PUBLIC INFRASTRUCTURE AND GREEN ENERGY/ENVIRONMENTAL COMPANIES

[TRCPA]

The World is Falling Apart – Which is Good for Investors

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GLOBE-Net, September 5 2008 - Investing in crumbling infrastructure - roads, bridges and tunnels - does not have the same allure as space-age clean technology, but it could prove to be more profitable. At least that is the view of a group of major investment brokers that have amassed an estimated $250 billion war chest to finance a tidal wave of infrastructure projects both in the United States and overseas.

Reeling from more exotic investments that imploded during the credit crisis, Kohlberg Kravis Roberts, Carlyle Group, Goldman Sachs, Morgan Stanley and Credit Suisse are among the investors who see opportunities in helping federal, state and local governments struggling under mounting deficits to finance crumbling roads, bridges and even airports.

An International Herald Tribune article published August 27th notes that Midway Airport of Chicago could become the first to pass into the hands of private investors, while a $1.9 billion public-private partnership will finance new high-occupancy toll lanes around Washington, D.C. JPMorgan, Lehman Brothers and Carlyle Group have won a 50- to 75-year lease on a toll road along I-75 in South Florida.

Quoting the IHT article, the American Society of Civil Engineers estimates that the United States needs to invest at least $1.6 trillion over the next five years to maintain and expand its infrastructure. Last year, the Federal Highway Administration deemed 72,000 bridges, or more than 12 percent of the nation’s total, "structurally deficient." But the funds to fix them are melting: By the end of this year, the Highway Trust Fund will have a deficit of several billion dollars.

This is not just a U.S. problem. A GLOBE-Net article published last year quoted a Federation of Canadian Municipalities (FCM) report stating that 80% of Canada’s municipal infrastructure is past its service life and the infrastructure deficit - estimated at $12 billion in 1985 - has risen to $123 billion.

In Canada, as in the U.S., there are mixed feelings about allowing private sector access to public infrastructure. The reasons are simple; private investors recoup their money by maximizing revenue and some fear this could come at the expense of protecting the public interest. That is why Public-Private Partnerships (PPPs) - a ubiquitous term for using private funds to finance public infrastructure - place such emphasis on service details designed to protect the rights of the public.

Some American pension funds see the investment opportunities associated with infrastructure and are responding accordingly. Again quoting the IHT article the California Public Employees’ Retirement System has earmarked $7 billion for infrastructure investments through 2010 and the Washington State Investment Board has allocated 5 percent of its funds to such investments. The California State Teachers’ Retirement System recently authorized up to about $800 million.

In Canada pension funds that jumped into the game early have already reaped significant rewards. The $52 billion Ontario Municipal Employee Retirement System (OMERS) saw a 12.4 percent return last year on its $5 billion infrastructure investment pool. Managed by Borealis Infrastructure, a world leader in developing infrastructure investing as an asset class for institutional investors, OMERS’s infrastructure investments have delivered solid returns, outperforming its benchmark in each of the last three years.

One innovative and so far successful effort to harness private sector capital for public infrastructure investment in Canada is Partnerships British Columbia - a company responsible for bringing together ministries, agencies and the private sector to develop projects through public-private partnerships. Registered under the Business Corporations Act as a company, Partnerships BC is wholly owned by the Province of British Columbia and reports to its shareholder the Minister of Finance. To date it is involved in 25 projects worth close to $9 billion completed, under construction or in the marketplace.

Public-private partnerships as a procurement option for the provision of infrastructure has encountered more resistance in the United States than in Canada for a variety of reasons, not the least of which are concerns by labour unions over possible job losses associated with private sector management of public assets.

Nonetheless, the movement is growing. Bernard L. Schwartz, Chairman and CEO, BLS Investments, LLC noted in his testimony before the House Committee on Transportation and Infrastructure on June 10, 2008 "Notwithstanding recent credit problems and bank liquidity concerns, the world is still awash in capital and long-term interest rates remain near historical low levels. In fact, there is no shortage of privately held funds to help pay for infrastructure reconstruction and development if it is undertaken in a market-sensitive manner."

"People are creating a new asset class," said Anne Valentine Andrews, head of portfolio strategy at Morgan Stanley Infrastructure, an asset class that knows no boundaries. While some public sector pension funds may feel uneasy about excessive exposure in the foreign infrastructure market, private capital sources are not so constrained and need not stay at home. There are plenty of opportunities elsewhere in the world, which is exactly what Goldman Sachs, Morgan Stanley and others, intend to pursue.

Last month Minneapolis-based First American Funds announced the opening of its new First American Global Infrastructure Fund to individual investors. The open-end fund, which has been available to select institutional investors since 2007, is one of the first of its kind providing individual investors with the benefits of investing in equity securities issued by U.S. and non-U.S. global infrastructure companies seeking to capitalize on the estimated $41 trillion required to modernize and expand the world’s infrastructure during the next 25 years - companies that operate water systems, gas and electrical distribution networks, toll roads, airports, rail systems, renewable energy sources, and outsourced government functions.

Last week Morgan Stanley announced plans to invest up to a quarter of its $4 billion global infrastructure fund in emerging economies like India. Gautam Bhandari, who on Tuesday was named as head of Morgan Stanley Infrastructure in India, the Middle East and sub-Saharan Africa, said he saw opportunities in Indian transport, energy and telecommunications. "Not every market is ready in terms of private infrastructure investments; India is," Bhandari said in a recent interview..

"There’s a huge opportunity that the U.S. public sector is in danger of losing," says Markus Pressdee, head of infrastructure investment banking at Credit Suisse. [The U.S. public sector]..."thinks there is a boatload of capital and when it is politically convenient it will be able to take advantage of it. But the capital is going into infrastructure assets available today around the world, and not waiting for projects in the U.S. the public sector may sponsor in the future."

A 2006 Report by S&P says the global trend toward investing in infrastructure assets started in Australia and Canada with large, dedicated funds being launched in the sector by such established players as Macquarie Infrastructure Group; Babcock & Brown Ltd.; and large pension funds including the Canadian Pension Plan Investment Board and Borealis Infrastructure Trust on behalf of the Ontario Municipal Employees Retirement System. Pension funds in particular are attracted to the long-life, inflation-indexed returns that ideally match the long-dated liabilities of pension funds.