A new way to fund infrastructure

By Alice Heathcote

In a recent class, it was noted that for all of our case studies on ‘new cities’ the developments were inevitably funded with a mixture of both public and private capital. The discussion seemed to conclude that you aren’t ever able to build new cities with the government or private sector alone.

I can think of an example which runs counter to that trend. In the western Pilbara desert of Australia, about 100km from anything that resembles civilization, there are the beginnings of construction for what will be one of the largest mining projects in the world, the Roy Hill Iron Ore mine. At an estimated value of $10 to 15billion, it’s worth more than the GDP of about 60 countries in the world. The mining project is majority owned by Australia’s Hancock Prospecting, with minority stakes held by a number of Asian industrials, including Marubeni Corporation and China Steel Corp.

To get all the construction completed for this mine, almost 10,000 workers are needed. This is a serious challenge. To give some perspective, for the iron ore to be even get to port, it has to be transported a train journey longer than the trip from London to Paris, or Boston to New York. The difference is that on this trip, the chances of you seeing another human being are almost zero. There’s certainly no nearby community from which you can source your employees.

So how is this relevant for our course? Basically because for this mining project (and for many others), a new ‘mini’ city is needed to be built almost from scratch, literally in the middle of nowhere. And it’s all done with private money and limited government oversight. The settlement may be on a scale considerably smaller than the cases we’ve looked up in class, but there are still some interesting lessons to learn.

Firstly, the ‘mini town’ for the initial construction workers was constructed in about two months. Admittedly this first site was for approximately 1,000 workers, but that includes civil works, water works, sewerage systems, and communications and entertainment facilities, in the middle of nowhere. Moreover, an array of innovative solutions, from water delivery to waste management, was developed to deal with the complete absence of traditional government infrastructure. The entire project, which includes a major private port and a 220mile railroad is expected to be completed in under three years. When you remove government funding approval processes from the equation, it’s clear that much needed projects can move very quickly indeed.

I believe it strengthens the case for the controversial ‘infrastructure bank’ proposal here in the US. If the government approval process wasn’t required for every lending or funding decision (and instead, left to a more business-like organization), critical infrastructure decisions would likely proceed more rapidly. Everyone seems to agree that the US needs more innovative ways to creatively use public and private funds to fund infrastructure, yet every time a public work with government money is proposed, a variety of special interest groups seems to get in its way. A centralized body, which comes up with a more coordinated plan, and with the powers to invest without continually requiring separate approvals, could go a long way for setting the US up today, for the growth it needs tomorrow.

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3 thoughts on “A new way to fund infrastructure

  1. A national infrastructure bank is not a substitute for a streamlined national transportation policy, nor is it a recipe for greater sustainability in asset development. Financing is almost never an impediment for infrastructure development in the U.S.- we have a deep municipal bond market, with attractive rates for borrowers. The fundamental issue in infrastructure development is policymakers’ (and public’s) unwillingness to identify revenues to pay for new projects.

    A national infrastructure bank to provide subsidized public loans, would simply federalize revenue and operational risks and only tangentially solve our funding problem by requiring borrowers (states, public authorities) to exact user fees as repayment. Given that the federal government spends $50B yearly on surface transportation (flat since 1994), while state and local authorities spend over $150B, the need for greater federal investment and guidance may be clear.

    The best way to increase the cohesiveness and value of our transportation system is instead through a competitive grant process where states vie for funding for projects that advance key mobility goals identified by Congress, funded by VMT taxes. Although the 2009 stimulus bill had problems, grants for High Speed Rail and TIGER programs were coupled with streamlined planning, environmental and procurement procedures to deliver many good projects. In the future, Congress should instruct USDOT to use the grant process to reward funding to projects of strategic significance (port upgrades, freight rail improvements, etc.) as a part of a coordinated process that considers contextual issues that reduce the value of investments like redundant port investments or discriminatory highway tolling (such as is the case with the Delaware Turnpike).

    Subsidized federal loans that crowd out investment are not the solution to a need for coordination, competition and new funding sources.

  2. I believe the secondary line of inquiry is incredibly important. While a lot of these companies are exceptional at getting these new mini-cities built quickly and effectively, they often don’t give enough thought to the ‘social infrastructure’ that communities and and societies require. They can quickly degenerate into drab and depressing ‘labor camps’. This is evident by the high rates of social isolation and depression experienced by many remote mining workers. It doesn’t have to be that way, and companies that build these ‘mini towns’ should invest just as much in the softer social infrastructure side, as the the hard assets.

  3. By John Macomber

    Excellent illustration of “reason to be.” The “company town” concept is very powerful in some contexts. Jamshedpur in India is another example: http://jamshedpur.nic.in/ (Wikipedia writes: “Jamshedpur is the largest urban conglomeration and most populous city in the state of Jharkhand, India. Jamshedpur is the first planned industrial city of India, founded by the late Jamshedji Nusserwanji Tata.” It’s basically a steel town like Bethlehem, PA used to be.

    An expected follow-on line of inquiry might include, “hmm, what’s sustainable about a project whose sole reason for being is to extract minerals for export, and which involves thousands of miles of carbon based transport [granted, the post was about jobs and not about sustainability]?” A secondary angle to consider would be what turns company towns into vibrant cultural and intellectual centers with a full population pyramid and diverse economies that aren’t at the whim of economic downturns in single sectors. One of the key concerns voiced even by the KAEC CEO is “how can we help this become more than a labor camp.”

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