Infrastructure - Sustainability

1. Infrastructure - Sustainability Opening Remarks William (Bill) Tharp March 7th 2007 University of Toronto – Environmental Finance

2. Evolution of Infrastructure Markets Source: Peter Salisbury, Chair, The Quantum Leap Company Limited • “Infrastructure” has different meanings with many regional nuances, however, as a generalisation….. • “Infrastructure” means: • Privatisation of publicly owned assets • Private Finance Initiatives (PFIs) / Public Private Partnerships (PPPs) and • Project leases &/or concessions • “Infrastructure Markets” refers to the debt and equity provided to the private owners • Early adapters, in the modern era, were: • UK : Privatisation (by IPO) in the 1980’s / PFI in the 1980’s / 1990’s • Australia : Tollroad concessions in the late 1980’s >> Privatisation (by trade sale) in the early 1990’s • Spain : Tollroad concessions in the 1970’s and 1980’s • France / Italy : Tollroads and municipal assets - selectively… • Since WWII, public sector infrastructure capital expenditure has • been reducing (as a % of GDP) in OECD countries

3. 19th Century in Quebec Source: Peter Salisbury, Chair, The Quantum Leap Company Limited • Tollgates were established on major routes into Montreal and Quebec City • 20th Century brought income tax and public expenditure • Modern era of private infrastructure investment probably started in earnest in 1980’s in the UK

4. The Equity Vacuum Is Big But Is Being Filled … Source: Peter Salisbury, Chair, The Quantum Leap Company Limited • Mid 1990’s equity vacuum (apart from utilities - NB Utilities also went into vacuum in late 1990’s) • Large financial investors now focussing on infrastructure • CPP, OTPP, Borealis, bcIMC, CDPQ, PSP, AIM & OPT • Temasek, GIC, Lion • Prudential, Henderson, HSBC • ABP, PGGM • Macquarie,Goldman, Morgan Stanley, JP Morgan, AIG, Carlyle (the latest entrants) • Over the last ten years, emergence of contractors/operators with ability to write large equity checks • SNC-Lavalin, Balfour, John Laing, Bilfinger, Hochtief, Ferrovial • Autostrade, Brisa, Transurban, Cintra, Abertis • BAA, Hochtief, MAP, Hastings, Morrison • CKI, United, SP, CKI Infrastructure investment is now a global business

5. Initial Infrastructure Returns Have Been High • Funds Covered: • Development Australia Fund • Infrastructure Equity Fund (AMP) • Utilities Trust of Australia (Hastings) • Returns on listed companies with infrastructure exposure • Companies with a material exposure to infrastructure have demonstrated consistent, excess returns over the broader market since their emergence in the 1990s • The experience in the listed market has been repeated in the unlisted markets by private funds, e.g., UK PFI funds established in the late 1990s Source: Peter Salisbury, Chair, The Quantum Leap Company Limited Returns over 1996 - 2003 Returns of Infrastructure Companies Source: Mercers

6. First Mover Advantage Source: Peter Salisbury, Chair, The Quantum Leap Company Limited First Mover Advantage Information Information Arbitrage Arbitrage 15% 15% Once the dust settles Once the dust settles Real Real it should have a 6% it should have a 6% Return Return 10% 10% real return real return 6% 6% 1999 1999 2002 2002 ? ? Source: Leo de Bever (EVP) Manulife Financial (formerly of Ontario Teachers’ Pension Plan Board) Source: Peter Salisbury, Chair, The Quantum Leap Company Limited

7. Funds Under Management Source: Peter Salisbury, Chair, The Quantum Leap Company Limited Major Infrastructure Fund Managers A$b • 75% of the market are Australian based managers! • Macquarie’s first fund in 1996 of A$300 million C$b 30 26 25 20 15 10 7 3.6 5 2.6 2.3 1.8 1.8 1.7 0 Macquarie Goldman Babcock & AMP Hastings RREEF Barclays AIG/Highstar Sachs Brown Note: This graph does not include emerging market infrastructure find managers such as EMP or major US energy infrastructure private equity fund managers

8. Infrastructure Going Mainstream - Many New Funds … But MASSIVE NEEDS Source: Peter Salisbury, Chair, The Quantum Leap Company Limited Fund Firm Target Size (m) Approx: Cdn$35.0bn

9. The Biggest Indicator of Change - Where is the Power? Source: Peter Salisbury, Chair, The Quantum Leap Company Limited Infrastructure Allocation C$ 40Staff 500Staff

10. And in a Parallel Universe ……the Environment … • 19th Century • > Massive private investment in railways, tollroads, transport and utilities around the world Infrastructure Consumes Vast Amounts of Fuels & Primary Materials Nitrous Oxide Methane Carbon Dioxide Parts Per Million – C02 Source: Martin Whittaker, Mission Point Cpaital Infrastructure Now Stands To Be A Leading Catalyst For Advancing Technological Change Source: Martin Whittaker, Mission Point Cpaital

11. Climate Change Going Mainstream, As WellWith Many New Funds … Although newer and smaller in size, the asset class of Climate Change Funds, continue to grow and collectively promote change as real returns are discovered Very different asset class to Infrastructure, though Approx: Cdn$5.0bn

12. Where the Environment / Climate Change Meets Infrastructure … As public opinion continues to evolve, an ever increasing % of the capital offered up to advance infrastructure projects, whether driven by legislation (through the electorate) or trustees (through their plan sponsors) will impose conditions requiring “sustainable” investment parameters.

13. Enjoy the morning … ! Bill Tharp bill@quantumleapco.com www.quantumleapco.com Framework for Financial Instruments Two Primary Drivers: the second “ … and FEAR” BUILDING VALUE INENERGY & EFFICIENCY