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sts.components.contact.mr.placeholder Sebastian Webel
Mr. Sebastian Webel

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Pictures of the Future
The Magazine for Research and Innovation
 

The Future of Mobility

A Model for Financing Urban Infrastructure Projects

Thameslink route through London: the project is regarded as one of the largest rail infrastructure projects in the UK. Siemens will have been delivered a total of 115 trains by the end of 2018.

Joint financing models – for example from Siemens – are needed to make energy-efficient mobility possible. Cities around the world are providing examples.

London at dawn. Crowds of office workers are leaving the City Thameslink station and walking westward toward the heart of London’s financial district. This train station is part of the almost €8 billion Thameslink Programme, which will link northern and southern London and significantly reduce road traffic in this metropolis. The most important measures that are being implemented for this route, which is one of the busiest railroad lines in Europe, are the creation of additional stops and improved timetables.

By strengthening local public transportation in this way, infrastructure investments such as Thameslink could potentially prevent the imminent gridlock of road traffic and thus significantly reduce emissions. The project is being implemented as a public-private partnership (PPP) in which the provider of financing solutions, Siemens Financial Services (SFS), is a shareholder.

Such PPPs are important constructs that are making the building and operation of new transportation infrastructures possible. That’s because infrastructure projects are expensive, so that a joint effort is often needed in order to implement them. A McKinsey report estimates that a total of $49 trillion will have to be invested in infrastructure projects worldwide between 2016 and 2030 in order to accommodate expected population growth rates. A large portion of these investments will be made in cities. According to Navigant Research, a market research company, this market will grow by about 10 percent annually in the years ahead, from $40 billion in 2017 to around $95 billion in 2026.

The first metro line of the city of Santo Domingo was opened at the end of January 2009. With the construction of the second stretch the stretch network is extended by around 17 kilometers and 20 metro stations.

Huge Potential for Environmental Benefits

These investments are particularly pressing for transportation infrastructures, which are overburdened in many big cities around the world. That’s also one of the reasons why cities are making a major contribution to reducing emissions. Although cities cover only about two percent of the earth’s surface, they are nonetheless responsible for more than 70 percent of CO2 emissions. This isn’t surprising, since more than half of the world’s population lives in urban areas. The good news is that cities are able to influence emissions. According to experts, urban measures that are well conceived, planned, and implemented could reduce global greenhouse gas emissions by 3.7 gigatons (3,700,000,000 tons) between now and 2030. By way of comparison, 12.9 gigatons of greenhouse gases were emitted in 2015. Urban measures could thus reduce this amount by almost one third.

To make this possible, major investments must be made in infrastructure measures such as Thameslink. Such steps should be taken in cooperation with partners that have expertise not only in the associated technological solutions but also in project financing. Because municipal budgets can’t always cover the costs of such solutions, companies such as Siemens offer financing options along with their technologies. The following transportation projects are good examples. In Zhongtong, China, a financing solution provided by SFS enabled the local state-run bus company to acquire more than 100 hybrid buses and 20 electric buses. In another example, Santo Domingo, the capital of the Dominican Republic, is building a second subway line. The €166 million project is being financed by several banks and being built by a consortium of manufacturers headed by Siemens AG. The total amount of financing needed will be divided between the consortium’s banks according to the share that each of the participating countries (Germany, France, and Spain) is providing.

Even the most efficient infrastructure projects can only be implemented with the help of smart financing concepts.

In these joint infrastructure solutions, each partner does what it knows how to do best — from a project’s beginning to its end and even beyond, for example when a facility is also operated and maintained. The financing of infrastructure projects can be very complex, and as a result every partner can truly contribute its specific expertise. Thameslink is a good example. The 25-year PPP was concluded between the Department for Transport and the Cross London Trains (XLT) project consortium, which is contributing £177 million of equity capital. The capital’s shareholders, who all have equal rights, are SFS and two private-equity investors. In addition, loans are being provided by 20 banks. The PPP also encompasses a construction contract and a leasing solution for two depots. The leasing solution is, in turn, being funded by means of a forfaiting agreement between SFS and Siemens UK. “By combining cutting-edge technology with innovative financing solutions, the project underscores the fact that Siemens can implement major infrastructure projects even under difficult market conditions,” says Roland Chalons-Browne, CEO of SFS. This example clearly shows that even the most efficient infrastructure projects can only be implemented with the help of smart financing concepts.

Gitta Rohling