Where Will Megaprojects Be 1 Year From Now?

 01

Megaprojects often end up late and hideously over budget. Why?

In between summer holidays and the arrival of a new prime minister, few people will have noticed that, by dithering for a decade, the government has quietly wasted nearly £200mn. Even fewer will have been surprised. But we should be paying attention, not just in the UK, but around the world, because this sort of waste is both ubiquitous and perfectly avoidable.

The loss in question is the result of endless changes to a plan to upgrade the 76-mile Transpennine line, a notoriously unreliable, overcrowded and outdated railway linking York and Leeds to Manchester and, by extension, Liverpool. The initial plan, set out 11 years and three or four prime ministers ago, was to electrify the line to reduce operating costs and carbon emissions. It was supposed to cost £289mn and be finished by the end of 2019. Instead, the National Audit Office says that the project is still on the drawing board. If that wasn’t frustrating enough, somehow £190mn has been spent on unnecessary work.

How did this happen? Ministers have vacillated endlessly over the specifics as personnel and budgets changed. Work was started in 2015, then paused almost immediately while waiting for Network Rail’s investment programme to be reviewed. When it restarted later that year, the aims of the project had changed: the line now needed to accommodate more passengers on faster, more frequent and more reliable trains. A further rethink committed the upgrade to laying extra track, enhancing the station platforms and introducing digital signalling.

Other commitments were not necessary for the Transpennine line itself, but designed to help it co-ordinate with Northern Powerhouse Rail, an ambitious proposal to build a new high speed line from Leeds to Manchester and perhaps on to Liverpool. This would all seem more encouraging if the high speed line had not itself been radically scaled back in late 2021.

The estimated cost for the Transpennine project has ballooned from under £300mn in 2011, to 10 times that number in 2019, before more than tripling again to around £10bn in 2021. This is not a classic cost overrun; if it was, at least northern cities would have the satisfaction of knowing the project was in progress. Instead, it’s a constant change of scope.

“The project has been all over the place during this decade,” Bent Flyvbjerg told me. He is an expert on megaprojects, a management professor at Oxford university and co-author of a forthcoming book, How Big Things Get Done. Flyvbjerg suggested a plausible explanation: a decade ago, the government announced that it would take action; it has spent the intervening time trying to figure out what action to take. He added that “the £190mn on unnecessary work could be seen as the price you pay for making announcements before you know what you’re talking about”.

If the story feels familiar, it’s because projects often unfold in this haphazard way. Anyone who has remodelled their kitchen is familiar with the temptation of rethinking the work halfway through; all too many of us know the costs of giving in to that temptation. One would hope for better from the vast, professionally managed projects that Flyvbjerg studies, but usually in vain.

Long planning periods are not the problem. Flyvbjerg argues for a “think slow, act fast” approach to large projects: explore all the options; extensively prototype, test and plan; only then, start to build, but build quickly. All too often, we start building first, and plan later.

And before the planning itself begins in earnest, it is a good idea to figure out why the project is supposed to be happening. There is no doubt a plausible case to be made for investments to reduce emissions and costs, increase reliability and capacity, cut journey times and interconnect with other rail projects. But the government started not with any of those, but with the sense that it would be a jolly good idea to promise some investment up north.

“Political announcements without action, and without much thinking, are common, and not only in the UK,” says Flyvbjerg.

Quite so. A few years ago, I argued that Brexit was also a megaproject, and it’s one that makes Transpennine rail look like a masterpiece of advanced planning. David Cameron held a referendum while forbidding civil servants to prepare for what turned out to be the outcome; Theresa May scrambled to trigger Article 50 before asking what she wanted to achieve in the negotiations that followed; Boris Johnson was never able to plan anything more complex than an illegal drinks party.

Over a decade late, the Transpennine upgrade finally has a budget, goals and a plan. In the interim, says the National Audit Office, “capacity for passenger services on the route has been reached, and journeys are increasingly unreliable and crowded”.

Large projects are complex and difficult, but the basic principles are not. Take your time planning. When the plan is complete, execute it as quickly as possible. Keep things as simple as you can, using repeated modular elements and avoiding eye-catching world firsts. Above all, ask yourself what you’re trying to accomplish before you start. One only has to list these principles to understand why politicians so often fail to respect them.

Tim Harford’s new book is ‘How to Make the World Add Up’

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02

These Are the Megaprojects in China’s $1 Trillion Infrastructure Plan

(Bloomberg) -- China is pumping trillions of yuan into infrastructure investment, stimulus that could benefit the world’s second-largest economy well beyond this year’s gloom of Covid lockdowns and property market turmoil.

