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					East Midlands
Development Agency
Infrastructure Funding
Infrastructure Funding
Report




Published August 2010
                                                                                     East Midlands
                                                                                     Development Agency
                                                                                     Infrastructure Funding




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Published by emda August 2010
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Contents
                                                                        Page
Executive Summary                                                          9
1       Introduction                                                         1
        1.1       Background and Context                                     1
        1.2       The Purpose of the Study                                   2
        1.3       The Focus of the Study                                     3
        1.4       Additional Considerations                                  3
        1.5       The Structure of the Report                                4
2       The Infrastructure Challenge                                         5
        2.1       A Layered Problem                                          5
        2.2       Market Failure                                             6
3       Defining the Infrastructure                                          7
        3.1       Defining “critical” Infrastructure                         7
        3.2       Defining ‘Strategic’ Infrastructure                        8
        3.3       Other Forms of Infrastructure                              8
        3.4       The Role the Agency in the Infrastructure Agenda           9
        3.5       Key Points                                                 9
4       Infrastructure Provision                                             10
        4.1       Planned Growth in the Region                               10
        4.2       The Relationship of Critical Infrastructure to Future Growth    12
        4.3       The Connections between Infrastructure and Spatial Planning     14
        4.4       Impact of Higher (Sustainable) Development Standards       14
        4.5       Key Points                                                 15
5       Infrastructure Planning                                              16

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        5.1       The Economic Regulators                                 16
        5.2       Functional Geography of Infrastructure Providers        16
        5.3       Funding Utility Operators                               17
        5.4       Asset Management Planning                               17
        5.5       The Right to Connect                                    18
        5.6       Charges for Use of Infrastructure                       19
        5.7       Covering Network Costs                                  19
        5.8       Key Points                                              19
6       Infrastructure Providers                                          21
        6.1       Water                                                   21
        6.2       Electricity and Gas                                     22
        6.3       Telecommunications                                      26
        6.4       Rail                                                    27
        6.5       Airports                                                27
        6.6       Emerging best practice – engagement with spatial planning    28
        6.7       Summary Table                                           28
        6.8       Key Points                                              30
7       Co-ordinating Infrastructure Provision and Delivery               31
        7.1       Financial Markets                                       31
        7.2       Other Organisations                                     31
        7.3       Strategic Leadership Bodies                             31
        7.4       Public Private Partnership Vehicles                     32
        7.5       Commercial Service Providers                            32
        7.6       Regional Organisational Capacity                        33
        7.7       Assessing the organisational capacity of the region     33

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        7.8       Infrastructure Funding Decision Making                   34
        7.9       Identifying New Infrastructure Requirements              35
        7.10      Delivering Infrastructure                                35
        7.11      Infrastructure Delivery Planning                         36
        7.12      The Community Infrastructure Levy                        39
        7.13      Key Points                                               41
8       Delivering Co-ordinated Infrastructure                             42
        8.1       Introduction                                             42
        8.2       Strategic Co-ordination Bodies                           42
        8.3       Asset Backed Vehicles                                    42
        8.4       Local Infrastructure Service Models                      45
        8.5       Key Points                                               47
9       Financing Co-ordinated Infrastructure Provision                    49
        9.1       Development of Infrastructure Funds                      49
        9.2       Existing Sources of Revenue                              52
        9.3       Potential Sources of Revenue                             53
        9.4       Key Points                                               55
10      Prioritising Interventions                                         56
        10.1      Scope for Agency Action                                  56
        10.2      Intervention Areas                                       56
        10.3      State Aid Regulations Governing Investment in Infrastructure   60
        10.4      Implications of the Shadow Price of Carbon Methodology on Infrastructure Intervention Policies 60
        10.5      Compatibility with Resource Accounting Budgeting and Capital Write Down Procedures 61
        10.6      Key Points                                               62
11      Recommendations for The Way Forward                                63

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        11.1      Introduction                                          63
        11.2      Using Planning Powers                                 64
        11.3      Establishing Dedicated Delivery Vehicles              66
        11.4      Establish Dedicated Infrastructure Fund               68
        11.5      Promoting a Model Approach                            69
        11.6      Towards an Agency Best Practice Model                 69
        11.7      Working with the Homes and Communities Agency (HCA) 73
        11.8      Experience Elsewhere                                  74
        11.9      A Regional Utilities Group                            74
12      Establishing an Action Plan                                     75
13      Conclusions                                                     77




Appendices
A1.     Strategic Leadership Bodies
A2      Infrastructure Asset Efficiency in the Utility Sector
A3      East Midlands Regional Economic Strategy/ Emda Corporate Plan
        and Infrastructure
A4      Methodology for Setting the CIL
A5      Infrastructure Planning Commission
A6      Bibliography & Useful References




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Executive Summary                                                                                  proposals to reform the regime for development consent for nationally
                                                                                                   significant infrastructure and other measures to change the Town & Country
1. Background and Context                                                                          Planning system. The introduction of the Community Infrastructure Levy
Forward planning of infrastructure delivery and its connection to growth                           reflects the importance attached to the delivery of major infrastructure to
areas is not new and was key to the successful industrialisation and growth                        underpin growth and stability.
of our cities. During the Victorian era many of the water supply and                               The East Midlands region has acknowledged that significant investment is
sewerage systems still in use today were constructed, for example the                              needed to achieve a step-change in the capacity and availability of
reservoirs in North Wales built to serve the growth of Birmingham.                                 infrastructure to support growth and regeneration. During the recent RFA
Prior to 1979 much of the country’s infrastructure was in public ownership.                        exercise, the region considered the potential merits of using its existing
The 1980s saw the privatisation of many of these industries, for example                           funding allocations to create a dedicated Regional Infrastructure Fund (RIF)
water, telecommunications and data, power and gas supplies and public                              to provide up-front investment in infrastructure which would then be repaid
transport, with others including highways, education and health remaining in                       through developer contributions, however the balance of opinion within the
public ownership and delivery, although subject to much more rigorous                              region is that a compelling case remains to be made and it was clear that
internal market control.                                                                           further investigation and consideration was required.

The newly privatised infrastructure companies inherited forward investment                         The East Midlands Development Agency (emda) has taken this issue
strategies and growth directions that had been closely related to the housing                      forward through this commission, with the aim of exploring how the Agency
land availability forecasts and land allocations made by local planning                            can work mostly effectively in this system identifying appropriate levers that
authorities through the development plan system. They also inherited a                             might be used to exert an appropriate level of influence, or to help improve
substantial reserve of un-utilised or under utilised service capacity. In                          any identified gaps or deficiencies in the current processes and
general terms it is fair to observe that the ability to grow infrastructure access                 relationships. In this context, the provision of infrastructure needed to
through the utilisation of pre-privatisation programmed growth and greater                         support key growth areas, including housing and employment areas, is
use of service capacity reserve is now becoming limited. This programmed                           considered in relation to maintaining and enabling regional economic growth.
growth and service capacity reserve is a finite resource and, some
commentators including the Royal Town Planning Institute believes that it is
now close to exhaustion in a number of locations. 1
Delivering the right infrastructure is critical to sustainable economic
development and housing. Recognition of the significant role infrastructure
plays in the delivery of economic growth and prosperity was underlined in
both the Barker 2 and Eddington 3 reviews. The Government’s response to
these reviews – the White Paper – Planning for a Sustainable Future set out

1
  RTPI (2008) Supporting Housing Growth. A Cross Cutting review by the Treasury. RTPI
response.
2
  Barker, K , (2006) Barker Review of Land Use Planning. Final Report, HM Treasury, London
3
  Eddington, R, (2006) Transport's role in sustaining UK's Productivity and Competitiveness: The
Case for Action.

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2. The Report                                                                         achieving this, together with a role for the Homes and Communities Agency
The study was informed by both primary and secondary research and                     and a Regional Utilities Group. Finally the report sets out a focused action
shaped by a workshop held with key members of staff within the Agency.                plan for consideration by the Agency, which contains ‘quick wins’ and longer
This explored the importance of ensuring appropriate and timely                       term actions, the planning for which needs to commence in the near future.
infrastructure delivery to the Agency and future success of the East Midlands         An ‘Ancillary Report’ has also been produced which seeks to map at a
region and expanded the scope of the study from that originally envisaged to          regional level the relationships between infrastructure capacity and provision
one which includes the outcomes described below.                                      and planned or proposed levels of additional development and growth. Due
The report examines the nature of the infrastructure ‘problem’, defining              to the difficulty in compiling a comprehensive picture of investment plans,
‘critical’, ‘strategic’ and ‘other’ types of infrastructure and the role of emda in   this mapping is indicative and intended to assist emda and other partners in
the infrastructure agenda. The current priorities for co-ordinated                    understanding some of the potential challenges, constraints and
infrastructure delivery, the functional geography of infrastructure provision,        opportunities facing different parts of the region.
its relationship to future growth, the connections between infrastructure and
spatial planning are explored and consideration given to how this may be
affected by the requirements for higher sustainability and environmental
performance standards for new development.
The priorities of infrastructure providers, how they are funded, how they
manage their assets, their approach to connecting new development and
how they cover their costs and charge for services are considered, alongside
a brief over view of the structure, regulation and forward planning processes
of the key utility industries.
A number of key challenges relating to the co-ordination and delivery of
infrastructure are identified, and assessed alongside the key players and
organisations, regional capacity infrastructure funding decision making, and
processes for identifying and delivering new requirements. Three different
delivery models for infrastructure are explored in more detail.
The report considers a number of mechanisms for the financing of co-
ordinated infrastructure provision, including the development of infrastructure
funds, existing and potential sources of revenue and examines the scope for
action by the Agency. A series of intervention areas and associated issues
are identified and assessed, including State Aid, the shadow price of carbon
and compatibility with RDA resource accounting and capital write down
procedures. Emerging from this assessment is a series of recommendations
for the way forward focusing on using planning powers, establishing
dedicated delivery vehicles and a dedicated infrastructure fund. The report
describes a model approach that could be applied and the stages in
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3. The Infrastructure Challenge                                                   emda has sought to influence infrastructure provision through its strategic
The infrastructure needs of the region can be represented as a series of          leadership role; it has no direct or obvious role in the regulation of
‘layers’ representing networks of roads, high voltage power lines, sewers,        infrastructure providers, but understanding the impacts and implications of
gas pipelines and telecommunications networks.                                    how regulation works is of relevance to understanding some of the
                                                                                  challenges in the current system of infrastructure. Key points regarding
                                                                                  emda’s past and current role are as follows:
                                                                                  •   emda is not a core funder of infrastructure – but has been actively
                                                                                      involved in capital schemes re: large coalfield sites (National Coalfields
                                                                                      Programme) which has involved full site remediation and servicing;
                                                                                  •   Involvement has often focused on feasibility and technical assessments
                                                                                      – site specific or strategic, with examples including transport
                                                                                      infrastructure, and power (network related and renewable);
                                                                                  •   Support for innovative projects – e.g. community wind farm project;
                                                                                  •   Projects/programmes re: delivery – waterways; GI; with clear and direct
                                                                                      link to economic development and Regional Economic Strategy (RES)
                                                                                      objectives.




Figure 1. A layered approach to infrastructure
To be effective, infrastructure needs to be delivered in a coordinated way to
support productivity performance. It is clear from the findings that each
infrastructure ‘layer’ responds to development opportunities in different ways,
reflecting the providers own business models, strategies and rules resulting
in bottlenecks and barriers in the supply of services thereby delaying
investment. Through the intelligent co-ordination of capital programmes and
working with the network operators some of the bottlenecks can be lessened
enabling the right conditions to come together. The strategic planning and
management of infrastructure is not undertaken systematically, reflecting the
gap in regional priorities.
The term “critical” infrastructure is defined as the basic infrastructure
required to support development. The term “strategic” infrastructure is often
used to prioritise funding and delivery with reference to policy objectives
alongside scale. The term is used as a precursor to prioritising RIF projects.
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4. Infrastructure Provision                                                        technologies, and the recycling of water for secondary uses within
The distribution of strategic employment locations and the spatial direction of    sustainable urban drainage systems can reduce the reliance on critical
future housing growth (taken from the East Midlands Plan) show a relative          infrastructure networks. Whilst current technologies are unlikely to ever
clustering of proposed development along the M1 corridor towards the               dispense entirely with the value of being connected to wider networks, the
designated growth area in the south of the region. The East Midlands               design principles require greater integration between providers and
Regional Plan and RES are based on geography defined by administrative             developers early in the process.
areas; sub regional partnerships and functional units like Housing Market          Network operators will be particularly interested in testing the robustness of
Areas or regeneration areas. These units are the focus for identifying             design assumptions concerning the use of “on site” delivered services in
development needs and for plan-making. These areas are a lot smaller than          case non performance leads to eventual displacement of demand back onto
the infrastructure providers whose networks typically span areas the size of a     the networks. This might be a problem in cases where “on site” infrastructure
region as demonstrated by the regional structures used for water and               lies in the hands of a myriad of owner occupiers (domestic and non
electricity respectively. These large functional regions are not co-terminus       domestic) without specific arrangements to maintain the infrastructure.
with the administrative regions hence the East Midlands is served by more
than one utility operator e.g. Anglian and Severn Trent Water.                     Sustainable development initiatives must, therefore, be accompanied by new
                                                                                   delivery models that remove risk of non performance. Sometimes this will be
The geography used by network operators often reflects the legacy asset            facilitated by the commercial arms of conventional utility companies who will
base and organisational form of what has gone before. Originally, these            design, build and operate the technology.
networks were established on some form of universal service obligation
established at the time of being a nationalised industry. As regulated private
monopolies in the main, they have tended to retain their obligation to             5. Infrastructure Providers and the Planning System
consider all applications for connections but on an economic basis. The            Privatised network operators are commercial concerns driven by shareholder
growth policies of the region impact on network operators by changing the
                                                                                   returns on investment. Economic development outcomes have tended to be
relationship between demand for infrastructure services and supply through         incidental to providers core business, unless there is a clear “bottom line”
the legacy network e.g. by changing demand for infrastructure services via         benefit. Network investment decisions are usually made in support of the
physical regeneration policies that switch land use from employment to
                                                                                   financial priorities of the delivery organisation within the framework set by the
housing or by creating additional demand through sustainable urban                 economic regulators. Regulated utility providers are generally prevented
extensions and major inward investment sites.                                      from making ‘up-front’ or pre-emptive investments to respond to
Growth policies therefore have the potential to change the spatial patterns of     development proposals or land allocations. However, they can agree a cost
use across the network and future demand for connections. These policies, if       with developers or land-owners to improve an existing or provide a new
realised, will have an impact on investment needed to maintain the networks.       connection to a particular site. Otherwise, the majority of investment made
                                                                                   by the providers is focused on maintaining their networks and asset base,
Whilst it is clear that some infrastructure provision e.g. transport, is better
                                                                                   not explicitly to plan for or enable additional future demand created by
connected to the planning system than others, a key issue for all providers
                                                                                   development.
and the Agency relates to the impact of increasing sustainable development
standards and requirements on delivery. This has the capacity to change            Investment in network costs comes from the money people and businesses
critical relationships as a greater proportion of infrastructure is internalised   pay to use the system and payments made by developers for new
within a development. For example the use of on site renewable generation          connections, and is a significant source of revenue. In addition, the
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apportionment of network costs to new connections has led to a whole set of              Table 1 overleaf summarises the key relationships between the infrastructure
complex rules governing how much is payable to whom and when. Neither                    providers, their business planning processes and the planning system.
emda, nor any other strategic body or local planning authority has any
significant leverage over charging levels.
The joint planning for infrastructure is complex, partly as a result of different
geographies operated by providers and regeneration agencies and the
commercial sensitivities attached to key data needed for infrastructure
planning. In addition, there is also a temporal discord between the lead-in
times for certain types of utility infrastructure provision (e.g. water) involving
five year business plans with costed proposals, local needs and
infrastructure renewal. Other infrastructure provision, for example roads, is
well connected to traditional land use planning. A process of rolling
engagement and dialogue is likely to be of mutual benefit to both providers,
Local Planning Authorities and regeneration agencies such as emda.
There are examples of best practice engagement emerging, for example the
Regional Water Partnership in the East Of England, which involves the East
of England Development Agency, GO-East, Natural England, CC Water, the
Environment Agency, the East of England Regional Assembly and the water
supply companies in the region, and which is working to put all aspects of
water at the forefront of decision-making in planning processes.


Table 1 Summary of key relationships

Infrastructure   ‘Regulator’       Business planning period                                      Issues and link to planning system


Water            Ofwat             5 years Business planning period.                             Sewage and Water Companies are Statutory Consultees for major planning
                                   All water companies have a duty to produce water resources    applications and development plans. Business planning areas do not follow
                                   plans covering the next 25 years. These cover how companies   regional / local authority boundaries.
                                   intend to provide sufficient water to meet their customers'
                                   needs.


                                   Flood and coastal risk management – 25 years                  Statutory consultee for planning applications and development plans.
                 Environment
                                                                                                 Cachments do not reflect regional / local administrative boundaries.
                 Agency
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Gas and          Ofgem             5 year price controls.                                          Not a requirement. Generation may be outside region, or even offshore
electricity                        Long lead in time for new infrastructure capacity and           windfarms.
                                   replacement infrastructure capacity. Asset value measured in    Issues – fuel mix (eg % renewables), security of supply, planning system
                                   decades.                                                        seen as impediment to new infrastructure delivery.
                                                                                                   Statutory consultee role on development plans limited to person to whom a
                                                                                                   license has been granted under Section 7(2) of the Gas Act 1986

Telecoms         Ofcom             Focus on competition vs monopolies                              No apparent link to planning system. Concern that 100% superfast
                                                                                                   broadband coverage will require public sector support particularly rural areas.
                                                                                                   Statutory consultee role on development plans - any person who owns or
                                                                                                   controls electronic communications apparatus situated in any part of the area
                                                                                                   of the council

Roads            DfT               Various depending on nature and size of scheme and nature       RTS, LTPs, connect to spatial planning system. Links strengthened through
                                   of funding source.                                              RFA process.

                 Highways                                                                          Statutory Consultee role on development plans and major planning
                 Agency            Well connected to planning system – strengthened for major      applications
                                   infrastructure through RFA process.

                 Local Highways
                 Authority

Rail             DfT,              Network Rail – strategic business plan 5 years.                 RTS forms key part of RSS. Route Utilisation Strategies – stakeholder
                 ORR                                                                               steering group includes regional planning representation.

                                   Some developments linked to planning system and RFA
                                   process has strengthened this.
                                   19 franchised train operators, various time limited contracts

Air              DfT, CAA          Various time periods                                            Future of Airports White Paper.
                                   Airport masterplans to 2030                                     Airport expansion proposals reflected in RSS and development plans
                                   Airline routes – shorter time




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6. Co-ordinating Infrastructure Provision                                        test of soundness for the Core Strategy and other local development
Where an infrastructure provider is a private company, decisions made            documents in the future. Currently, PPS12 guidance does not provide any
belong in the commercial sphere and as such are governed by commercially         detail over the format of an infrastructure delivery plan which has led to a
confidential decision making.                                                    variety of approaches from local planning authorities ranging from the
                                                                                 passive testing of broad policy principles with some infrastructure providers
Although there are a number of organisations with a nominal regional focus       through to a more integrated approach aimed at establishing the critical path
in the conduct of their decision making, the boards of the regulated             across a range of infrastructure delivery bodies.
monopolies and their parent corporate bodies make decisions based on
assessments of national need or international investment opportunities.          With the passive model, the focus has tended to be on core public service
These decisions are in turn influenced by trends in the international money      infrastructure providers often within the Local Authority’s control. The output
markets. The economic regulators (who are concerned with the amount of           of this approach is typically a standalone document owned by the Planning
money available for investment) and institutions of the European Union (who      Authority that lists infrastructure projects, ownership, costs and timescales.
are concerned with Regulations relating to the quality of service/ safety) are   The document may lack a consistent process and ideally needs to be
also making decisions without any particular regard for region’s economic        developed in partnership with adjoining Authorities that occupy the same
development.                                                                     functional footprints of the infrastructure networks they are seeking to
                                                                                 influence.
Whilst an open system carries certain disadvantages, the funding of East
Midlands regional infrastructure needs is freed from a dependency on             Under the integrated approach, infrastructure delivery planning is driven by a
internally generated revenue streams alone. This carries potential risks and     common overall vision for the development of an area as expressed in its
rewards dependent upon national priorities of the day and alternative            Sustainable Community Strategy and Core Strategy. This vision can be
investment markets.                                                              unpacked into the performance required from individual services over the
                                                                                 term of the plan.
The study highlights the context within which the Agency is working by
illustrating that it is contending with funders that, in the example of the      As Local plans are replaced by Local development Frameworks (LDFs), the
energy companies, have a global perspective where the East Midlands is           LPAs will have a statutory duty to plan and cost new infrastructure required
one, small market place among many. For international utilities, opportunities   by the LDF. This will help inform negotiations with developers relating to
exist for higher returns in the expanding markets of Asia.                       planning obligations (Section 106), and/or decisions about how much of this
                                                                                 cost should be funded by the Community Infrastructure Levy (CIL) if
The approach to infrastructure planning does not follow any particular           implemented. The overall purpose of the CIL is to make a significant
pattern of engagement with critical providers. The co-ordination problem has     contribution to infrastructure provision and to ensure that development
encouraged the development of a whole range of policies aimed at                 contributes fairly to the mitigation of the impacts it creates and to ensure that
promoting infrastructure delivery co-ordination and planning. The                development is delivered in a more sustainable way. The challenge of
government has chosen to concentrate on the land-use planning system as          securing sufficient value from lower value sites to support infrastructure is an
the means of achieving better co-ordination.                                     issue emda will be familiar with, and is likely to be a key issue during the
Planning Policy Statement 12 (PPS12, published 4 June 2008) now                  economic downturn.
encourages a much greater emphasis on what was formerly termed
implementation planning to support development plan policies. New
guidance clearly indicates that infrastructure delivery planning will be a key
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                                                                       7. Delivering Co-ordinated Infrastructure
                                                                       Certain delivery models would appear to have a greater scope for filling
                                                                       gaps/ weaknesses than others. The development of a focus on these
                                                                       vehicles does not devalue the other organisational forms, but seeks to
                                                                       maximise future potential. Three key models are identified and explored in
                                                                       more detail below, alongside a consideration of the role which emda and its
                                                                       partner organisations could play in each.
                                                                       These delivery models are:
                                                                       •   Strategic co-ordination bodies (for example the City Development
                                                                           Company Concept);
                                                                       •   Asset Backed Vehicles (including Local Asset Backed vehicles such as
                                                                           Blueprint in the East Midlands; Local Incentive Backed vehicles such as
                                                                           that used by Network Rail and Kier; Sectoral Asset Backed Vehicles –
                                                                           Local Improvement Finance Trusts (LIFT) for example Greater
Figure 4: Role of a Common Vision in Driving Infrastructure Planning       Nottingham and North Nottinghamshire LIFT)
                                                                       •   Local Infrastructure Service Models (for example Energy Services
                                                                           Companies and Multi Utility Service companies such as the elephant and
                                                                           Castle MUSCO).




Figure 5: A Vision Led Process


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8. Financing Co-ordinated Infrastructure Provision                               Agency may provide an alternative source of funding to prime a Regional
Forward funding mechanisms have emerged as a response to situations              Investment Fund. The South West Regional Investment Fund provides an
where development has stalled due to an unwillingness of either the supplier     indication of the likely scale of the funding required, where the RDA allocated
of infrastructure services, or the inability of a developer with a service       £50m from the ‘single pot’ and matched by £30m top sliced from the RFA.
requirement, to fund new investment. The response has been the                   The RIF has been in existence over twelve months and four investments
development of a number of innovative solutions to deal with timing              have been agreed totalling over £21m.
problems and inflexibilities in silo based capital infrastructure.               The RIF Business Plan is managed by an Investment Panel and investment
Figure 6 shows the possible structural relationship between potential            decisions taken within the context of existing regional strategies, set against
revenue streams for the raising capital to prime a fund for the financing of     clear criteria to deliver regional priorities established through the RES and
infrastructure.                                                                  RSS and supported by other initiatives such as New Growth Points. The
                                                                                 focus is on the degree to which a RIF investment adds value to the delivery
One solution has been to ‘de risk’ the provision of an asset by funding it’s     of sustainable growth or by making development more sustainable by earlier
investment requirement using third party funds and using predictable             delivery of key infrastructure.
revenue streams to support the process. Infrastructure can be delivered to
enable or unlock development from which agreed planning obligation               The model shown in figure 6 is dependent upon the ability to identify an
contributions would reimburse or repay the fund. Once the Community              appropriate source of revenue to finance borrowing costs and reimburse the
Infrastructure Levy (CIL) is in operation that could also be used to reimburse   fund to enable further investment to be made. In the UK these sources are
any fund.                                                                        relatively few and concerned largely with capturing value from the
                                                                                 development process. Most of the revenue streams are also dependent
The potential funding available from different revenue sources is dependent      upon capturing the positive spill over effects of infrastructure into property
upon the degree to which government allows innovative sources of finance         and land values. In the post credit crunch era it must also be recognised that
to enable these systems to function effectively. The infrastructure fund         there is an element of risk associated with assuming there will be realisable
approach is emerging as a valuable tool for addressing failures in the           gains. In an uncertain market, it can not be certain that new productive
provision of infrastructure needed to unlock development. Models exist or        investment will be realised off the back of infrastructure investment however
are developing at a sub-regional level and regional level around the country.    well designed and funded.
There are clearly some benefits of the approach in overcoming the common
barrier of an absence of up-front investment to enable or unlock                 The study identifies a number of existing sources of revenue streams which
development. Therefore, this approach is something which merits further          could be developed further, for example the Local Authority Business Growth
consideration.                                                                   Incentive (LABGI), the proposed Nottingham Workplace Parking Levy, and
                                                                                 Planning Obligations (section 106 Agreements). In addition the report
However, the effectiveness of the mechanism is dependent upon the flow of        considers a number of potential future work streams, although it should be
repayments coming back into the fund from public and private sector              recognised that primary legislation would be required for their introduction.
sources. Under recessionary conditions, the danger is that funds become          These include Tax Increment Financing, Accelerated Development Zones
locked up in a first tranche of projects. There is still a concern over the      and Supplementary Business Rates.
additionality created by such a fund against the scale of need unless there
are significant funds channelled into it. The scale of funding required could
act as a major barrier to emda playing an active role in establishing a fund,
although other public sector partners such as the Homes and Communities
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Figure 6: Infrastructure Funds – Structural Relationships
                                                            9. Prioritising Interventions
                                                            There is a clear need to secure the co-ordinated provision of infrastructure in
                                                            order to realise the development objectives of the region. There are a
                                                            number of ways in which emda might respond to the issues identified. The
                                                            determination of priorities however must represent a balance between the
                                                            internal capacities of emda and the external economic drivers likely to
                                                            influence infrastructure service developments in the future.
                                                            The factors influencing how emda might intervene include:
                                                               •   Government guidance concerning the interpretation of market failure
                                                                   and the way RDAs are expected to scope and justify actions.
                                                               •   State Aid regulations have implications for the types of interventions
                                                                   which are considered appropriate, focusing largely on the use of
                                                                   public investment to assist private sector organisations.
                                                               •   Operational decisions and judgements will also be required, including
                                                                   the scale of funding and other resources which emda has available to
                                                                   support any decision to play a more active role in the infrastructure
                                                                   agenda.




