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Call for more collaboration

Private money ‘should fund road and rail projects’

Queen St tunnel upgrade

Queen St tunnel upgrade

Businesses in Scotland have called for more private finance to be used in funding major infrastructure projects, such as rail and road developments.

Companies responding to a survey argued that the benefits of privately financing public projects outweighed the “marginal” added cost involved.

They called on the Scottish Government to use its new borrowing powers to create an infrastructure bond that would encourage private sector investment in Scotland’s transport network and other public sector projects.

The proceeds could be invested on a commercial basis for a return in supporting the project pipeline, the survey found. This could supplement the external financing requirement, by providing long-term lower risk institutional investment raised by the bond alongside shorter term banking facilities that may be better placed to take development risk.

The recent Aberdeen City Council £370 million bond, raised to part-finance the council’s transformational capital and infrastructure programme, could be a model for an infrastructure bond to provide a new financing stream for projects Scotland-wide. The bonds, which were the first to be issued by a Scottish local authority, were admitted to trading on the main market of the London Stock Exchange last November.

The survey of private sector companies, conducted by law firm Brodies, revealed a demand for the UK National Infrastructure Commission to work more closely with Scottish Futures Trust which has its own pipeline of projects.

The UK’s NIC is already promoting £9.5 billion of capital investment directly into Scotland, mainly in rail, digital connectivity and energy developments.

The snapshot survey, which canvassed the views of organisations active in the Scottish infrastructure sector, also identified an appetite from private developers and investors for earlier and more detailed information from the Scottish Government regarding forthcoming public projects in order to encourage knowledge-sharing and closer collaboration at an early stage.

Last year the Scottish Government announced that it was to expand its existing infrastructure investment plan and introduce new arrangements to engage with businesses to shape policy and provide up-to-date information and advice. An extra £100 million will be made available in 2017/18 to speed up delivery of infrastructure projects.

Commenting on the survey results, Michael Stoneham, head of infrastructure at Brodies and an adviser on the Aberdeen City Council bond issue, said: “There is a clear appetite for greater collaboration between the private and public sectors, and for the use of private finance alongside capital spending, to deliver the urgently-needed infrastructure improvements that will deliver tangible benefits to local communities and fuel economic growth.

“Private finance can be more flexible than borrowing from the UK Treasury and only marginally more expensive.

“The significant funding commitments for the sector from the Scottish and UK Governments, in relation to both mainstream projects and the City Deal programme, are very positive indeed and have certainly been welcomed.

“However, the private sector needs earlier and more detailed information about the pipeline of public projects in order to share knowledge and make investment decisions at an early stage.  As with all businesses, contractors and others involved in infrastructure projects need to know that there is a sufficiently active market to justify building and maintaining resource to respond to demand.”

All the organisations that responded to the survey said they intended to invest in the infrastructure sector in the next three years, with an average expectation of involvement in 11 projects per respondent over that period. There was also a clear long-term commitment to the market; nearly 90% of respondents were not expecting to sell out of any Scottish infrastructure assets in the next three years.

Asked to identify the most significant barriers to delivering projects, respondents highlighted the insufficient volume of projects currently being rolled out and the continuing backdrop of political and policy uncertainty.

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