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Beijing is making 6.8 trillion yuan (about $1 trillion) of government funds available for construction projects, according to Bloomberg calculations based on official announcements. Total spending could be even higher than that — three times that amount, by some estimates — once bank lending and corporate funds are added.

In the near term, infrastructure investment could give a boost to employment, providing much-needed relief to millions of jobseekers hit by the downturn. Over the longer-term, the stimulus helps China’s ambition of becoming a more urbanized, high-income economy that’s better able to compete with the US in high-tech areas like semiconductors.

Whether the projects are a success or end up as white elephants will help determine the outlook for China for years to come. Here’s a guide to where the funds are going.

More Renewables Than Europe

Deserts in north China are set to host an unparalleled build-up of renewable energy. In recent months, construction began on wind and solar-power “bases,” which by 2030 will contain about as much renewable capacity as currently in all of Europe.

The first phase, with about 100 gigawatts of turbines and solar panels, is due to be completed by next year, with another 450 GW phase started this year.

“The wind and solar bases are the main engines of China’s renewable installation,” said Tianyi Zhao, a China solar analyst at BloombergNEF.

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The second phase will cost more than 3 trillion yuan, according to state media. Ultra-high voltage transmission lines will transport the energy to the densely populated eastern seaboard. China’s state-owned grid company plans to build 13 of them this year.

Combining investment in renewable energy and power transmission, China’s total “green investment” could reach 2.6 trillion yuan this year alone, according to Australia & New Zealand Banking Group.

The World’s Longest Water Tunnel

Construction of canals, dams and reservoirs has been stepped up, with more than 800 billion yuan set to be invested in those projects this year.

The most ambitious is a 200 kilometer-long tunnel moving water from the country’s Yangtze river to a reservoir that feeds northern China, a scheme known as the South-North Water Transfer Project. It would be the world’s longest water tunnel, beating the current record holder in Finland, and parts of it would be as deep as 1 km underground.

Projects that move water around the country account for about a third of China’s water infrastructure spending, according to estimates by Wenjing Zhang and Sarah Rogers, researchers at the University of Melbourne. Planned projects could increase the amount of water available for use in China by 122 billion cubic meters annually, they estimate -- that’s about five times the amount of water Germany uses each year.

“China has been quietly moving towards a highly integrated water supply network,” the researchers wrote in a recent report. “Such a network will allow the Chinese state to move water around at an unprecedented scale.”

The government also favors the projects because they are highly labor intensive. About 30,000 ongoing water conservation projects employ about 1 million workers, the country’s water ministry has said.

From Concrete Sprawl to Greener Cities

Building urban infrastructure — including urban roads, gas and water pipe networks and parks — is the most popular choice for spending by local governments, which account for the bulk of China’s infrastructure spending.

The latest plan involves linking together existing cities into a single area. For example, a zone approved around the city of Xi’an in March has a current population of 18 million people.

After decades of concrete sprawl, focus is shifting toward greener cities. Central China’s “Songya Lake Ecological New City,” which began construction this year at an estimated cost of 200 billion yuan, has specified it will leave 70% of the area for green spaces and water. That's the same ratio of buildings to natural space as in the under-construction city of Xiong'an near Beijing, which planners around the country are taking as a model after it was championed by President Xi Jinping.

The other favored investment of local governments are industrial parks providing low-cost facilities to businesses. Local governments spent about a third of funds raised from selling bonds on urban infrastructure and industrial parks in the first quarter, according to official data. At that rate, they could spend about 1.4 trillion yuan on such projects this year alone.

A typical example is the 20 billion-yuan Qingdao Integrated Circuit Park in eastern China, started this year in an attempt to support the chip industry, which has become a national priority due to US sanctions.

Success is far from guaranteed though.

“Regions compete against each other through various incentives, for example free office space, or free factory space, or at least subsidized,” said Stewart Randall, a China-based semiconductor analyst at IntraLink. However, there’s “plenty of empty office space already,” he said. “What they need more of is IP, research labs, talent.”

More Than Twice the High Speed Rail in the World

China already has 40,000 km of high-speed rail — more than twice as much as the rest of the planet combined — and dozens of big-ticket projects are still ongoing.

The most ambitious is a 1,629 km line from Sichuan province in the southwest to the Tibetan capital Lhasa, climbing more than 3,000 meters through earthquake-prone terrain and glaciers. It’s expected to be completed by 2030. The total cost of the entire project is about 320 billion yuan.

China said this year it plans to have 70,000 km of high-speed rail by 2035. But that actually implies about a 40% decline in the amount of track built each year compared with the pace set over the past five years. In other words, while China will continue to outspend the rest of the world on rail, its spending could gradually decline.