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10. Recommendations for the Way Forward                                           funding to support the removal of bottlenecks in infrastructure provision.
                                                                                  Agency funding could be made contingent upon the adoption of a best
Interventions in relation to the strategic infrastructure challenge need to       practice model within targeted authorities.
focus on reducing the opportunity costs incurred by development projects
caused by bottlenecks between critical infrastructure providers to secure         Whilst a large number of organisations are involved with infrastructure, the
spatial/ economic objectives and between critical and social/ community           position of the Homes and Communities Agency justifies particular attention.
infrastructure.                                                                   The Homes and Communities Agency also has a strategic role in securing
                                                                                  housing development and regeneration in the East Midlands. In an era of
Bottlenecks can be overcome by improving the flow of information between          mixed use/ sustainable development, alignment with economic development
providers (including the reduction of proprietary knowledge) or using funding     is critical to the region’s success.
mechanisms to change the critical path of infrastructure provision.
                                                                                  The actual involvement of the HCA in infrastructure discussions and planning
A range of practical actions that the Agency is either already doing or could     has varied at the regional level in accordance with local circumstances. For
consider include:                                                                 example, in the South West, the HCA has taken a leading role in the
•   Using current statutory planning role to achieve improved flow of             Regional Funding Allocations discussions, partly as a result of the transfer of
    information (principally via input to assist LDF preparation);                key executives from the RDA to the HCA and partly as a result of the number
                                                                                  of urban extensions and settlements planned or in need of support.
•   Establishing or partnering the development of dedicated delivery
    vehicles to improve the flow of information and fund projects essential to    The “Single Conversation” has provided the key mechanism for discussions
    maintaining the critical path of a project; and                               on alignment and regional investment priorities. The HCA (East Midlands)
                                                                                  has been involved in the RFA consultation exercise which has set out a
•   Establishing dedicated funds primed for the purposes of changing the          broad direction of travel for the region in terms of priorities. The HCA have
    critical path of productive investment.                                       acknowledged that further arrangements need to be put in place if real
                                                                                  alignment and joint investment is to be achieved.
The Agency has an opportunity to use its strategic influencing role to
promote a model approach to dealing with the infrastructure problem for local     In the West Midlands, key partners (comprising chief executives and senior
planning authorities but validated by the network planners managing critical      officers from AWM, Local Government, Assembly, Highways Agency, Homes
infrastructure. The Agency, with its business focus, is well placed to act as     and Communities Agency, Learning & Skills Council and Government
an interface between a multitude of local planning authorities (either acting     Office), under the auspices of the Joint Strategy & Investment Board have
individually or within groups) and the “big” critical infrastructure companies.   prepared and agreed the RFA (as opposed to the more inclusive approach
                                                                                  adopted in the East Midlands which involved a series of workshops and
As a result of PPS12, spatial planning has become more involved with
                                                                                  discussion papers to reach agreement).
critical infrastructure but the experience is serendipitous. Once developed a
model approach could be targeted at those authorities currently considered a      The West Midlands has identified twenty Investment Impact Locations which
priority for input from a strategic perspective to inform plan preparation and    reflect the regional priorities. The region has also asked Government to
those where growth and infrastructure provision are likely to emerge as           consider the creation of a Regional Infrastructure Fund. The approach has
particular issues.                                                                had a profound influence upon emerging ideas for the Single Integrated
                                                                                  Regional Strategy (SIRS) and its associated delivery plan for the West
Consideration could be given to how current and future delivery vehicles
could be deployed in these areas to assist implementation alongside any
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Midlands, where partners now intend to use the focus on deliverability in      11. Establishing an Action Plan
other aspects of infrastructure provision (e.g. environment and health).
                                                                               This study has identified a number of actions which the Agency could take
Emerging from the second workshop delivered as part of this study was the      forward to support the future delivery of infrastructure within the East
idea of the establishment of a Regional Utilities Group (with representation   Midlands. These are summarised in Table 2 below.
from emda, HCA, HA Local Authorities and Utility providers) to map strategic
and operational plans and priorities to identify the gap over say a ten year   Table 2 Establishing an Action Plan
period. This is similar to a model developed by Yorkshire Forward which has
led to more effective planning and joint understanding of the challenges
facing the region.
                                                                                  Action                                             Quick       Med           Long
                                                                                                                                     Win         Term          Term
                                                                                  Regulators
                                                                                  Either alone or together with the other RDAs,
                                                                                  seek to ensure that the Regulators understand
                                                                                  the need for long term infrastructure
                                                                                  investment to underpin regional growth
                                                                                  Utility Providers
                                                                                  Involve regional representatives of the
                                                                                  infrastructure providers, together with other
                                                                                  organisations (eg local authorities, HCA) in a
                                                                                  new ‘Regional Infrastructure Group’, and
                                                                                  emda to engage with the business planning
                                                                                  processes of the Utility providers.
                                                                                  Develop a Regional Infrastructure Strategy
                                                                                  to guide investment plans of utilities and other
                                                                                  infrastructure providers, and secure ‘sign off’
                                                                                  by regulators.




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Action                                           Quick   Med    Long   12. Conclusions
                                                 Win     Term   Term
                                                                       This study has explored the nature of infrastructure provision in the East
Infrastructure Delivery Plans                                          Midlands and the extent to which infrastructure providers are connected
Emda to develop a Best Practice Model and                              into the growth agenda for the region. The study has revealed a range of
guidance to inform and guide key authorities /                         issues including:
groups of authorities within the region                                •   Inconsistencies between the geographical areas covered by the
New Funding Regimes                                                        various infrastructure and utility providers eg water and electricity
                                                                           providers do not share common boundaries for business and service
Emda to work with other RDAs and HCA and                                   planning;
government to develop new innovative funding
national and regional models to support future                         •   The boundaries between infrastructure providers and the utilities are
infrastructure delivery.                                                   not consistent with those of the regional or local authorities;

Investment Impact Locations                                            •    Different infrastructure and utility providers operate on different
                                                                           business planning cycles, which in many cases do not co-incide with
Work with regional partners to identify                                    those for spatial planning;
investment Impact Locations, where funding
can be targeted                                                        •   These discontinuities also exist in the business and investment
                                                                           planning that supports the various parts of the water cycle eg the Water
Develop interactive GIS tool to inform and                                 Resource Plans for drinking water are 25 year plans for investment, but
guide decision makers                                                      no equivalent exists for sewerage and drainage;
                                                                       •   Transportation is the form of infrastructure provision best connected to
                                                                           the spatial planning and growth agenda;
                                                                       •   Most infrastructure providers and utility companies are commercial
                                                                           organisations. As such their decisions are affected by a combination of
                                                                           commercial realities and the regulator’s rules. Because a growth area
                                                                           has been indentified by government, it does not automatically follow
                                                                           that investment in infrastructure provision to support that growth will
                                                                           take place at the time required.
                                                                       •   Legacy infrastructure is also an issue for infrastructure providers and
                                                                           utilities. This also requires expenditure on renewal.
                                                                       •   Infrastructure need can and will be met in the future by a combination
                                                                           of new capacity and demand management measures. This is
                                                                           demonstrated in the Water Resource Plans for the region which
                                                                           assume efficiency savings.

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The Agency has an exciting opportunity to use its strategic leadership
capabilities to embed good practice in the region at minimal resource cost. A
range of actions have been identified, some with limited resource
implications for emda, and others likely to require some potentially significant
funding commitments to take forward. However, in different ways these
actions could have real impact and value to emda and wider partners
involved in the planning and delivery of development.
By reducing the uncertainties and opportunity costs associated with critical
infrastructure provision, the Agency can help minimise the debt charges paid
by developers on scarce capital arising from hold ups in infrastructure
provision and barriers created by the excessive loading of network costs
onto first phase developers.
The Agency could also act as a conduit between the very large bodies
planning infrastructure networks and the local planning authorities controlling
spatial planning.
Opportunities exist for the Agency to engage with the HCA within a single
infrastructure planning framework with the Agency playing to its strengths
around employment interests looking to a future where homes and jobs will
need to be delivered jointly to achieve wider sustainable development
objectives.
Although considered unlikely in the current and foreseeable climate, any
future headroom in emda capital funding could be usefully used to support
the creation of infrastructure funds either using a decentralised (essentially
project based) model or centralised through the creation of a RIF. However,
practical discussions with partners such as HCA would still be sensible to
develop regional thinking on how to best use existing and future known
resources to achieve agreed regional objectives.




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1       Introduction                                                                             these reviews – the White Paper – Planning for a Sustainable Future set
                                                                                                 out proposals to reform the regime for development consent for nationally
        1.1            Background and Context                                                    significant infrastructure and other measures to change the Town &
                                                                                                 Country Planning system. The introduction of the Community Infrastructure
        Forward planning of infrastructure delivery to support and enable growth is              Levy reflects the importance attached to the delivery of major infrastructure
        not new and was key to the successful industrialisation and growth of our                to underpin growth and stability.
        cities. During the Victorian era many of the water supply and sewerage
        systems still in use today were constructed, for example the reservoirs in               There is a growing awareness of the increasing need for regional and local
        North Wales built to serve the growth of Birmingham.                                     planning policies and spatial strategies to consider infrastructure issues and
                                                                                                 delivery as well as an awareness of the site delivery challenges and
        Prior to 1979 much of the country’s infrastructure was in public ownership.              barriers often associated with infrastructure provision.
        The 1980s saw the privatisation of many of these industries, for example
        water, telecommunications and data, power and gas supplies and public                    The provision of infrastructure has been increasingly driven by the need to
        transport, with others including highways, education and health remaining                support significant projected growth in housing over the next twenty years
        in public ownership and delivery, although subject to much more rigorous                 and beyond. Much of the policy debate relating to this provision has been
        internal market control.                                                                 influenced by the need to fund infrastructure to support ’Sustainable
                                                                                                 Communities’. Many of the changes in policy, emerging guidance and good
        The newly privatised infrastructure companies inherited forward investment               practice have focused on how value can be captured from the development
        strategies and growth directions that had been closely related to the                    process to fund this type of provision.
        housing land availability forecasts and land allocations made by local
        planning authorities through the development plan system. They also                      The Regional Funding Advice (RFA) process undertaken in the East
        inherited a substantial reserve of un-utilised or under utilised service                 Midlands towards the end of 2008 gave key regional partners the
        capacity. In general terms it is fair to observe that the ability to grow                opportunity to set out its priorities for economic development, transport,
        infrastructure access through the utilisation of pre-privatisation programmed            housing and regeneration and skills funding. The preparation of the RFA
        growth and greater use of service capacity reserve is now becoming                       was a valuable process. Engagement with and between regional partners
        limited. This programmed growth and service capacity reserve is a finite                 helped to reaffirm that the region’s long-term strategies remain the right
        resource and it is now close to exhaustion in a number of locations. 4                   ones even in times of significant economic uncertainty.

        Delivering the right infrastructure is critical to sustainable economic                  The East Midlands region acknowledged that significant investment is
        development and housing. Recognition of the significant role infrastructure              needed to achieve a step-change in the capacity and availability of
        plays in the delivery of economic growth and prosperity was underlined in                infrastructure to support growth and regeneration. The region considered
        both the Barker5 and Eddington6 reviews. The Government’s response to                    the potential merits of using its existing funding allocations to create a
                                                                                                 dedicated Regional Infrastructure Fund (RIF) to provide up-front investment
    4
      RTPI (2008) Supporting Housing Growth. A Cross Cutting review by the                       in infrastructure which would then be repaid through developer
    Treasury. RTPI response.                                                                     contributions. Whilst some stakeholders considered there would be merit in
    5
      Barker, K , (2006) Barker Review of Land Use Planning. Final Report, HM                    such a fund, the balance of opinion within the region is that a compelling
    Treasury, London                                                                             case remains to be made.
    6
      Eddington, R, (2006) Transport's role in sustaining UK's Productivity and
    Competitiveness: The Case for Action.

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 The region believed that the issue of infrastructure funding, including the                 This study also considers whether there are any added dimensions to
 possibility of a RIF, require further investigation and consideration.                      infrastructure need created by the supply side of the economy which has
                                                                                             been given added urgency by the impact of the credit crunch.
 1.2    The Purpose of the Study
                                                                                             This report is a contributor to the Agency’s development of a
 The East Midlands Development Agency (emda) has taken this issue                            comprehensive evidence base (e.g. studies commissioned on inward
 forward through this commission, with the aim of exploring how the Agency                   investor requirements for electricity; network capacities for distributed
 can engage mostly effectively in the key infrastructure delivery systems and                generation) to support infrastructure policy thinking within the organisation
 processes. The key objective is to identify appropriate potential levers and                to inform current and future strategy and delivery relating to the Regional
 actions that might be used to exert an appropriate level of influence, or to                Economic Strategy (RES) as well as the future Single Regional Strategy. In
 help improve any identified gaps or deficiencies in the current processes                   so far as it has been possible the report has sought to account for the
 and relationships. In this context, the provision of infrastructure needed to               findings of parallel research studies.
 support key growth areas and economic development is considered in
 relation to maintaining regional economic growth.
 In late 2008, Arup were commissioned by the East Midlands Development
 Agency to undertake a study to improve their understanding of the funding,
 delivery and planning context for the provision of infrastructure in the East
 Midlands region.
 A common assumption is that the provision of critical infrastructure needed
 to support the basic needs of communities such as power, water supply
 and sewerage disposal networks will automatically happen through the
 investment activities of the major utility industries and executive arms of
 government.
 This study reviews those assumptions looking at the broad spectrum of
 infrastructure provision with a particular focus on critical infrastructure most
 commonly assumed to be taken care of via these routes. It seeks to
 provide a better understanding of the considerations and issues facing a
 range of infrastructure providers and the factors which influence and
 govern the investments they make.
 Infrastructure funding in the East Midlands is part of a complex and ‘open’
 system with many of the decisions being made outside the region by
 international companies with a global investment perspective and by
 national economic regulators and public expenditure managers.




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   1.3        The Focus of the Study                                                              •   Enabling a constructive dialogue on national, strategic and local
                                                                                                      infrastructure;
   This study has focused on a number of key activities, namely:
                                                                                                  •   Providing clarity on the economic value of infrastructure
         •   Scoping the different types of infrastructure involved, including                        investment;
             service outputs derived from infrastructure and associated
             funding regimes;                                                                     •   Aid a more systematic approach to prioritising infrastructure
                                                                                                      supportive of strategic economic and employment growth;
         •   Understanding the scale of critical infrastructure service needs in
             terms of the growth agenda;                                                          •   Demonstrating alignment with sustainability objectives;

         •   Identifying possible weaknesses and deficiencies in delivery or                      •   The scope and options for sustainable engagement with
             process terms related to infrastructure planning and investment;                         emergent infrastructure planning activity in the region;

         •   Reviewing market failure, existing activities undertaken by the                      •   Prioritising any proposed interventions that are genuinely
             Agency in relation to infrastructure and intervention rules;                             additional and appropriate to the agency’s budgetary resource;

         •   Reviewing potential options and approaches to defining “value for                    •   Considering approaches to handling forward funding of
             money” from infrastructure investment;                                                   infrastructure; and

         •   Identifying possible intervention options for the agency to                          •   Identifying credit crunch resilient opportunities.
             consider in relation to infrastructure investment or infrastructure            Some of these areas of interest translate directly into outcomes that the
             planning; and                                                                  Agency wants to achieve from infrastructure investment whilst others relate
         •   Identifying issues surrounding infrastructure planning activities              to underlying processes that deliver outcomes in the region.
             underway in the region.

  1.4         Additional Considerations

  Early in the study a workshop was held with key members of staff within
  the Agency. This explored the importance of ensuring appropriate and
  timely infrastructure delivery to the Agency and future success of the East
  Midlands region. A number of additional issues for the Agency emerged
  which the study was asked to address or reflect, including:
         •   Improving the Agency’s understanding of infrastructure provision,
             especially the utility sector;
         •   Infrastructure within the context of facilitating growth in the
             region;
         •   Enhancing the influencing role of Agency in the lead up to Single
             Regional Strategy preparation;
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  1.5          The Structure of the Report                                              be applied and the stages in achieving this, together with a role for the
                                                                                        Homes and Communities Agency and a Regional Utilities Group.
  The report is structured as follows:
                                                                                        Section twelve puts forward a number of suggestions for an action plan
  Section two sets out the nature of the infrastructure ‘problem’;                      for the Agency;
  Section three defines ‘critical’, ‘strategic’ and ‘other’ types of                    Section thirteen concludes the study.
  infrastructure and looks at the role of emda in the infrastructure agenda;
  Section four examines the current priorities for co-ordinated
  infrastructure, the functional geography of infrastructure provision, its
  relationship to future growth, the connections between infrastructure and
  spatial planning and how this may be affected by the requirements for
  ‘sustainable development’;
  Section five examines the priorities of infrastructure providers, how they
  are funded, how they manage their assets, their approach to connecting
  new development and how they cover their costs and charge for services;
  Section six provides a brief over view of the structure of the key
  infrastructure providers, their regulation, business planning timescales
  and `relationships with the planning system;
  Section seven considers issues relating to the co-ordination and delivery
  of infrastructure, identifying key players and organisations, regional
  capacity infrastructure funding decision making, how new requirements
  are identified and delivered;
  Section eight explores three different delivery models for infrastructure;
  Section nine considers the financing of co-ordinated infrastructure
  provision, including the development of infrastructure funds, existing and
  potential sources of revenue;
  Section ten looks at the scope for action by the Agency, identifies
  intervention areas and associated issues including State Aid, shadow
  price of carbon and compatibility with RDA resource accounting and
  capital write down procedures;
  Section eleven sets out recommendations for the way forward focusing
  on using planning powers, establishing dedicated delivery vehicles and a
  dedicated infrastructure fund. It describes a model approach which could

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2     The Infrastructure Challenge                                                                    Figure 2. 1 – Co-ordination of Layers

      The infrastructure needs of the region can be represented as a series of
      ‘layers’ representing networks of roads, high voltage power lines, sewers,
      gas pipelines and telecommunications. To be effective, infrastructure
      needs to be delivered in a coordinated way to support productivity
      performance.
      Infrastructure has no intrinsic value beyond its capacity to deliver services
      that maintain a quality of life or make a contribution to the local economy.
      The complexities of modern life are typically such that multiple types of
      infrastructure are required by homes and businesses. In many cases, the
      infrastructure is mutually dependent e.g. the role of a high quality
      electricity supply in supporting modern telecommunications.

      2.1      A Layered Problem

      Each infrastructure ‘layer’ responds to development opportunities in
      different ways, reflecting the providers own business models, strategies
      and rules resulting in bottlenecks and barriers in the supply of services                By taking a regional or sub regional focus, possibilities exist to pick up
      thereby delaying investment.                                                             critical pathways and linkages between different infrastructure layers at the
                                                                                               scale of those strategic developments essential to the delivery of regional
      The infrastructure needs of communities in the East Midlands is best
                                                                                               objectives, rather than the operational requirements of the network
      represented in terms of a series of ‘layers’ representing networks of
                                                                                               operators.
      roads, high voltage power lines, sewers, gas pipelines and
      telecommunications (see Figure 2.1).                                                     Through the intelligent co-ordination of capital programmes and working
                                                                                               with the network operators some of the bottlenecks can be lessened,
      The Development Plans for the East Midlands require these networks to
                                                                                               enabling the right conditions to come together.
      deliver a co-ordinated ‘bundle’ of services to homes and businesses at
      specific locations thereby underpinning productivity performance, and the                The Agency’s capacities to help create the conditions for growth are
      quality of development and the ‘places’ created. Yet each infrastructure                 dependent upon understanding the following:
      layer responds to development opportunities in different ways, reflecting
                                                                                               •   Defining infrastructure;
      its own strategies and rules.
                                                                                               •   Priorities for co-ordinated infrastructure;
     This infrastructure ‘problem’ can impact on the delivery of regeneration
     programmes in priority areas of the East Midlands; strategic employment                         •   Priorities of Infrastructure Providers;
     developments and sustainable urban extensions can experience
                                                                                                     •   Processes to co-ordinate infrastructure;
     bottlenecks and barriers in the supply of services thereby delaying
     investment.                                                                                     •   Delivering co-ordinated infrastructure; and

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        •   Financing co-ordinated infrastructure;                                         Box 2.2 – Definition of Market Failure
 2.2        Market Failure
                                                                                           Market failure occurs where the market does not work
 Many of these characteristics are associated with market failures (see Box                effectively to allocate resources in an efficient manner eg:
 2.2) indicating circumstances where it is not possible to secure socially
                                                                                               -   The market will inevitably under provide goods
 optimal outcomes through the operation of the market. The market failings                         for which for which consumption by one individual
 associated with infrastructure are a recurring theme running through the                          does not affect potential consumption by others
 report.                                                                                           (non rivalrous), and where it is not practical to
                                                                                                   restrict access (non excludible) - public goods;
 In simple terms, infrastructure provision often exhibits a number of different
 market failures and later sections of this report describe them in some                       -   The production of many infrastructure services
 detail. These include simple deficiencies in the flow or distribution of                          yields positive externalities. Activity generates
 information and knowledge, to the issues of ‘spill-over’ effects and impacts                      other benefits which are not captured by
 which can interfere with how the market works and decisions about who                             producers;
 pays for infrastructure as opposed to who uses it. Therefore,
 demonstrating the market failure arguments to justify involvement or                          -   Information problems are commonly associated
                                                                                                   with infrastructure services. This can affect
 intervention by emda or others is unlikely to be difficult, although there may
                                                                                                   contracting for certain goods and services
 be other barriers to intervention such as State Aid regulations, or a lack of                     (adverse selection) and moral hazard;
 funding.
                                                                                               -   Co-ordination issues occur when potential
                                                                                                   buyers and suppliers fail to trade because they
                                                                                                   can not identify each other; and

                                                                                               -   Imperfect competition can skew production.

                                                                                           The correction of market failure is set out within the
                                                                                           Treasury Green Book as one of only two underlying
                                                                                           justifications for government intervention.




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3       Defining the Infrastructure                                                                        Table 3.1 – Critical Infrastructure Categories
                                                                                                    Critical
        The word infrastructure was original derived from a combination of “infra”
                                                                                                    Infrastructure
        meaning beneath and “structure” meaning buildings, where the term was
                                                                                                    Categories
        usually applied to services and facilities that are underground such as
        piped water and sewerage, or that lie on the surface such as rail tracks and                Transport         Airports, ports, road network, inland
        roads.                                                                                                        waterways, rail network, travel management
                                                                                                                      systems, other public transport improvements
        As technology evolved the term was also applied to lines strung above
        ground on poles and pylons. The common characteristics were the use of                      Utilities and     Water (including water supply and waste
        networks that distributed goods and services over a geography involving                     Waste             water treatment)
        extensive capital investment of a durable and immobile nature. Most of                                        Telecommunications
        these networks require long, linear and contiguous rights of way which
                                                                                                                      Energy (including renewables and non
        require some level of subjugation of private property rights (to allow
                                                                                                                      renewables)
        networks to be extended or maintained without interruption or the extraction
        of excessive payments).                                                                                       Waste management (including waste
                                                                                                                      disposal and recycling)
        Combined with extensive spill over benefits created by these networks in
        terms of community health, safety and economic development, these                           Green             Outdoor recreation and sports facilities, parks
        characteristics have been a basis of government involvement and                             Infrastructure    and gardens and allotments, tracks and
        regulation of infrastructure providers. However, the term “infrastructure” has                                pathways, natural and historic sites, canals
        been broadened out to include a wide range of services associated with                                        and water spaces as well as accessible
        welfare provision through fixed facilities.                                                                   countryside. A network of green spaces in
                                                                                                                      urban areas , the countryside in and around
        3.1        Defining “critical” Infrastructure                                                                 towns and the wider countryside.

        The term “critical” infrastructure is sometimes applied to the classification of            Flood Defences    Coastal and fluvial
        infrastructure need and, typically, concerns infrastructure essential to
        delivering the basic requirements for living. The Centre for the Protection of
        National Infrastructure (CPNI) defines critical infrastructure as “specific
        assets which if destroyed or seriously disrupted would cause major
        disruption to the service being provided.”7
        “Critical” infrastructure usually concerns potable water; energy; waste;
        waste water and transport. The term is not used to devalue other forms of
        infrastructure, but mainly to express an understanding of basic
        requirements without which no development can function.


    7
        ‘The State of the Nation – Defending Critical Infrastructure, ICE, 2009
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        3.2          Defining ‘Strategic’ Infrastructure                                     •    Projects that support multiple developments;

        The term ‘strategic infrastructure’ is sometimes used for a number of                •    Projects that maximise private sector contributions.
        purposes (e.g. Community Infrastructure Levy (CIL) Policy                            To this can be added considerations about beneficiaries, including for
        Statement, Regional Infrastructure Fund (RIF) Policy Statement) and                  example infrastructure which caters for visitors to the East Midlands
        a view as to whether a particular item of infrastructure is of strategic             as well as existing residents and businesses. Projects that cross
        importance is likely to vary depending on the geographical scale of                  local authority boundaries, i.e. which are of sub-regional scale, would
        plan making, and the impact or role of the infrastructure.                           also be defined as strategic.
        Situations where a definition of “strategic” can be useful are:                          3.3      Other Forms of Infrastructure
        •     prioritising the funding and delivery of infrastructure items with
                                                                                             Whilst the focus of this study is critical infrastructure, greater levels of
              reference to policy objectives and development enabled;
                                                                                             prosperity have been accompanied by a rising expectation to
        •     determining the scale of infrastructure that will be considered for            consume a greater range of services which have been included
              a particular funding stream; and                                               under the term “infrastructure”. These services tend to be associated
                                                                                             with fixed physical facilities that deliver services from networked
        •     determining whether it is reasonable to pool developer
                                                                                             organisations rather than being physical networks in their own right.
              contributions from a wide area to fund a particular infrastructure
              project.                                                                       Conceptually, housing and business space are forms of infrastructure
                                                                                             that provide the physical points of reference for households and
        These requirements will, of course, change over time in response to
                                                                                             businesses to consume infrastructure services, however as these
        new understanding of the developments’ needs and confirmation of
                                                                                             draw on the main forms of infrastructure they have been discounted
        development proposals as Local Planning Authorities (LPAs) prepare
                                                                                             from this study.
        their Local Development Documents (LDDs) and infrastructure
        delivery plans.                                                                            Table 3.2 –Other Infrastructure Categories
                                                                                                       Other
        The term has also been used as a precursor to prioritising projects in
                                                                                                       Infrastructure
        Regional Infrastructure Funds. Proposals for the South West
        Regional Infrastructure Fund8 contain a number of useful tests which                           Education          Further and Higher Education
        help define how the word ‘strategic’ is applied:
                                                                                                                          Secondary and Primary Education
        •     Projects with a large geographic scope;
                                                                                                                          Nursery
                •   Projects that cannot be related to individual development
                                                                                                       Social             Supported accommodation
                    proposals;
                                                                                                       Infrastructure
                                                                                                                          Social and community facilities
                •   Projects where costs exceed local funding mechanisms;
                                                                                                                          Sports Centres

8
                                                                                                                          Open spaces, parks and play space
 Regional Infrastructure Fund: A Prospectus, The South East and South
West RDAs and Regional Assemblies (2006)
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                Other                                                                      emda is not a core funder of infrastructure – but is actively
                Infrastructure                                                             involved in:

                Public Services    Libraries                                                    •    Capital schemes re: large coalfield sites (National
                                                                                                     Coalfields Programme) which has involved full site
                                   Cemeteries
                                                                                                     remediation and servicing;
                                   Emergency services
                                                                                                •    Feasibility and technical assessments – site specific or
                Health             Acute care and general hospitals                                  strategic, with examples including transport
                                                                                                     infrastructure, and power (network related and
                                   Mental hospitals
                                                                                                     renewable);
                                   Health centres/ primary car trusts
                                                                                                •    Providing support for innovative small infrastructure
                                   Ambulance services                                                projects;
                Housing            Affordable Housing                                           •    Projects/programmes re: delivery – waterways; Green
                                                                                                     Infrastructure; with clear and direct link to economic
                                   Gypsy and Traveller sites
                                                                                                     development and the RES objectives.

