The International Tunnelling Association has chosen a very appropriate venue for this congress. São Paulo state is Brazil's richest and most industrialised state and accounts for nearly 40 per cent of the country's GDP. This makes the state's economy larger than that of many countries in the world. And the Greater São Paulo metropolitan area is one of the three biggest urban concentrations in the world. As we talk here today of tunnels and infrastructure and their contribution to the development of metropolises, two enormous infrastructure projects are taking shape with São Paulo as the nerve centre, and, I am informed that projects worth at least $ 20 billion in energy, transport and sanitation services are envisaged by the end of this century. Tunnelling will be a crucial component of this development¹. The selection of the theme of this Open Session, focusing on the infrastructure and tunnelling needs of metropolises, is also very timely as the World Tunnel Congress takes place shortly after the United Nations Conference on Human Settlements (Habitat II), better known as the City Summit.

- 1 São Paulo: A focus of opportunity, Infrastructure Finance, Sept.96

By organising this Congress, ITA is doing what professional associations do best: providing intellectual leadership in defining the role of infrastructure, and in particular, that of tunnels and underground spaces in making our metropolises, cities and towns healthy, safe and sustainable, for us and for our children. We are witnessing a momentous transition in the history of mankind. By the turn of the century, more than half of the world's population will be living in cities. By 2030, urban populations will be twice the size of rural populations. It is in the cities and towns that more people will live, more and more economic activity will take place, most pollution will be generated and most resources consumed. And I am sure I need not tell you that the consequences - environmental, economic and social - are already being felt well beyond the city limits ².

- 2 Sustainable Human Settlements Development: Implementing Agenda 21, UNCHS, 1994

In this rapidly urbanising world, the economic prosperity of cities is increasingly becoming synonymous with the wealth of the nations; I have mentioned of São Paulo and its contribution to Brazil's GDP. This is equally true of Bangkok or Bombay in Asia and Johannesburg or Lagos in Africa. But cities not only act as market places, generating wealth, but they also provide immense opportunities to their people for social and economic advancement. Moreover, cities act as crucibles for cultural diversification, innovation and technological development. And infrastructure is the life-support system that makes cities work. An increasing volume of water and waste must flow through those underground tunnels, the central business districts must continuously be fed by the metros, and the underground cables must carry the energy and cope with the traffic through the information highways, if the cities have to enhance their productivity and economic efficiency and retain their competitive edge in the twenty-first century.

The City Summit will be remembered not only for its success in bringing together thousands of professionals to Istanbul for 12 days in June 1996, but for the most extensive, yet, of global dialogue that it generated over a period of two years and more, during the preparatory phase, to discuss our urban future and how best we can manage this urban transition. Let me congratulate the distinguished members of the International Tunnelling Association, and I would like to pay special tribute to Mr. Harvey Parker, for making a most valuable contribution in this process. The Global Plan of Action outlined in the Habitat Agenda³ focuses on two major themes: (a) Adequate shelter for all, and (b) Sustainable human settlements development in an urbanising world. I would like to dwell, briefly, on some of the key areas of the Global Plan of Action which have great relevance to the interest of your Association.Sustainable land use will be a central strategy of urban management in the future. The Global Plan of Action emphasises the importance of innovative urban planning and design solutions to guide future development of urban areas in harmony with the natural environment. This will call for a fresh look at how we utilise our living space in a much more holistic manner. This will also require a reconsideration of current planning and building regulations and standards.

- 3 The Habitat Agenda, adopted by the UNCHS in Istanbul, Turkey 3-14 June, 1996

Your Association is already playing an important role in promoting sustainable urban land use by informing and educating the public and training professionals on innovative utilisation of underground space which could reduce surface congestion in central business districts, provide efficient facilities for bulk storage as well as for the storage of hazardous materials and wastes. The Global Plan of Action also gives special attention to the rapidly escalating energy use in our cities. Cities are not only using more and more energy on a per capita basis, but also using it inefficiently. The real challenge will be in meeting the growing energy demands in developing country cities as they strive for development and struggle with rapid urban growth. There is enormous scope for improving energy use efficiency in our cities through innovative design solutions, utilising underground space for residential, office and recreational purposes, as also for storage, especially where cold storage is necessary. I would welcome your Association utilising the wide experience of your distinguished members with design, construction and maintenance of underground structures, to develop simple, straight-forward guidelines and manuals for practising engineers and architects in the profession.

