Pictures of the Future      Spring 2008

Making Municipal Services Affordable

Government agencies are increasingly working with private-sector investors on infrastructure renewal projects and new construction. Here’s a look at why Siemens has invested in many such projects.

The earth’s major metropolitan areas are growing and developing rapidly. But there is one thing that all of them have in common: the need for modern infrastructures. With many public budgets strapped, individualized financing solutions are often required to enable the construction of airports, hospitals, and power plants. Siemens Financial Services (SFS) division provides financing concepts that get many of the projects implemented by Siemens off the ground.

One example is a new airport that will soon enter service in the Indian city of Bangalore.  Also known as the "Silicon Valley of India," Bangalore has been booming over the last few years, which is why the city’s government has committed itself to expand urgently needed ­infrastructures.

The new airport is expected to accommodate more than 15 million passengers per year by 2015, at which time it will be handling one flight every two minutes. Close cooperation with Siemens One’s Airports Market Development Board organization (see Trends) enabled Siemens to enter a bid on the project that would precisely meet the airport’s requirements through the utilization of innovative technology.

The city of Bangalore opted to finance the prestigious project through a long-term public-private partnership (PPP). The owner and operator of the airport is a project company known as Bangalore International Airport Limited (BIAL). Along with supplying and installing all of the technology for the airport, Siemens also has a 40 % interest in BIAL through its Siemens Project Ventures (SPV) subsidiary.

An additional 17 % each is held by the Larsen & Toubro Ltd. construction company and Unique Zurich Airport, with the latter providing airport operation expertise.

The remaining 26 % interest is split between the Indian state of Karnataka and the Indian federal government, thereby ensuring that governmental authorities have a say in the strategically important infrastructure project. Siemens Project Ventures Managing Director Dr. Wolfgang Bischoff explains that, "the 26 % holding gives the government a minority veto according to Indian law."

Commercial responsibility lies mostly with BIAL, however, whose $460 million investment will be recouped through a concession for sharing passengers and airline fees. The concession will run for 30 years and can be extended for an additional thirty.

Airports and Hospitals. The Bangalore Airport project stands out as a result of its huge financing scope, but it’s by no means the only project of its kind. Siemens Financial Services is currently working on financing plans for more than 300 projects involving Siemens technology worldwide.

Public-private partnerships are becoming an increasingly important part of this business. "Closer cooperation between governments and the private sector makes it possible to implement many infrastructure projects even in the face of tight budgets," explains SFS Managing Director Johannes Schmidt. Support from Siemens Financial Services, which is provided through offices at Siemens locations worldwide, is thus becoming increasingly important.

In Germany, for instance, a contract for the biggest public-private partnership in the country’s healthcare sector has just been signed. The contract involves the construction of a new type of cancer treatment facility at Kiel University Hospital. The planned facility will house a particle treatment center where protons and carbon ions will be accelerated to high speeds and guided precisely into tumors in order to destroy them (see Pictures of the Future, Fall 2007, Particle Therapy). The cost of the facility, which is being planned and built by Siemens Healthcare, will be around €250 million.

Unlike Bangalore Airport, the two private consortium partners here—Siemens and construction specialist Bilfinger Berger (building shell)—will completely own the facility, which means that, along with guaranteeing its ­technical availability, they will also bear all technical risks.

"Kiel University Hospital will operate the facility and pay a monthly fee to do so," Bischoff explains. The hospital will also ensure that the facility operates at optimal patient capacity utilization. Ownership will be transferred to the hospital after 25 years.

Siemens’ experience with large-scale projects was one of the reasons it was awarded  the contract for the Kiel University Hospital. The company is also playing a major role in construction of a particle center in Heidelberg, Germany that will go into operation in October 2008.

Lots of Light. Public-private partnerships can also have a major effect in what at first appear to be relatively minor projects. SFS subsidiary Siemens Finance & Leasing (SF&L), for example, has teamed up with Siemens Enterprise Communications (SEN) on projects in Memmingen and Freiburg, Germany that enabled municipal governments to invest in environmentally friendly lighting technology for traffic lights. A total of 53 traffic lights were equipped with LED technology in Freiburg. LEDs consume much less energy than conventional light bulbs, and also last a lot longer. The technology reduces annual electricity consumption by 350,000 kWh and also significantly lowers maintenance costs. As a result, Freiburg is saving €155,000 per year, which it is using to pay for the technology in installments that will run for a total of 15 years. After that, the savings will flow into the city’s coffers—without the project ever having put a strain on the municipal budget.

Around a dozen towns and cities in Germany have installed LED technology in similar projects. In Memmingen, for example, Siemens re-equipped 18 traffic lights with LED technology, and the city was able to pay for the whole project with the energy savings achieved by the time the first bill was due. Additional savings on maintenance also enabled SF&L to shorten the term of the energy-saving contract. "Investments like these really pay off for municipalities, which is why many similar projects are now being planned," says Stefan Fleischner, head of Region South at SF&L. Whether it’s small contracts or major projects, Fleischner is sure that financing concepts tailored to the needs of individual governments will help the public sector to continue to invest in infra­structures.
                                                                                                                Katrin Nikolaus