                                                                                               3.5   Key Points
                3.4      The Role the Agency in the Infrastructure
                                                                                           •    The definition of infrastructure has grown as society has
                           Agenda
                                                                                                become more aware of the significance of ‘other’
              emda is the strategic leader for economic development and                         infrastructures that are important to support the social
              regeneration in the East Midlands. Through the Economic                           fabric of places and develop social capital;
              Strategy, emda and partner resources have been targeted on
                                                                                           •    Critical infrastructure delivers the core services that
              priority areas to address important economic regeneration &
                                                                                                underpin basic needs – water, power, transport, heat and
              development opportunities and to maximise opportunities for
                                                                                                disposal of waste;
              growth. Delivery is through multi-agency partnerships.
                                                                                           •    Infrastructure tends to be delivered over networks where
              Whilst emda is not the lead organisation as far as infrastructure
                                                                                                the sum of the whole is greater than any single component
              planning is concerned, through its strategic economic
                                                                                                – this means that they are natural monopolies; and
              development role emda has influenced the investment
              decisions of partners through alignment of strategies and plans              •    Infrastructure tends to produce spill-over effects reflected in
              at the sub-regional level.                                                        the demand for, and value of land and property.
              emda has no direct or obvious role in the regulation of
              infrastructure providers, but understanding the impacts and
              implications of how regulation works is of relevance to
              understanding some of the challenges in the current system of
              infrastructure.
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     4        Infrastructure Provision                                                              •   Grantham (South Kesteven DC and Lincolnshire CC);

              The spatial development priorities of the region are contained                        •   Lincoln (Lincolnshire CC, City of Lincoln Council, North
              in the East Midlands Regional Plan (which forms the Regional                              Kesteven DC and West Lindsey DC);
              Spatial Strategy (RSS) for the East Midlands) and the spatial                         •   Newark on Trent (Newark and Sherwood DC):
              priorities of the Regional Economic Strategy (RES) for the East
              Midlands.                                                                             •   Gainsborough (West Lindsey DC, Lincolnshire County
                                                                                                        Council) – still to be assessed via the RSS review.
              4.1       Planned Growth in the Region
                                                                                              In addition, there are eco-town proposals in the East Midlands which
              The East Midlands has the fastest growing population of any                     may be taken forward in due course via a national Planning Policy
              region in England. Recent projections from the Office of                        Statement, and/or the RSS review.
              National Statistics indicate that the population of the Region will
                                                                                              The current spatial priorities are represented in figure 4.1 overleaf.
              increase from 4.3 million in 2006 to 4.8 million in 2016 and then
                                                                                              This indicative map shows existing and planned strategic
              to 5.5 million by 2031.
                                                                                              employment locations and the potential spatial direction of future
              Significant housing growth is planned in the East Midlands to                   housing growth (where discernible) taken from the RSS. It is not
              meet the needs of the projected increase in population. The                     comprehensive, but the locations show a relative clustering of
              East Midlands Regional Plan (March 2009) sets out a                             proposed development along the M1 corridor, the concentration of
              requirement for at least 324,100 new homes (excluding                           growth around the main conurbations, and towards the designated
              Northamptonshire) to be built in the region from 2006 – 2026                    growth area in the south of the region.
              (Policy 13a) and a requirement for north Northamptonshire and
                                                                                              The RSS and RES are based on geography defined by administrative
              West Northamptonshire 2001-2026 of 66,075 and 62,125 new
                                                                                              areas; sub regional partnerships and functional units like Housing
              homes respectively.
                                                                                              Market Areas or regeneration areas. These units are the focus for
              To achieve these levels of growth a major step-change in the                    setting development needs and the basis for a lot of thinking around
              rate of housing completions will be required and substantial                    the development of communities.
              investment in infrastructure will be needed. The south of the
              region forms part of the Milton Keynes and South Midlands
              (MKSM) growth area, one of the main growth areas set out in
              the Government’s Sustainable Communities Plan. There are
              also a number of designated First Round and Second Round
              New Growth Points across the Region, which are eligible for
              growth area funding. These include:
              •     3 Cities & 3 Counties - Derby, Leicester & Nottingham
                    (Derby City Council, Derbyshire CC, Leicester City Council,
                    Leicestershire CC, Nottingham City Council,
                    Nottinghamshire CC);

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Figure 4.1: Indicative Location of Growth Proposals in the East
Midlands




              Source: East Midlands Plan (March 2009)
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      These areas are much smaller than the infrastructure providers whose           4.2          The Relationship of Critical Infrastructure to Future
      networks are not co-terminus with the England’s administrative                              Growth
      regions, hence the East Midlands is served by more than one utility
      operator e.g. Anglian and Severn Trent Water. The geography used                   Due to the extensive legacy infrastructures created over decades, the
      by network operators often reflects the legacy asset base and                      precise relationship between future growth and network capacity is complex
      organisational form of what has gone before. Originally, these                     and best considered in relation to each of the key critical infrastructure
      networks were established on some form of universal service                        sectors. The following sections (4.2.1 – 4.2.6) help indicate some of the
      obligation at the time of being a nationalised industry. As regulated              challenges and potential tensions between planned or expected growth and
      private monopolies, in the main they have tended to retain their                   existing infrastructure capacity or provision. Later sections of the report also
      obligation to consider all applications for connections, but on an                 add further detail but the below paragraphs summarise some of the key
      economic basis.                                                                    potential issues and challenges.

      The growth policies of the region impact on network operators by               4.2.1     Electricity
      changing the relationship between demand for infrastructure services            Central Network – East receives its energy from the National Grid at
      and supply through the legacy network by:                                       substations called Grid Supply Points. Here the energy is transformed from
                                                                                      either 400kV or 275kV to 132kV. Energy is distributed at 132kV to Bulk
      • Creating additional demand for infrastructure services (e.g. new
                                                                                      Supply Points, where it is transformed down to 33kV. It is further distributed
      business parks, sustainable urban extensions, major inward
                                                                                      to Primary Substations where it is transformed to 11kV, and then sent on to
      investment sites);
                                                                                      Secondary Substations for transformation to 400V and distributed to
      • Changing demand for infrastructure services (e.g. physical                    consumers. In areas where load is highly concentrated, the 33kV stage may
      regeneration policies that switch the use of land from employment to            be missed out and energy transformed directly from 132kV to 11kV. Some
      housing);                                                                       consumers taking a large load may also be connected at 11kV, 33kV and
                                                                                      even 132kV for the very largest industrial consumers.
      • Changing the prospects of people and businesses who pay for
      charges to infrastructure service providers (e.g. high earnings could              A report produced by E.ON Engineering on behalf of emda included
      mean fewer people defaulting on their bills or experiencing fuel                   conclusions in relation to distribution capacity and connectivity in the context
      poverty); and                                                                      of potential levels of additional growth and development. This included
                                                                                         indications of the extent to which infrastructure capacity issues are likely to
      •  Changing the competitive conditions for network operators (e.g. the             represent a challenge across the region:
      more commercially attractive the environment, the more competition is
      likely in ‘non regulated’ aspects of infrastructure services).                        •   Areas conducive to demand increases: Bolsover; Chesterfield;
                                                                                                Daventry; Harborough; High Peak; Melton; Rushcliffe; Rutland;
      Growth policies therefore have the potential to change the spatial                        South Derbyshire and West Lindsey.
      patterns of use across the network and future demand for connections.
      These policies, if realised, will have an impact on investment needed                 •   Areas where potential capacity constraints could be addressed
      to maintain and develop the networks.                                                     by the addition of distributed generation: Amber Valley; Blaby;
                                                                                                Boston; Charnwood; Erewash; Leicester; Lincoln; North Kesteven;
                                                                                                Nottingham; Oadby & Wigston; and, Wellingborough.


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   •    Areas to avoid if generation is to be added (due to potential                           The Lincoln WRZ is forecast to have a deficit of available against
        constraints in the network’s ability to accept distributed                              target headroom from early in the planning period. The Lincolnshire
        generation): Corby and Derby.                                                           Coastal WRZ experiences exceptionally high peak demands related to
                                                                                                the tourism and periods of hot dry weather. A downward trend in
       4.2.2      Gas
                                                                                                groundwater levels has led to a fall in total licensed abstraction
       The Local Distribution Zone (LDZ) covering the East Midlands is not
                                                                                                quantities from the aquifer which supplies this zone. The Lincolnshire
       co-terminus with the Government Office region, including parts of
                                                                                                Fens WRZ is forecast to have potential deficits against target
       Yorkshire and Humberside in its definition of “East Midlands”.
                                                                                                headroom from early in the planning period. The Ruthamford WRZ is
       Currently, the region has a gas “through put” of 75.2 TWh which is
                                                                                                forecast to have a surplus of available against target headroom at the
       expected to rise to 78.2 TWh based on flow forecasting models using
                                                                                                start of the planning period; however a deficit may develop later.
       assumptions on expected flows and peak flow requirements. Some of
       the large industrial uses of gas are projected to decline over the period              4.2.4    Flood Protection
       although an overall growth of 4% is expected.                                          The need for flood protection is directly linked to the topography of the
                                                                                              region and its provision is well integrated into the development planning
       4.2.3      Water Supply
                                                                                              system. The Regional Strategic Flood Risk Assessment for the region
       The main rivers in the East Midlands are the Rivers Derwent, Dove,
                                                                                              provides an overview on where key risks exist. Around 17.5% of land in
       Soar, Trent, Ancholme, Witham, Welland and Nene. Approximately
                                                                                              the East Midlands has a 1% chance of flooding in any one year. Over
       40% of the region is underlain by useable aquifers. Over 1150 million
                                                                                              210,000 properties in the region are at risk from flooding which is around
       litres of water per day (Ml/d) are abstracted for public water supplies in
                                                                                              10% of properties, with nearly 87% of these properties being residential
       the East Midlands, and 350Ml/d for industrial uses. An average of
                                                                                              and 13% commercial properties.
       about 90Ml/d is extracted for spray irrigation, mainly extracted in the
       summer months. The East Midlands administrative region is covered                      The Regional Flood Risk Assessment has identified issues for a number
       by two water company areas that are responsible for assessing                          of the HMAs.
       demand – Severn Trent and Anglian Water.                                               Coastal Lincolnshire has the highest inherent flood risk with
       Severn Trent Water has sub divided their operating area into a series                  Mablethorpe, Skegness, Boston, Spalding and many smaller settlements
       of water resource zones where individual demand and supply                             within high-risk flood zones. The new Shoreline Management Plan in
       assessments have been under taken. The East Midlands zone                              development for the Lincolnshire coast will include the assessment of
       includes most of the populated areas of the region, along the main                     the strength of existing defences and the much-needed creation of a
       transport corridors. The baseline assessment shows the “East                           long-term flood risk management strategy. In the West Northants area
       Midlands” projecting a potential shortfall to 2025 where climate change                the majority of Zone 3 land is in Northampton District, but existing
       modelling assumptions have been a particularly important factor.                       defences provide a high standard of defence to the major conurbations.
                                                                                              In North Northamptonshire HMA less than 10% of the total HMA is in
       The Eastern half of the region is covered by the Anglian Water
                                                                                              Zone 3 although surface water runoff is considered to be a significant
       Company which has defined a series of Water Resource Zones
                                                                                              future issue. In the Northern HMA, only Bassetlaw has more than 10% of
       (WRZ) and embedded Planning Zones. Overall, Anglian faces a large
                                                                                              land in Zone 3. In the Peak, Dales and Park HMA, only High Peak
       number of forecast deficits, but also variable capacities to redistribute
                                                                                              envisages the ‘possibility’ of any development on Zone 3 land, (but less
       planning zone surpluses around the area.
                                                                                              than 10% of Zone 3 land). Flooding is known to occur in the Derby area

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      and frequent flooding occurs in parts of South Derbyshire District. In the              concluded that congestion costs the regional economy approximately £1
      Leicester and Leicestershire HMA, only Leicester City and Charnwood                     billion per year, demonstrating a strong economic case for pursuing
      District have more than 10% of Zone 3 land. In both these locations,                    measures which tackle congestion on the major road network and within
      flooding has been experienced.                                                          more local road and urban areas.

      4.2.5     Rail                                                                          Like rail, the legacy road network facilitates north to south movements
      East-west rail routes are generally poor compared to the main north-                    better than east to west movements, reflecting pre industrial strategic
      south routes, resulting in the east of the region being relatively isolated             priorities and the importance of communications with London.
      from key centres of economic activity. The planned housing and
                                                                                              4.2.7      The Connections between Infrastructure and Spatial
      employment growth in the region is likely to place additional demands on                            Planning
      the road and railway network, potentially worsening congestion. A
                                                                                              At a regional level the connections between infrastructure delivery and
      combination of poor rail links and congestion on some key corridors
                                                                                              spatial planning are only clearly articulated between transport and spatial
      causes poor connections between main centres within and outside the
                                                                                              planning. The Regional Transport Strategy (which forms part of the RSS)
      Region.
                                                                                              contains polices relating to the regional delivery of new road, rail, air and
      The Midland Main Line is an obvious candidate to deliver significant                    other projects to meet regional need, with Local Transport Plans
      benefits though ‘electrification’, which could provide improved inter- and              articulating this at a local level. It can be argued that this is largely due to
      intra regional services. There has been growth along the East Coast                     the public ownership structure of most transport infrastructure. The
      Main Line, which provides the region with fast links to London and the                  geography and funding streams of road providers (the Highways Agency
      north. However, both the East Coast and Midland Main Lines have                         and Highways Authorities) matches spatial planning policy areas
      capacity constraints. Journey times on the Midland Main Line and to the                 (regional and local) and connects with growth and economic
      north are slow in comparison to other national north-south rail routes.                 development.
      However there are encouraging signs of development with the re-
                                                                                              Although there can still be issues regarding the timing of delivery and
      opening of passenger services to Corby and the resumption of a regular
                                                                                              long lead-in times, public sector infrastructure providers are generally
      through rail service from Lincoln to London.
                                                                                              well embedded in regional and local government partnerships. This
      Work is underway to explore a north-south high speed line. Routeing a                   structure is not replicated to the same effect in other areas of
      new north – south high speed line through the region could offer benefits               infrastructure provision, particularly those which are in private ownership.
      of relieving capacity problems on both the existing Midland and East
                                                                                              4.3       Impact of Higher (Sustainable) Development
      Coast Main Lines.
                                                                                                                 Standards
      4.2.6       Roads
      In the decade up to 2003, the region saw the largest increase in road                   The current baseline conditions for the infrastructure networks are based
      traffic of all the English regions, the resulting congested and unreliable              on extant demand conditions. The East Midlands Regional Plan does
      transport routes have implications on the competiveness and productivity                however include policies aimed at securing more sustainable
      of the region. A report produced on behalf on emda in 2007 details the                  development in the region.
      ‘economic costs of congestion in the East Midlands’.9 The report

9
    Atkins for EMDA Economic Costs of Congestion in the East Midlands 2007
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    The Climate Change Act 2008 requires a reduction in emissions of 80%                    •   Some of this legacy is wearing out or no longer “fit for
    by 2050, involving substantive cuts in the volumes of fossil fuel related                   purpose” due to changes in performance requirements
    energy transported and consumed over network infrastructure.                                driven by sustainable development and climate change;
    Higher standards of sustainable development changes the relationship                    •   Physical location of growth changes the connectivity
    between the production and consumption of resources delivered over                          opportunities in relation to these networks;
    networks. In the past, development has played a largely passive role in
                                                                                            •   There exists a spatial mismatch between network
    the delivery of infrastructure services, being a consumer of services
                                                                                                functionality and the administrative/ functional areas used
    delivered from remote sources using fossil fuels as the transmission
                                                                                                to manage the infrastructure planning system, and the
    mechanism.
                                                                                                timetable or planning horizons used;
    Sustainable design changes the relationship by internalising the delivery
                                                                                            •   Legacy systems already service the Principal Urban Areas,
    of a greater proportion of infrastructure services from within the
    boundaries of development. The use of “on site” renewable generation                        however new housing development in place of industry will
    technologies, the recycling of water for secondary uses within                              change the nature of future demand;
    sustainable urban drainage systems and the management of storm                          •   Some infrastructure providers (mainly transport focused)
    discharge through the same means can reduce the reliance on critical                        are better connected than others to the spatial planning
    infrastructure networks. Whilst current technologies are unlikely to ever                   system, with their delivery programmes formally aligned
    dispense entirely with the value of being connected to wider networks,                      with the growth agenda;
    the design principles require greater integration between providers and
    developers early in the process.                                                        •   However, many providers are not well linked in to the
                                                                                                planning process, and have a limited understanding of
    Network operators will be particularly interested in testing the robustness                 emerging policy requirements (PPS12) for them and
    of design assumptions concerning the use of “on site” delivered services                    Planning Authorities to better engage; and
    in case non performance leads to eventual displacement of demand
    back onto the networks. This might be a problem in cases where “on                      •   Sustainable Urban Extensions will need connections to the
    site” infrastructure lies in the hands of a myriad of owner occupiers                       nearest point on the network and supporting network costs
    (domestic and non domestic) without specific arrangements to maintain                       associated with the connection being the subject of
    the infrastructure.                                                                         apportionment rules.

    Sustainable development must, therefore, be accompanied by new                          •   The Agency and other public sector partner have no
    delivery models that remove risk of non performance. Sometimes this                         significant leverage over the setting of charging levels.
    will be facilitated by the commercial arms of conventional utility
    companies who will design, build and operate the technology.

    4.4           Key Points

              •    Infrastructure operators carry a huge sunken cost in the
                   form of an extensive legacy of pipes, wires, road ways, etc
                   (see 5.2 Maintaining Legacy Systems);
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     5        Infrastructure Planning                                                      planning area may be essential in unlocking planned growth however it
                                                                                           may be located outside of a region and therefore difficult for a region to
     Privatised network operators are commercial concerns driven by                        influence. These situations will entail cross boundary collaboration
     shareholder returns on investment. Whilst economic development                        between regions and with providers if infrastructure delivery plans are
     outcomes have tended to be incidental to providers core business                      to provide a sound foundation for the core strategies of individual Local
     unless there is a clear “bottom line” benefit, network investment                     Planning Authorities.
     decisions are usually made in support of the financial priorities of the
     delivery organisation within the framework set by the economic                        The functionality of infrastructure networks will mean that geographic
     regulators.                                                                           relationships will change according to the type of service being
                                                                                           provided. Consequently planning for flood defences within a river
      5.1        The Economic Regulators                                                   catchment area or coastal area would ideally require different
                                                                                           boundaries compared to the travel to work boundaries serviced by a
      As the value of a network comes from its integrated operation as a                   transport network.
      network, many infrastructure operations are run as licensed
      monopolies overseen by an economic regulator to protect the interests                It will not be possible to define an infrastructure planning boundary that
      of the consumer. The license granted by government usually requires                  suits all infrastructure types. For instance, the Environment Agency
      operators to consider any request made to access their networks, but                 has responsibility for producing Catchment Flood Management Plans
      on economic terms.                                                                   and utility companies will wish to ensure that regional distribution
                                                                                           networks are able to meet future load requirements. Efforts should
      The business plans and strategies of the network operators are                       also be made to ensure that key partners leading the infrastructure
      governed by an asset management planning / business planning cycle                   planning process are involved in sector specific partnerships and
      and a charging review cycle (typically 5 years, but there are variations             initiatives.
      – see Section 6) and are subject to approval by the relevant Regulator.

      5.2      Functional Geography of Infrastructure Providers

      Much of the critical service infrastructure provision, like transport,
      energy and water supply, is delivered through wide area networks that
      do not match administrative boundaries eg local authority, regional
      development agencies.
      New infrastructure investment effectively ‘plugs in’ new development to
      the benefits of the wider networks that include national road travel,
      distant power stations and water treatment plants.
      The nature of these networks has led to the new pathway through the
      planning system for Major Infrastructure Projects (MIPS), which will be
      overseen by the new Infrastructure Planning Commission.
      The delivery of a motorway junction, sewage treatment plant or grid
      reinforcement outside the regional or sub-regional infrastructure
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            5.3       Funding Utility Operators                                                  The system is intended to provide incentives for efficiency savings,
                                                                                                 as any savings above the predicted rate can be passed on to
         The amount of funding available to utility operators to maintain the                    shareholders, at least until the price caps are next reviewed (usually
         backbone of their networks is determined by the revenue cap                             every five years) and also acts as a proxy for a competitive market.
         regulations agreed with the economic regulator. Revenue-cap
         regulation is a system for setting the prices charged by regulated                      5.4      Asset Management Planning
         monopolies. It is contrasted with rate of return regulation in which
                                                                                             Generally speaking, Asset Management Plans (AMPs) / Business
         utilities are permitted a set rate of return on capital, and with price
                                                                                             Plans typically set out the operational requirements for the network over
         cap regulation where total revenue is the regulated variable. The
                                                                                             the next planning period (around five years). These are submitted to
         system uses ""RPI-X" to set revenue caps. This takes the rate of
                                                                                             their economic regulators for approval. The economic regulators must
         inflation, measured by the UK Retail Price Index (RPI) and
                                                                                             take a view on whether the charging policy is realistic in terms of the
         subtracts expected efficiency savings “X”.
                                                                                             charge payer’s interests and in terms of the needs of the network and
              Box 5.1 Government backs blueprint to revamp electricity                       the need for operators to make an economic return. (Section 6 sets out
              grid                                                                           the requirements for the different types of infrastructure provider).

              A proposed £4.7bn investment in the electricity grid to connect                Charges include:
              up new wind farms and nuclear power stations has been                          •     The provider charging for the right of a consumer to connect to their
              backed by the Government, which hailed the plan as a big                             network or facility; and/or;
              opportunity that would support employment.
                                                                                             •     The provider charging a consumer (or licensed operator) for the
              The blueprint for grid investment was drawn up by a joint group
                                                                                                   use of the network, a proportion of which finances the capital costs
              backed by the Government, the industry, and Ofgem, the
                                                                                                   of new provision. Licensed operators can either pass the charge
              energy regulator. It marks a break with the previous policy,
                                                                                                   directly onto the end consumer or absorb it into a tariff structure.
              under which the regulator would sanction investment to
              connect up a location only if there were a firm plan for new                   The balance between the two funding methods of finance can have a
              generation capacity to be built there.                                         material effect on the nature of any funding barriers.
              The new model, which has been proposed by Ofgem but not                        A key issue and obvious challenge is this relatively short time horizon
              yet adopted, would allow the electricity network companies to                  used by most providers as opposed to the need for the RSS and Local
              invest in grid connections for areas where they expect new                     Development Frameworks to plan ahead over 20 years. Current
              power stations or wind farms to be built. This approach, known                 regulatory rules and financial guidelines do not enable the providers to
              as "anticipatory investment", has long been urged by the                       take into account plans for growth without any certainty that it will
              renewable energy industry, which has argued that problems in                   materialise. The providers, as businesses, take a commercial view of
              securing grid connections are one of the greatest obstacles to                 development proposals in the context of the costs of connection and
              investment in wind power.                                                      likely profitability.
              Source: Ed Crooks, Financial Times, 5th March, 2009


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     Planning for Growth                                                                  Quality of Service
     Asset management planning / business planning has to take account of                 Most AMPs are based on providing an assumed level of service to
     growth on the network and it is here where the planned growth strategy               their customer base measured in terms of metrics like service
     has the greatest relevance. The planned growth strategy is however                   interruptions, which are monitored by the economic regulators to
     only one input into the evidence base used by network planners to                    assess value for money. In addition, network operators are also
     determine their investment priorities. Current rules enforced by the                 required to meet external quality standard, for example water supply
     economic regulators means that network operators cannot invest in the                must comply with the Water Framework Directive requirements,
     forward provision of infrastructure to service as yet an unrealised                  whilst gas and electricity sectors are now being drawn into low
     demand. To do so, would mean loading the existing charge payer with                  carbon policy e.g. the encouragement of distributed generation.
     the costs of servicing non performing assets. Network planners will                  Compliance with these policies means that the network planners may
     therefore tend to place more weight upon historic patterns of demand                 need to invest in parts of the network not directly benefiting predicted
     for actual connections coming from developers.                                       load growth.
     Maintaining Existing Systems                                                         5.5   The Right to Connect
     Network planners also have to manage a huge sunken cost in the form
                                                                                          Infrastructure service providers are usually required to consider most
     of the existing network of pipes, control systems, wires, storage and
                                                                                          types of requests to connect to their networks, but they are allowed to
     connectors. There is a need to get the best performance out of these
                                                                                          determine the conditions under which connections are made and
     assets in terms of generating revenues, however a significant element
                                                                                          make charges accordingly. The term “connection” can range from
     of the legacy is operating well beyond its design life expectations
                                                                                          making a physical connection through cabling/conduits and pipes to a
     requiring remedial measures to maintain performance e.g. dealing with
                                                                                          network, or through the placement of a facility delivering services as
     collapsing sewers and pipe leaks in the water supply sector. Much of
                                                                                          part of an organisational entity (e.g. a hospital), which is part of an
     the electricity grid infrastructure, built in the 1950s and 60s, is now
                                                                                          organisational network (most public services).
     nearing the end of its design life. Many argue that the opportunity to
     facilitate decentralised technologies such as CHP should therefore be                Where the provider is a commercial entity, the economic costs of
     taken now while ageing infrastructure is being replaced. The waste                   making a connection are a material consideration as to whether a
     water industry is presented with a similar test in terms of how                      connection is made. The costs of making a connection are usually
     sustainable urban drainage systems should interact and be maintained                 either treated as a commercial transaction made between the
     with more conventional systems.                                                      provider and the consumer, or based on a tariff/customised charge
                                                                                          (e.g. planning obligations). Developers are usually the key activators
     Spatial planning decisions can lead to a redistribution of loads as a                of requests to connect although substantive change in demand (e.g.
     whole across a network if certain areas “win” in relation to those areas             greater volume of water) from an existing consumer could trigger a
     losing population. The character of existing demand can also be                      charge. Developers will make the first approaches to utility providers
     influenced by regeneration policies which might for example seek to                  as part of their design and viability assessment. These issues are
     create mixed use housing and commercial projects on land formerly                    described in more detail in Section 7 below.
     occupied by energy and water intensive process based industries that
     have ceased to be competitive in the region.


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       5.6           Charges for Use of Infrastructure                                          associated with the headroom would be borne by the developer
                                                                                                creating a potential “free rider” benefit for the next developer
        Dependent upon the utility, charges for infrastructure can be levied                    able to take advantage of the headroom created. For this
        directly by the utility on the end consumer (e.g. water) or charged                     reason, Ofgem created a rule allowing cost recovery from
        through a licensed reseller (e.g. electricity). Charges from the use of                 developers using the headroom within 5 years of the original
        infrastructure can be recycled to finance investment.                                   connection that led to the headroom in the first place.
        5.7         Covering Network Costs

        A significant problem for network operations is who pays for the                        Box 5.3: Downstream Connections – Mains Sewerage
        upkeep of the network as whole. The value to a developer from a
        connection comes from the services flowing across the whole                             Severn Trent is responsible for selecting the route, outfall
        network, rather than the single entry point created for their project.                  arrangements, and specification for requisitioned public
        These costs must either be borne by all charge payers across the                        sewer/lateral drains. If existing downstream public sewers need
        whole network, or clawed back through connection charges paid by                        to be improved in order for them to accept the proposed flows
        new development. The problem comes from what proportion of these                        from a site, then the necessary improvements to those existing
        network costs should be come from connection charges, as opposed                        public sewers will also form part of the requisitioned works. If
        to recouped through on going use charges. Prohibitively high                            the receiving public sewer was constructed under a Requisition
        connection charges can deter development leading to deferred                            Agreement during the previous twelve years and was oversized
        growth.                                                                                 by Severn Trent to provide additional capacity for the current
                                                                                                site, then the cost which Severn Trent incurred in providing that
        Some utility operators have developed rules for apportioning network                    earlier additional capacity will also be included in the
        costs between developers e.g Central Networks (part of EO.N), the                       calculations of the cost of your sewer requisition.
        electricity supply company for the Midlands – see Box 5.2.
                                                                                                Source: Guide for Developers – Providing a Sewer or Lateral
                                                                                                Drain GN/SR1/WA03-V2/08
              Box 5.2:                                                                             5.8    Key Points
              Five Year Cost Recovery Rule on “Headroom
                                                                                            •    Privatised network operators are commercial concerns
              Reinforcement Costs”
                                                                                                 focused on the delivery of a return to their shareholders.
              Central Networks guidance states that the costs of general                         Public policy outcomes are incidental to mainstream network
              network reinforcement costs shall be constrained to                                planning activities unless there is a clear “bottom line” benefit;
              improvements at the next voltage level from the level at which a
                                                                                            •    The provision of utility infrastructure can involve long lead
              connection is being made. Nevertheless, where a developer’s
                                                                                                 times and it is necessary for companies to include costed
              connection requirement has triggered a reinforcement of the
                                                                                                 infrastructure proposals within five year business plans. This
              DNO’s network, it may be that the reinforcement creates
                                                                                                 creates a major gap between planned investment by the
              headroom capacity in the wider network in excess of the
                                                                                                 providers and the likely levels of investment required in light
              developer’s requirements. That proportion of the costs

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                of planned growth, most of which is expected to be met by                 •   Infrastructure networks face the challenge of renewal,
                the development process;                                                      particularly in many of the older urban areas. For instance,
                                                                                              sewer networks have been built-up over several generations
     •   A process of rolling engagement of providers and Planning
                                                                                              and many sewers are well over 100 years old.
         Authorities could result in mutual planning and delivery benefits;
     •   The geographical boundary of the utility providers does not
         correspond with administrative areas. As such, there may be
         benefit in LPAs within a functional ‘supply area’ grouping together
         to discuss strategic infrastructure issues with the appropriate
         companies;
     •   As a result of commercial sensitivity, some of the information held
         by utility companies may not be available at all stages during the
         planning process. This could lead to a lack of transparency and
         openness during dialogue.
     •   Due to regulatory rules (and the relatively short-term investment
         plans), many providers are not able to plan ahead for major
         investment in response to planned development or growth - forward
         provision without the certainty of customers means creating non-
         performing assets and poor value for money;
     •   Network planners do not necessarily see load growth in the same
         way as the spatial planning community. Network planners will tend
         toward risk assessing the likelihood and timing of planned growth in
         relation to known evidence on demand for connections;
     •   Investment in network costs comes from the money people and
         businesses pay to use the system and payments made by
         developers for new connections and is a significant source of
         revenue;
     •   Apportionment of network costs to new connections has led to a
         whole set of complex rules governing how much is payable to
         whom and when.
     •   Load growth is not the sole concern of network planners – quality,
         regulation compliance and maintaining an ageing network are
         equally valid concerns;

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                                                                                         Drinking Water Supply
     6        Infrastructure Providers
     This section provides a brief introduction to the environment in which
     the key infrastructure providers operate, the legislation which governs
     their operations, the business planning and cycles and their
     connections to the planning process.

