Fall 2009Session 7: Infrastructure Markets1.463 Globalization of the E&C IndustryFall 2009Fred Moavenzadeh & Kyle FrazierFall 2009Image removed due to copyright restrictions. Source: About.com: Political Humor. Available at: http://politicalhumor.about.com/od/politicalcartoons/ig/Political-Cartoons/Aging-Infrastructure.htmFall 2009What is Infrastructure? Generic (dictionary) definitions: “the underlying foundation or basic framework (as of a system or organization)” “the permanent installations required for military purposes” “the system of public works of a country, state, or region” Public works: “works (as schools, highways, docks) constructed for public use or enjoyment, especially when financed and owned by the government” Do these definitions seem adequate/accurate?Source: Merriam-Webster’s Online Dictionary. Available at: http://www.merriam-webster.com/dictionary/infrastructure. Accessed 10/19/2009.Fall 2009Economic Attributes of Infrastructure Capital goods (not consumed directly) Derived demand “Lumpy” investment Long life-spans/design-service lives Location-specific (not mobile) Prone to market failures Public goods Externalities Consumed by households and enterprisesSource: Prud’homme, R. 2005. Infrastructure and Development, in: F. Bourguignon and B. Pleskovic, (eds). Lessons of Experience (Proceedings of the 2004 Annual Bank conference on Development Economics). Washington: The World Bank and Oxford University Press, pp. 153-181.Fall 2009Infrastructure Services & SystemsServiceAssociated InfrastructureTransportationRoads, bridges, tunnels, rail tracks, harbors, etc.Water SupplyDams, reservoirs, pipes, treatment plants, etc.Water DisposalSewers, used water treatment plants, etc.IrrigationDams, canalsGarbage DisposalDumps, incinerators, compost unitsDistrict HeatingPlant, networkTelecommunicationsTelephone exchanges,telephone lines, etc.PowerPower plants, transmission & distribution linesSource: Prud’homme, R. 2005. Infrastructure and Development, in: F. Bourguignon and B. Pleskovic, (eds). Lessons of Experience (Proceedings of the 2004 Annual Bank conference on Development Economics). Washington: The World Bank and Oxford University Press, pp. 153-181.Fall 2009Categorizing Infrastructure Because “infrastructure” is a broad term encompassing a wide variety of facilities and systems, it may be useful to seek an organizational framework or typology …but, categorization is no straightforward task, either, as utility of a given framework depends on one’s perspective.Fall 2009ASCE Infrastructure CategoriesTypes of Infrastructure “Graded” by ASCEAviationBridgesDamsDrinking WaterEnergyHazardous WasteInland WaterwaysLeveesParks & RecreationRailRoads/HighwaysSchoolsSolid WasteTransitWastewater ASCE publishes a periodic “report card” on America’s infrastructure. The fifteen categories of infrastructure assessed in the most recent report card are listed in the table above.Source: ASCE (2009). 2009 Report Card for America’s Infrastructure. Reston, VA. American Society of Civil Engineers.Fall 2009Infrastructure Investment ClassesClassExample AssetsTransportBridges, roads, tunnels, airports, rail, ports, urban & regional transport systemsEnergy & UtilitiesElectricity generation and distribution, water supplyand waste water treatment, renewable energySocialUniversities, schools, student accommodation, prisons, hospitals and health care, public and mixed large-scale housing development, sports facilities and community facilitiesCommunicationsCable networks, WiFi networks, mobile phones and broadcast towers, etc. Infrastructure has emerged as an investment “asset class.” The table above is adapted from a publication by Ernst & Young, an investment/financial advisory firm active in infrastructure.Source: Ernst & Young (2006). Infrastructure: Risks and Rewards of the Asset Class. London, UK.Fall 2009Infrastructure Typology Economic infrastructure Transportation, communications, information, energy Social infrastructure Educational, health care, water supply, waste management, recreation, environmental protection National security infrastructure Defense installations, border security systemsFall 2009Two Types of Infrastructure Network structure Many parts, each functioning independently and requiring small-to-medium budget Complexity emerges from density & interactions Examples: transport systems, sewage systems, power distribution networks, communications networks Stand-alone facilities Often large, complex, and costly; require all components to be in place for facility to deliver intended service Examples: power plants, petrochemical plants, skyscrapers, environmental remediationFall 2009Infrastructure at the Intersection of SystemsLarge-scale infrastructure systems occur at the intersection of three systems:1) Social system – generates demand for services; establishes regulatory framework; includes economic systems2) Natural system – “source and sink”; supplies resources for infrastructure systems and absorbs waste from their construction & operation3) Technological system –enables realization of needs given constraints of (1) & (2)Fall 2009Interdependencies in Infrastructure Systems Growing focus on interdependencies among various infrastructure systems Motivated, in part, by increased profile of homeland security and disaster resilience Emphasis on risk management/mitigation Lifeline systems: electric power, gas and liquid fuels, telecommunications, transportation, waste disposal, and water supplyFall 2009Key Facets of Infrastructure Development Sustainable development Multiple stakeholders approach (inclusive) Lifecycle view Consideration of interdependencies Value stream perspectiveFall 2009Infrastructure Systems ArchitectureKey Dimensions of an Infrastructure Systems ArchitectureFall 2009Development and Competitiveness As the “underlying foundation,” infrastructure creates value in multiple ways: It is important to socioeconomic development, and It contributes to productivity and economic competitiveness. These dual effects keep infrastructure on the policy agenda of developed and developing nations alike.Fall 2009Infrastructure: A Global Market Although the location-specific nature (immobility) of infrastructure systems makes the specific context of a project important,