The rapid growth of urban mobility is also a cause of major concern. It is contributing to severe congestion, air pollution and claims a large share of energy consumption in our cities. The Global Plan of Action outlines a wide range of measures to make urban transport more efficient, less polluting and affordable to all. Mass public transport modes provide the best option for urban mobility and can reduce the growing dependence on automobiles. However, surface transport will find it increasingly difficult to cope with the exponential growth of urban passenger trips in the coming decades. One major constraint will be the availability of land. Underground mass rapid transit will increasingly be considered in such situations. The reason why underground mass rapid transit has not found wider use yet in our cities is, principally, one of high initial cost of putting such a system in place, especially in developing country cities. Current financial viability studies, however, take little account of the huge social costs and environmental externalities of surface mobility and total life-cycle costs. The result is that current investment decisions are heavily skewed towards surface transport.

I think your Association can play an important role in disseminating the true social and environmental benefits of underground transport modes, and in advancing the economic rationale for adopting life-cycle costing in evaluating such investments. I am really impressed by the pioneering work that some of your working groups are already doing in this area.

Another area of pressing concern addressed by the Global Action Plan is the management of growing volumes of urban waste. With increasingly stringent environmental regulations and the dwindling number of disposal sites, solid waste disposal has become a nightmarish problem for most city authorities. The disposal of clinical wastes and toxic wastes from the industry pose special problems of their own. New and innovative modes of disposal of waste are being explored. Disposal in the open sea has met with stiff opposition by environmental groups as it affects marine life and ultimately brings in the pollution to coasts. Underground disposal of wastes is, perhaps, the most environmentally friendly option, as long as it does not affect ground water. Engineering solutions for this must be found and your Association could be a valuable contributor to this effort.

The supply of water to the thirsty cities and the removal of waste water, perhaps, represent the most traditional area of utilisation of tunnels and underground space. Yet, with the growth of megalopolises like Mexico City and São Paulo, the supply of our urban areas with these basic services are posing a new challenge. Supplying water to Mexico City by the year 2000 will require pumping water over a 200 kilometre distance from a level 2000 metres below the city level. It is estimated that six 1,000 megawatt power plants would be needed to drive these pumps which would cost around $6 billion, roughly half the interest payments on Mexico s external debt. Another example is the Metropolitan Waterworks and Sewerage System serving the Manila metro. It is estimated that $6 billion will be needed to modernise and expand the century-old water and sewerage system⁴.These mega projects call for not only new engineering solutions but new financial mediation mechanisms and management structures with which few developing countries are currently accustomed to. It is here that the expertise of the distinguished members of your Association will be of particular help.

- 5 The Habitat Agenda, adopted by the UNCHS in Istanbul, Turkey 3-14 June, 1996

I have briefly outlined the focus of Habitat Agenda in the area of urban infrastructure. The last two days of my presence in this Congress has given me a wonderful glimpse of the many interesting and innovative initiatives that your Association have already taken through your very active working groups. They are making a very valuable contribution to the process of sustainable urban development and I can assure you of our enthusiastic support to your future endeavour. It is now quite clear that the broader infrastructure challenge is going to dominate the urban development agenda well into the next century. A myopic, business-as-usual approach today could cost the nations dearly, both in the North and the South, through loss of productivity and competitiveness with consequent stagnation of economy, loss of employment and a declining quality of life for their people. We must also remember that infrastructure development is a long-term process. From the time a pre-feasibility study is undertaken to the final delivery of the services could easily take several years. The obstacles on the way could also be many. Financing major infrastructure projects are a major challenge, more so for the cash-strapped developing countries, but equally daunting could be accessing the right technology and building the domestic institutional capacity and human resources of technical and managerial cadres for planning, implementation and supervision of such projects. Building such domestic capacity may take decades for some countries and, in the meantime, the economy could suffer due to time- and cost-overruns and the loss of quality caused by poor supervision and quality control. The social, economic and environmental pay-off from investments in infrastructure are now well recognised. Yet, most developing countries lack a clearly articulated infrastructure policy that could guide both public and private investment in the sector. Recent experiences with structural adjustment in several developing countries show that investments in infrastructure are often the first long-term economic costs, this course is often politically more expedient than cutting incomes or public employment. Many countries have paid dearly for such myopic policies. The cholera outbreak in Lima in 1991, and more recently, similar outbreaks of waterborne epidemics in East Africa have extracted heavy costs from the affected countries in lost exports and tourism. A small fraction of these costs invested in water and sanitation infrastructure in a timely manner could have averted such tragedies⁵. A sound infrastructure policy will be essential in meeting the burgeoning urban challenge of the twenty-first century. Such a policy should be socially responsive, environmentally sound and financially sustainable. While there is little controversy with regard to the first two policy goals, at least in principle, the question of financial sustainability raises a number of issues because of the public nature of services provided by infrastructure. For example, what is the best source of finance for infrastructure investments,public financing or private investment? What is the best mode of financing, tax revenue, debt or equity? What should be the pricing policy, full cost pricing, or marginal cost pricing? Who should be subsidised and how?

