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Meeting the Region's Infrastructure Needs:
Guidelines for Effective Public Private Partnerships

Overview
A study by World Bank, Asian Development Bank, and Japan Bank for International Cooperation concluded that East Asia needs US$1 trillion in infrastructure investment over the next 20 years. While government funding remains limited, new models of financing and delivery are increasingly being used to overcome this challenge. There is an increasing interest in 'public private partnerships' for infrastructure development. How do we define the function and impact of partnerships between government and business in the financing of infrastructure projects? What are the options for new forms of infrastructure finance, and what do they require for success? PECC launched a work program in 2004 to assess the various forms of PPPs being implemented around the region. The specialist group includes leading consultants, multilateral institutions, banks and financial houses, governments, and academics. The group launched the results of its study as "Guidelines for Effective Public Private Partnerships" during the Seventeenth PECC General Meeting in Sydney in May 2007 which were welcomed by APEC Finance Ministers during their annual meeting in August 2007.
Resources

	Author	Dominic Barton
	Title	Chairman, Asia Pacific McKinsey & Company
	Summary	Asia needs to spend at least US$165 billion annually on infrastructure from 2006-2010. The public sector cannot do it by itself but creating value from infrastructure investments is getting harder. The difference between 'doing it well' versus an average performance is worth between US$16-20 billion a year. Getting it right requires an institutional framework for investors to take on risk, and careful project design, structuring and management.
	Paper Ref	Paper Ref: 2005-PECCXVI-Barton

	Author	Christian Delvoie
	Title	Director, Infrastructure Unit, East Asia and Pacific Region, World Bank
	Summary	A survey undertaken for the World Bank-ADB-JBIC study on infrastructure shows a renewed positive sentiment overall among potential investors in East Asian infrastructure. But this sentiment varies by country and sector, and is contingent on policy improvements to reduce risk. The drive toward decentralization of responsibilities in infrastructure also adds new dimensions of complexity and inter-linkages, and development agencies need to tailor their interventions to operate effectively in support of PPP in a decentralized environment.
	Paper Ref	Paper Ref: 2005-PECCXVI-Delvoie

	Author	Peter de Wit
	Title	Executive Vice President Asia, Shell Gas and Power
	Summary	The IEA predicts a 60% increase in global energy demand over the next 25 years. Developing Asia is likely to account for 42% of world growth in energy demand. Investment in infrastructure in energy production is only one part of the chain, investment in infrastructure in receiving countries to distribute gas and to generate and supply power to the end consumer is also needed. Public private sector partnerships can be an effective way to manage risks along the whole energy supply chain.
	Paper Ref	Paper Ref: 2005-PECCXVI-deWit

	Author	Nicholas Moore
	Title	Head of the Investment Banking Group, Macquarie Bank Limited
	Summary	Budgetary pressures have led to a general decline in public sector investment in infrastructure over the last 30 years, creating great opportunities for private investment. Institutions including pension funds and private equity are increasing their allocations to infrastructure, trending towards 7-10% but in some cases as high as 20%. One of the constraints to private investment in infrastructure is community concern - local acceptance is decided by certainty of quality, safety and reliability as well as commitment to the asset and the region.
	Paper Ref	Paper Ref: 2005-PECCXVI-Moore

	Author	Takumi Shibata
	Title	President and CEO of Nomura Asset Management Co., Ltd
	Summary	Regional infrastructure needs are not limited to large-scale projects, they must also extend to small projects such as schools, hospitals etc. Taken individually these projects do not attract serious attention from project finance specialists. The answer is to standardize financial structures across many small projects - simplification and standardization of documentation produces many advantages - simple legislation, transparent bidding processes, reasonable transaction costs and pool securitization potential.
	Paper Ref	Paper Ref: 2005-PECCXVI-Shibata

	Author	Pierre Victoria
	Title	Vice President for Institutional Relations, Veolia Water
	Summary	Implementing solutions tailored to local conditions requires very substantial cooperation between the various sectors involved and all stakeholders. In Asia the trend is more and more oriented towards bringing, through private operator involvement, not only new technology in the frame of BOT but also training and managerial skills. Most basic public services are under the responsibility of sub-sovereign administrative entities, financial institutions should now be more open to a 'sub-sovereign' risk approach.
	Paper Ref	Paper Ref: 2005-PECCXVI-Victoria

	Author	Claudio Hohmann
	Title	Chairman COPSA, Chile
	Summary	Panorama of Chile and the Region
	Paper Ref	Paper Ref: 2005-Santiago-Hohmann

	Author	Francois Bernard
	Title	Partner, KPMG
	Summary	Sustainable development: value creation and financial challenges
	Paper Ref	Paper Ref: 2005-Santiago-Bernard

