UK trains sights on Abu Dhabi sovereign funds for HS2 high-speed rail project
The UK government has approached Abu Dhabi sovereign wealth funds seeking investment in major infrastructure projects.
Dominic Jermey, the chief executive of UK Trade and Investment and former UK ambassador to the UAE, last week met executives from Mubadala and the Abu Dhabi Investment Authority (Adia) to try to drum up investment in projects including the controversial high-speed rail project HS2, and in the UK government’s Northern Powerhouse initiative – a plan to restore economic dynamism to Britain’s struggling post-industrial regions.
Offering the chance to get involved in “the biggest programme of railway building in the United Kingdom since the time of Queen Victoria”, Mr Jermey said that the UK government would “love to see sovereign wealth fund money” invested in HS2, and in efforts to build new infrastructure in Manchester, Birmingham, Sheffield and Leeds.
“We have a portfolio, a pitchbook, if you like, of projects in the pipeline,” Mr Jermey said. “Those are projects that we discuss with a wide range of potential investors.”
“The sell, if you like, is that … if you are looking for a steady, well-regulated rate of return that is predictable in the longer term, [then] that’s what infrastructure investments in the UK offer,” he said.
HS2 is a proposed £50 billion (Dh291.65bn) high-speed rail connection linking London to the Midlands and, later, the north of England.
The railway, championed by the UK chancellor, or finance minister, George Osborne, has been criticised by a coalition of British politicians and local residents worried about the project’s expense and environmental impact.
“Typically Adia has been conservative in its infrastructure investments, and has invested either through funds, or by co-investing in a developed asset,” said Michael Maduell, president of the California-based Sovereign Wealth Fund Institute.
But the popularity of developed country infrastructure projects among conservative investors is pushing up prices, leading sovereign wealth and pension funds to start looking at greenfield investments such as HS2, he said.
The rail link will cost £47 million per kilometre to complete, according to UK government estimates, while Etihad Rail, the 1,200-kilometre track that will cross the Gulf from Saudi Arabia to Oman, will cost about £5.8m per kilometre to build.
The British government previously sought HS2 funding from China, with Chinese investment in the railway among topics discussed by the UK prime minister David Cameron and the Chinese premier Li Keqiang during a bilateral meeting held in London last year.
“In the UK, public sector investment has been squeezed, and the government’s fiscal targets leave limited room to manoeuvre. That is why the British government needs private sector involvement in infrastructure projects,” said Vicky Redwood, chief UK economist at the London-based think tank Capital Economics. “Sovereign wealth funds offer a stable source of funding, and there are political attractions in courting them.”
The UAE has long been an active investor in the UK. The Abu Dhabi energy company Masdar has invested in UK offshore wind farms the London Array and Dudgeon, off the Norfolk coast, while DP World’s £1.5bn London Gateway project will be the UK’s second-largest deepwater port at completion.
“The UK has been luring sovereign wealth funds for years,” Mr Maduell said. “If structured properly, there is a good possibility that these sorts [of infrastructure] deals could happen. And, ultimately, when talking about these sovereign wealth funds, anything is possible – Adia invested in Chicago parking meters; Qatar invested in Uber.”
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Updated: June 21, 2015 04:00 AM