      6.1     Water

         Key Facts

         Regulator / Enforcement        OfWAT
         Agencies
                                        Environment Agency
                                        Drinking Water Inspectorate
         Department of State            Defra, CLG
         Primary Legislation            Water Resources Act 1991                         Figure 6.1: Structure of Water Supply
                                        Water Industry Act 1991                          The management of water supply and treatment is undertaken by
                                        Environment Act 1995                             private sector water and sewage companies which operate as
                                                                                         ‘regional monopolies’, within defined operating areas and regulated
                                        Water Act 2003
                                                                                         by Ofwat (the Water Services Regulation Authority). (There are also a
                                        Land Drainage Act 1991                           few regulated water companies who operate in one or more small
                                                                                         areas where they are the monopoly water company.) Ofwat focuses
         Business Planning Cycle        5 years - business planning
                                                                                         on consumer value, balancing future investment that and customer
                                        period. 25 years - Water
                                                                                         charges. They undertake a 5 yearly price review (the current round is
                                        Resource Management Plans
                                                                                         due for completion in 2009 and covers the period 2010 to 2015) and
                                        covering the next 25 years.
                                                                                         compare the performance of the water companies against each other
         Key links to planning system   Statutory consultee role. They                   on an annual basis. As private businesses, the funding for strategic
                                        also consult on the SEA as                       infrastructure and development of the system is through internal
                                        part of their Water Resource                     investment which is inevitably related to consumer prices.
                                        Management Plans
                                                                                         The Environment Agency (EA) and the Drinking Water Inspectorate
         Companies Operating in the     Severn Trent                                     (DWI) enforce the environmental performance of the industry. The EA
         East Midlands                                                                   deals with abstraction licenses (licence enabling the diversion of
                                        Anglian Water
                                                                                         surface or ground water for a designated purpose) and the DWI
                                        Internal Drainage Boards                         carries out audits to ensure the safety of drinking water in line with
                                                                                         Water Quality Regulations. For new developments the costs of the
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        local infrastructure needed for connections is charged to the                     channels and pumping stations. Internal Drainage Board membership
        developer. There is also an infrastructure levy charged for new                   includes elected members representing the occupiers of the land in
        connections, based upon the number of water-using appliances, this                the district and members nominated by local authorities to represent
        varies between water companies.                                                   other interests.
        Water companies are required to produce Water Resource
        Management Plans (WRMP) which set out how they intend to provide
        sufficient water to meet their customers' needs over the next 25
        years. The WRMP requires a Strategic Environmental Assessment
        (SEA) to be undertaken – this is consulted on, providing an
        opportunity for local authorities to engage with the process. Water
        companies are also statutory consultees on Local Development
        Documents and major planning applications. Major water supply
        infrastructure such as new reservoirs will be guided by the new
        National Planning Policy Statements (introduced by the Planning Act
        2008).
        Wastewater and Drainage
        Wastewater treatment is also undertaken by private water and
        sewage companies. Ofwat is the economic regulator tasked with
        providing best value to consumers and maintaining competitiveness                 Figure 6.2: Drainage and Waste Water
        of pricing. The Environment Agency assumes overall responsibility
                                                                                          River Basin Management Plans
        for flood risk management and maintaining water quality, the latter
        controlled using tools such as abstraction and discharge consents.                The European Water Framework Directive (WFD) requires the
        Wastewater companies are required to produce five year business                   production of River Basin Management Plans setting out
        plans/asset management plans (AMPs) setting out investment and                    environmental objectives for all ground waters and surface waters
        charging over that period, which is subject to scrutiny by Ofwat. The             (including estuaries and coastal waters) within the river basin district,
        financing of sewers and treatment plants required to keep discharge               and programmes of measures to meet those objectives.
        quality within set standards falls to industry and the companies. The
                                                                                          6.2   Electricity and Gas
        funding for strategic infrastructure and development of the system is
        through internal investment which is inevitably related to prices. If             Key Facts
        sewerage volume increases then there will be costs to wastewater
        companies of developing new treatment works and increasing sewer                  Regulator / Enforcement           Ofgem
        capacity.                                                                         Agencies

        Internal Drainage Boards (IDBs) are independent bodies responsible                Department of State               BERR
        for land drainage in areas of special drainage need. Much of their                Primary Legislation               Electricity Act 1989, Utilities
        work involves the improvement and maintenance of rivers, drainage                                                   Act 2000, Energy Act 2004,
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                                         Electricity Regulation Act
                                         2006. Gas Act 1986, Utilities
                                         Act 2000, Energy Act 2004
        Business Planning Cycle          Electricity distribution network
                                         operators produce 5 year
                                         long term development
                                         statements.
                                         Electricity Transmission –
                                         seven year plans
                                         Gas distribution operators
                                         produce 10 year long term
                                         development statements and
                                         1 year reinforcement plans

                                         Both have a long lead in time
                                         for new infrastructure
                                         capacity and replacement
                                         infrastructure capacity. Asset
                                         value measured in decades.
        Key links to planning system     Statutory consultee role on
                                         development plans limited to
                                         person to whom a license has                     Figure 6.3 : Electricity Supply Industry Structure
                                         been granted under Section
                                         7(2) of the Gas Act 1986                         Generation - A large number of companies are involved in the
                                                                                          generation of electricity using nuclear, coal, gas and wind power etc,
                                         National Planning Statements                     however, the market is dominated by six companies. Electricity is
                                         Renewable Energy Strategies                      traded on a wholesale market and through private agreements
                                                                                          between generators and suppliers. There is no price control of
        Companies Operating in the       Central Networks – East                          generation.
        East Midlands                    (DNO): E.ON (Generators);
                                         EDF; Powergen                                    Transmission - The UK extra high-voltage grid (275kVand 400kV) is
                                                                                          owned and operated by the National Grid Electricity Transmission
                                         National Grid (Gas)                              (NGET), and is, a regulated monopoly. NGET has the responsibility
                                                                                          for balancing supply and demand to maintain operation of the
        Electricity                                                                       country’s network.
        The English electricity industry in 1990 has five distinct roles (see
                                                                                          Distribution - There are 14 licensed electricity Distribution Network
        blue boxes in figure 6.3 below) with different companies delivering
                                                                                          Operators (DNOs), each responsible for regional distribution services
        different roles.
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        within a loosely defined area. They distribute electricity from the                   Local authorities are able to influence energy strategy at the local
        national grid to consumers. The 14 DNOs are operated by seven                         level through the development of specific renewable energy
        different groups (EDF Energy, Scottish Power, Western Power                           strategies which outline how energy technologies will be
        Distribution, SSE Power Distribution, E-.ON Energy, CE Electric UK                    accommodated within their local area. At a national level, the
        and ENW) which operate as regulated monopolies. In addition there                     forthcoming National Planning Statements will guide the
        are also four independent network operators who operate small                         development of major infrastructure. Five of these will relate to the
        networks embedded within DNOs networks.                                               electricity industry, including an over arching energy NPS, plus
                                                                                              separate documents on renewables, fossil fuels, nuclear power and
        Supply - This refers to the retail function of the industry, which
                                                                                              networks. The latter will be of primary relevance to development.
        operates as a competitive market without price control. The income
        from consumers is separated between the energy supplier, meter                        Energy Service Companies
        operator and DNO for use of the distribution infrastructure. The DNO                  Energy Service Companies (ESCOs) are an example of alternative
        makes payments to NGET for us of its system.                                          energy framework provision. They are also being used increasingly
        Meter operation - This function is open to the consumers’ choice and                  by local authorities who are seeking to deliver low carbon
        is the process of recording billing data from consumers’ meters.                      infrastructure to the private sector. An ESCO continues operation by
        Ofgem is the body which regulates the industry with a remit to look                   using revenue generated from the sale of energy services.
        after the interests of current and future consumers. As with the
        delivery of most utilities in the UK, the distribution functions are
        regulated monopolies with Ofgem regulating distribution prices.
        Distribution Network Operators are required to produce Long Term
        Development Statements, which cover a five year time period and
        are updated annually. Projections of electricity distribution
        requirements and the subsequent need for grid capacity are generally
        based on known consumption growth trends and connection requests
        by developers, rather than on specific growth projections set out in
        Local Development Frameworks. Similar statements are produced for
        transmission which cover seven year periods.
        Whilst DNOs could plan over a longer term they will only install
        infrastructure as developers apply for connection, as this is the main
        funding mechanism. It is usually where there is a large scale
        development in a locality and more than one developer is involved
        that the process of procuring electricity connections can delay
        development; particularly where reinforcement of infrastructure is
        needed. In such circumstances forward planning and the creation of
        a funding mechanism is usually the only way to proceed as it is
        difficult for DNOs to build infrastructure without orders for connection.
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        Gas
        The gas industry is also divided into transmission, distribution and
        supply functions:
        Transmission - The UK high-pressure network is operated by
        National Grid Gas (NGG). NGG transmits gas from the production
        beachhead and import terminals to regional distribution companies.
        This activity is a regulated monopoly.
        Distribution - Loosely defined regions, known as Local Distribution
        Zones, are operated by gas Distribution Operators (DOs). There are
        eight DOs operated by National Grid Gas, Northern Gas Networks,
        Scotia Gas Networks and Wales & West Utilities. The National Grid is
        responsible for the transportation of gas from the national grid
        network to consumers. DOs operate as regulated monopolies. There
        are also a number of Independent Gas Transporters (IGTs).
        Shippers - Own the gas as it is transmitted and distributed. They
        purchase it from producers and importers and act as wholesalers.
        There is no price control on their activities
        Supply - Gas supply companies buy gas from the shippers and retail
        it to consumers. There is no price control on their activities.                     Figure 6.4: Structure of Gas Supply
        Meter Operation - This is open to the consumers’ choice and is the                  Distribution Operators produce 10 year Long Term Development
        process of billing from consumers’ meters.                                          Statements, reviewed annually. Demand forecasts are based upon
        The DOs or IGTs take responsibility for new connections. There is a                 assumptions derived from market observations, historical demand,
        mature market in connections and the majority are installed by IGTs.                specialist advice and data from UK Transmission. They also produce
        However, they are only obliged to provide these where it is economic.               one year Reinforcement Plans which include projects that relate to
        Hence there is often limited gas infrastructure in more rural areas. It             the maintenance of the system and provision of additional capacity
        is unusual for there to be significant reinforcement needed for new                 where it is needed. Reinforcement requirements are based on
        gas connections, however, where reinforcement is needed these                       developer connection requests and reviews of council LDF
        costs will be charged to the developer. Other capital expenditure on                documents.
        gas infrastructure is funded by the DO or IGT and as such comes                     A National Policy Statement will be produced by the government
        from their consumers.                                                               with a focus on gas pipelines and the storage of gas.




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       6.3       Telecommunications

       Telecommunications encompasses a range of services including
       television, radio, landline telephone, mobile telephone and internet.
       This report focuses on terrestrial networks such as landline telephone
       and broadband that are most likely to be affected by construction
       activities.
       Backbone infrastructure - The main trunk of the network from which
       connections will feed. There are three main areas of backbone
       infrastructure:
       •         BT national network of fibre and copper trunk lines.
       •         The national fibre network owned by Virgin Media; and
       •         National and localised fibre networks owned by a number of
                 companies.
       All the backbone infrastructure interconnects and companies send
       signals over each others networks.
       Connection Infrastructure - There are a number of different types of
       connection from the backbone infrastructure to consumers. These
       consist of:
       •         copper circuits for telephony and broadband through
                 Asymmetric Digital Subscriber Line (ADSL),
       •         coaxial connections for telephony and broadband,
       •         wireless connections from local antennae; and
       •         some fibre connections for telephony and broadband.
                                                                                          Figure 6.5: Structure of Telecommunications Supply
        Companies are able to offer services over the infrastructure, whether
                                                                                          In comparison to the other utility sectors, technological changes have
        they own it or not. Some companies are able to restrict the use of
                                                                                          facilitated more open competition and choice for consumers, subject
        their infrastructure, however, Ofcom guidance is for BT to provide
                                                                                          to regulation by Ofcom.
        open access for service providers and this is increasingly the
        principle by which other infrastructure connections operate.                      The backbone infrastructure providers develop and fund their
                                                                                          networks in response to market demand, (quantity of traffic or
                                                                                          sufficient scale new developments).


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        Where the scale of new development precludes the provision of                                                          representation.
        backbone infrastructure then connections will be provided, if by no-
                                                                                              Companies Operating in the       Network Rail
        one else by BT under their universal service obligation for telephony.
                                                                                              East Midlands
        On sites they will require provision of ducting for cables usually at the                                              East Midlands Trains
        developers cost. Some companies charge consumers for the
                                                                                                                               East Coast - government
        connection at a fixed rate (e.g. BT), others cover this cost through
        service agreements with the consumer or the service provider.                                                          Cross Country
        There is no apparent link to planning system. Concerns have been                      Network Rail is the private sector monopoly owner and operator of
        raised that 100% superfast broadband coverage will require public                     the national rail network, including track, signaling, bridges, tunnels
        sector support particularly rural areas. Any person who owns or                       and stations. Network Rail operates under a network licence. A key
        controls electronic communications apparatus situated in any part of                  condition requires the company to operate, maintain, renew, replace,
        the area of the council is a statutory consultee on development plans.                improve, enhance and develop the network having regard to all
                                                                                              relevant circumstances including matters of finance. They are obliged
       6.4    Rail
                                                                                              to discuss connections to the network with interested parties and
        Key Facts                                                                             developers, and can charge for new or improved infrastructure.

        Regulator / Enforcement           DfT                                                 Network Rail produce plans, strategies and other documents
        Agencies                                                                              including an annual business plan describing how it will balance
                                          Office for Rail Regulator                           different priorities and requirements, Route Utilisation Strategies
        Department of State               DfT                                                 (RUSs) and annual returns. Network Rail does, attempts to agree a
                                                                                              longer-term vision and investment programme for the rail network
        Primary Legislation              Railways Act 2005                                    with key stakeholders including those at regional / sub-regional level
        Business Planning Cycle           Network Rail – strategic                            in the planning system . Similarly, the High Level Output Statement
                                          business plan 5 years                               (HLOS) sets out what Network Rail expect to buy and deliver on the
                                          Some developments linked to                         network. The Regional Transport Strategy (found within RSS) and the
                                          planning system and RFA                             Local Transport Plans articulate the plans and aspirations for the
                                          process has strengthened                            development of the rail network at a local level, although often have a
                                          this.                                               limited direct impact on delivery of rail infrastructure.

                                          19 franchised train operators,                      6.5         Airports
                                          various time limited contracts
                                                                                              Key Facts
        Key Links to the Planning         RTS includes rail and forms
        System                            key part of RSS. Route                              Regulator / Enforcement          CAA
                                          Utilisation Strategies –                            Agencies
                                                                                                                               NATS
                                          stakeholder steering group
                                          includes regional planning                          Department of State              DfT


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          Primary Legislation             Airports Act 1986                                         policy and seek to connect this growth to other infrastructure, in
                                                                                                    particular transport networks.
          Business Planning Cycle          Airport Masterplans – to 2030
                                                                                                    6.6     Emerging best practice – engagement with spatial
          Key Links to the Planning        Future of Air Transport White
                                                                                                                      planning
          System                           paper sets framework for
                                           airport development which is                             There are examples of engagement with the planning system which
                                           then reflected in the RSS and                            extends beyond that described above.
                                           lower level development
                                           plans                                                    One such example is that of the Regional Water Partnership, the first
                                                                                                    of its kind in the UK, which has been established in the East of
                                           Close working has developed                              England. This includes as its members the East of England
                                           between airports and regional                            Development Agency, GO-East, Natural England, CC Water, the
                                           / local planning authorities                             Environment Agency, the East of England Regional Assembly and
                                           and RDAs                                                 the water supply companies. The partnership aims to put all aspects
          Companies Operating in the       East Midlands Airport                                    of water at the forefront of decision-making in planning processes.11
          East Midlands                                                                             6.7     Summary Table
                                           Robin Hood Airport

                                                                                                    Infrastr-   Regulator   Business planning      Issues and link to planning
         The Civil Aviation Authority has a statutory responsibility under the                      ucture                  period                 system
         Airports Act 1986 to set price caps for airports that are designated by
                                                                                                    Water       Ofwat       5 years Business       Sewage and Water
         the Secretary of State.
                                                                                                                            planning period        Companies are Statutory
         There are currently four designated airports: Heathrow, Gatwick and                                                All water companies    Consultees for major
         Stansted (owned by BAA) and Manchester Airport (part of the wider                                                  have a duty to         planning applications and
         Manchester Airport Group plc). Section 40 of the Act requires that the                                             produce water          development plans.
         CAA set the conditions that, “it thinks appropriate for regulating                                                 resources plans        Business planning areas
         during the succeeding period of five years the maximum amounts                                                     covering the next 25   do not follow regional /
         that may be levied by the airport operator by way of airport charges.”                                             years. These cover     local authority boundaries
         East Midlands Airport is not included in these Regulations.                                                        how companies
         The Future of Air Transport White Paper10 sets out the scale and                                                   intend to provide
         distribution of expected growth in aviation to 2030. This identifies the                                           sufficient water to
         roles of different airports (East Midlands Airport is identified as the                                            meet their
         national freight hub) and the additional infrastructure eg new                                                     customers' needs.
         runways, which will be required to facilitate delivery of this growth.
         RSS and lower level development plans articulate the White paper                     11
                                                                                               Anglian Water Strategic Direction Document 2010-2035
                                                                                              www.anglianwater.co.uk /corporate-responsibility
10
     Future of Air Transport White Paper 2003
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       Infrastr-   Regulator       Business planning       Issues and link to planning             Infrastr-   Regulator   Business planning      Issues and link to planning
       ucture                      period                  system                                  ucture                  period                 system
                                   Much information                                                                                               local authority boundaries
                                   confidential.                                                                                                  Concern that 100%
                                                                                                                                                  superfast broadband
                                                                                                                                                  coverage will require public
                                   Flood and coastal       Statutory consultee for                                                                sector support particularly
                                   risk management –       planning applications and                                                              rural areas. Statutory
                                   25 years                development plans.                                                                     consultee role on
                                                           Catchments do not reflect                                                              development plans - any
                   Environ-                                regional / local                                                                       person who owns or
                   ment                                    administrative boundaries.                                                             controls electronic
                   Agency
                                                                                                                                                  communications apparatus
       Gas         Ofgem           5 year price controls   Not a requirement.                                                                     situated in any part of the
       and                         Long lead in time for   Business planning areas                                                                area of the council
       electric-                   new infrastructure      do not follow regional /
                                                                                                   Roads       DfT         Various depending      RTS, LTPs, connect to
       ity                         capacity and            local authority boundaries
                                                                                                                           on nature and size     spatial planning system.
                                   replacement             Generation may be outside                                       of scheme and          Links strengthened through
                                   infrastructure                                                              Highways
                                                           region, or even offshore                                        nature of funding      RFA process
                                   capacity. Asset                                                             Agency
                                                           wind farms.                                                     source. Well           Statutory Consultee role on
                                   value measured in
                                                           Issues – fuel mix (eg %                                         connected to           development plans and
                                   decades.                                                                    Local
                                                           renewables), security of                                        planning system –      major planning applications
                                   Much information        supply, planning system                             Highways    strengthened for
                                   confidential.           seen as impediment to new                           Authority   major infrastructure
                                                           infrastructure delivery.                                        through RFA
                                                           Statutory consultee role on                                     process.
                                                           development plans limited               Rail        DfT,        Network Rail –         RTS includes rail and
                                                           to person to whom a                                             strategic business     forms key part of RSS.
                                                                                                               ORR
                                                           license has been granted                                        plan 5 years           Route Utilisation Strategies
                                                           under Section 7(2) of the                                                              – stakeholder steering
                                                                                                                           Some developments
                                                           Gas Act 1986                                                                           group includes regional
                                                                                                                           linked to planning
       Telec-      Ofcom           Various timescales      No apparent link to                                             system and RFA         planning representation.
       oms                         and much                planning system.                                                process has
                                   information             Business planning areas                                         strengthened this.
                                   confidential            do not follow regional /                                        19 franchised train
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       Infrastr-   Regulator       Business planning      Issues and link to planning             •   The scope for regional and local authorities to influence infrastructure
       ucture                      period                 system                                      forward planning is limited, and the regulators are the final arbiter;
                                                                                                      and
                                   operators, various
                                   time limited                                                   •   Most utility providers are commercial organisations and as such their
                                   contracts                                                          business plans are subject to confidentiality.

       Air         DfT, CAA        Various time periods   Future of Airports White
                                   Airport masterplans    Paper.
                                   to 2030                Airport expansion
                                   Airline routes –       proposals reflected in RSS
                                   shorter time           and development plans



 6.8         Key Points

   •   Infrastructure providers are largely responsible to industry regulators;
   •   The provision of new infrastructure is the responsibility of the utility
       companies who must also fund and deliver this, but new
       infrastructure is largely paid for through charges to existing
       customers;
   •   The forward planning periods for the provision of new infrastructure
       differs between providers;
   •   Forward planning periods are generally shorter-term compared to the
       longer-term time-scales of the land-use planning system;
   •   Forward planning processes for infrastructure often do not connect
       with spatial planning processes;
   •   Some utility providers are statutory consultees in relation to different
       aspects of the planning system eg some are statutory consultees on
       major applications and others on development plans;
   •   Some utility providers, specifically transport, are well integrated into
       the planning system;
   •   There are examples of emerging best practice in terms of regional
       engagement between infrastructure providers and the planning
       system eg East of England Regional Water Partnership;
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     7        Co-ordinating Infrastructure                                                   7.2          Other Organisations

              Provision and Delivery                                                               •   Regional Regulated Monopolies

     The co-ordination and delivery of infrastructure is currently distributed               Commercial bodies (companies) controlled by a national system of
     across a range of organisations spreading outside the boundaries of                     economic regulators who use a range of financial proxies to
     the region. Any understanding of the co-ordination problem requires an                  determine whether value for money is achieved. Investment is
     appreciation of the key players and organisations involved.                             subject to approval using a price control assessment on the use of
                                                                                             a regulated asset base. Most investment planning by these
           7.1       Financial Markets                                                       companies is done through sectoral based asset management
     Financial markets will ultimately take a view on the relative returns                   plans. This category includes companies like Central Networks
     available from different types of inward investors. The move to open                    East, Severn Trent Water and Anglian.
     infrastructure to private capital by governments around the world (led                        •   Executive Non Departmental Public Bodies
     by the UK) has encouraged the creation of multi billion dollar                                    (Executive NDPB)
     infrastructure funds seeking investment capital from pension funds;
                                                                                             The Highways Agency is an example of an executive NDPB
     insurance companies; sovereign wealth funds and private equity.
                                                                                             responsible for delivering specific types of infrastructure through
     Some of the infrastructure funds like Macquarie and Babcock & Brown                     sectoral asset management plans. This category also includes
     have the capability and the ambition to act as project developers, not                  public corporations like British Waterways Board who manage a
     simply financial investors. Furthermore they are investing for funds that               specific public asset like the canals system for public benefit.
     have a long term outlook on infrastructure, unlike some of the private
                                                                                                   •   Homes and Communities Agency (HCA)
     equity / bank driven funds which sometimes look to sell on their
     investments after the asset has been built and is in operation. The key                 The involvement of the HCA in infrastructure discussions and
     tests will be whether the returns meet their requirements and the level                 planning has varied at the regional level in accordance with local
     and role government agencies may want and its equity stake in the                       circumstances. For example, in the South West, the HCA has
     project. At a time when returns from traditional investment markets like                taken a leading role in the Regional Funding Advice (RFA)
     stocks, bonds, commercial property are looking increasingly uncertain,                  discussions, partly as a result of the transfer of key executives
     infrastructure was initially seen as offering an asset with relatively good             from the Regional Development Agency to the HCA and partly as
     security with a predictable income flow, however a recent article in the                a result of the number of urban extensions and settlements
     Financial Times (8 March 2009)12 has suggested that infrastructure                      planned or in need of support. The “Single Conversation” has
     investors have been “forced to dump assets to meet refinancing                          provided the key mechanism for discussions on alignment and
     payments and return money to angry shareholders” as a result of the                     regional investment priorities.
     credit crisis.                                                                          7.3         Strategic Leadership Bodies

                                                                                             There are a number of organisations which have a role in
                                                                                             overseeing the provision of new infrastructure (See Appendix A1
12
  Financial Times 08.03.2009 ‘Aussie funds to Ditch UK Assets’ by Fortson                    for more detail). These include:
and Marlow
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               •       The Economic Regulators (e.g. Ofgem, OfWAT)                                       land and property assets in its ownership that are
                                                                                                         considered under valued. The private sector invests
               •       Other Non Departmental Public Bodies (eg RDAs, HCA)
                                                                                                         cash and expertise. The vehicle delivers a share of the
                       who offer some form of insight/ intelligence on
                                                                                                         uplift value to the public and private partners.
                       infrastructure requirements.
                                                                                                     •   The Integrator Model - The aim of this model is to
               •       Strategic Co-ordination Partnerships – formed to co-
                                                                                                         promote best value for the public sector by separating
                       ordinate infrastructure service providers, usually with a
                                                                                                         out the role of project manager from the role of
                       view to supporting the planning strategy for an area. eg
                                                                                                         deliverer (physical construction).
                       city regions or housing market areas or other sub regions
                       using mechanisms such as the Multi Area Agreements                            •   Competitive Partnership - another LEP/LIFT variant
                       (MAAs).                                                                           designed to stimulate competitive pressure within the
                                                                                                         delivery partner addressing poor value for money.
               •       The new Infrastructure Planning Commission, which will
                       cover nationally significant infrastructure projects (e.g.                    •   Alliance Partnerships - a form of collaboration based
                       major airports, ports, power generation, waste processing)                        on the use of a payment mechanism that ensures all
                       that will be identified through a system of National Policy                       parties are aligned to a common set of project
                       Statements, which will be subject to consultation and                             objectives.
                       Parliamentary scrutiny.
                                                                                                     •   Incremental Partnerships - The public sector enters
                7.4        Public Private Partnership Vehicles                                           into a framework agreement with a private sector
                                                                                                         partner who procures the necessary infrastructure and
                   •     Private Finance Initiative (PFI) - enables the public                           services on behalf of the public sector.
                         sector to spread the cost of infrastructure investment
                         over the lifetime of the asset avoiding some of the                         •   Local Service Based Vehicles - Parallels with the
                         uncertainties over conventional procurement.                                    LEP/LIFT model where the public sector enters into a
                                                                                                         strategic partnership with the private sector who
                   •     The Local Education Partnerships/ Local Investment                              provides project management and investment to the
                         Finance Trusts (LEP/ LIFT) Partnerships - designed to                           delivery of infrastructure services.
                         work in situations where there is a steady role out of
                         new build/ upgrading across a range of sites (divisible               7.5       Commercial Service Providers
                         forms of facility type investment).
                                                                                               The vast majority of decisions related to infrastructure will
                   •     De-Risked Private Finance Initiative - Value for money                remain within the commercial sphere where the commercial
                         can be improved by reducing the overall risk                          arms of utilities and process plant contractors who project
                         transferred under a conventional PFI.                                 manage complex (often) large scale projects through specialist
                                                                                               supply chains that carry out works funded by charges levied by
                   •     Local Asset Backed Vehicles (LABV)/ Local Incentive
                                                                                               utility companies for the right to connect.
                         Backed Vehicle (LIBV) - a corporate joint venture
                         involving one or more public sector bodies and the
                         private sector. The public sector’s contribution is the
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            7.6          Regional Organisational Capacity

            Regional organisational capacity in private and public sectors
            needs to be assessed in terms of whether the region has the
            appropriate capacities to support any intervention strategies. In
            particular:
                  •   the ability to make investment decisions relevant to
                      regional need (at a regional and sub regional level);
                  •   the ability to scan for relevant trends in external policies
                      and develop an evidence base to support decisions;
                  •   the ability to handle project management and delivery
                      processes (at regional and sub regional levels).
            The result of these processes is a flow of infrastructure services
            delivered to homes and business in the East Midlands which
            include accommodating growth in demand but also qualitative/
            safety requirements created by new regulations on matters as
            diverse as water quality, the elimination of level crossings,
            increased bandwidth and so forth.

