Ed note: This article is part of a short series on financing smart city infrastructure, sponsored by Siemens. Please join us for a live Google Hangout with Siemens, PwC and Berwin Leighton Paisner on June 12 at 10 a.m. PT/1 p.m. ET, where we’ll talk about this issue live! RSVP Here.
It’s almost a cliché these days to say that infrastructure development is a crushing and highly complex problem, mainly because there’s so much to do but not enough financial resources available to do it. The trick, then, is how to address infrastructure needs.
That’s why a new report from Siemens, PricewaterhouseCoopers and Berwin Leighton Paisner, entitled Investor Ready Cities: How cities can and deliver infrastructure value, is both timely and valuable.
The report examines in some detail how cities that have “the appropriate foundations of institutional stability can leverage financial mechanisms to their advantage to help deliver the infrastructure that is so critical to their future.” It looks at the needed steps to “create a governance, legal and regulatory environment which will support harnessing the full range of potential sources of funding.”
The 108-page report illustrates its basic themes through a series of case studies than span the globe to show how cities are addressing their infrastructure needs. Snapshots of the studies follow.
At 17.8 million people, Delhi is the fourth most populous city in the world and has intense traffic congestion. In the mid-1990s the city’s local government decided to build a metro rail system. This was an “immense undertaking,” the report says, with a planned track length of 400 kilometers (248.5 miles) that placed the new network on a similar scale to those in London and New York, and larger than Paris.
The geographic footprint of Delhi — basically circular — meant that the usual grid rail system was not possible. Urban density and a “plethora” of old, fragile and historic buildings also added more complexity. Financing the new metro was relatively straightforward, with the majority of funds coming in the form of ‘soft’ loans (with a low interest rate and long payback period) from the Japan Bank for International Cooperation (JBIC) and Japan International Cooperation Agency (JICA), as well as equal-sized grants from the governments of Delhi and India. The city and national governments were determined to achieve strong governance, by forming the Delhi Metro Rail Corp. (DMRC) in 1995. DMRC was able to operate with a minimum of bureaucratic and political interference.
In addition, the agency adopted an innovative approach to purchasing that enabled greater budgetary control: fixed-price contracts that featured substantial penalties for late delivery, as well as rights to quality assurance and agreed procedures. This meant greater cost certainty and motivated contractors. Construction began in 1998 and is expected to finish by 2021. As of May 2013, the first two phases (costing $2.7 billion) have been completed, and work is ongoing on the third of the four phases.
“The outstanding success of the Delhi Metro construction has demonstrated the benefits of strong governance, and shown how independence from larger bureaucracies and political interference can improve efficiency,” the reports reads. Additionally, innovative procurement methods create an environment where contractors’ goals are closely aligned with those of the owners.
Singapore’s dramatic population growth, from 1.9 million in 1965 to 5.3 million in 2012, meant that the city-state’s water system — both supply and delivery — needed a huge upgrade. “Historically, Singapore’s water came from two sources, rainwater catchment and import from Malaysia. Street vendors sold water, and not all houses were sewered,” the report says. Today Singapore has a more diversified water supply, full sewer coverage and unaccounted-for-water below 5 percent — one of the world’s lowest loss rates.
Singapore deployed three approaches to achieve success:
- User prices reflect the full economic cost of water, without subsidy
- A culture of water conservation through mandatory and “nudge” measures was established
- Harnessing technological innovations in water supply, including desalination and water recycling, and increasing its domestic rain catchment area to about two-thirds of its land mass.
The nudge conservation measures included educating users through a water efficiency labeling scheme, water-based sporting, and community spaces/events and water information (delivered both online and through a water-themed visitors center).
The report concludes that: “Rising energy prices have highlighted the importance of managing input costs in water systems, especially those where desalination and recycling are part of the supply mix. Here, research and development as well as efficient, timely procurement of appropriate technologies contribute to managing energy costs.”
This city in the Tennessee River Valley “has faced repeated economic adversity, and each time has found a way to reinvent itself through the clever use of its natural assets, infrastructure and smart technology,” the report says.
It was in a steep decline starting around 1950; the population dropped by 20 percent from that year to 1990, and it lost important economic drivers. Suburbanization also fragmented the community: Roads were constructed to serve the suburbs, but the critical infrastructure needed to support that development did not arrive with it. A lack of public transport forced people into their cars, contributing to the pollution that already plagued the city. (It was named the most polluted city in the U.S. in 1969.) By the mid-1980s it was apparent Chattanooga was heading towards a seemingly irreversible decline. City leaders began a process that would lead to recovery and secure strategic investment, known as “The Chattanooga Way” – including planning, citizen engagement, public-private partnership and as a result, transformative projects.
Fast forward to the 2009 Recovery Act: The city used recovery act funds to provide the latest technology-enabled, fiberoptic smart grid energy network — providing more secure, more affordable, and more efficient power supply to homes and businesses throughout the city. The first phase of the network came online in 2009. Through the smart grid solution, “businesses could invest in Chattanooga knowing that they had the highest levels of power reliability. Chattanooga had re-established its credentials as a center for energy security and city resilience.” The report concludes that in a very real way, the city gave “power back to its people.”
Tomorrow we’ll take a look at more case studies from the report, including success stories in London, Rio de Janeiro and Colombia’s second-largest city, Medellin.
Image credit: Flickr/ankuryadav