The same is true for highways and subways. China plans to construct or restore 58,000 km of expressways by 2035, implying a sharp slowdown in the pace of annual building compared with the past five years. One route under construction includes the 1,176 meter-long Changtai Yangtze River Bridge, the world’s longest road and rail suspension bridge.

Chinese cities are still adding underground subway lines at a rapid pace, but national spending peaked in 2020 at 629 billion yuan, according to the China Metro Association.

400 Billion Yuan a Year on Data Centers

As part of an effort to build a more digital economy, China’s “East Data West Computing” plan involves building huge data centers in poorer Western provinces to hold data generated by internet companies based in the east. Building eight data center clusters will cost about 400 billion yuan a year — most of which will come from state-owned telecoms companies.

Jeroen Groenewegen-Lau, an analyst at the Mercator Institute for China Studies, says the plan “defies market logic.” Technology firms “want to process data close to most of their customers,” he wrote in a note on the scheme, adding that for Beijing the benefits are more than can be captured financially.

“The central government sees data-center construction as a way to spread the benefits of the digital economy beyond developed coastal cities, with the added benefit of better insulating China’s domestic market from external shocks,” he said.

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03

Where Will Vertex Pharmaceuticals Be in 1 Year?

Biotech giant Vertex Pharmaceuticals (VRTX 0.96%) is gaining momentum. The drugmaker has substantially outperformed the broader market in the past year, and it is showing few signs of slowing down. Vertex's performance is especially commendable considering the world's economic issues such as inflation.

But how long can it keep going? Can the biotech continue delivering market-beating returns in the coming 12 months? To answer that question, let's look into the many things Vertex Pharmaceuticals has going on right now.

VRTX data by YCharts.

Vertex could be nearing a new launch in a year

Vertex Pharmaceuticals is best-known for its portfolio of medicines that treat the underlying causes of cystic fibrosis (CF). The drugmaker holds a monopoly in this market. While all of the company's current products target CF, that could be about to change. Vertex is developing a rare blood disease gene-editing therapy called exa-cel in collaboration with CRISPR Therapeutics. The two partners have said that they expect regulatory submissions for exa-cel in the U.S. and Europe by the end of the year.

If they submit these applications, and unless exa-cel encounters regulatory headwinds, Vertex could be preparing to launch the therapy by this time next year. Exa-cel targets sickle cell disease (SCD) and transfusion-dependent beta-thalassemia (TDT), two conditions with few safe and effective therapy options. The gene-editing treatment is actually a cure that would rid patients of the burdensome realities of living with SCD or TDT, such as the need to receive regular blood transfusions or experience vaso-occlusive crises, which are painful side effects of SCD. 

Multiple data readouts and pipeline progress 

Developing new medicines is essential to the long-term success of biotech companies. Vertex is working on several other promising candidates, and investors can expect the company to release data readouts for some of them within the next year. One is VX-147, a potential treatment for APOL1-mediated kidney disease. The biotech is running a phase 2/3 clinical trial for VX-147. There is also VX-880, an investigational therapy for type 1 diabetes that is in a phase 1/2 study.

In the next 12 months, Vertex will likely continue to issue results from patients in this trial as they come in, just as it has in the past. Another promising product the drugmaker is working on is VX-548, which targets acute and neuropathic pain. Vertex recently announced a planned phase 3 study for this product in treating acute pain that should start in the fourth quarter. It is also aiming to kick off a phase 2 trial for VX-548 in neuropathic pain by year-end. 

These products (and others) should help Vertex expand and diversify its lineup in the future. 

The leading franchise is still performing well

We can't forget about Vertex's CF portfolio which, after a decade, is still performing well. Vertex's revenue of $2.2 billion in the first quarter jumped by 22% year over year. There are 83,000 CF patients in Canada, the U.S., Europe, and Australia, and 25,000 of them are eligible for its current medicines but have yet to start treatment.

The biotech will make some headway within this patient population by next year, but it won't access everyone who needs its therapies in this relatively short time frame. In other words, the company's CF business will, in all likelihood, still be allowing it to grow its revenue and profit at a good clip by this time next year. What does all of this mean for investors?

In a year, Vertex Pharmaceuticals' financial results should continue to be excellent, it will likely be close to launching an important product on the market (exa-cel), and it will be even closer to marketing still other products thanks to the progress with its pipeline it will make in the coming months. This biotech stock has been a market-beater for the past decade, and the evidence suggests that it can still deliver superior returns in the coming 12 months and beyond. 

Prosper Junior Bakiny has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends CRISPR Therapeutics and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.