           7.7           Assessing the organisational capacity of
                           the region

           Table 7.1 overleaf shows how the organisational forms listed
           earlier map over the functional activities considered important to
           developing infrastructure in the region.




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              Table 7.1: Mapping Organisational Capacities for Infrastructure Development

                Organisational     International / National / Regional                                    Sub Regional/ Local
                Capacity

                Decision           Financial Markets (e.g. specialist capital investment funds); Boards   LABVs (e.g. Meden Valley); City Development Companies; MKSM
                making relating    of Utility Companies (e.g. EoN, Severn Trent, Anglian Water);          Growth Area Partnerships, HCA.
                to economic        Executive NDPBs; National Planning Commission; Economic
                needs              Regulators (e.g. Ofgem); HCA.

                Intelligence on    Emda (commissioning of capacity studies); Asset management             Emda (strategic planning studies); HMA Partnerships; MKSM Growth
                infrastructure     plans of the utility companies; Executive NDPBs (e.g. the              Area Partnerships; Local Planning Auths Core Strategy evidence base
                policy and need    Highways Agency); National Planning Commission.                        (and Section 4.4 Auths); LABVs (e.g. Meden Valley); Asset
                                                                                                          Management Planning of local authorities; Local Strategic
                                                                                                          Partnerships.

                Project            Regional Asset Backed Vehicle (Blue Print).                            Regional Asset Backed Vehicle (Blue Print); Emda (project based
                Management                                                                                feasibility studies and project support); HCA; Public Private
                and Delivery                                                                              Partnership vehicles such as ABV; PFI, LEP/LIFT; Alliance
                                                                                                          Partnerships; Incremental Partnerships; De Risked PFI;



              7.8       Infrastructure Funding Decision Making                                             particular regard for region’s economic development. Whilst an
                                                                                                           open system carries certain disadvantages, the funding of East
              The majority of infrastructure providers are private companies,                              Midlands regional infrastructure needs is freed from a
              and many decisions are governed by commercially confidential                                 dependency on internally generated revenue streams alone.
              information and considerations.                                                              This carries potential risks and rewards dependent upon
                                                                                                           national priorities of the day and alternative investment
              Although there are a number of organisations with a nominal
                                                                                                           markets. This analysis highlights the context within which the
              regional focus in the conduct of their decision making, the
                                                                                                           Agency is working by illustrating that it is contending with
              boards of the regulated monopolies and their parent corporate
                                                                                                           funders that have a global perspective, where the East
              bodies (e.g. the relationship of Central Networks – east with
                                                                                                           Midlands is one market place among many. For international
              EoN in the power sector) make decisions based on
                                                                                                           utilities, opportunities exist for higher returns in the expanding
              assessments of national need or international investment
                                                                                                           markets of Asia.
              opportunities. These decisions are in turn influenced by trends
              in the international money markets. The economic regulators
              (the amount of money available for investment) and institutions
              of the European Union (regulations concerning quality of
              service/ safety) are also making decisions without any

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              7.9       Identifying New Infrastructure                                          The development of an evidence base for infrastructure has
                          Requirements                                                          also had the effect of pushing ‘planning’ as a promoter of
                                                                                                corporate working to identify requirements that reflect all
              Most government policy development has focused on identifying                     service delivery needs within a Council. This agenda has also
              infrastructure need more effectively and on providing a more                      created a dialogue between County and District levels of local
              effective stimulus to local planning authorities to account for                   government to ensure that county level services like transport
              these issues in the development of core strategies. Fig 4.1                       and waste matters are adequately accounted for in the
              (section 4) showed the indicative distribution of growth to be                    process. Working with areas that approximate the functionality
              delivered in the region over the next 20 years, all of which will                 of major infrastructure has also encouraged some urban
              create demand for infrastructure services.                                        communities to work with their rural hinterlands in drawing up
              For new development, Planning Policy Statement 12 (June                           delivery plans.
              200813 has created an incentive to incorporate infrastructure                     Utility companies will be increasingly drawn into the
              delivery more comprehensively into the supporting evidence                        infrastructure planning efforts of local authorities. In doing so,
              base to local development frameworks. It remains to be tested                     they will have to reconcile their own investment planning
              as to how comprehensive the evidence base must be to pass                         processes linked to the price review cycle with spatial planning
              the test of soundness at inquiry stage and how well integrated                    led by the local authorities. Utilities need to take a view on the
              infrastructure planning will become into the generality of service                likelihood that planned growth will be realised at level assumed
              planning taking place at the local level. See also section 7.10                   and the timescale proposed. They need to balance the risks of
              below.                                                                            investing in capital assets too early, resulting in poorly
              Early feedback suggests that in times of economic pressure,                       performing capital assets against the risks of having insufficient
              some authorities are gravitating towards the lowest common                        capacity to meet new demand thereby failing quality of service
              denominator for compliance, which may involve simply ‘proofing’                   standards and their general duty to supply services.
              the deliverability of key sites. Others are collaborating within                  7.10     Delivering Infrastructure
              larger geographic units that better represent the functionality of a
              region’s infrastructure. In the East Midlands, on going research                  A plethora of organisational models for the management of
              has been commissioned for collectives of local planning                           infrastructure projects incorporating funding and delivery have
              authorities comprising housing market areas to examine                            been developed under the banner of “public private
              infrastructure planning issues.                                                   partnerships”. These have typically been developed to make
                                                                                                up for the scarcity of public capital funding. Many of the public
              The ‘city region’ is also being promoted as a suitable planning
                                                                                                private partnership models were developed to take advantage
              unit to undertake this work and this may have longer term
                                                                                                of their “off balance sheet” treatment in public accounting,
              significance. Government has created multi area agreement
                                                                                                however that advantage is being removed.
              (MAA) mechanism that allows authorities to work collaboratively
              on issues like infrastructure planning either within a city region or             These organisational vehicles are essentially concerned with
              a housing market area.                                                            controlling the specific implementation and performance of a
                                                                                                project rather than setting any strategic priority. The
13
     Planning Policy Statement 12 CLG June 2008                                                 organisational models tend to work best in situations where
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              there is a level of certainty regarding particular facilities based             Passive Approaches
              infrastructure eg hospitals, health centres and schools. The M6                 Some Local Planning Authorities have chosen to make
              toll road is an example of a network based infrastructure                       assumptions that the utility based services will be taken care of
              project delivered through this mechanism.                                       through the Utility’s own planning mechanisms or commercial
              Local Asset Backed Vehicles will have a specific spatial focus                  arrangements between developers and the provider. In these
              using the latent value of public land assets whilst their sectoral              circumstances, primary attention has been focused on core
              equivalent (LEP/ LIFT) use the same public land assets to                       public service infrastructure providers, who are well acquainted
              achieve sectoral infrastructure.                                                with partnership working and engagement. Transport,
                                                                                              education and community services have tended to feature
              Utility infrastructure tends to be commissioned through the                     significantly in the consultative process.
              utility company itself, as requisitioned work, or by the developer
              undertaking a specific development. The utility company will,                   However a number of private sector utility providers
              however, undertake any broader reinforcement works. These                       approached as part of this study appeared largely unaware of
              works are undertaken as a commercial transaction.                               the development plan processes and the routes through which
                                                                                              they could engage. Furthermore there was a clear lack of
               7.11     Infrastructure Delivery Planning                                      understanding of the planning system and the recent increased
                                                                                              significance of infrastructure planning (PPS12 requirements).
              The co-ordination problem has encouraged the development of
                                                                                              There was strong support for greater co-ordination in
              a whole range of policies aimed at promoting infrastructure
                                                                                              infrastructure planning and a willingness to participate in this
              delivery co-ordination and planning. The government has
                                                                                              process.
              chosen to concentrate on the land-use planning system as the
              means of achieving better co-ordination.                                        Some authorities have made tentative approaches to utility
                                                                                              providers, but mainly in relation to non spatially specific core
              Planning Policy Statement 12 (PPS12, June 2008) now
                                                                                              strategy policies. The output from this approach is typically a
              encourages a much greater emphasis on what was formerly
              termed ‘implementation planning’ to support development plan
              policies. New guidance clearly indicates that infrastructure
              delivery planning will be a key test of soundness for the Core
              Strategy and other local development documents in the future.
              Currently, PPS12 guidance does not provide any detail over
              the format of an infrastructure delivery plan which has led to a
              variety of approaches from local planning authorities ranging
              from the passive testing of broad policy principles with some
              infrastructure providers through to a more integrated approach
              aimed at establishing the critical path across a range of
              infrastructure delivery bodies.



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        stand alone document that lists infrastructure projects together with                  responsibilities for the community at large. This attitude has led to the
        timescale, ownership and cost. Documents produced by different                         Local Authority establishing a forum for different providers to work
        authorities vary in breadth and depth of their coverage. Barriers to                   together and exchange information over planned developments. The
        establishing a common approach include staff resources and skills.                     forums tend to include departments outside planning (especially
        Ideally they should be “corporate” documents, developed jointly with                   finance and legal); other Councils; Executive Non Departmental
        adjoining authorities who share occupation of the functional footprints                Public Bodies with infrastructure responsibilities such as the
        of the infrastructure networks that they are seeking to influence.                     Highways Agency; the NHS and private utility providers

              Box 7.1: Planning Policy Statement 12                                            Under these conditions, infrastructure delivery planning is driven by a
                                                                                               common overall vision for the development of an area as expressed
              ‘The Core Strategy should be supported by evidence of what
                                                                                               in its Sustainable Community Strategy and Core Strategy.
              physical, social and green infrastructure is needed to enable
              the amount of development proposed for the area, taking                          This vision can be unpacked into the performance required from
              account of its type and distribution. This evidence should                       individual services over the term of the plan. Key performance
              cover who will provide the infrastructure and when it will be                    indicators for infrastructure can be determined by undertaking a
              provided. The core strategy should draw on and in parallel                       review of existing plans and strategies and through consideration of
              influence any strategies and investment plans of the local                       the technical and aspirational demands of a community.
              authority and other organisations.                                               The scale and nature of infrastructure required will depend on the
              Good infrastructure planning considers the infrastructure                        location of major development within a Local Authority and the
              required to support development, costs, sources of funding,                      assumed service model. The infrastructure planning process
              timescales for delivery and gaps in funding. This allows for the                 therefore provides an appropriate forum for integrated decision
              identified infrastructure to be prioritised in discussions with key              making around land use planning, the testing of new infrastructure
              local partners. This has been a major theme highlighted and                      delivery models/ideas, and the exploration of linkages and feedback
              considered via HM Treasury’s CSR07 Policy Review on                              loops between infrastructure sectors.
              Supporting Housing Growth. The infrastructure planning
              process should identify, as far as possible:
              •    infrastructure needs and costs;
              •    phasing of development;
              •    funding sources; and
              •    responsibilities for delivery.’
              PPS 12 June 2008
        Integrated Approaches
        Some Local Planning Authorities have tended towards seeing
        infrastructure delivery planning as a core activity central to their wider
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              Figure 7.1: Role of a Common Vision in Driving
              Infrastructure Planning




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         7.12         The Community Infrastructure Levy                                      •   CIL is to be used to pay for infrastructure to serve new
                                                                                                 development in an area. It will not be restricted to infrastructure
         The Community Infrastructure Levy (CIL) was introduced by the                           needed for a particular permitted scheme.
         Planning Act 2008 (s205 to s225) and is expected to take effect
         from April 2010. CIL will be optional for local councils and will seek              •   CIL will be payable upon the start of development and may be
         to secure contributions towards the costs of the infrastructure                         payable by the developer or other interest holders in the land
         needed to support the development of an area. It aims to increase                       bearing planning permission;
         transparency and predictability, and reduce the time and costs of                   •   CIL will be calculated by reference to the quantum of
         negotiating a planning obligation. In addition, the CIL approach                        development permitted in a planning permission under which
         should also enable a levy to be applied to contribute to                                development is carried out. Thus it is not likely to relate to the
         infrastructure delivery from smaller scale developments. The CIL                        grant of outline planning permission.
         would also break the current panning obligation regime’s
         requirement for developer contributions to be spent on infrastructure               •   CIL levels will be set in a charging schedule which will be
         or other provision directly related to that particular development.                     determined following examination by an Independent Examiner
         This means CIL could make a meaningful contribution towards                             who will take account of representations y interested parties.
         wider, more strategic infrastructure in addition to local and site
                                                                                             The CIL would be based on a costed assessment of infrastructure
         specific. CIL will need to be underpinned by a robust, costed list of
                                                                                             requirements arising out of all development within the area; taking
         infrastructure projects that are needed to support planned
                                                                                             account of land values and potential uplifts. Standard charges would
         development.
                                                                                             be set, which may vary from area to area and according to the
         The CIL approach is intended to provide flexibility for the future, in              nature of development proposed.
         recognition that planning obligations practice has evolved
         significantly over time and it is anticipated that CIL will also evolve
         as local authorities and developers become more familiar with the
         new approach.
         Figure 7.2 overleaf puts forward a vision led process for establishing
         need; translating the need into costs; deducting known sources of
         income to derive a “net cost” and apportionment of benefit between
         new and existing communities.
         The aim of the Levy is to ensure that the costs incurred of providing
         infrastructure to support the development of an area can be met,
         either in part or whole by landowners who have benefitted. The levy
         may be set at different rates for different uses and vary with
         locations with an Council area. Other key aspects include:




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              Figure 7.2 A Vision Lead Process




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             7.13       Key Points                                                            •    The approach to planning infrastructure in the region does
                                                                                                  not follow any particular pattern of engagement with critical
              •      Until comparatively recently limited attention has been                      infrastructure providers.
                    paid to understanding of infrastructure needs of areas,
                    which was assumed to take place ‘automatically’ through                   •   The mapping reveals ever more intricate public private
                    liberalised markets in the 1980s and 1990s.                                   partnership models which have evolved to deal with the
                                                                                                  delivery of projects.
              •      The private market has, however, failed to give a clear
                    direction to the needs of communities, and Government
                    policy has now switched towards recognising this gap as a
                    deficiency with extra weight given to infrastructure planning
                    in recent advice, particularly PPS12.
              •      The new methodology for planning infrastructure moves
                    towards the creation of spatially based asset management
                    plans. The new model does not work particularly well with
                    the sector based asset management planning that has
                    hitherto dominated provision.
              •     Following privatisation, asset management strategies have
                    a commercial, as well as a functional, objective for major
                    utility investments. This is a fundamental challenge for any
                    attempt to produce a fully co-ordinated understanding of
                    need at the regional and sub-regional levels.
              •      emda could already support co-ordination activity through
                    the relationships and potential influence it has via its
                    statutory consultee planning function. The challenges of
                    securing sufficient value from lower value sites to provide
                    the required infrastructure is an issue with the Agency will
                    be familiar given its involvement in the National Coalfield
                    Programme and other brownfield regeneration schemes.
              •      Development focused infrastructure planning can help
                    optimise economic and development outcomes rather than
                    the performance of individual networks.
              •     To be effective, infrastructure planning can establish the
                    critical pathways between different layers of infrastructure.

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8       Delivering Co-ordinated Infrastructure                                                authorities seeking to support their core strategies, through to
                                                                                              Housing Market Areas identifying infrastructure priorities across their
        8.1          Introduction                                                             functional areas. Examples elsewhere include sub regional
                                                                                              partnerships established under the RSS process through to the city
        Certain delivery models would appear to have a greater scope for                      region (Box 8.1) using the powers vested in multi area agreements to
        filling gaps/ weaknesses than others. The development of a focus on                   work across boundaries.
        these vehicles does not devalue the other organisational forms, but
        seeks to maximise future potential. Three key models have been                        Box 8.1: The City Development Company Concept (CDC)
        identified, which will be explored in more detail below, alongside a                  The Government’s approach to CDCs is non-prescriptive. It is
        consideration of the role which emda and its partner organisations                    promoting the concept and supports the CDCs that are emerging
        could play in each.                                                                   around the country, but it has not identified a single, uniform
        These delivery models are:                                                            approach to them. However, several characteristics have emerged
                                                                                              from the Government statements to date:
        •     Strategic co-ordination bodies;
                                                                                              •     Core function is economic development; engaging with the
        •     Asset Backed Vehicles;                                                                private sector but designed by local authorities and RDAs;
        •     Local Infrastructure Service Models.                                            •     Independent companies limited by guarantee; non profit making;
                                                                                                    arms length
        8.2          Strategic Co-ordination Bodies
                                                                                              •     Partners decide whether CDC should be time-limited or not
        There is a strong argument for strengthening the strategic co-
        ordination functions within the region as a counter balance to the                    •     50% of board from private sector; chair from private sector.
        many decisions determined outside the region by nominally
                                                                                              •     CDCs could operate across the functional economic area of the
        regionally focused organisations.
                                                                                                    city region or just city wide.
        At the regional level, the future Single Regional Strategy for the East
                                                                                              •     Not to be vested with statutory powers such as planning, or
        Midlands should provide a regional policy framework within which
                                                                                                    compulsory purchase.
        emda (and partners) could development a more active coordination
        role. A basis for this role is already being established through the                  •      Running costs to be met by members with no additional direct
        RDA investigating infrastructure service provision across a number of                       funding streams from government.
        sectors. By testing the existing service providers against broader
        economic development priorities, the Agency can help to nudge the
        providers towards actions that best support the regional economy or                   8.3          Asset Backed Vehicles
        other identified regional priorities such as accelerated moves towards
        a low carbon economy.                                                                 Local Asset Backed vehicles
                                                                                              The public sector in the East Midlands is in possession of millions of
        At the sub regional and local level, the picture is less clear. There are             pounds worth of saleable land and property assets and proactive
        a number of extant partnership structures which could take on a                       management of these assets could create significant opportunities to
        leading role within the region ranging from individual local planning
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        plug funding gaps and deliver strategic infrastructure projects across               Box 8.2 Meden Valley Making Places
        the region.
                                                                                             Meden Valley Making Places (MVMP) was established in 2003
        Selling property assets to bring in receipts is nothing new, but                     to tackle housing decline in eight former mining communities in
        Government is now actively encouraging partnerships with the                         north Nottinghamshire and north-east Derbyshire.
        private sector in joint ventures called Local Asset-Backed Vehicles
                                                                                             The 1980s and early 1990s had seen many pits close, leaving
        (LABV's). The proposition is based on a public body vesting its
                                                                                             communities that had depended on coal-mining for their
        property assets into the “vehicle”, within which the private sector puts
                                                                                             livelihoods facing a bleak future.
        in money equivalent to their value. The money is then used to
        develop the portfolio, with profits being shared. The public partner                 Many homes were abandoned or fell into the hands of private
        stands to gain far more from retaining their assets and ‘sweating’                   landlords who could find no-one to rent them, devastating
        them, than they do from selling them off by sharing in enhancement                   entire communities and creating problems that one
        value. LABVs could generate a long-term source of funding to plug                    organisation acting alone could not begin to tackle.
        the gap between central government funding for strategic
                                                                                             Accordingly, MVMP was established as a not-for-profit public
        infrastructure and tariff receipts. New funds could be generated
                                                                                             sector company, jointly owned by English Partnerships, East
        through the release of buildings and site that could reduce the
                                                                                             Midlands Development Agency, Bolsover and Mansfield
        dependency on existing sources of public funding. Newly-acquired
                                                                                             District Councils, with the aim of reversing decline, and
        finances could be recycled to provide long-term funding for
                                                                                             catalysing regeneration in association with local, regional and
        infrastructure projects.
                                                                                             national partners.
        Regional LABV’s are more established delivery vehicles with
                                                                                             Its brief is to address the issues of run-down and empty
        Blueprint, a partnership between English Partnerships, EMDA and
                                                                                             properties, low demand, and poor housing mix and tenure in
        Morley Fund Management’s Igloo Regeneration (as the private
                                                                                             eight settlements, by engaging and working closely with
        sector partner) – see Box 8.3.
                                                                                             residents and other key partners to deliver thriving, sustainable
                                                                                             communities.
                                                                                             By early 2008, significant progress has been made across all
                                                                                             settlements. The historic Creswell Model Village is now fully
                                                                                             restored and a combination of refurbishment and new build is
                                                                                             helping to transform all eight settlements being tackled by the
                                                                                             project.
                                                                                             (Homes and Communities Agency website, 2009)




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                  Box 8.3:Case Study on Regional LABVs – Lessons from East Midlands Blueprint

                  Blueprint is a partnership between Homes and Communities Agency (HCA), EMDA and Aviva Investors Igloo Regeneration Partnership
                  (Igloo). It is the first of the new breed of public-private development vehicles and has set the model for the rapid proliferation of regional
                  LABVs (often known as “the Blueprint model”).

                  Blueprint was formed in May 2005 as a Property Regeneration Partnership to deliver new solutions for regeneration in the East
                  Midlands. It is a 50:50 Public private Partnership, bringing together the East Midlands Development Agency (EMDA), English
                  Partnerships (EP) now HCA and Igloo (a Morley fund, now named Aviva). The Partnership comprises EMDA (25%), English
                  Partnerships (25%) and Igloo (50%). Investment, ownership, risk and profit are shared equally between public and private sector.
                  EMDA contributed a £23m portfolio of sites and industrial investment property in exchange for equity of £6m and a loan of £17m, while
                  EP put in £6m of equity. More than 80 investors applied for the position of the private sector partner, and Igloo was chosen. It brought in
                  a further £11m in equity and the partners contributed a further £10m during 2007/8 . Blueprint raised bank funding of £15m in 2008.

                  Blueprint's remit is to generate social, economic and environmental benefits within a commercial framework by stimulating and
                  delivering sustainable and well designed development. Its focus is the East Midlands’ six Priority Urban Areas. Blueprint's overall goal is
                  to facilitate, through regenerative property development, the delivery of EMDA and EP’s core objectives.

                  The structure of Blueprint creates advantage by bringing together significant resources and high level skills from influential public and
                  private sector organisations. The financial structure permits a long term view with performance judged according to likely outcomes over
                  the 10 year life of the vehicle. The JV aims to complete £400m of development in the region’s six urban priority areas: Nottingham,
                  Leicester, Derby, Lincoln, Northampton and Corby. It acquired options over six principal development sites from EMDA with a combined
                  development value of around £150m and Blueprint has expanded the portfolio of projects to 12 since inception.

                  Although Blueprint is not the first public-private development vehicle, it differs because of its combination of a focus on development, an
                  income-generating portfolio, and a 50:50 public private balance where neither sector dominates. A partnership approach underpins the
                  business model whereby decision-making is efficient and decisive. If there’s not an agreement at board level then it has to be worked
                  through. Partner organisations must be aligned so having a common vision is essential to minimise scope for tension. Blueprint does
                  not compete with the private sector, but tackles projects where commercial developers are unable to deliver what local authorities,
                  regional development agencies and urban regeneration companies want. Blueprint will sell completed schemes to produce returns and
                  is willing to hand development projects to the private sector when its intervention has made them possible. Blueprint’s social objectives
                  help the company to form relationships with public bodies.




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Local Incentive Backed Vehicles                                                             been engaged in rationalising land holdings to make bigger units at better
Following the ‘credit crunch’ concerns have been voiced over the viability of               locations out of small fragmented sites achieving co-location of facilities.
asset backed vehicles. Public authorities are now taking a view that vesting                The public sector hands over its land holding in exchange for an equity
their land assets in an LABV at the bottom of the market is the equivalent of               holding in the LIFTCo. A further benefit is that the LIFTCo can borrow
“selling the family silver” for limited return. King Sturge (2009) research                 against the value of the land rather than raise more expensive project
suggests that land values in urban areas have fallen by around 70% since                    finance.
the peak of the market14.
                                                                                            Box 8.4: Example - Greater Nottingham and North
A Local Incentive Backed Vehicle (LIBV) is based on property options or                     Nottinghamshire LIFT Companies
incentives relating to land holdings, rather than the transfer of land to a
separate vehicle. Under this approach, the public sector owner offers options               A form of Public-Private Partnerships. with an ownership structure:
across a package of sites in its ownership. The options are exercisable on                  20% - Community Health Partnerships (CHP) formerly Partnerships for
the achievement of certain minimum performance requirements placed upon                     Health (PFH)
a private sector partner. A private sector partner is procured and a vehicle                20% - Local stakeholders
established. As the market returns, the options are exercised and ownership                 60% (30% & 30%) – Primary Plus Ltd
is transferred at a price reflecting the recovered market. This model also                  Primary Plus Ltd is a joint venture company jointly set up by John Laing and
helps the private sector in lessening the upfront call on cash to buy land at a             Bank of Scotland Corporate to participate in LIFT.
time when bank finance is constrained. Such an approach has been adopted
                                                                                            Projects and services for Nottinghamshire are formulated via the Strategic
by Network Rail and Kier across a property portfolio of £500 million.
                                                                                            Partnering Boards with representatives from all stakeholders and stated in
Sectoral Asset Backed Vehicles - Local Improvement Finance Trusts                           the Strategic Service Delivery Plans. The two Nottinghamshire
(LIFTs)                                                                                     LIFTCOs then design, build and fund new public infrastructure buildings and
First formed in 2003, each LIFT is a limited company jointly owned by a                     provides a raft of services, working to an agreed strategy. "To create a public
public sector organisation such as a local authority and a private sector                   service infrastructure which enables and facilitates the delivery of
participant, usually a consortium. The LIFT takes ownership of land and                     modernised and integrated services to improve the health of the
buildings wholly owned by the NHS (it does not apply to other public sector                 communities of Nottinghamshire."
organisations). It may redevelop the existing site or construct new buildings.
The LIFT takes responsibility for maintaining the premises and leases it back
to primary care trusts, social services, dentists and pharmacists. Under                     8.4        Local Infrastructure Service Models
these arrangements, the private sector would normally have a 60% share
                                                                                            The traditional service model has been to plug new development into a large
and the NHS has a 40% stake. The deals are established for a 25 year
                                                                                            functional network. However, an emergent model is one based upon greater
period, at which point both parties would benefit from the increased land
                                                                                            levels of self containment. The self containment model does not necessarily
values arising from a scheme in proportion to their stake. LIFTCos have
                                                                                            do away with the need for network based services but it may lessen the need
                                                                                            to transfer resources like water and energy great distances. It is directly
14                                                                                          related to the sustainable development agenda, and the increasing moves
  Grace G & Ludiman A. Local Asset Backed Vehicles: The Potential for
Exponential Growth as the Delivery Vehicle of Choice for Physical                           towards low carbon solutions to energy provision, as well as more localised
Regeneration. Journal of Urban Regeneration and Renewal. Vol 1, 4, p 341-                   responses and delivery.
353. 2008.
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Assuming each development remains connected to the network for some                          to individual developments. A high variety design creates problems in
level of infrastructure service provision, the marginal network investment per               scheduling maintenance cost effectively.
new customer could be expected to fall as more needs are met locally.
                                                                                             Uncertainties for the network provider could be lessened if occupiers were
Overall, the Regulated Asset Base (RAB) may grow at a slower rate.
                                                                                             incentivised to maintain a development to its design performance standard
However, the corollary would be an increase in the cost of new houses and
                                                                                             through a performance related fine or reward system tied to the volume of
non domestic floor space – at least initially until innovative approaches are
                                                                                             infrastructure services consumed. Locally, section 106 agreements could be
established as the norm.
                                                                                             explored as a possible way of achieving this for new development for
In practice, uncertainties over the reliability of the technology, the behaviour             example the need to maintain on site renewable energy equipment to ensure
of occupants, and quality of service targets can often conspire to change the                it continues to operate efficiently.
outcome from the direction suggested by theory.
                                                                                             The problem posed by the variety of solutions may result in a new class of
Infrastructure network service providers are under obligations to deliver                    utility operation who take responsibility for managing site based
minimum service levels of quality e.g. minimal disruption/outages. Under the                 infrastructure on behalf of occupiers in exchange for a fee (usually use
traditional model of development, responsibility for meeting minimum service                 related). An example from energy provision is the Energy Services
obligation standards lie entirely with the infrastructure network service                    Companies (ESCos) which are cited as a solution to the management of
provider. Under a high sustainability model of development that responsibility               local energy networks. A key issue will be the economies of scale associated
is effectively shared with occupiers or land-lords thereby introducing a higher              with efficient running of an ESCo. Variants of ESCos are cited for water and
level of risk to the infrastructure provider.                                                telecommunications. These variants also propose spatial integrated
                                                                                             management of multiple utilities within Multi Utility Service Companies
Risk arises from the problems associated with the lack of accountability for
                                                                                             (MUSCos).
failures in the development based infrastructure services. The design
performance of a new development can be undermined by occupant induced
structural changes such as the removal of water saving devices, the
substitution of permeable surfaces with impermeable alternatives and the
poor management/ maintenance of micro generation devices. As the actual
performance of a new development diverges from its design performance,
the performance deficit would need to be drawn from the network.
This could result in the network infrastructure service provider experiencing
unforeseen demand for infrastructure services risking service
outages/bottlenecks leading to further investment in reinforcements. The risk
has often been mitigated by insisting that the developer meets normal
connection requirements alongside any embedded infrastructure (e.g.
underground storm water discharge alongside a SUDS solution).
Another response is that network providers adopt the embedded
infrastructure and maintain it to the requisite standard. However, network
providers are faced with a bewildering array of different designs customised

