November 26, 2014

G20 announces the Global Infrastructure Hub – will it make a difference?

Sydney is to be home for a new G20-backed Global Infrastructure Hub (GIH) as part of a programme "to support public and private investment in quality infrastructure". A massive USD 2 trillion increase in global infrastructure capacity by 2030 could achieved by the GIH's goal of "improving project preparation, structuring and delivery" – so says the B20, a private-sector business group affiliated with the G20. What will the GIH bring to the table and will it deliver on the promises? The challenge for the Sydney GIH will be to adopt a truly global outlook.

Infrastructure has been a priority for the Australian G20 presidency and the choice of Sydney as the home of the GIH has been viewed as a significant achievement for Australia. Prime Minister Tony Abbott has declared that he wants to be known as "an infrastructure Prime Minister". Sydney has been chosen because it is Australia's major financial centre and a base for the world's leading infrastructure related service firms, including contractors, consultants and project managers. The formal announcement of the GIH came via the G20 leaders' communique on 16 November 2014, with eight nations, including the US, Britain and Australia, committed to support financially the USD 15 million initiative.

During the almost year-long consultation process which led to the announcement of the GIH, there were a number of detractors, sceptical of another costly institution far away from Europe and the US with an agenda which arguably other bodies like the World Bank or the OECD could take on. There was also a concern that the GIH would chiefly be a "legacy monument" for the G20 host nation, Australia. With only a four-year mandate, the pressure is now on to make the GIH work – and Australia, which has significant, solid experience in setting up its own similar state-based and national bodies, will give it a good go.

There is, of course, a fundamental question: will the proposed functions of the GIH - more efficient information gathering and sharing, and improvement, standardisation and streamlining of processes, including legal processes - achieve the results?

According to The G20 Note on the Global Infrastructure Initiative, the GIH is to:

  • develop a knowledge-sharing network to aggregate and share information on infrastructure projects and financing between governments, international organisations, development banks, national infrastructure institutions and the private sector;
  • address key data gaps that matter to investors;
  • develop effective approaches to implement the voluntary G20 Leading Practices on Promoting and Prioritising Quality Investment, including the development of model documentation covering project identification, preparation and procurement;
  • build the capacity of officials to improve institutional arrangements for infrastructure by sharing best practice approaches; and
  • enhance investment opportunities by developing a consolidated database of infrastructure projects, connected to national and relevant multilateral development bank databases, to help match potential investors with projects.

From a project and construction lawyer's perspective, it goes without saying that improved knowledge, documentation and processes will deliver increased efficiencies, greater certainty and the benefits that flow from more transparency. That is true on even a reasonably small-scale. On a global scale, the benefits should be magnified – particularly where emerging markets are brought into the mix and can benefit from a global know-how. The appropriate allocation of risk in relation to infrastructure development and the means of minimising and resolving claims and disputes within a predictable framework are key – especially so in emerging markets which are set to see the bulk of infrastructure spending over coming years.

The B20 Infrastructure and Investment Taskforce Co-ordinating Chair, and Telstra CEO, David Thodey, has said, "The private sector seeks opportunities for growth, financial returns, predictable and ethical frameworks, regulatory and political stability and risk management."

The obvious difficulty, recognised by those operating in the global infrastructure market, is that there are in fact a multiplicity of legal, political and regulatory environments to deal with. One size does not fit all. Clyde & Co has published a Projects and construction - Guide to global markets which highlights key issues applying to different markets. While a standardised and streamlined approach must be pursued, it must be pursued cognisant of the challenges.

The Sydney Morning Herald has reported that when G20 representatives discussed infrastructure challenges in a meeting back in February of this year "there was a sense that every country was reinventing the wheel when it came to infrastructure projects". There are a plethora of bodies, government and otherwise, each gathering their own information, developing their own "best practices" and their own standardised procedures and documentation. The challenge for the Sydney-based GIH will be to embrace a truly global perspective. Australia currently has its own infrastructure bodies operating in various states as well as on a national level. The Australian construction industry is dominated by a couple of construction contractors and there is relatively modest foreign penetration into the Australian market. Australia generally uses its own "Australian Standard" construction contracts, and there is not great familiarity with FIDIC forms of contract and procedures, which are the World Bank preferred standard documents and the documents most commonly used in emerging markets. The issues relevant to the Australian market are not necessarily those relevant to other countries. Risks vary between markets and contractual allocation of risk and legal frameworks need to be understood. Contractual dispute resolution mechanisms need to cater for a sometimes more uncertain international market.

It is obvious, the GIH will need to draw on expertise from around the world, and the G20 has made it clear that the GIH should work collaboratively with G20 and non-G20 governments, the private sector and all stakeholders. All will be free to engage with, and use information disseminated by, the GIH. Although the GIH will be located in Sydney meetings will take place where stakeholders and experts are located, as well as through a virtual network. There will be a seven member Board, chaired by Australia. Steps are already underway for an international search to find a CEO.

Importantly, the GIH will be "open and transparent" in its operations. The GIH should provide the international community with information, hopefully validated, about the pipeline of infrastructure work globally, thereby increasing opportunities and competition. Increased efficiencies and best-practice in procurement should serve in reducing cost and risk and ensuring the flow of infrastructure funding. The opportunities, but also the challenges, are huge. The GIH has four years to prove its worth.

Further advice should be taken before relying on the contents of this summary.
Clyde & Co accepts no responsibility for loss occasioned to any person acting or refraining from acting as a result of material contained in this summary.
No part of this summary may be used, reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, reading or otherwise without the prior permission of Clyde & Co.
Clyde & Co Australia is a multi-disciplinary partnership registered with the Law Society of New South Wales.
© Clyde & Co 2014. All rights reserved.