Preparing for unforeseen shocks
Beyond the more predictable considerations of population growth and transportation, are other challenging factors. Climate change, for example, is becoming increasingly erratic, and global pandemics are clearly no longer a distant possibility. To meet these challenges, our infrastructure needs to become more resilient. In the past, we’ve relied as an industry on historical data to forecast future events, some of it of poor quality. This is no longer sufficient. Designers must broaden their consideration of weather patterns to include the predictable annual events as well as the more unpredictable ‘once in a century’ type occurrences.
As in much of Southeast Asia, Kalimantan often experiences severe flooding during the inevitable annual monsoon season – and built up spaces will only exacerbate this. In the past, making the case for funding such ‘unforeseens’ has proved difficult. Some have argued that money spent protecting infrastructure against things which might never happen could be better spent on more concrete needs. Once in one hundred-year incidents, such as Hurricane Sandy and even the coronavirus pandemic, have changed that thinking. Today, resilience should be built into megaproject planning right from the masterplan.
Whereas Kalimantan has the luxury to plan, older cities require retrofitting. In developing New York’s masterplan for Lower Manhattan coastal resilience, AECOM had to consider a diverse set of current and future public needs spanning a number of adjacent spaces as part of our design efforts.
One of those projects is South Battery Park. This unique stretch of coastline involves rebuilding Wagner Park with a hidden, passive line of protection that enhances the public space and potential for economic development. The project aims to protect the neighborhood and the people who live in it by reducing flood risk due to coastal storms and sea-level rise. At the same time, the goal is also to improve waterfront access so the community benefits even when there is no flooding or other risk.
As the Lower Manhattan resilience work spans 10 continuous miles (16.09 kilometers) of coastline, there are several stakeholders involved. Each of the distinct sections of waterfront is planned and funded differently, and discussions are ongoing to explore new sources of cross-sector funding and financing, as well as ways to capture future value generated by resilience projects to help bridge the funding gap. These lessons are relevant to planning for Kalimantan.
Making the financial case for Kalimantan
The government plans to fund around 19 percent of the total US$33 billion cost, with the balance coming from other sources. At the same time, the Indonesian government has announced its intent for a monumental $412 billion nationwide infrastructure spending plan spread across 17,000 islands. To date, committed funds remain elusive for both projects, and a significant portion of funds will likely have to come from private sector finance, institutional funds and even the growing global green capital market.
Private equity finance and institutional fund participation in large-scale infrastructure are increasingly popular tools, going hand-in-hand with land development opportunities for local and foreign investors that would otherwise be difficult to secure. This may be the next evolution of the infrastructure-as-a-service model, moving away from traditional subsidy-heavy financial structures.
The rail-plus-property model of Hong Kong’s MTR is a prime early example, with over half of the transit system’s revenues generated through property development and management. In this post-pandemic era where recurring income from infrastructure tariffs and fares are vulnerable, diversification of cash flows can keep essential infrastructure viable. This goes beyond the tax-increment value capture that is already popular in the U.S.; the primary revenue stream comes from integrated commercial real estate rather than the infrastructure itself.
Early hesitation to cede national lands to foreign owners is being addressed through creative land lease frameworks and asset divisions that keep lands in the hands of nationals. This has enabled the likes of Japanese tech conglomerate Softbank and the Emirati Sovereign Fund to explore partnerships to develop portions of the capital in exchange for underwriting support.
But international investors are increasingly demanding more than financial returns and guarantees. Resilience targets and environmental, social and governance (ESG) targets may include pandemic readiness, digital readiness, a diverse portfolio of economic engines, measures of equity and inclusivity as well as preservation of authenticity. These sorts of measurements can serve as a framework for other countries or investors with similar goals wanting to participate or invest in the Indonesian government, helping them realize their dream of moving the capital city.
In neighboring Philippines, the nation’s own backup center for government is emerging at the US$23 billion New Clark City. The 9,000 hectare masterplan by AECOM is now the focus of the nation’s first government green development bond, with hopes of attracting ESG-minded private investment to realize its original vision for a sustainable and resilient city of one million people.
Managing Complexity
From the constrained streets of London to the sunken Egyptian city of Heracleion, history is littered with examples of megaprojects that have failed the sustainability test. The promoters and sponsors of sustainable infrastructure must be flexible and persuaded to plan and finance for a future they can’t yet imagine – and which they might never see.
It would, however, be naive to expect the financiers of Indonesia’s new capital to invest in an unspecified future. A more compelling argument must be developed around making long-term sustainability deliverable within the parameters that constrain the promoter (cost, time, space, technology, resources, knowledge, etc.). Ideas around passive provisions, elimination of pinch points, adaptability, market trends, demand and other topics will be required. Behind it all is the need for the managers of megaprojects not to limit themselves to what they know now, but to be flexible and adaptable to ensure that their projects thrive for generations to come.
This article builds on The era of sustainability-enabled mega-projects: lessons in building to deliver for an unknown, better future by AECOM’s Jim Manning and Mariella Tsopela. Their submission was voted best sustainability paper at the MeRIT Megaprojects Research Interdisciplinary Team conference in Milan, 2019.
Izlem Boylu, Alan Gibbs, James Kirkpatrick, Mike Pauley, Sacha Schwarzkopf and Joel Sonkin contributed to this article.
