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Infrastructure 2.0 – Funding and Financing

Strategies for Smart Cities

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Skrzypczak

Regional

Operations

Manager

▪ Sector Trends: Infrastructure 2.0 Series

▪ O-D Data Centres

▪ O-D Digital Infrastructure

▪ 4 Jun E-Mobility

▪ Regional Insights

▪ 28 May Investment Climate & Infrastructure Sector Outlook in Turkey

▪ Learning & Development

▪ 13 Jun Fibre

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IPFA Webinars

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Speakers:

Michael Flynn, Deloitte Ireland LLP

Steven Hamilton, Deloitte Transactions and Business

Analytics LLP

Rana Sen, Deloitte Consulting LLP

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Funding and financing strategies for smart cities:Webinar on financing tomorrow's smart city ecosystems

IPFA 8 May 2019

Setting the contextChallenges and opportunities

The Alliance ApproachLeveraging the power of collaboration in a complex ecosystem

Funding & finance modelsFunding, finance, and revenue management options and approaches

Today’s webinar

Funding & Financing

Setting the context

Technology disruptors, changing constituent expectations, and key infrastructure needs are significantly impacting the realities of urban environments

Governments are under increasing pressure to address socioeconomic, resiliency, and citizen engagement issues

Convergence of trends

Unprecedented urbanization

Trending green

Safety and security

Exponential innovation

Transparent government

• Focus on purpose

Infrastructure + constituent-centricity + meaningful use of technology/data

What makes a city smart?

• Holistic view

• Inclusion

Smart City | Multiple StakeholdersA Smart City is composed of many stakeholders working together. The constituent is at the

center, indicating that successful Smart Cities are always constituent-centric

Public

Housing

Associations

Investors

Universities/

Schools

Research

Institutions

Startup

Incubators

Healthcare

ProvidersEnergy

Providers

Digital

Agencies

State/

National

Government

RetailersManufacturers

and Construction

Companies

Banks/

Insurance

companiesHotels,

Museums,

Restaurants,

Theaters,

Stadiums

Telecom

ProvidersLogistics

ProvidersTechnology

Vendors

Public

Transportation

Providers

Constituent

Smart City | The Six Roles of City GovernmentSmart Cities require a government that is able to combine six roles and make deliberate choices

on the mix of roles through which it engages challenges

RegulatorThe government as regulator creates or changes laws

and regulations to allow new business models and

disruptive entries, simultaneously protecting the

interests of constituents and users of the city.

Connector and ProtectorThe government as connector and protector secures

modern transportation infrastructures, energy grids,

and digital networks. It sets standards and takes

measures to make these vital infrastructures resilient

and safe.

Strategist and AdvocateThe government as strategist and advocate sets out a clear direction for the city.

What is our vision as a Smart City and how do we want to realize it? It is an active

advocate of the city as an innovative hub for new business

Solution EnablerThe government as solution enabler builds

ecosystems by gathering parties that normally do not

work together to deliver creative new solutions that

neither of the parties could have realized on its own.

Innovator and InvestorThe government as innovator and investor applies the principles of innovation in

the internal organization and processes. It stimulates innovative solutions by

acting as a customer.

StewardThe government as steward creates an environment in

which new businesses and smart solutions can emerge

and grow, for example, by providing open data and by

facilitating startups.

Smart City | ConstituentsSmart-City initiatives should be focused on the constituents, as their active engagement and

collaboration throughout the Smart City journey leads to effective, constituent-centric solutions

Encourage constituents to actively

engage and contribute in their

communities and local government.

Empower constituents with right

data and tools so that constituents

can become more collaborative and

participative

Improve operations and

transparency for constituents,

supporting new ways for them to

connect with and understand their

government and the decisions that it

Benefit all constituents from every

neighborhood and include those who

might not traditionally be heard in the

decision making processEngagement

Transparency Collaboration

Inclusion

Streamline back-office operations and constituent services,

avoiding duplication and promoting integration, while ensuring

data security and compliance

Funding & finance models

Options & opportunities

Global drivers of urbanization

Smart city | Macro drivers—city development

Increasingurbanization

Sustainabilityfocus

Public privatemix

Technology-ledcitizen

services

1.5 million

people per week moving

to cities

65%+ of

world population living in cities

by 2050

Paris Agreement—

global emissions reductions

UN SDGs—clear,

implementable plan

Public funding gap

UN SDG 17—Private sector participation

Citizens increasing use of technology

Mix of technology and

traditional infrastructure

Sources:Global Population – 7,6 bn., « Population Reference Bureau (2018) »; Level of urbanization – 54%., Based on “WHO 2014 analysis”; Urbanization growth – 1,84%, Based on “WHO analysis for period 2015 to 2020”; United Nations

14Deloitte Consulting confidential information | Not intended for reproduction or distribution