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                                                                                            Box 8.5 ELEPHANT AND CASTLE MUSCO
                                                                                            Southwark Council has shortlisted three companies who are bidding
                                                                                            for the utilities contract for one of the most forward-thinking
                                                                                            regeneration schemes in Europe. The Council's executive chose the
                                   ESCO                   DISCO
                                                                                            final three partners who are competing to provide heat, power, water
                                                                                            and broadband services to the £1.5billion regeneration of the
                              Embedded Generation      Electricity Distribution             Elephant and Castle. The shortlisted companies were Dalkia, The
                                                           (DNO\IDNO)                       London ESCo, and Thamesway Energy. The winning bidder was to
                                                    Gas Distribution                        be selected to manage the Multi Utility Services Company (MUSCo) -
                                                      (IDN\IGT)                             a revolutionary approach to providing a raft of services. It is at the
                                                                                            forefront of sustainable development in the UK by ensuring that there
                                                          Telecoms Distribution             is no increase in carbon emissions, despite almost tripling the
                                     MUSCO                  (e.g. FIBRECO)                  number of homes and businesses in the area. Southwark's
                                           or                                               approach to supplying combined heat and power will be a first for
                                                        Water Distribution
                                                         (DNO\IDNO)                         London by co-ordinating all services, including utilities, data and
                                     WESCO                                                  high-tech waste collection.
                                                                                            The MUSCo contract is part of the council's committed drive for
                                                                                            sustainable development to ensure that the regenerated Elephant
                                                                                            and Castle is a clean, green, safe place to live and work. This focus
        Figure 8.1: Integrated Delivery Models                                              on sustainability follows the use of legally binding section 106
                                                                                            agreements to ensure new developers incorporate the MUSCo into
        The multi utility company (see Box 8.5) concept relies on the
                                                                                            their plans. Examples include the Multiplex Castle House and
        assumed value in the planning and delivery of infrastructure services
                                                                                            Oakmayne New Kent Road sites, along with the recently submitted
        within a community. As many of these services share a requirement
                                                                                            First Base scheme on the site of the derelict London Park Hotel.
        to be installed below the surface, there is superficially some logic to
        approaching them in an integrated way. Beyond this high level                           8.5      Key Points
        strategic association, the infrastructure services themselves have
        distinct technical characteristics that are often incompatible (e.g.                •    There are a number of different delivery models which have
        power and water). There are, as yet, few examples, of a client                           been used to tackle different situations and circumstances;
        actively procuring the multi utility model meaning that suppliers have
                                                                                            •     All of the models described are based on partnerships, and the
        lacked any real financial motivation to offer solutions of this kind.
                                                                                                 role for the Agency in any identified model could vary depending
                                                                                                 on which model, and which other partners are engaged. There
                                                                                                 could also be scope for emda to facilitate the creation of
                                                                                                 appropriate models and partners, but not play any active role in
                                                                                                 supporting (funding) them;

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              •    The viability and impact of the different models will
                   naturally be affected by the scale of funding available; and
              •     Higher levels of environmental sustainability may create
                   new smaller scale infrastructure service operators,
                   however this brings with it a range of different issues which
                   require to be addressed. In particular the operators are
                   likely to sit within a wider network to balance out variations
                   in supply and demand.




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9       Financing Co-ordinated Infrastructure                                                          9.1       Development of Infrastructure Funds

        Provision                                                                                   One solution has been to ‘de risk’ the provision of an asset by
                                                                                                    funding the investment requirement using third party funds and using
        Forward funding mechanisms have emerged as a response to                                    predictable revenue streams to support the process. Infrastructure
        situations where development has stalled due to an unwillingness of                         can be delivered to enable or unlock development from which agreed
        either the supplier of infrastructure services, or the inability of a                       planning obligation contributions would reimburse or repay the fund.
        developer with a service requirement, to fund new investment. The                           Once the Community Infrastructure Levy (CIL) is in operation that
        response has been the development of a number of innovative                                 could also be used to reimburse the fund.
        solutions to deal with timing problems and inflexibilities in silo based
        capital infrastructure.                                                                     The potential funding available from alternative revenue sources is
                                                                                                    dependent upon the degree to which government allows innovative
        This section considers the mechanisms that have been created to                             sources of finance to enable these systems to function effectively.
        deal with these two problems and how they are applied. Figure 9.1
        shows the possible structural relationship between potential revenue                        The infrastructure fund approach is emerging as an established tool
        streams for the raising capital to prime a fund for the financing of                        for addressing failures in the provision of infrastructure needed to
        infrastructure.                                                                             unlock development. Models exist or are developing at a sub-
                                                                                                    regional level and regional level around the country. There are clearly
                                                                                                    some benefits of the approach in overcoming the common barrier of
                                                                                                    an absence of up-front investment to enable or unlock development.
                                                                                                    Therefore, this approach is something which could appeal to emda
                                                                                                    as a practical response worthy of further consideration.
                                                                                                    However, the effectiveness of the mechanism is dependent upon the
                                                                                                    flow of repayments coming back into the fund from public and private
                                                                                                    sector sources. Under recessionary conditions, the danger is that
                                                                                                    funds become locked up in a first tranche of projects. There is still a
                                                                                                    concern over the additionality created by such a fund against the
                                                                                                    scale of need unless there are significant funds channelled into it.
                                                                                                    The scale of funding required is likely to be a major barrier to emda
                                                                                                    playing an active role in establishing a fund, although other public
                                                                                                    sector partners such as the HCA may provide an alternative source
                                                                                                    of funding to prime a RIF. The SWRIF provides an indication of the
                                                                                                    possible scale of funding required.
                                                                                             Most of the revenue streams are also dependent upon capturing the positive
                                                                                             spill over effects of infrastructure into property and land values. In the post
        Figure 9.1: Infrastructure Funds – Structural Relationships                          credit crunch era it must also be recognised that there is an element of risk
                                                                                             associated with assuming there will be realisable gains. In an flat or stagnant

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market, it can not be certain that new productive investment will be realised                 but drawn-down as when required. SWRDA undertake the day to day
off the back of infrastructure investment however well designed and funded.                   operation of the fund, and will manage the process of project and financial
                                                                                              appraisal and ensure that appropriate monitoring and evaluation processes
                                                                                              are implemented. An Investment Panel has been set up to direct the
Box 9.1: Prudential Borrowing Power                                                           investment of the SWRIF and manage the SWRIF Business Plan. A key
                                                                                              criterion for SWRIF investment is delivery of existing regional priorities
The Local Government Finance Act (2003) (“the Act”) allows local authorities
                                                                                              established through the RES and RSS, and supported by other initiatives
to borrow to carry out capital expenditure without prior Government approval
                                                                                              such as The Way Ahead or New Growth Points. The Panel has no formal
('prudential borrowing'), for the prudent management of their financial affairs
                                                                                              role in setting the region’s infrastructure priorities.
along with the existing power to invest for purposes relevant to their
functions.                                                                                    Formal agreements will be required before SWRIF is invested in projects to
                                                                                              ensure that the SWRIF element is repaid. SWRDA will enter into contractual
The Act requires local authorities to demonstrate the affordability, prudence
                                                                                              arrangements with the local planning authority or land owners or developers,
and sustainability of its prudential borrowing. There are a number of issues
                                                                                              in order to secure the return to the fund of the relevant developer
to consider around prudential borrowing. These include borrowing powers,
                                                                                              contributions as agreed. SWRDA will also contract with the relevant
legislation around the securitisation of revenues, the timing of the investment
                                                                                              infrastructure provider who will be expected to guarantee delivery and accept
and repayments and the allocation of costs across the local authorities.
                                                                                              the cost risk. To date, four projects have been funded with three projects
                                                                                              concerned with transport infrastructure.

Box 9.2 Centralised Model – South West Regional Infrastructure Fund –                         There are several challenges related to establishing an infrastructure fund or
regional example                                                                              similar forward funding approach. These include:
The South West Regional Infrastructure Fund (SWRIF), over two years in                        •   Start Up Capital
gestation and launched in March 2008, is the first regional rolling fund to be
                                                                                              A fund needs to be primed with funding to make its first round of
established in the UK. Its principal aim is to facilitate the timely provision of
                                                                                              investments. In the South West, the priming was done through the South
regionally or sub-regionally significant infrastructure that is critical to the
                                                                                              West Regional Development Agency (SWRDA) and the Department for
delivery of planned growth.
                                                                                              Transport (DfT) who provided capital. In London, the priming was done using
RIF is a mechanism through which a region can pump prime or forward fund                      a range of public funds including European Structural Funds.
major infrastructure schemes, in situations where the anticipated public or
                                                                                              There is potential for additional funding from other government departments
private funding for the scheme will not be available in full at the time when
                                                                                              and existing and proposed regional and national non-departmental public
the infrastructure is needed to support planned growth or development. The
                                                                                              bodies that are seeking to deliver similar or associated outcomes as
cost of the capital investment would then be recovered from pre-determined
                                                                                              SWRDA, for example housing growth. The providers of capital must decide
public and/or private funding streams as they become available. The RIF
                                                                                              on targets for the fund overall. Some allowance must be made for non
also provides an effective mechanism for progressing projects from outline
                                                                                              performance in the funding flow attributable to the fund; the South West
proposals to regionally prioritised schemes with a robust financial, economic
                                                                                              Regional Infrastructure Fund (SWRIF) assumes 80% success rate. There
and business case. SWRDA is the accountable body for the £80M RIF. It will
                                                                                              may also be specific processes that are needed to draw down funds from the
hold uncommitted RIF funds and receives back repayments, which can then
be recycled into further investments. DfT funds will not be held in the fund,
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providers of capital funding (see Box 9.2 SWRIF Fund Draw Down                          An application process needs to be established so that potential applicants
Processes).                                                                             are aware of particular “calls” for projects or whether the process is kept
                                                                                        open ended. There will need to be a formal booking in process and an
                                                                                        allocation of a project to nominated skilled people to assess the detail of the
Box 9.3: South West Regional Infrastructure Fund Draw Down                              project.
Processes
                                                                                        Assessments need to lead to report to the decision making body which may
SWRDA resources from the single pot will be appraised individually and                  be to give approval; reject or seek clarification/ detail. Consideration needs to
resources drawn down as required.                                                       be given as to whether outline applications are acceptable or whether full
                                                                                        applications are always needed.
Each recommended investment over £3m will need to go SWRDA’s Board
for approval; investments over £10m from the economic development pot will
need to be approved BRR. DfT resources can only be used to support
                                                                                        •   “Deal Flow”
transport infrastructure that meets a minimum benefit cost ratio of 1.5 or
higher.                                                                                 A business plan is needed that sets out assumptions concerning the flow of
                                                                                        funds and how business is to be generated for the fund.
                                                                                        A reactive approach would be to wait for proposals to be presented aligned
•   Investment Criteria                                                                 to “calls” for proposals. A proactive approach would be to target staff
Funds will need to be targeted given the scale of potential need. The types             resource and marketing at known priority areas such as the growth points
of screening criteria include:                                                          (SWRIF) working with selected partners.

•    Conformity to the planning strategy of an areas; definition of                     •   Monitoring and Evaluation
    infrastructure; regional strategies and so forth;
                                                                                        Frequent reports will be required from successful applicants identifying
•   Conformity to minimum size thresholds in terms of the scale of                      progress against milestones. The usual frequency would be quarterly.
    development involved e.g. 1000 houses; 20 hectares of employment                    •   Running Costs
    development (SWRIF); types of development;
                                                                                        The establishment of a fund involves significant operating costs. The due
•   Robust critical path demonstrating the expected flow of funds and                   diligence process required to assess applications and the legal services
    anticipated investment need alongside the viability of the underlying               entailed in making contracts means that the overhead for each transaction is
    project concept;                                                                    considerable. The South West Regional Infrastructure Fund aim has been to
•   Willingness to enter into contract.                                                 make the fund self sufficient with a legal agreement requiring the payment of
                                                                                        administration expenses by way of a percentage of the total investment.
•   Appraisal Processes
                                                                                        A standard charging sheet is to be introduced covering the costs of appraisal
Infrastructure funds require robust and often extensive appraisal processes             and legal procedures (in the range of £30 – 50,000 per investment).
attached to them due to the size and complexity of the projects. This will
involve a formally constituted decision making body capable of receiving                •   Robustness of Recycling Assumptions
applications and making decisions on the merit of particular proposals.

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The capacity of the fund will necessarily be limited by the flow of funds                   Local Authority Business Growth Incentive
coming back into its coffers to support subsequent rounds of investment.                    Local Authority Business Growth Incentive (LABGI) was originally introduced
                                                                                            to address the mismatch between the costs of economic development and
•    Sustainability
                                                                                            the benefits that accrue to it at the local level.
Infrastructure funds could be used to deliver specific high cost infrastructure
                                                                                            Growth and regeneration can impose short-term burdens on local authorities
associated with the achievement of sustainability outcomes.
                                                                                            both directly, through costs of regeneration or infrastructure investment, or
Under the London JESSICA initiative a particular emphasis was placed on                     indirectly, through greater strain on existing local housing stocks or
delivering low carbon infrastructure, a feature that the SWRIF is likely to see             environmental management.
in subsequent rounds of investment.
                                                                                            The benefits of economic development accrue to individuals through
Box 9.4: Decentralised Model Infrastructure Fund Model – JESSICA in                         increased employment opportunities, and to the national economy through
London                                                                                      higher levels of economic activity. However, as a result of the national
                                                                                            pooling and redistribution of business rates yield through formula grant, the
JESSICA is an initiative for the deployment of EC structural funding in
                                                                                            benefits that are accrued through growth in the value of the local business
London aimed at providing resources for Urban Development Funds aimed
                                                                                            tax base as a result of economic growth are normally equalised away from
at creating a low carbon infrastructure.
                                                                                            the authorities where growth is strongest.
The aim is to fund projects that are capable of generating a return but where
                                                                                            The LAGBI scheme was rolled out in England and Wales in April 2005. It is
the risks are too great for the private sector.
                                                                                            designed to give local authorities an incentive to maximise local economic
The JESSICA structure was based on a holding fund supporting a series of                    growth by allowing them to receive a proportion of increases in local
Urban Development Funds aligned to actual delivery projects. It is envisaged                business rate revenues to spend on their own priorities. The scheme creates
that the UDFs will make combinations of loans, equity and guarantees to                     positive financial incentives for local authorities to work in partnership with
secure investment in projects like CHP with marginal returns.                               business and other key players to maximise economic growth. For properties
                                                                                            that are included on the central list, revenues are collected centrally.
(Source: Scoping the Use of JESSICA in London, Deloitte, September 2008)
                                                                                            Revenues are then redistributed on a per capita basis.
    9.2     Existing Sources of Revenue                                                     Under LABGI, local authorities receive a proportion of their growth in
The model shown in Figure 9.1 is dependent upon the ability to identify an                  business rates, above a predetermined floor and below a ceiling setting the
appropriate source of revenue to finance borrowing costs and reimburse the                  maximum reward amount. The floor is derived from individual local
fund to enable further investment to be made.                                               authority’s historic growth levels and is adjusted by a national adjustment
                                                                                            factor, which allows the Government to maintain the incentive of the scheme
In the UK, these sources are relatively few and concerned largely with                      by setting realistic and achievable goals for business growth. The proportion
capturing value from the development process.                                               of revenues a local authority will receive is determined by a scaling factor
                                                                                            and the ceiling ensures that no local authority gains unfairly or
                                                                                            disproportionately from the scheme.
                                                                                            The UK Government committed in Budget 2007 to bring forward proposals to
                                                                                            reform the LABGI scheme in light of recommendations made by the Lyons

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Inquiry and reaffirmed this commitment in the Review of sub-national                       cover the levy for the agreed number of spaces. The business case for the
economic development and regeneration (SNR).                                               introduction of a WPL in Nottingham proposes a level of charge that
                                                                                           generates annual income of around £10.8million by 2014 (minus £0.6million
Although an additional revenue stream that gives the incentive to stimulate
                                                                                           annual operating costs), with future increases linked to inflation. The
business growth it is relatively unpredictable and short term and unlikely to
                                                                                           intention is to use these revenue flows to improve the public transportation
generate the amount of funding needed to support infrastructure investment.
                                                                                           system and reduce existing traffic congestion. At the time of writing,
Other Sources of Revenue                                                                   Nottingham City’s application to introduce the WPL is with the Department
Road user charging may be piloted outside London in the next few years.                    for Transport, and no national decision has been taken.
Local transport authorities, supported by start-up resources from the
Transport Innovation Fund are being encouraged to pilot and manage                         Planning Obligations
schemes. Any revenues generated by charging schemes will be ring-fenced                    Provided there is a justified and committed stream of developer
to fund key local transport priorities. There are a number of issues that need             contributions, infrastructure funds can recycle planning obligations to
to be addressed however before road user charging becomes a useful tool                    replenish expenditures taken in anticipation of their availability.
to improve local infrastructure. In addition the recent experiences of some                Where infrastructure is necessitated by a series of developments, a robust
Local Authorities which have actively considered road user charging has                    obligations strategy (ideally a pooling policy) is essential to capture
shown public and political opposition to road pricing is strong.                           contributions toward the infrastructure from each of the relevant
                                                                                           developments, irrespective of when they come forward.
Box 9.5: Nottingham Express Transit (NET) – Using a Workplace Levy
as a Revenue Funding Stream                                                                Regional Infrastructure Funding has the ability to forward fund the whole
                                                                                           developer contribution, potentially securing delivery of the whole package,
The development of NET and continued improvements to bus services have
                                                                                           reducing developer risk and being better placed to capture associated
largely relied on external (principally Government) funding sources such as
                                                                                           development value uplift.
Urban Bus Challenge or Support from East Midlands Development Agency
and the Greater Nottingham Partnership. PFI credits have been allocated to                 9.3         Potential Sources of Revenue
the scheme representing up to 75% of the total estimated cost. The City and
County Councils will have to raise the remaining 25%. The City Council’s                   Any future move to devolve fiscal policy to local areas may also create
contribution to the NET Phase Two scheme is currently estimated at a total                 funding opportunities. Primary legislation would be required for the
cash requirement of £208million over the projected life of the contract. The               introduction of any of the following mechanisms for raising finance, which
City Council is therefore expected to provide an annual revenue payment up                 could play a valuable role in contributing towards the funding of infrastructure
to a maximum of £10.8million per annum until the scheduled end of the                      to enable growth and development.
proposed contract – currently 2030/31.                                                     Tax Increment Financing (TIF)
The WPL would be a charge made for each parking space provided by an                       TIF is sometimes referred to as Local Tax Re-investment Programme.
employer and used by employees. It would be a charge on the employer, not                  Evidence suggests it works well when the economy is strong, but is not as
the employee. It would be up to the employer whether or not to pass the                    effective when the economy is less buoyant. It is also predicated on
charge on to the employee. Employers would be required to apply for an                     borrowing, typically via a bond issue, on assumed future economic growth.
annual license for the maximum number of spaces regularly used by their                    To ensure bonds can be repaid businesses and developers will still be
employees or business visitors. They would then receive an annual bill to                  required to move in and develop the area so confidence needs to exist in the

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achievement of growth targets. Even with the incentive of a dedicated fund                     the investment gap on transformational projects arising from core
to improve infrastructure, this might not be enough to persuade businesses                     infrastructure needs, which are:
already operating elsewhere to move to the designated TIF area
                                                                                               •   Significant in scale;
There would need to be clear principles underpinning schemes like TIF, such
                                                                                               •   Focused in a definable geographical area;
as that they create jobs (not merely transfer them from other areas) and that
the decision making processes around them are open and accountable.                            •   Un fundable otherwise.
However, it has the potential application to be applied to areas where                         ADZs should take the form of either a single red line area or a series of
infrastructure could reasonably encourage greater private sector investment.                   linked areas that relate to common infrastructure provision. They could be
It would be necessary to designate TIF zones within the region. Properties                     the subject of a bidding process, with the Government introducing ‘rounds’ of
values within the zone would be monitored, so as to make it possible to                        ADZs, or could be predefined in terms of characteristics/hurdles, whereby
compare changes within the zone with those outside. Insofar as values                          ADZ status is conferred if the relevant criteria are met. Examples of some
within the zone rose more quickly than values outside, the difference would                    preconditions/ bid evaluation criteria are as follows:
be attributed to economic benefits of the new infrastructure.                                  •   the scale and quantum of investment should be material to the local
There are financial risks associated with such schemes, including the                              authority.
potential for shortfalls if the projected tax increase does not materialise. It is             •   Viability – overall project viability to be demonstrated (eg. financial,
also worth considering whether local businesses would be willing to pay an                         market, environmental, technical).
additional levy to fund an approved project, an expanded version of the
Business Improvement District concept. Market realities would be very                          Once any preconditions/bidding process has been satisfied, ADZ status
important in determining which projects went ahead and which did not. At the                   would be conferred (or not). Each ADZ would last for up to, for example, 20
national level the most widely-discussed beneficiary of Tax Increment                          years or until initial infrastructure investment had been defrayed. ADZs would
Financing is Crossrail, and Transport for London has undertaken extensive                      allow a local accountable body, likely to be the highest tier authority in the
internal research on the subject.                                                              area to be granted a number of financial freedoms to pursue the goal of
                                                                                               economic growth. New business rates generated within the defined ADZ can
Accelerated Development Zones (ADZs)
                                                                                               be ring-fenced for an agreed period of time and returned to the Agent
The ADZ concept is designed to tackle the funding gap for enabling                             responsible for managing the ADZ. A proportion of any business rate
infrastructure. The approach reflects a key principle that local authorities                   supplement levy being raised more widely by the Agent can be specifically
should be able to participate in the ‘growth dividend’ in terms of business                    attributed to the ADZ, this allocation not requiring business-vote support.
rates that arise as a result of upfront investment in enabling infrastructure.
                                                                                               Supplementary Business Rates (SBR)
Such an initiative would be targeted at projects with the potential to                         The Supplementary Business Rate (SBR) would allow the application of a
accelerate significant economic development growth. It is envisaged that                       geographically and temporally limited levy on business rates in order to fund
ADZs would apply to transformational projects which, without significant
                                                                                               specific infrastructure projects.
enabling infrastructure investment, would not otherwise be delivered, not be
delivered in full, or would be significantly delayed, thus demonstrating                       Supporters of the SBR argue that it would provide a simple, clear, easily
acceptable additionality. Specifically, this concept is focused on addressing                  ring-fenced method of raising additional revenue to finance specific local or
                                                                                               city-regional infrastructure projects. However, there are major political

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barriers to its introduction. The Treasury, for example, is concerned about                    •   ADZs and RIFs are seen as potential mechanisms which
the impact that such a reform might have on the total tax burden.                                  can play a significant role in finding major infrastructure
                                                                                                   provision to underpin growth over the long term.
Momentum has recently grown around the SBR concept. Before losing the
election Ken Livingstone had planned to introduce a SBR rate of 2p in the
pound of rateable value from April 2010 to service £3.5bn of debt raised
during construction of the Crossrail project. Property developers in the
vicinity of stations would also be making contributions. Revenue servicing
debt will also be utilised using fares revenue from Crossrail once completed
to service construction debt. BAA and other businesses are also making
contributions to costs.

9.4       Key Points

               •   Some elaborate models are emerging using a combination
                   of powers to fund infrastructure works. Infrastructure funds
                   have been created and managed at a regional; sub
                   regional and local level which may be attractive to emda
                   and its partners;
               •   Infrastructure funds have also been targeted at certain
                   challenges or objectives (and outcomes) like low carbon
                   infrastructure where viability or market capacity problems
                   are often greatest;
               •   All the models are vulnerable to ‘lock down’ resulting from
                   a failure to realise land value uplift from infrastructure, and
                   a lower than expected (or entirely lacking) flow of
                   repayments back into the fund – this is a particular risk
                   post credit crunch;
               •   The scale of funding available through an infrastructure
                   fund is tiny in relation to any objective assessment of
                   overall regional need.
               •   The additionality of infrastructure funds could be enhanced
                   through geographical targeting.




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     10        Prioritising Interventions
              Previous sections have identified a number of issues
              associated with securing a co-ordinated provision of
              infrastructure to realise development objectives of the region.
              This section deals with how emda might respond to the market
              failure identified in earlier sections. The determination of
              priorities must represent a balance between the internal
              capacities of emda and the external economic drivers likely to
              influence infrastructure service developments in the future.

                 10.1 Scope for Agency Action

              The factors influencing how emda might intervene is set out in
              the RES, RDA Corporate Plan and include:
                   •   Government guidance concerning the interpretation of
                       market failure and the way RDAs are expected to
                       scope and justify actions.
                   •    State Aid regulations have implications for the types of
                       interventions which are considered appropriate,
                                                                                                    Figure 10.1: Infrastructure Investment Logic Chain
                       focusing largely on the use of public investment to
                       assist private sector organisations.                                         Source: OffPAT 2008
                   •    Operational decisions and judgements will also be                    Figure 10.1 above defines a pyramid that illustrates a logic chain that
                       required, including the scale of funding and other                    extends from the identification of objectives through to the impact on
                       resources which emda has available to support any                     Gross Value Added. There is clearly scope for the key objective or
                       decision to play a more active role in the infrastructure             outcomes to cover a range of issues, such as reduced carbon
                       agenda.                                                               emissions.

                                                                                             10.2      Intervention Areas

                                                                                             A number of capacities and capabilities are needed for the Agency to
                                                                                             deal with issues effectively. These have been expressed as questions
                                                                                             directed at each of the identified intervention areas which are
                                                                                             themselves drawn from the OffPAT guidance to RDAs. (see Figure
                                                                                             Table 10.2 overleaf).


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              Figure 10.2 Possible Intervention Areas (Drawn from OffPAT RDA Guidance)

                Alignment                            Issues to be considered




                Alignment with RDA inputs            Does the intervention match with available inputs in the Agency e.g. land and property assets or projects; inward
                                                     investment activities and opportunities; influence via strategic planning function?




                Alignment with RDA activity areas    How well does the intervention align with generic RDA actions:
                                                     Funding and other incentives to influence private and public investment;
                                                     Strategic sites/property related projects;
                                                     Urban renaissance projects aiding the regeneration in towns and cities;
                                                     Rural renaissance projects aiding development of market towns and rural areas; and
                                                     Strategic Added Value demonstrated by leadership, influence, leverage, synergy and engagement.




                Alignment with RDA output measures   Does the intervention generate the right type of compatible outputs:
                                                     Regeneration - Private/ public investment levered;
                                                     Hectares of previously developed/brownfield land brought into beneficial use;


                                                     Other less tangible outputs;
                                                     Action plans to deliver requirements of the region;
                                                     Integrated economic, spatial and other strategies/ plans; and
                                                     Urban renaissance action plans.




                Alignment with RDA outcome           Does the intervention deliver any of the following outcomes:
                measures                             Long term economic performance: GVA; investment as a proportion of GVA;


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                Alignment                            Issues to be considered


                                                     Business creation/ employment creation;
                                                     Productivity improvements;
                                                     Sustainable communities; “spill over” effects into other regions;
                                                     Improved confidence of stakeholders/ businesses within the region;
                                                     Sustainable development outcomes associated with environmental capital and economic capital.




                State Aids Implications              Status under the General Block Exemption (GBER) for environmental protection and renewable energy;
                                                     Block exemptions covering transport, ports, in land waterways, agriculture and forestry




                RDA Accounting Conventions           Does the intervention comply with rules governing the use of RDA budgets (see section )




                OffPAT Appraisal Alignment           Does the intervention match with one or generic kinds of market failure:
                                                     Externalities;
                                                     Imperfect Information and Uncertainty;
                                                     Public Goods;
                                                     Market Power;
                                                     Other.




