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Towards new approaches in infrastructure financing

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Anne Berner, Minister of Transport and Communications (Photo: LVM)

Transport infrastructure financing is a challenge for all developed economies – including the Nordic countries. In Finland, the transport infrastructure is especially important because of the long distances and our Nordic location.

If we want to efficiently utilise the national economy, we have to ensure our ability to move from one place to another. That is why we need to be bold in seeking new ways for planning and financing both the transport infrastructure of future and our existing national property.

The interest rates are now very low and the financial market is actively looking for new type of investments that could bring sustainable and long-term profit. This, together with the megatrends of digitalisation and urbanisation, gives us an excellent opportunity to rethink the development and financing of the transport infrastructure.

What are the lessons to be learnt?

The ways other countries have solved their infrastructure financing cannot be directly transferred to Finland, but we could learn from those solutions when seeking ways to fund our projects. Conventional budget appropriations are not the only way to find resources necessary for the development of the infrastructure. There are several global examples of versatile methods that use the benefits of the project itself in its financing instead of funds under budget items.

 One example is the construction of the metro system in Hong Kong. It is based on utilisation of the value for the land that has increased because of the better transport connections.  The financing has been arranged directly by the company responsible for the metro system. It has received the necessary revenue stream from improving the land use around the new stations. At the same time, an adequate demand for the new metro line has been ensured as the areas around the stations have been constructed to meet the demand.

A similar example closest to Finland is in Copenhagen where a significant part of metro construction costs have been covered by the property development around the station areas. At the heart of both of these cases were the right incentives to the party responsible for the infrastructure construction as well as an adequate knowledge-base created already in the planning phase in order to provide the financiers with an overall picture of the benefits the transport projects will bring.

A parliamentary working group on transport infrastructure financing identified the need to develop the “beneficiary pays” model. We really should learn from the existing practices and find the means most suitable for Finland. Naturally, the models used in other countries cannot be directly applied to our circumstances, but we can together lay a groundwork for new kind of thinking.

This week we will be able to share the best practices and ideas among my Nordic colleagues and learn from each other as we will convene to the “Rethinking Infrastructure Financing in the Nordics” seminar in Helsinki. I am sure that we will enjoy inspiring discussions and hear bold ideas on new financing models and on transport infrastructure critical to future development.

Anne Berner

Minister of Transport and Communications