I would like to dwell at some length on the financing issue. Firstly, because mobilising the required finance for infrastructure remains one of the major challenges to most developing countries. But, more importantly, because recent experiences have turned on their heads many established theories (for example, the government s role as the provider) and have opened up new frontiers of finance such as international capital markets and innovative financing structures for private developers. Developing countries currently spend around US$250 billion a year on infrastructure investment which represents, on average, four per cent of their GDP⁶.Traditionally, some 90 per cent or more of this investment has been derived from tax revenues or intermediated by governments in the past. Propelled by the rapid pace of urbanisation, the demand for infrastructure finance is however expanding rapidly, particularly in the telecommunications and energy sectors and, increasingly, into water supply and sewage.

- 6 The statistics on infrastructure investment in this and the following paragraphs are mainly drawn from: Infrastructure for Develoment, The World Develoment Report, 1994, published for the World Bank by the Oxford University Press

Until recently, governments relied mainly on Official Development Finance to supplement their own resources for infrastructure development. This came from both multi lateral and bi lateral sources, in both concessional and non-concessional terms. ODA funds have increased over the past decade and currently amounts to about US$30 billion a year, accounting for about 12% of total infrastructure investment in developing countries.One of the persistent problems of Official Development Assistance, particularly bilateral assistance, to infrastructure has been that between two thirds and three quarters of the fund flows has been fully or partially tied. In practical terms, this means less of international competition either in consultancy or in procurement and the effectiveness of the aid is correspondingly diminished to the recipient countries. The interesting news is that after decades of severe regulatory restrictions, private entrepreneurship in infrastructure has finally bounced back. This began in the early 1980s, through the privatisation of state-owned utilities. As part of the structural adjustment programmes, many governments also embarked on policy reforms allowing for private sector participation and competition in the infrastructure sector. Today, we see a different profile of the infrastructure entrepreneurship. These are international firms seeking business in developing countries and setting up joint ventures with local companies. These firms bring not only their management expertise and technical skills, but also their credit standing and ability to finance new investments. But, perhaps, the most exciting development which we have seen during the past 7-8 years or so is the explosion in international flows of long-term private capital to developing countries, especially in the form of foreign direct investments and portfolio flows. In these few years, the aggregate flow has grown from a modest amount to the region of US$150 billion. Aggregate private investment in infrastructure in developing countries currently stands at about US$20 billion a year and this is likely to grow strongly in the coming years, possibly doubling its shares of the total investment in infrastructure by the year 2000.

Project financing, in particular, holds tremendous promise as an instrument of infrastructure financing in the future. It allows sponsors to raise funds secured by the revenues and assets of a particular project. In the initial years of project financing, the energy and telecommunications industry cornered most of the available finance, but now the situation is changing fast and project financing is rapidly becoming the norm even in the water industry. The most impressive recent transaction was the Metropolitan Water Works and Sewerage Systems serving the Manila metro area of 11 million residents, where two 25 year concessions were awarded to upgrade and expand water and sewerage services at an estimated cost of US$7 billion. Here in São Paulo, the BOT contract for supply of treated bulk water to SABESP, the water authority of the State of São Paulo, is well known⁷. In Africa as well, project financing is becoming a norm of private sector participation. The example of SODECI in Côte d'Ivoire is known to many of us. More recently, in Gabon, a 20 year concession for maintenance and expansion of the water supply system was awarded to an international consortium. The Government of Senegal is also considering a BOT arrangement for water supply to Dakar⁸.

- 7 Managing Risks in Urban Water and Sanitation Projects, International Finance Corporation, published in the Report of the Cape Town Consultations by UNCHS, 1998

- 8 Institutional Options for Urban Water and Sanitations Services, by Dejarri F. et al, published in the Report of the Cape Town Consultations, UNCHS, 1998

Private sector participation in infrastructure will largely depend in the future on how successfully the governments and the private sector handle the risks involved in these investments. The private sector will try to incorporate its perception of risks into the returns it demands. Governments will have to understand these risks and mitigate them as far as possible. A sound regulatory and tariff framework will be a great help in this regard.

The City Summit was a conference of partners. The Istanbul Declaration and the Habitat Agenda adopted by the Heads of States and the official delegations of all countries attending the Conference pledged to forge new partnerships for action at the international, national and local levels to improve our living environment.

As an important non-governmental organisation your Association enjoys consultative status to the United Nations. You are also an important representative of the private sector. Your members have unquestioned expertise in an area vital to sustainable development of our cities. UNCHS (Habitat) immensely values this partnership and is ready and willing to support the wonderful work that your Association is doing for improving the quality of our living environment and to ensure that our cities continue to work better and more efficiently in the future.

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