The Strategic Case for Railway Infrastructure Funding

Reflecting on my recent presentation at the Rail Live! industry forum in Madrid, I would like to share the key points I spoke about, that I believe are crucial for our industry, especially the strategic case for railway infrastructure projects and the securing of long-term funding sources.

My bottom line is that, in an increasingly complex world, the case for investing in infrastructure should focus more on the strategic case (why the investment is needed to provide and protect the wellbeing in the long term, i.e. resilience) and less on the conventional views of economic and financial analysis.

Conventional analysis assumes that the underlying assumptions will prevail, or at worst they will remain within the limits of the sensitivity analysis of choice. Experience tells us that this is the least likely scenario. Most likely, the complex dynamics of today's world will result in situations that were not foreseen, so the strongest options are those that make us more resilient.

Funding ≠ Financing

Understanding the distinction between funding and financing is crucial for any infrastructure project's success. This is especially true in the railway sector, where the scale and complexity of projects demand significant resource allocation.

Financing refers to the methods through which we acquire the capital needed to initiate a project. This can be through debt, equity, or a combination of both. Financing is the mechanism that allows us to turn plans into reality. For example, when we consider financing a new railway line, we look at loans, bonds, and private investments as potential sources of capital.

On the other hand, funding is a broader concept that encompasses the entire financial lifecycle of a project. This includes not just the initial capital, but also the revenue streams that will cover operational costs, maintenance, and debt repayment over time. Funding must consider the long-term financial viability of a project. It's not just about getting the project off the ground; it's about ensuring its sustainability and profitability over decades. In the context of railways, funding would consider fare revenues, government subsidies, and potential income from freight services and other commercial operations, etc.

In more practical terms, sustained funding is a necessary condition for infrastructure investment, operation & upkeep or, in other words, no sustained funding means no good infrastructure.

The Growing Importance of the Strategic Case

A business case for an infrastructure project will typically look at the strategic, technical, economic, financial and delivery aspects.

My main point is: what generates and sustains funding is the strategic case, because it focuses on the critical outcomes of infrastructure, and therefore generates the stakeholder support and public trust that underpins sustained funding.

The strategic case for infrastructure investment is increasingly pivotal in an era marked by rapid changes and uncertainties. Traditionally, the focus has been on the economic and financial viability of projects. However, these assessments often rest on assumptions about future conditions, which may not hold true in an evolving global landscape.

The strategic case goes beyond financial and economic considerations to encompass wider societal, environmental, and geopolitical impacts. It's about understanding how a project aligns with broader objectives and priorities.

The strategic case looks at how the project adapts to change, stress-testing assumptions against potential changes in the technical, economic, political, and environmental landscape, and values resilience: the ability of a project to withstand unforeseen shocks, whether they are economic downturns, natural disasters, or geopolitical tensions.

It also focuses on public and stakeholder engagement: A project that aligns with public priorities and values is more likely to garner support, which is essential for securing funding. The strategic case assesses how well the project addresses these public priorities, such as environmental sustainability, reduction of carbon emissions or social equity.

In my role at TYPSA , I have observed a shift in how we approach project planning and development. Increasingly, our clients and stakeholders are recognizing the importance of the strategic case. They understand that for a project to be successful in the long term, it must be resilient, adaptable, and aligned with broader societal goals. Otherwise, it will be vulnerable to change.

This paradigm shift is not just about securing funding; it's about ensuring that our infrastructure investments deliver lasting benefits and contribute to a sustainable future. Let's look at some of the key strategic factors next.

Strategic Factors in Transport Infrastructure Investments

Several strategic factors are key in generating and sustaining public trust, and thus should take a central part in the decision-making process:

1. Social Cohesion: Does the project generate regional equity, cultural preservation, and community development? Projects that foster social cohesion tend to gain more public support, which is vital for funding.
2. Security and Geopolitical Influence: Does the investment enhance security and influence for our communities? This includes creating network redundancies, which are increasingly vital in our interconnected, yet vulnerable society.
3. Sustainability: With climate change concerns at the forefront, sustainable projects that address climate mitigation, adaptation, resource preservation and protection of ecosystems are more likely to secure funding.
4. Economic Resilience: Does the project contribute to the reliability of supply chains, innovation, and industry competitiveness? Will it attract capital and private sector participation, crucial elements for long-term funding?
5. Long-term Institutional Capacity: Building and maintaining institutional and operational capacity, along with fostering necessary skills, is essential for long-term project success and funding.

Examples

In my presentation, I highlighted several projects that exemplify the growing importance of the strategic factors in infrastructure investment, where TYPSA has advised:

• Security and Influence: The Helsingborg-Helsing?r Fixed Link (road & rail) project, a possible second crossing of the ?resund, focuses heavily on the strategic case for network redundancy, regional interconnectedness and resilience to geopolitical shocks. TYPSA has advised the key stakeholders in the review of the strategic study.
• Cohesion and Economic Resilience: The EU-Africa strategic railway corridors to be financed by the EU Global Gateway are an excellent example of creating railway infrastructure for regional connectivity and economic resilience. The programme aims at developing reliable connectivity networks and services that create jobs and support value chains that can benefit industries in both Africa and Europe. TYPSA has participated in the feasibility studies of several of these corridors.
• Transport Planning and Climate: We have been advisors in the development of several city-wide or regional Transport Master Plans in Andalusia, where the Regional Government has steered away from demand and supply drivers, adopting climate change mitigation and adaptation, digitisation and affordability as the main decision factors in the multicriteria analysis.
• Sustainable Construction: The Sydney Metro West project, where TYPSA is a designer, involves the construction of twin tunnels from Sydney Olympic Park to The Bays Precinct station. The solution has been conceived around circularity of materials, increased durability and low maintenance, ultimately leading to long-term sustainability.

Conclusion

In conclusion, the landscape of infrastructure funding is evolving. The traditional focus on economic and financial viability is no longer sufficient. To secure long-term funding, we must pivot towards a more strategic approach that encompasses technical, social, environmental, and economic factors. This is where the true future of railway infrastructure lies.

This experience, shared at the Rail Live forum in Madrid, embodies TYPSA’s commitment to adapting to the changing needs of infrastructure funding and planning. Our goal is not just to build infrastructure but to foster projects that are strategically vital, sustainable, and beneficial for societies and economies globally.

Visit TYPSA's website or contact me to find out more about our advisory services.