                East Midlands RES Strategic Fit      How does the intervention fit with strategic sub priorities in the RES (see Appendix A)
                (Priority Actions)



                Low Carbon/ Shadow Price of Carbon   Does the intervention assist in the delivery of low carbon objectives?

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                  Alignment                   Issues to be considered


                  Fit



                  Urban/ Rural Regeneration   Does the intervention support urban or rural regeneration priorities and objectives?




                  Scale                       The scale of infrastructure investment coming back into the region to finance projects is difficult to determine from
                                              statistical sources, however in 2005/6, recorded public expenditure (from all sectors) on capital projects was just over
                                              £2 Billion (PESA, 2007/8) with around £1.1 Billion accounted for capital expenditure undertaken to support local
                                              government services (CLG, 2007).


                                              Energy and water net capital expenditure in the region was valued at just over £1 Billion (internal calculation based on
                                              ABI and employment figures in 2006).
                                              The Agency’s total budget for 2008/9 was just short of £200 million.


              .




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               10.3     State Aid Regulations Governing                                   10.4    Implications of the Shadow Price of Carbon
                             Investment in Infrastructure                                              Methodology on Infrastructure
                                                                                                       Intervention Policies15
              All Agency activity must be in accordance with State Aid
              Regulation. The European Commission adopted the General                     The Agency is increasingly directed towards ensuring its
              Block Exemption Regulation (GBER) in the summer of 2008                     investments maximise resource productivity and minimise
              providing automatic approval for a range of aid measures and                harmful impacts on the environment. The preferred mechanism
              so allowing Member States to grant such aid without first                   for appraising the impact of green house gases is the use of
              notifying the Commission. This has created a simplification and             the Shadow Price of Carbon (SPC) which supersedes former
              better targeting of state aid for growth and jobs by giving                 social cost measures. The SPC is an adaptation of
              automatic approval for 26 types of aid measures so Member                   conventional project appraisal which converts carbon dioxide
              States save time in granting state aid.                                     emissions into a Net Present Value. NPV compares the value
                                                                                          of a pound today to the value of that same pound in the future,
              The GBER makes no special mention of infrastructure but does
                                                                                          taking inflation and returns into account. If the NPV of a
              provide a framework for large investment projects. The rules
                                                                                          prospective project is positive, it should be accepted. However,
              suggest that public sector contributions must amount to less
                                                                                          if NPV is negative, the project should probably be rejected
              than 75% of total eligible costs up to 100 million euros
                                                                                          because cash flows will also be negative.
              according to aid intensification levels. Environmental
              investment and investment in renewable energy are also
              subject to exemption from notifications of State Aid subject to              The shadow price of carbon (SPC) is used to value the
              legal definitions. Transport, ports, in land waterways,                      expected increase or decrease in emissions of greenhouse
              agriculture and forestry are subject to separate regulations.                gas emissions resulting from a proposed policy. Put simply,
                                                                                           the SPC reflects the damage costs of climate change caused
              Detailed advice on State Aid issues falls beyond the scope of
                                                                                           by each additional tonne of greenhouse gas emitted –
              this study.
                                                                                           converted into carbon dioxide equivalent (CO2e) for ease of
                                                                                           comparison.
                                                                                           www.defra.gov.uk/environment/.../carboncost/pdf/HowtouseSPC.pdf




                                                                                          15
                                                                                            Source: How to use the Shadow Price of Carbon in policy
                                                                                          appraisal, Defra, 2008

                                                                                          Greenhouse Gas Policy Evaluation and Appraisal in Government
                                                                                          Departments, Department of Energy and Climate Change, December
                                                                                          2008



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               The Shadow Price of Carbon fixes a price of carbon dioxide                       The Comprehensive Spending Review (CSR) sets fixed three-
               equivalent, representing the social costs of carbon dioxide                      year Departmental Expenditure Limits and parameters through
               (assumed to be dependent upon the atmospheric                                    Public Service Agreements to measure the effectiveness of
               concentration of carbon) that can be used to convert a positive                  expenditure.
               or negative flow of emissions (i.e. increases or reductions)
                                                                                                The CSR process introduced a move to resource accounting
               against a baseline position. Monetised flows of emissions can
                                                                                                and budgeting and changed the accounting of expenditure
               be rolled up to produce a Net Present Value. The resultant
                                                                                                from cash to an accruals basis. Under resource budgeting,
               NPV must be added into the broader NPV analysis undertaken
                                                                                                when resources are consumed they are counted and not when
               for a policy as whole. Policies that generate carbon dioxide
                                                                                                they are paid for. Spending is accounted for as it is incurred,
               reductions would be added to an overall Net Present Value
                                                                                                and income as it is earned. So resource budgets include
               appraisal representing the social cost benefit, whilst policies
                                                                                                costs such as stocks consumed (rather than bought and sold),
               that generate emissions are creating a social cost represented
                                                                                                provisions to meet future payments, and the cost of using
               by a negative NPV.
                                                                                                capital assets (depreciation and a cost of capital charge). This
               Taken in isolation, a lifecycle analysis of infrastructure is likely             has impacted on RDA land and property transactions in
               to demonstrate that capital intensive infrastructure projects will               respect of capital write down.
               use energy intensive materials like cement with a high initial
                                                                                                According to the Treasury “budgeting in resource terms will
               carbon footprint. The balance of operational emissions
                                                                                                lead to better measurement of costs, better incentives for
               compared to the baseline will depend on the type of
                                                                                                departments, and better management of assets. The benefits
               infrastructure service provided (e.g. motor vehicles on roads,
                                                                                                can be seen at both the macro and microeconomic levels.”
               electricity to power pumps for water networks).
                                                                                                (Treasury, 2005)
               The policy concerned with internalising services within a
                                                                                                The Treasury identified the benefits for delivering projects as:
               development – such as embedded on-site energy generation -
               is likely to produce a lowering of the shadow price of carbon.                   •   Better incentives to manage capital assets and dispose of
               The shadow price of carbon is only to be used in cases where                         those no longer needed. Assets will have to be recorded
               there is no market price available through the Emissions                             on the department's balance sheet and incur a capital
               Trading Scheme (ETS).                                                                charge. Those written off earlier than expected appear as
                                                                                                    a cost against the resource budget;
        10.5            Compatibility with Resource Accounting
                        Budgeting and Capital Write Down                                        •   Better incentives in planning investment, as new
                        Procedures                                                                  investments will incur a continuing capital charge;
                                                                                                •   Incentives to better manage cash and working capital
               The rules laid down by Treasury which determine RDA
                                                                                                    (debtors and creditors); and
               expenditure and how the public sector balance sheet is
               accounted for have a direct and powerful influence on what,                      •   Clearer distinction between loans and grants.
               how and the extent of RDA investment in land and
               infrastructure.                                                                  The changes have had a practical effect in respect of RDA
                                                                                                investment and ownership of land and investment in
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               infrastructure. Capital write down has led to an increase in                      10.6 Key Points
               Joint Venture agreements between RDAs and local
               authorities, EP / HCA and other partners.                                     •    The ability and scope for emda to intervene and deliver
                                                                                                  major infrastructure is influenced by the RES priorities,
               This is designed to reduce the accounting difficulties                             Corporate Plan objectives and East Midlands investment
               experienced by RDAs on capital assets and has driven real                          priorities;
               changes to the way that RDAs work in partnership. There is a
               powerful accounting motivation for emda to transfer land and                  •    In the future, a Single Regional Strategy is proposed as
               expensive physical assets off its balance sheet and indeed not                     the key strategic context for regional economic and
               to acquire them in the first place.                                                spatial/land-use priorities;

               The capital write down of both cost and value as a result of the              •    In addition, external rules and regulations such as State
               legal change in the interpretation of accounting procedures                        Aid and accounting practices will continue to influence
               from Treasury has impacted across RDAs property portfolios.                        how and when emda can intervene;
               In effect this means that the cost of land (or the acquisition of
                                                                                             •    This analysis has identified a range of assessment criteria
               other capital assets) has to be accounted for in the first year,
                                                                                                  for appraising intervention activities by emda in relation to
               but also the depreciation of the value of the asset has to be
                                                                                                  infrastructure. There is flexibility over the weighting
               accounted for in the same year and the receipts are unable to
                                                                                                  applied to emphasis particular outcomes and impacts.
               be claimed until they are realised.
               This creates a double effect; if emda acquire land for £10
               million in a given year and spend time on remediation and
               implementing the business case for a new science park for
               example, then the assets has also to be subject to capital write
               down in the same year. This means on paper and in budget
               terms the land has cost £20 million, accounting for the
               acquisition and the write off in the current year.
               The implication is that by entering into joint venture
               agreements on the purchase of capital assets with other public
               sector partners, such as local authorities, provides a
               mechanism for the RDA to reduce its liability proportionally.




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      11       Recommendations for The Way
               Forward
               11.1     Introduction

               The earlier sections identify the following areas of intervention
               in relation to the strategic infrastructure problem:
               •   Reduce the opportunity costs incurred by development
                   projects caused by bottlenecks between critical
                   infrastructure providers to secure spatial/ economic
                   objectives;
               •   Reduce the opportunity costs incurred by development
                   projects caused by bottlenecks between critical and social/
                   community infrastructure.
               Bottlenecks can be overcome by improving the flow of
               information between providers (including the reduction of
               proprietary knowledge) or using funding mechanisms to
               change the critical path of infrastructure provision.
               Earlier sections of the report have identified a range of
               practical actions that the Agency is either already doing or
               could consider:
               •   Using planning powers to achieve improved flow of
                   information;
               •   Establish or partner the development of dedicated delivery
                   vehicles to improve the flow of information and fund
                   projects essential to maintaining the critical path of a
                   project; and
               •   Establish dedicated funds primed for the purposes of
                   changing the critical path of productive investment.
               Each of these interventions will be tested in relation to the
               criteria established in Section 10.


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                 11.2 Using Planning Powers




                Alignment with RDA inputs     Strategic Planning (Statutory Consultee) Function; in the near future, proposed direct role (with Local Authorities) in
                                              developing the Single Regional Strategy.


                Alignment with RDA activity   Strategic Added Value (SAV) demonstrated by leadership, influence, leverage, synergy and engagement.
                areas



                Alignment with RDA output     Other less tangible outputs; SAV.
                measures



                Alignment with RDA outcome    Sustainable communities; Spillover effects into other regions;
                measures

                                              Sustainable development outcomes associated with environmental capital and economic capital.




                State Aids Implications       No direct implications


                RDA Accounting Conventions    Funding from the RDA staffing budget


                OffPAT Appraisal Alignment    Imperfect Information


                East Midlands RES Strategic   4 Infrastructure, Accessibility and Connectivity
                Fit (Priority Actions)        5c Ensuring an infrastructure for a low carbon economy
                                              7b Development Land
                                              7c Housing


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                                              10a Employability




                Low Carbon/ Shadow Price of   No direct implications
                Carbon Fit


                Urban/ Rural Regeneration     Could focus on growth areas and regeneration priorities.


                Scale                         The Agency has already prioritised areas considered strategically significant to growth in the East Midlands as a focus for the
                                              strategic planning function (input to LDFs).




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        11.3            Establishing Dedicated Delivery Vehicles




                Alignment with RDA inputs     Land and Property;
                                              Regeneration


                Alignment with RDA activity   Strategic property related projects;
                areas                         Urban renaissance projects aiding the regeneration in towns and cities;
                                              Rural renaissance projects aiding development of market towns and rural areas


                Alignment with RDA output     Private/ public investment levered;
                measures                      Amount of investment used to develop previously developed brownfield land;
                                              Action plans to deliver requirements of the region;
                                              Integrated economic, spatial and other strategies/ plans; and
                                              Urban renaissance action plans.


                Alignment with RDA outcome    Improved confidence of stakeholders/ businesses within the region;
                measures                      Sustainable development outcomes associated with environmental capital and economic capital


                State Aids Implications       Possible implications


                RDA Accounting Conventions    The cost of land (or the acquisition of other capital assets) has to be accounted for in the first year, but also the
                                              depreciation of the value of the asset has to be accounted for in the same year and the receipts are unable to be
                                              claimed until they are realised.


                                              This creates a double effect; if emda acquire land for £10 million in a given year and spend time on remediation and
                                              implementing the business case for a new science park for example, then the assets has also to be subject to
                                              capital write down in the same year. This means on paper and in budget terms the land has cost £20 million,
                                              accounting for the acquisition and the write off in the current year.
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                                              The implication is that by entering into joint venture agreements like delivery vehicles on the purchase of capital
                                              assets with other public sector partners, such as local authorities, provides a mechanism for the RDA to reduce its
                                              liability proportionally.




                OffPAT Appraisal Alignment    Imperfect Information and Uncertainty;
                                              Other


                East Midlands RES Strategic   4 Infrastructure, Accessibility and Connectivity
                Fit (Priority Actions)        5c Ensuring an infrastructure for a low carbon economy
                                              6a. Protecting and enhancing our environmental infrastructure to ensure sustainable economic growth
                                              7b Development Land
                                              7c Housing
                                              10a Employability




                Low Carbon/ Shadow Price of   Relevant in relation to individual projects funded through a delivery vehicle.
                Carbon Fit


                Urban/ Rural Regeneration     Most applicable in priority regeneration areas with concentrations of public land.


                Scale                         Priority dependent.




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        11.4            Establish Dedicated Infrastructure Fund



                 Alignment with RDA inputs     Inward Investment ;Land and Property


                 Alignment with RDA activity   Funding and other incentives to influence private and public investment
                 areas


                 Alignment with RDA output     Private/ public investment levered
                 measures


                 Alignment with RDA outcome    Investment as a proportion of GVA;
                 measures                      Sustainable communities; Spill over effects into other regions;
                                               Improved confidence of stakeholders/ businesses within the region;
                                               Sustainable development outcomes associated with environmental capital and economic capital


                 State Aids Implications       Exempt if finance provided on a market basis


                 RDA Accounting Conventions    Due to the rules governing capital write down, there is a strong presumption in favour of establishing funds outside the RDA
                                               (e.g. in a dedicated delivery vehicle). Under current rules the cost of land (or the acquisition of other capital assets) has to be
                                               accounted for in the first year, but also the depreciation of the value of the asset has to be accounted for in the same year
                                               and the receipts are unable to be claimed until they are realised.


                 OffPAT Appraisal Alignment    Imperfect Information and Uncertainty;
                                               Public Goods;
                                               Market Power;
                                               Other


                 East Midlands RES Strategic   5c Ensuring an infrastructure for a low carbon economy
                 Fit
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                                                   6b. Protecting and enhancing green infrastructure through environmental stewardship
                                                   7b Development Land
                                                   7c Housing
                                                   10a Employability


                 Low Carbon/ Shadow Price of       Creates a preference for low carbon forms of infrastructure to feed into financial low carbon forms of infrastructure to feed
                 Carbon Fit                        into financial appraisal.


                 Urban/ Rural Regeneration         Depends upon the spatial prioritisation adopted to focus a fund’s activities.


                 Scale
                                                                                                              Consideration could be given to how current and future
               11.5      Promoting a Model Approach
                                                                                                              delivery vehicles, as well as other partners, could be deployed
               The Agency has an opportunity to use its strategic influencing                                 in these areas to assist implementation alongside any funding
               role to promote a model approach to dealing with the                                           to support the removal of bottlenecks in infrastructure
               infrastructure problem for local planning authorities. To                                      provision.
               maximise value and impact, emda would also need to engage                                      Agency funding, if available, could be made contingent upon
               with the network planners managing critical infrastructure to                                  the adoption of a best practice model within targeted
               ensure some degree of validation and robustness.                                               authorities.
               The Agency, with its business focus, is well placed to act as an                               11.6     Towards an Agency Best Practice Model
               interface between a multitude of local planning authorities
               (either acting individually or within groups) and the “big” critical                           The content of a model approach promoted to the Local
               infrastructure companies.                                                                      Authorities would need to be tested and developed using
                                                                                                              practical delivery experience. However, it is possible to
               As a result of PPS12, spatial planning has become more
                                                                                                              identify the following key criteria:
               involved with critical infrastructure but the experience to date is
               serendipitous and patchy.                                                                      11.6.1 Model Stages
               Once developed a model approach could be targeted at those                                     Each area would be expected to undertake the following
               authorities currently considered a priority for strategic planning                             stages (discussed in more detail below):
               work, given their alignment with the growth areas, or with                                     •   Defining sub-regional geography
               regeneration priorities.
                                                                                                              •   Agree a vision for the area


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               •   Setting out a baseline position, trajectories and options –             Given the design implications of sustainable development,
                   population, housing and employment over a long term                     both developers and network planners need to work in an
                   period;                                                                 integrated way to establish the volume of services.
               •   Use of decision making tools;                                           11.6.3 Delivery Planning Tools
                                                                                           A model approach would involve a commitment to resourcing
               •   Prioritisation
                                                                                           a “live” approach to infrastructure planning based on a process
               •   Efficient Governance Arrangements                                       supported by a database rather than on the production of a
                                                                                           static end state document.
               •   Appropriate Delivery Arrangements – Vehicles and
                   Financing                                                               The maintenance of a database able to feed information into
                                                                                           software capable of producing a gantt chart showing the
               11.6.2 Baselining, Trajectories and Options                                 critical path for different infrastructure types will be essential.
               The model has to be led by an overall vision for the                        There will be tensions between the need to plan for the longer-
               development of an area as expressed in the planning and                     term and the likelihood of the providers focusing only 5 years
               economic strategies of an area. This vision will need to be                 ahead. However, this approach will make it easier to identify
               unpacked into the performance required from individual                      critical interdependencies between different forms of critical
               services over the term of the plan.                                         infrastructure and other infrastructure types needed to
               Key performance indicators for infrastructure can be                        underpin sustainable development (Figure 11.1).
               determined by undertaking a review of existing plans and                    A Geographical Information System representation of
               strategies and through consideration of the technical and                   infrastructure in relation to development land; public land and
               aspirational demands of a community.                                        existing communities and networks will be essential.
               Test scenarios covering household growth, employment                        Figure 11.1 Planning Tools
               growth and demographics need to be created, which reflect
               the vision and can be used to define critical thresholds for
               infrastructure delivery in terms of need and financing.
               The scale and nature of infrastructure required will depend on
               the location of major development within an area and the
               assumed service model. The infrastructure planning process
               therefore provides an appropriate forum for integrated decision
               making around land use planning, the testing of new
               infrastructure delivery models/ideas, and the exploration of
               linkages and feedback loops between infrastructure sectors.
               Critical infrastructure providers should be engaged at this
               stage in terms of their existing network capacities and known
               improvements as funded in their five year investment plans.

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                                                                                            Figure 11.2: Geographical Information Systems Representation of City
                                                                                            Level Infrastructure
               Figure 11.2 overleaf shows a representation of a city with
               development areas displayed alongside point source
               infrastructure and icons representing infrastructure needs prior
               to the existence of any agreement on routing. As certainty
               increases, the level and complexity of data held on layers can
               be increased.
               As the planning strategy for an area important to regional
               growth changes so the GIS must adapt to changing
               circumstances. In figure 11.3, the system is able to explode
               out an Area Action Plan as a subset of a wider area strategy.
               Outside GIS, the programming tools should allow the
               programming of development to be shown alongside
               information on critical infrastructure and other infrastructure
               provision.
               The system needs to be capable of highlighting misalignments
               between the two sides as a prerequisite for mitigation
               strategies.




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                                                                                      Governance and Partnership
                                                                                      The approach to the use of tools and modelling is only productive in
                                                                                      so far as it supports partners make more effective decisions. For
                                                                                      critical infrastructure, the network planners have the greatest
                                                                                      influence but operate outside any broader regional objectives.
                                                                                      Some experience now exists of multi sectoral partnerships with
                                                                                      critical infrastructure providers engaged in the process. All parties
                                                                                      must own the process and the milestones produced. Key issues to
                                                                                      be addressed by partnerships include
                                                                                                    •    Accountability - within local authority and local
                                                                                                         strategic partnership
                                                                                           •    Links to sub region – planning, transport, economy
                                                                                           •    Mechanisms for “unblocking” and problem solving
                                                                                           •    Effective internal decision making systems
                                                                                           •    User-friendly data and visual interpretation
                                                                                           •    Mechanisms for updating, monitoring and feedback
                                                                                           Prioritisation and Monitoring of Infrastructure Needs
                                                                                           The governance structure is essential to the inevitable need
                                                                                           for prioritisation of resources. Financial resources will rarely
                                                                                           meet all the identified needs for infrastructure and there will
                                                                                           inevitably be a requirement for the prioritisation of projects. As
                                                                                           a result, a qualitative framework and potentially a political
                                                                                           decision-making system will need to be established to
                                                                                           prioritise between geographical areas, categories of
                                                                                           infrastructure and individual projects. Considerations that
               Figure 11.3 Area Action Plan e.g. of an Infrastructure GIS
                                                                                           could form the basis for prioritisation criteria include:
                                                                                           •    strategic fit with regional, sub regional and local strategies;
                                                                                           •    link to RES and RDA Corporate Plan outcomes;
                                                                                           •    significance to the realisation of a wider vision;
                                                                                           •    deliverability/ robustness;

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•   value for money; and                                                                        open up new business development opportunity.
•   contribution to critical interdependencies & sequencing of development
                                                                                                EKSDC and EDF Energy signed a contract for the construction of a
    activity.
                                                                                                new sub-station and distribution networks to serve the area of
Pragmatic political judgements can be informed by the output of the tools                       central Thanet, including Manston Airport. Once the utilities have
which should focus attention on the critical interdependencies. A monitoring                    been taken up by developers, and their share of the costs starts to
programme could usefully incorporate a risk register, which can be used to                      be paid back to the company, the money will then be re-invested in
highlight infrastructure items that are key to the delivery of strategic sites, but             further utility provision. The money will be ‘recycled’ and used over
where important programming, finance and construction risks have been                           and over again to supply much needed services and, in time, other
identified.                                                                                     facilities required to help employers move into the area. To kick-start
                                                                                                this, funds of £11 million have been secured from a variety of
Delivery and Financing of infrastructure
                                                                                                sources including the Government’s Single Regeneration Budget,
Freeing up a bottleneck may require the release of funding to secure forward
                                                                                                managed by English Partnerships and SEEDA and the European
provision especially if phased release within a larger development may place
                                                                                                Regional Development Fund – managed by Government Office for
a disproportionate burden on a first phase developer. However, with
                                                                                                the South East.
diminishing headroom to fund new projects, it may be appropriate to
consider how the Agency can add value by developing a model process for
use by its partners, to overcome poorly co-ordinated investment. This could                       11.7      Working with the Homes and Communities
include emda providing some funding, but under a scenario where there is                                    Agency (HCA)
limited funding, emda’s role could be one of enabling and advising to assist
the creation of partnerships to take forward delivery.                                          Whilst a large number of organisations are involved with
                                                                                                infrastructure, the position of the Homes and Communities Agency
        Box 11.2: Case Study: East Kent Spatial Development Company                             justifies particular attention. The Homes and Communities Agency
        The East Kent Spatial Development Company (EKSDC) has been                              also has a strategic role in securing development in the East
        set up by the following partners:                                                       Midlands but with a housing bias. In an era of mixed use/
                                                                                                sustainable development, alignment would seem to be appropriate.
        •    the South East England Development Agency (SEEDA - the
             Government agency promoting economic development in South                          Sir Bob Kerslake, Chief Executive of the HCA has gone on record
             East England)                                                                      and said that cities have not been able to fund essential major new
                                                                                                infrastructure schemes necessary to sustain growth over the long
        •    Kent County Council                                                                term. He believes that both Accelerated Development Zones, TIFs
        •    Thanet District Council                                                            and Regional Infrastructure Funds could play a significant role in
                                                                                                funding major housing and regeneration schemes that the HCA
        •    Dover District Council                                                             could support.
        It has developed a pioneering scheme to unlock potential                                The actual involvement of the HCA in infrastructure discussions and
        development for the area. This ‘not for profit’ company will pay for a                  planning has varied at the regional level in accordance with local
        massive improvement to the local electricity infrastructure, which will                 circumstances. For example, in the South West, the HCA has taken

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        a leading role in the Regional Funding Allocations discussions, partly             11.9                  A Regional Utilities Group
        as a result of the transfer of key executives from the RDA to the
        HCA and partly as a result of the number of urban extensions and                          Emerging from the second workshop delivered as part of this study
        settlements planned or in need of support.                                                was the idea of the establishment of a Regional Utilities Group
                                                                                                  (RUG) (with representation from emda, HCA, HA Local Authorities
        The “Single Conversation” will provide the key mechanism for                              and Utility providers) to map strategic and operational plans and
        discussions on alignment and regional investment priorities. The                          priorities to identify the gap over say a ten year period. This is similar
        HCA (East Midlands) has been involved in the RFA consultation                             to a model developed by Yorkshire Forward which has led to more
        exercise which has set out a broad direction of travel for the region                     effective planning and joint understanding of the challenges facing
        in terms of priorities. The HCA have acknowledged that further                            the region.
        arrangements need to be put in place if real alignment and joint
        investment is to be achieved.

 11.8                   Experience Elsewhere

        In the West Midlands, key partners (comprising chief executives and
        senior officers from AWM, Local Government, Assembly, Highways
        Agency, Homes and Communities Agency, Learning & Skills Council
        and Government Office), under the auspices of the Joint Strategy &
        Investment Board have prepared and agreed the RFA (as opposed
        to the more inclusive approach adopted in the East Midlands which
        involved a series of workshops and discussion papers to reach
        agreement).
        The West Midlands has identified twenty Investment Impact
        Locations which reflect the regional priorities
        (RES/RSS/Housing/Transport). The region has also asked
        Government to consider the creation of a Regional Infrastructure
        Fund.
        The approach has had a profound influence upon emerging ideas for
        the Single Integrated Regional Strategy (SIRS) and its associated
        delivery plan for the West Midlands, where partners now intend to
        use the focus on deliverability in other aspects of infrastructure
        provision (e.g. environment and health). The real success of this
        RFA process in the West Midlands is an enhanced ability to work
        more purposefully together to take the important decisions that will
        have the biggest effect on the region’s productivity gap.


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12      Establishing an Action Plan
        This study has identified a number of actions which the Agency
        could take forward to support the future delivery of infrastructure
        within the East Midlands. These are summarised under topic
        headings in Figure 12.1.
        Figure 12.1 Key Actions for the Agency

       Action                                                                                                Quick Win   Medium      Long
                                                                                                                         Term        Term
                                                                                                             0-2 years
                                                                                                                         2-5 years   5-15
                                                                                                                                     years
       Regulators
       Together with the other RDAs seek to ensure that the Regulators understand the need for long term
       infrastructure investment to underpin regional growth

       Utility Providers
       Involve regional representatives of the infrastructure providers, together with other organisations
       (eg local authorities, HCA) in a new ‘Regional Infrastructure Group’, and emda to engage with
       the business planning processes of the Utility providers.
       Develop a Regional Infrastructure Strategy to guide investment plans of utilities and other
       infrastructure providers, and secure ‘sign off’ by regulators.
       Infrastructure Delivery Plans
       Emda to develop a Best Practice Model to inform and guide key authorities / groups of authorities
       within the region

       New Funding Regimes
       Emda to work with other RDAs and HCA and government to develop new innovative national and
       regional funding models to support future infrastructure delivery




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      Action                                                                                                       Quick   Medium      Longer
                                                                                                                   Win     Term        Term
      Regional Infrastructure Fund
      Emda to work with regional partners to explore the scope to establish a Regional Infrastructure Fund

      Investment Impact Locations
      Work with regional partners to identify investment Impact Locations, where funding can be targeted


      Regional Infrastructure Strategy
      Develop a regional infrastructure strategy to guide investment plans of utilities and other infrastructure
      providers, and secure ‘sign off’ by regulators.

