argentina Belgium Portugal Hungary Gambia Australia United States Mexico France Spain Guinea Malaysia Germany United P al Italy Kingdom LYONNAISE DES EAUX-DUMEZ (FRANCE) US$27,528 United States . k a France Czech Republic Gabon Australia Malaysia Me3dw United Hu""g Guinea-Bissau China Thaianda Kingdom LithWania Macac TRACTEBEL SA (BELiGWM} US$7,204 Canada Argentina Belgium Portugal Helarus United States France Spain Gemany u United Luxembourg Kingdom Norway ELECTRIwITE DEFRANCE U$11,643 Argnina Belgium PoIand Cote d'lvoire Guinea- Chna Portugal Gabon Bissau Spain Guinea Mali AT&T (UNITED STATES) UStG363 Canada Argentn France United Ukraine NewZealan United States Puerto Rico Spain Kingdom Philippie Venezuela EMPRESA NACIONAL DE ELECTIICIDAD SA (SPAIN) US$2,= Argenia Spain Colomhia Portugal Costa Rica El Saledor- Guatenala Hondwras -Nicaragua.-- Panam Peru NoteIDolar amounts indicate total cost of projects lin millions), for a project involving more than one developer, the full cost is added to each developer's total. Source: World Bank, Private Infrastructure Project Database. The Private Infrastructure Industry-Company Approaches from sectoral diversification based on core func- ownership approach to infrastructure projects, tional skills to a focus on subsectors and single they must have the ability to pull the deal to- functions: gether and connect the network of companies - Municipal focus. France's Compagnie Generale that will supply services. Development costs- des Eaux focuses on developing and main- mostly staff time and travel to put the deal to- taining relationships at the municipal level and gether-can be 3 to 5 percent of the cost of has expanded into other municipally oriented projects worth several hundred million dollars. services such as hospitals, cable television, Second, to conclude a deal, companies must parking facilities, passenger transport, and also be able to arrange a favorable financing urban property development. Citizens Utili- package. Companies have approached the is- ties in the United States is beginning to ex- sue in a variety of ways. Asea Brown Boveri plore the potential for efficient distribution and makes full use of export credit financing for its delivery of an integrated range of services to projects. Enron constantly pushes the frontier the household, including gas, power, water, in tapping capital markets. and telecommunications. * Regional focus. Telef6nica de Espaha, in its Third, although development teams breathe a aggressive pursuit of Latin American telecom- sigh of relief once a project is funded and con- munications privatizations, can be seen as struction begins, regulatory problems may be capitalizing on its knowledge and common just about to start. Highly visible problem cases understanding of the consumers' culture and have been Cogasco, a natural gas pipeline language. Hong Kong-based Hopewell Hold- project in Argentina that went awry in 1982, and ings' familiarity and trust with the Chinese the more recent troubles of the Bangkok Ex- government resulted in the opportunity to pressway. In both instances, regulatory authori- develop two power plants in China. ties failed to live up to the spirit of the contract. f Vertical development. Some companies are Whether the trend toward private infrastructure This series is published hoping to realize vertically integrated infra- is sustained will depend on transparent and com- to share ideas and invite structure networks. Tribasa plans to develop petitive solutions that render price regulation discussion, It covers intermodal transport corridors in Mexico with unnecessary or, where that is not possible, price sector development as ports, toll roads, and service facilities that regulation that balances the interests of devel- well as industry and improve logistics for manufacturing firms re- opers, consumers, and governments. Ultimately, energy. The views expressed are those o lying on just-in-time delivery methods. it is in the developers' interest to help establish the authors and are not * Construction focus. Large construction com- the system that will regulate their behavior. Such intended to represent panies such as Grupo Mexicano de Desarrollo companies as AT&T of the United States, an official statement of Bank policy or strategy. have focused on projects with significant con- Germany's RWE, and Hong Kong's China Light struction components, such as toll roads and and Power have actively helped to develop regu- Comments are welcome. wastewater distribution systems, to take ad- latory solutions, which allowed them to deflect Please call the FPOI Note line to leave a vantage of their expertise. pressure for nationalization. message (202-458-1111) * Narrow segment focus. Enron of the United or contact Suzanne States bases its strategy around natural gas, This Note draws on a new database under development in the Smith, editor, Room Private Sector Development Department of the World Bank. The G8105, The World Bank, concentrating on gas transport and distribu- Private Infrastructure Project Database tracks private infrastruc- 1818 H Street, NW, tion and gas-fired power plants. Its financial ture activity worldwide and attempts to provide a comprehensive Washington, D.C. 20433, and risk management skills have allowed it survey of private projects in gas, power, telecommunications, trans- or Internet address develop financing and port, water, and waste since 1984. See also Note No. 45. usmithl@worldhank.org. to ieeo nnovative fncigschemesan ssmth7wordbak.og- tap new ctasses of investors. $Printed on recycled Jae So, Private Sector Development Specialist paper. Risks (email: jso@worldbank.org), and Ben Shin (email: bsbin@worldbank.org), Private Sector Infrastructure companies face three key chal- DevelopmentDepartment lenges. First, as companies adopt more of an