Financing challenge

Smart city financing challenge

• Increased technology component—shorter-term infrastructure

• Future of Mobility – certain public revenues reduced

• Varying attractiveness to lenders and investors

• New revenue models not clear

• Evolution from pilot to full roll out—different players required

• Determine value of data/IP asset created

• Blending private finance types together

Public infrastructure financing challenge

• Revenue models—beyond exchequer funding

• Value capture—joined-up thinking

• Financing structures

• Procurement structures

• Value for money

Understanding project and valueConsider funding & finance

options

Determine relevant procurement

& delivery method

Understand

business model

Understand value

generated

Does funding

gap existDirect value capture

Risk transfer potential Indirect value capture

Return availableAsset recycling to fund

investment

Public funding

Private financing

Monetize value

Public provision

Operating contracts

Joint venture

Long-term lease

Public-private partnership

Franchising

Privatization

Model for delivering a successful sustainable infrastructure project

Who pays……

A clear revenue stream is critical if private financing is pursued.

Determining the revenue model is key

Government/public

• Often the first choice historically✓ Payment for service ✓ Share of savings from efficiencies

achieved

End users

• Will users pay for the service?✓ Direct payment ✓ Indirect payment (e.g., utility model)

Third parties

• Revenue earned through another source✓ Ancillary income, new innovation

rollout to new markets✓ Revenues not linked to service

(e.g., advertising space)

Partial/indirect government support

• Revenue guarantees (minimum levels)• Pricing support• Gain sharing, e.g., financing savings,

efficiency gains, carbon reduction

Change in approach to mobility can affect public funding models

Future of Mobility

Capturing the value of gains from an infrastructure investment, and directing those funds to infrastructure investment.

Value capture

Direct value capture

Indirect value capture

Asset recycling

Multiple sources and types of finance available

Supply of infrastructure finance

Appropriate match to financing

source

Hybrid

Funding

Equity

Government funding

Grant funding

Seniordebt

Exchequer financing

Sponsor equity

Infra-structure

Multilateralfinance

Mezzaninefinance

Alternative lenders

Vendor financing

Export credit

Alliance Approach – Key finance considerations

Different levels of private sector participation

Varied procurement solutions

Direct

delivery

Conventional

Procurement

Operate

Contract/

licensing

Long-term

venturePPP Franchising

Privatizations

(sales)

Risk transfer

Innovation

Public Private

Program versus project perspective…..

Leveraging public capital

Scale up investment in project preparation and pipeline development

Project-preparation facilities and technical assistance to increase the “bankability” of projects

Partial revenue support

Finance incremental cost support

Increase of grants—emerging technologies, non-public retrofit

Use of guarantees—revenue, loans

Create secondary market for sustainable infrastructure projects—anchor syndicated loans

Public policy insurance

Public equity/subordinated equity fund

City of the FutureTech enabled infrastructure delivered

New infrastructure

New financing and procurement structures

New smart solutions

Delivering works and services to citizens

The Alliance Approach

Leveraging the power of collaboration in complex urban ecosystems

A more collaborative approach for urban financing, partnerships, procurement, and governance

How to get started

Innovative Financing

• Although traditional models will remain central to Smart City programs new models include: Vendor Finance, Innovation Funds, Mini-Bonds, P3s, Land-Value Capture, Tax Increment Financing, Guarantees

Collaborative Partnership

• Participation from multiple vendors and government agencies is the new normal, including new business models, gain-sharing agreements, and performance-based contracting.

Dedicated Governance

• A person or entity should be designated as Smart City program lead, with designated authority. This person or entity will work directly with leadership across the organization, breaking down siloes.

Nimble Procurement

• RFIs should include an outline for partnership memoranda of understanding (MOUs) and commitments. They should require the technology and solutions inter-operability, and promote business models that focus on shared value creation.

Revenue and contracting flows

City Managed Services/Data Hubs

Rana Sen

US State Sector Smart City and Transportation initiative leaderDeloitte Consulting LLPrsen@deloitte.com

Contact information

Connect with me on LinkedIn

Michael Flynn

Global Financial Advisory Public Sector LeaderInfrastructure & Capital Projects – EMEA LeaderPartner, Deloitte Ireland LLPmicflynn@deloitte.ie

Steven Hamilton

Senior ManagerDeloitte Transactions and Business Analytics LLPshamilton@deloitte.com

This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained by any person who relies on this presentation.

About Deloitte

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and

their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not

provide services to clients. In the United States, Deloitte refers to one or more of the US member firms of DTTL, their related entities that operate using the

“Deloitte” name in the United States and their respective affiliates. Certain services may not be available to attest clients under the rules and regulations of

public accounting. Please see www.deloitte.com/about to learn more about our global network of member firms.

A recording of this webinar will be made available

on the IPFA website

Thank you for joining us!

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