      Develop interactive GIS tool to inform and guide decision makers




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      13 Conclusions                                                                         measures. This is demonstrated in the Water Resource Plans
                                                                                             for the region which assume efficiency savings.
             This study has explored the nature of infrastructure provision in
             the East Midlands and the extent to which infrastructure                        The Agency has an exciting opportunity to use its strategic
             providers are connected into the growth agenda for the region.                  leadership capabilities to embed good practice in the region.
             The study has revealed a range of issues including:                             Depending on the actions taken, this could be at minimal
                                                                                             resource cost to emda.
        •    Inconsistencies between the geographical areas covered by the
             various infrastructure and utility providers eg water and                       By reducing the uncertainties and opportunity costs associated
             electricity providers do not share common boundaries for                        with critical infrastructure provision, the Agency can help provide
             business and service planning;                                                  additional confidence to planners and developers. In addition to
                                                                                             the strategic and local benefits of seeing more development
        •    The boundaries between infrastructure providers and the utilities               brought forward more quickly, it could also reduce the costs
             are not consistent with those of the regional or local authorities;             faced by developers on scarce capital arising from hold ups in
        •    Different infrastructure and utility providers operate on different             infrastructure provision and barriers created by the loading of
             business planning cycles, which in many cases do not co-incide                  infrastructure costs onto first phase developers.
             with those for spatial planning;                                                The Agency could also position itself as a conduit between the
        •    These discontinuities also exist in the business and investment                 very large bodies planning infrastructure networks and the local
             planning that supports the various parts of the water cycle eg the              planning authorities controlling spatial planning.
             Water Resource Plans for drinking water are 25 year plans for                   Opportunities exist for the Agency to develop, with the HCA and
             investment, but no equivalent exists for sewerage and drainage;                 other partners, a single infrastructure planning framework, with
        •    Transportation is the form of infrastructure provision best                     the Agency playing to its strengths around employment interests
             connected to the spatial planning and growth agenda;                            looking to a future where homes and jobs will need to be
                                                                                             delivered jointly to achieve wider sustainable development
        •    Most infrastructure providers and utility companies are                         objectives.
             commercial organisations. As such their decisions are affected
             by a combination of commercial realities and the regulator’s                    Any future headroom in funding could be usefully used to
             rules. Because a growth area has been indentified by                            support the creation of infrastructure funds either using a
             government, it does not automatically follow that investment in                 decentralised (essentially project based) model or centralised
             infrastructure provision to support that growth will take place at              through the creation of a RIF.
             the time required.                                                              Powers enabling Tax Increment Financing or Accelerated
        •    Legacy infrastructure is also an issue for infrastructure providers             Development Zones seems possible in the near future in which
             and utilities. This also requires expenditure on renewal.                       case the model approach articulated earlier (section x) will
                                                                                             become even more important if risk averse local treasury teams
        •    Infrastructure need can and will be met in the future by a                      are going to be persuaded to use these powers (through the
             combination of new capacity and demand management                               prudential borrowing powers).


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             In the depths of the recession, there is bound to be a reluctance
             to use mechanisms predicated on land value growth when the
             market is falling. Publicly owned land is a critical resource whose
             transfer now at current prices would be the equivalent of “selling
             the family silver” for least advantage. However, there is nothing
             in principle, wrong with setting up the preconditions for a market
             recovery in the future. The recent innovation related to the
             creation of Local Incentive Backed Vehicles (LIBVs) offers
             protection for partners by engineering options that require
             minimum financial performance returns before land transfers
             occur (this means land prices are assumed to recover
             sufficiently to generate enhanced performance criteria). Here,
             the primary issue is whether partners have the requisite skills to
             draft options to exploit growth when it happens.




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           APPENDICES                                                             or other sub regions using mechanisms such as the Multi Area
                                                                                  Agreements (MAAs). These co-ordination partnerships rely on
           A1. Strategic Leadership Bodies                                        the voluntary sharing of information to achieve improved
                                                                                  delivery outcomes.
                   •    Infrastructure Planning Commission
                                                                                      •   Economic Regulators
               The Planning Act of 2008 has created a new Infrastructure
               Planning Commission (IPC) which is now being established,          The Economic Regulators (e.g. Ofgem, OfWAT) oversee their
               with an expectation of becoming operational later in 2009. It      client sectors proposed investment plans to determine the
               will cover nationally significant infrastructure projects (e.g.    efficiency of investment and assess the impact on the charge
               major airports, ports, power generation, waste processing) that    payer.
               will be identified through a system of National Policy             A1.1      Public Private Partnership Vehicles
               Statements, which will be subject to consultation and
               Parliamentary scrutiny. The new body will examine and                  •   Private Finance Initiative (PFI)
               determine applications for major infrastructure within the
                                                                                  The Private Finance Initiative enables the public sector to
               context of the relevant National Policy Statements, which will
                                                                                  spread the cost of infrastructure investment over the lifetime of
               establish the principle for that scheme, leaving the IPC to
                                                                                  the asset avoiding some of the uncertainties over conventional
               determine the detailed and site/location specific issues. This
                                                                                  procurement. As the PFI process transfers project risk to the
               approach will be complemented by streamlined procedures for
                                                                                  private sector, the procurement process has resulted in highly
               securing detailed consent at the local level.
                                                                                  structured and detailed contracts specifying the nature of
                   •    Other Non Departmental Public Bodies                      service delivery as a hedge against delivery uncertainty.
                                                                                  Highly structured deals have raised the overhead costs of
               The Regional Development Agencies (RDAs) fit into this
                                                                                  delivering projects under PFI and required the payment of a
               category alongside advisory Non Departmental Public Bodies
                                                                                  significant risk premium to the private sector. Once a PFI
               who offer some form of insight/ intelligence on infrastructure
                                                                                  project is agreed, it becomes difficult to change the service
               requirements. The RDA’s remit to support economic
                                                                                  requirement especially as the provider typically occupies a
               development within the region introduces a further test for the
                                                                                  sole provider status.
               other providers. The Homes and Communities Agency can
               also be included within this category of organisation.                 •   The Local Education Partnerships/ Local
                                                                                          Investment Finance Trusts (LEP/ LIFT)
                   •    Strategic Co-ordination Partnerships
                                                                                          Partnerships
               The public sector forms a partnership for the purposes of co-
                                                                                  LEP/ LIFT partnerships grew out of the inflexibilities and high
               ordinating infrastructure service providers, usually with a view
                                                                                  cost of the conventional PFI mechanisms. The model is
               to supporting the planning strategy for an area. Government
                                                                                  designed to work in situations where there is a steady role out
               policy has encouraged the public sector to collaborate across
                                                                                  of new build/ upgrading across a range of sites (divisible forms
               administrative boundaries where this makes sense in terms of
                                                                                  of facility type investment). Once a preferred private sector
               the functionality of the infrastructure concerned. Partnerships
                                                                                  partner has been procured in accordance with EU
               can therefore represent city regions or housing market areas
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               Procurement rules, the partner is usually retained throughout        values. Examples of LABVs would include “Blueprint” and
               the programme. The private partner has responsibility for            Meden Valley.
               project management and delivery meaning that there is a
                                                                                        •   The Integrator Model
               potential conflict of interest in terms of securing best value for
               the public sector. Best value is dependent upon the degree to        The “Integrator” model is a LEP/ LIFT variant designed to
               which the strategic private partner is held to account on its        reduce incentives to not achieving best value for the public
               performance to benchmark standards (assuming those are               sector model. This is achieved by differentiating the role of the
               available).                                                          private sector strategic partner. The aim of this model is to
                                                                                    promote best value for the public sector by separating out the
                   •    De-Risked Private Finance Initiative
                                                                                    role of project manager (known as the “Integrator”) from the
               Under a conventional PFI Scheme, significant risks are               role of deliverer (physical construction). The Integrator is
               transferred to the private sector partner. These include the         rewarded according to overall project outcomes wherever
               risks of cost over runs and delays in construction as well as        these are possible. The Integrator is awarded exclusivity rights
               meeting the operational requirements. The decision as to             but is prohibited from taking a direct role in the delivery activity
               whether or not to transfer particular risks depends not only on      beyond arranging for its procurement. The arrangement is
               who is best bale to manage the risk but also on the financial        meant to remove any barriers to achieving best value for the
               implications of doing so. Value for money can be improved by         public sector.
               reducing the overall risk transferred under a conventional PFI.
                                                                                        •   Competitive Partnership
               For the public sector, this option is likely to be most
               appropriate where there is a minor risk to those elements of         The “Competitive Partnership” model is another LEP/LIFT
               the risks retained by the public sector.                             variant designed to stimulate competitive pressure within the
                                                                                    delivery partner addressing poor value for money observed in
                   •    Local Asset Backed Vehicles (LABV)/ Local                   the standard LEP/ LIFT. The approach assumes that the
                        Incentive Backed Vehicle (LIBV)
                                                                                    public sector partner procures multiple strategic partnerships
               This model is based on exploiting the latent value in the asset      on the lines of the LEP/ LIFT model.
               base vested in the public sector partner. The LABV is a
                                                                                    Each strategic partnership will be aligned to deliver equivalent
               corporate joint venture involving one or more public sector
                                                                                    projects within a common framework using shared
               bodies and the private sector. The public sector’s contribution
                                                                                    performance indicators. Those strategic partnerships showing
               is the land and property assets in its ownership that are
                                                                                    the best performance would be rewarded with a lead role in
               considered under valued. The private sector invests cash and
                                                                                    future delivery at the expense of the less competitive
               expertise.
                                                                                    partnerships.
               The vehicle delivers a share of the uplift value to the public
                                                                                        •   Alliance Partnerships
               and private partners in proportion to their share of the joint
               venture vehicle (typically below 50%). Local asset backed            This is a form of collaboration based on the use of a payment
               vehicles work well in cases where there is a high degree of          mechanism that ensures all parties are aligned to a common
               certainty that the improvements will be reflected in higher land     set of project objectives. Alliance based partnerships usually
                                                                                    have a shared understanding of project outcomes and a
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               common basis for sharing risks rewards. The alliance format is
               used in cases where the infrastructure projects are large and
               there are uncertainties over the nature of services/
               infrastructure needed to deliver project objectives. Examples
               include military project procurement.
                   •    Incremental Partnerships
               The public sector enters into a framework agreement with a
               private sector partner who procures the necessary
               infrastructure and services on behalf of the public sector. The
               public sector can “call off” specific projects as its requirement
               becomes clear.
               The private sector partner competitively procures the services
               and infrastructure from sub contractors but retains overall
               responsibilities for service levels as assessed against clear
               performance measures. There is no exclusivity for the private
               sector partner – the public sector retains the right to use
               alternative providers. This format tends to work better for
               divisible forms of infrastructure that can be built up over
               discrete phases.
                   •    Local Service Based Vehicles
               Parallels with the LEP/LIFT model where the public sector
               enters into a strategic partnership with the private sector who
               provides project management and investment to the delivery
               of infrastructure services.




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      A2       Infrastructure Asset Efficiency in                                               airport investment. For example, the Air Transport
                                                                                                2003 White Paper developed a set of preferred
               the Utility Sector                                                               options for new airport capacity in the UK following
               Within the utilities sector a key part of the infrastructure                     widespread consultation with the public and other
               funding equation is the negotiations that take place to                          stakeholders.
               establish whether the additional cost of investment (including       (2)         The firm outlines a business plan setting out the
               an accepted rate of return for shareholders) is warranted in                     activities and the CAPEX that it believes is required
               relation to bill that consumers will be expected to pay.                         to meet the outputs.
               A key measure of used to assess investment need is “capital          (3)         The regulator reviews the capital efficiency of the
               efficiency” which is simply the ratio of output to the capital                   firm’s submission based on comparators and/or the
               expenditure needed to achieve those outputs.                                     use of engineering models to assess the
               Regulators take a view by employing comparative                                  relationship between outputs and required costs.
               benchmarking across a range of indicators to establish need          (4)         The regulator determines the appropriate
               whether capital expenditure proposals submitted by                               remuneration, adjusting the company’s planned
               companies represent underinvestment and excessive, or                            expenditure if necessary, on the basis of its
               excessive cost, investment (known as ‘gold plating’).                            efficiency assessment, and how quickly it judges the
               To supplement the limitations of efficiency assessments,                         firm can ‘catch up’ to best practice in investment and
               regulators have tested a range of options and incentive                          capital utilisation.
               mechanisms to encourage the efficient delivery of capital            A2.1       The Assessment Process
               investment in an uncertain business environment. These
               include volume incentives to promote efficient investment, as        Capital efficiency assessment poses particular challenges not
               well as penalty and reward triggers to ensure timely delivery of     posed by operational efficiency. Understanding these
               projects.                                                            limitations is crucial to the design of effective efficiency
                                                                                    assessment methodologies.
               Efficiency assessment is of primary concern to the regulator
               because remuneration must be provided through the price cap
               for the cost of carrying out an agreed investment programme.         •     Capital efficiency is by its nature more difficult to assess
                                                                                          than operational efficiency. Not only the cost
               The CAPEX process thus comprises the following four steps.                 effectiveness, but also the appropriate scale of the
                                                                                          proposed investment programme needs to be considered
               (1)        The required outputs and capacity, service                      by the regulator.
                          standards and performance levels are identified.
                                                                                    •     Operating expenditure (OPEX) is expressed as a ‘flow’ of
                          This is often a collaborative process involving the
                                                                                          costs (e.g., annual costs).However, for CAPEX, it is
                          firm, the regulator and the government, with the
                                                                                          necessary to convert stock data into flow terms. This
                          government playing a particularly important role in
                                                                                          requires consideration of issues such as the appropriate
                          the airports context given the political sensitivity of
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                   cost of capital to apply to the firm and the depreciation rate       (typically five years) to meet its licence and statutory
                   to be applied to the assets. The treatment of asset value            obligations. However, it is difficult for the regulator to estimate
                   and depreciation is likely to be dependent on accounting             with a high degree of confidence the level of capex that
                   procedures. For example, while BAA depreciates runways               companies will require. This is mainly for two reasons:
                   over a period of up to 100 years, Ae´roports de Paris
                                                                                    o     Genuine uncertainty: the appropriate level of capex depends
                   depreciates over only 10-20 years.
                                                                                          on events yet to happen; and
               •   In contrast to OPEX, both capital maintenance and
                                                                                    o     Information asymmetry: the regulator has less information
                   enhancement activities may be cyclical and lumpy,
                                                                                          than the companies on the factors affecting their investment
                   increasing sharply as capacity constraints begin to bite.
                                                                                          requirements.
                   Any meaningful efficiency measure must therefore be
                   estimated over a number of years, or at least reflect the            Of course, these two factors may interact. Indeed, one aspect
                   company’s position in the investment cycle.                          of information that may be particularly asymmetric is the
                                                                                        degree of uncertainty, because the company has more
               •   Capital activities are typically more firm-specific than             information than the regulator on potential technical and
                   operating activities. Consequently, care must be taken to            market risks.
                   ensure that comparisons across firms are robust.
                                                                                        Given the information asymmetry and incentives for efficiency
               •   The outputs of capital are difficult to identify and quantify        (rewards for under-spending allowances), there can be a
                   with clarity, as is clearly exemplified by the concept of            strong incentive on companies to overstate their investment
                   ‘security of supply’ in electricity markets. Simple measures         requirements at a price control review. It is with this context in
                   are unlikely to capture the full benefits of CAPEX and may           mind that the regulator must assess the future level of capex.
                   ignore issues of quality. Also, the ‘output’ of capital              There is also a potential risk of ‘‘moral hazard’’ of companies
                   maintenance is the avoidance of service deterioration, and           putting themselves in a position where they need to spend
                   the scale of this counterfactual may be difficult to assess          more money, in order to justify the case for increased
                   accurately, particularly where there is a significant lag            allowances. This would be a high risk approach for companies
                   between omitted investment and deterioration.                        to take. Benchmarking can potentially assist here if allowances
               •   Inappropriate remuneration may have more serious and                 are set based on industry norms, there is less likelihood of
                   long-term consequences for CAPEX than for OPEX. If a                 rewarding poor performance
                   firm is under-remunerated, it will under invest and, over
                   time, there will be a consequent deterioration in capacity
                   and service quality. If a firm is over-remunerated, this
                   generates incentives for inefficiency and gold plating of
                   investments simply to earn a higher rate of return.
               Under the price control arrangements described above, Ofgem
               makes a projection of the level of capex that an efficient
               company would require over the next price control period
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      A3       East Midlands Regional Economic                                     Sub Priorities         Actions/ themes                   Key Delivery
                                                                                                                                            Partners
               Strategy/ Emda Corporate Plan and
               Infrastructure
                                                                                   4 Infrastructure,      Focus on improving                emda, also DfT
               A3.1       Introduction                                             Accessibility and      transport links; connectivity
                                                                                   Connectivity           of region to other regions
               This section considers emda priorities in relation to                                      and Europe; surface
               infrastructure. role in relation to funding strategies and trends                          access to the airport;
               in the development of infrastructure funding. A fundamental                                housing and employment
               issue is the scale of funding available through emda relative to                           accessibility; access to
               the scale of need. Emda also face significant issues over the                              quality of life infrastructure
               capacity to engage extensively in this agenda.                                             (e.g. culture)
               This section reviews the Regional Economic Strategy and             5c Ensuring an         Develop of an energy and          emda
               emda’s Corporate Plan. Experience with “live” projects is then      infrastructure for a   waste infrastructure;
               reviewed along with the current rules structure governing the       low carbon             localised energy supply;
               use of the RDA’s own funds for the purposes of developing           economy                localised waste
               infrastructure. The table below (A3.2) identifies those aspects                            management; influencing
               of the RES                                                                                 private sector utilities.
               A3.2       What the East Midlands Economic                          6a. Protecting         Reducing pressures on             Includes private
                          Strategy Says About Infrastructure                       and enhancing          environmental                     sector energy
                          Priorities                                               our environmental      infrastructure through            utility companies
                                                                                   infrastructure to      resource efficiency/
                Sub Priorities       Actions/ themes             Key Delivery      ensure                 reduced travel demand/
                                                                 Partners          sustainable            use of renewables
                                                                                   economic growth
                2h Supporting        Reference to building up    emda
                SMEs to harness      sports infrastructure in                      6a. Protecting         Sustainable construction –        Various
                business             association with Olympics                     and enhancing          raising awareness of
                opportunities such                                                 our environmental      climate change; applying
                as public                                                          infrastructure to      high quality design;
                procurement                                                        ensure                 promoting good practice.
                                                                                   sustainable
                3d Translating       Reference to supporting     emda
                                                                                   economic growth
                scientific           Nottingham Science City
                excellence into      with infrastructure                           6b. Protecting         Protecting/ enhancing local       Emda, also HCA
                business success     (unspecified)                                 and enhancing          green infrastructure;
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                Sub Priorities      Actions/ themes               Key Delivery      A3.3     Key Extracts from the emda Corporate
                                                                  Partners                   Plan 2008-2011
                green               integration into new
                                                                                    Regional Strategic    Investment Priorities
                infrastructure      development
                                                                                    Priority Activities
                through
                environmental
                stewardship
                                                                                    Transport and         To work with partners and delivery agencies
                7b Development      Infrastructure for            emda, plus DfT/   logistics             to increase economic growth through
                Land                employment related            Private Sector                          enhancing the efficiency, flexibility and
                                    schemes including             Utilities, URC                          sustainability of the region’s transport
                                    transport, utilities, green                                           infrastructure.
                                    and ICT through
                                    assessment of regional
                                                                                                          Transport Feasibility and Innovative
                                    deficiencies; assessing and
                                                                                                          Projects: to fund the design and other
                                    planning for infrastructure
                                                                                                          technical/business case work related to key
                                    need; ensuring proactive
                                                                                                          infrastructure proposals, including innovative
                                    investment by public sector
                                                                                                          and pilot schemes. Therefore, emda is not
                                    in gap areas.
                                                                                                          positioned as a deliverer of transport
                7c Housing          Supporting infrastructure     emda plus local                         infrastructure, but may assist and influence
                                    for housing growth            government                              others.
                                    including assessing and                                               Transport Policy: funding to support
                                    addressing deficiencies in                                            activities (research, policy development,
                                    utility expenditure                                                   studies, etc) to shape national, regional and
                10a Employability   Addressing worklessness –     Various                                 sub-regional policy, including contributions
                                    connecting local people to                                            towards future Regional Funding Allocation
                                    job opportunities created                                             exercises.
                                    by public sector investment                     Energy & Resources    To work with key partners to develop and
                                    in key infrastructure                                                 deploy renewable and low carbon
                                    projects                                                              technologies, processes and skills to
                                                                                                          improve economic growth, resilience and
                                                                                                          efficiency and work towards the
                                                                                                          development of a sustainable and secure
                                                                                                          supply of energy and waste services.



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                Regional Strategic    Investment Priorities                               Regional Strategic    Investment Priorities
                Priority Activities                                                       Priority Activities


                                      Investment Priorities: Low Carbon                                         Investment Priorities: Quality and Supply of
                                      Infrastructure: strategic activities to influence                         Employment Sites: employment space and
                                      investments in the provision of sustainable                               related infrastructure; and previously
                                      and secure energy and waste infrastructure                                developed land and buildings.
                                      to meet the region’s future needs, including                              Regeneration: capturing the urban offer;
                                      supporting the development of innovative                                  waterways; and regeneration at intermodal
                                      solutions to energy and waste services                                    facilities supporting growth and development
                                      provision.                                                                at the region’s key transport interchanges.
                Environmental         To work with partners to improve                                          Land Remediation: brownfield land action
                protection            environmental quality and contribute to                                   plan.
                                      sustainable economic growth through the
                                      protection and enhancement of the region’s
                                      environmental infrastructure.


                                      Investment Priorities: Environmental
                                      Infrastructure and Ecological Services:
                                      investing in green and environmental
                                      infrastructure to improve place-shaping,
                                      overcome barriers to investment, create
                                      economic value and support activities which
                                      enable the region to adapt to inevitable
                                      climactic changes

                Land and              To work with partners and delivery agencies
                development           to increase economic growth through the
                                      development of employment sites, mixed
                                      use schemes and associated infrastructure
                                      necessary to support the changing needs of
                                      a productive economy, while embedding the
                                      principles of sustainable design and
                                      construction.


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      A4       Methodology for Setting the CIL




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      A5       Infrastructure Planning                                                considering and deciding on major infrastructure
                                                                                      applications. Decisions will be based primarily on National
               Commission                                                             Policy Statements. The examination process will be
                                                                                      streamlined. Questioning at hearings will be led by
               A5.1       Introduction
                                                                                      Commissioners rather than being adversarial.
               CLG recognise that improving the UK’s infrastructure is critical   These reforms will establish a clear separation between policy
               to maintaining and improving our quality of life, protecting out   making and decisions on individual applications. This will give
               prosperity and safeguarding the environment in an                  promoters a clearer framework with a higher degree of
               increasingly competitive global economy. This presents huge        predictability in which they can make investment decisions
               challenges and it is widely agreed that the existing planning      with more confidence. In most circumstances, cases will be
               system for major infrastructure is not up to this challenge.       decided within a year from application.
               CLG note that the “consideration of individual applications can
               take many months or years including lengthy debate about the       A5.2      The Infrastructure Planning Commission
               need for infrastructure. The process of reaching decisions is
                                                                                  The Infrastructure Planning Commission (IPC) will be an
               complicated. Many individuals, communities and other
                                                                                  independent non-departmental public body. The key
               stakeholders find the system archaic and opaque and have
                                                                                  appointments will be Chair, Deputy Chair, Commissioners and
               difficulty making their voices heard”
                                                                                  Chief Executive. Commissioners will act as decision makers
               In response to this the Government has embarked on                 on applications for nationally significant infrastructure projects.
               fundamental reform of the development consent system for
                                                                                  The detailed procedures and rules will be set out in secondary
               major infrastructure projects. Following consultation on the
                                                                                  legislation and guidance. These will be consulted on through
               2007 Planning White Paper, the Government legislated the
                                                                                  2009. The first package of statutory instruments sets out the
               Planning Act 2008. The aim is that this will provide for a more
                                                                                  list of statutory consultees for NPPs. Following the
               efficient, transparent and accessible planning system for
                                                                                  consultation period this will enable departments to begin
               nationally significant infrastructure projects.
                                                                                  consulting on draft NPSs from the summer 2009 onwards.
               The new, single consent regime includes the following:             The second package of statutory instruments will be the pre-
                                                                                  application requirements – following consultation, these will
               •   The Government to produce National Policy Statements
                                                                                  come into force in October 2009. The third package will deal
                   (NPSs) that integrate environmental, social and economic
                                                                                  with how the IPC will examine and decide on applications.
                   objectives and provide clarity on the need for
                   infrastructure.
               •   A new duty – and greater onus – on promoters to ensure
                   that proposals are properly prepared and consulted on
                   before they submit an application for development consent
               •   A new independent body, the Infrastructure Planning
                   Commission (ICP), to take over responsibility for
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               A5.3       National Policy Statements                              Projects above the thresholds set out in the Planning Act will
                                                                                  be considered by the new regime. Smaller projects will be
               These will be the principal policy documents which the IPC will    considered by the current regimes. The Acts makes
               use in making decisions. They will be drafted to bring together    provisions for NPSs to be updated over time to reflect changes
               relevant social, environmental and economic policies to            of circumstance and policy.
               contribute to sustainable development. Topics covered will
               include the need for new or expanded infrastructure; locational    A5.4     Current Position
               considerations; how impacts are to be assessed and weighed
                                                                                  The consultation document seeking views on who should be
               against benefits; and mitigation of impacts.
                                                                                  statutory consultees for NPSs was held in early 2009. This
               Where an NPS is location-specific, the relevant local              consultation is the first of a series of consultations to be
               communities will be consulted on the proposals, and the local      published on draft regulations and guidance setting out
               authority will also be consulted on how the NPS should be          detailed procedures for applications under the Planning Act.
               published in the local area. In addition the NPS will be subject   The consultations are likely to include the following:
               to Parliamentary Scrutiny and Appraisal of Sustainability.
                                                                                  •   requirements on developers in preparing and making
               It is planned that there will be 12 NPSs will be produced, these       applications to the IPC (including consultation)
               will include:
                                                                                  •   regulations transposing the obligations in the EIA and
               •   Overarching Energy (setting the context for the other five         Habitats Directives to the new regime
                   energy NPSs below)
                                                                                  •   IPC examination and decision-making – including
               •   Renewables                                                         procedural rules and additional matters which the IPC
               •   Fossil Fuel                                                        should take into account in its decisions
                                                                                  •   regulations dealing with the fees the IPC can charge.
               •   Electricity Networks (i.e. power lines etc)
                                                                                  The document consulted on is the Statutory Instrument –
               •   Oil and Gas Infrastructure (e.g. pipelines and storage)
                                                                                  Infrastructure Planning (National Policy Statement
               •   Nuclear Power                                                  Consultation) Regulations 2009. The document states that
                                                                                  “before designating a statement that has policies identifying
               •   Ports National Networks (i.e. strategic roads and railways,
                                                                                  one or more locations as suitable (or potentially suitable) for a
                   including strategic rail freight interchanges).
                                                                                  specific description of development as a NPS or amending
               •   Airports                                                       such a NPS the Secretary of State shall consult the authority
                                                                                  or person specified in column 2 of Table 2 in the
               •   Waste Water (e.g. sewage treatment infrastructure)
                                                                                  circumstances specified in column 3.” This table lists Regional
               •   Water Supply (e.g. reservoirs)                                 Development Agencies and Regional Planning Bodies and
                                                                                  states that these will be consulted in all cases.
               •   Hazardous Waste (e.g. high temperature incineration).


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      A6       Bibliography & Useful References                                 Spon Press (2008) Spon's Architects & Builders Price Book
                                                                                2008
               All Party Urban Development Group (2007) Loosening the
               Leash: how local government can deliver infrastructure with      Sustainable Development Commission (2007) Lost in
               private sector money.                                            transmission: the role of Ofgem in a changing climate.

               All Party Urban Development Group (2008) Delivering Urban
               Homes: the role of the public and private sector
               BCIS (Building Cost Information Service) -
               http://www.bcis.co.uk/
               CIRIA (2006) Sustainable water management in land use
               planning. CIRIA C630
               CLG (2008) The Community Infrastructure Levy
               CLG (2008) Infrastructure Delivery, Spatial Plans in Practice:
               supporting the reform of local planning
               HM Treasury (2007) Transforming Government Procurement
               Housing Corporation Economic Appraisal Toolkit -
               (http://www.housingcorp.gov.uk/server/show/nav.00100f00200
               b)
               NAO (2004) Out of sight – not out of mind: Ofwat and the
               public sewer network in England and Wales
               NAO (2007) Ofwat – Meeting the demand for water
               Ofgem (2003) Securing Britain’s gas supply
               Office of Government Commerce (2007) Whole life costing
               and cost management: achieving excellence in construction
               procurement guide.
               Ofwat (2006) A sustainable water industry – to PR09 and
               beyond – consultation paper
               Parliamentary Office of Science and Technology (2007)
               Postnote: Electricity in the UK



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