	Author	Pedro Garcia
	Title	Chile Minister of Health
	Summary	The possible development of PPPs in the public health sector in Latin America
	Paper Ref	Paper Ref: 2005-Santiago-Pedro

	Author	Carlos Plass
	Title	General Manager, SCL Terminal Aereo Santiago S.A.
	Summary	The need for a strong understanding between local Public Authorities and the private operator : case studies in urban services: The Santiago Airport case
	Paper Ref	Paper Ref: 2005-Santiago-Plass

	Author	Mauricio Gatica
	Title	General Manager, Sociedad Concesionaria Rutas del Pacifico S.A.
	Summary	The need for a strong understanding between local Public Authorities and the private operator : case studies in urban services: Roads’ concessions
	Paper Ref	Paper Ref: 2005-Santiago-Gatica

	Author	Pedro Garcia Morales
	Title	Noguera, Valdivieso and Besa Abogados
	Summary	Legal and contractual aspects of PPPs in Chile and other Latin America economies
	Paper Ref	Paper Ref: 2005-Santiago-Moralesand

	Author	Frédérique OLIVIER
	Title	DS Avocats, Paris
	Summary	From the European-Union legal framework for PPPs to the Latin America situation: projections to be derived
	Paper Ref	Paper Ref: 2005-Santiago-Olivier

	Author	François Bernard
	Title	Partner, KPMG
	Summary	Public Sector Accounting: fair evaluation of the performance of public services?
	Paper Ref	Paper Ref: 2005-Santiago-Bernard

	Author	Carlos Martabit
	Title	Gerente General de Finanzas, Banco Estado
	Summary	Financial issues of PPP
	Paper Ref	Paper Ref: 2005-Santiago-Martabit

	Author	Pierre Alla
	Title	President, CCE, New Caledonia
	Summary	Developing power facilities for mining and metallurgical projects: the example of New Caledonia
	Paper Ref	Paper Ref: 2005-Santiago-Alla

	Author	Henk Bataille
	Title	SUEZ Energy, Business Developer Andes Countries
	Summary	New avenues for the development of PPPs in Latin America
	Paper Ref	Paper Ref: 2005-Santiago-Bataille

	Author	Bernard Poignant
	Title	International Finance Project Director, Veolia
	Summary	The approach to PPP, whether “infrastructure model” or “operational model”, should differ according to each political and institutional framework; the robustness of the cashflow projections being the best incentive to attract lenders, institutional investors, operators; and also for the end-users the best guarantee of their public service sustainability.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Poignant

	Author	Daniel Wagner
	Title	Senior Cofinancing Specialist, Asian Development Bank
	Summary	Despite recent currency and accounting crises, long-term private sector interest in international project finance remains strong. The biggest perceived obstacles to project finacne by private investors are: lack of good candidate projects; lack of clear regulatory framework for project finance; and lack of capacity across government agencies to understand full requirements of projects.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Wagner1

	Author	Duncan Pescod
	Title	Head, Efficiency Unit, Hong Kong SAR
	Summary	PPPs have been extensively used for development of economic infrastructure in Hong Kong. In the Hong Kong case many services were never part of the public sector and the HK government has a long history of outsourcing the provision of public services. There has been a recent focus on PPPs due to: the Asian financial crisis; the sustained budget deficit; staff reduction targets; budget cuts; and overseas achievements.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Pescod

	Author	Michael Weatherall
	Title	Partner, Simpson Grierson Law
	Summary	NA
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Weatherall

	Author	Jean-Christophe Levens
	Title	Head, Dexia Credit, Asia Pacific
	Summary	The major obstacles in analyzing risk on sub-sovereigns and of infrastructure projects are at the sub-sovereign level, including issues such as revenue predictability; long term stability; and transparency. Credit enhancements provided by monoline insurance company allows the public sector issuers to take advantage of AAA ratings.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Levens

	Author	Francois Bernard
	Title	Partner, Salustro Reydel Law
	Summary	Public sector accounting is tradtionally based on the budgetary concept, recognition of revenues and expenses are not linked to the provision of services or the transfer of goods. It is therefore impossible to measure the performance of a public-sector entity correctly. The participation of the private sector in the management of public services permits the introduction of a 'best practice' approach that makes it possible to improve efficiency and make a fair evaluation of the performances of public services.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Bernard

	Author	Thakoor Persaud
	Title	Lead Infrastructure Specialist, Timor-Leste, Papua New Guinea & Pacific Islands, the World Bank
	Summary	Unmet infrastructure needs are large and growing , 1.2 billion people lack access to clean water and 2 billion people are without adequate sanitation. The World Bank launched its Infrastructure Action Plan in July 2003 which aims to support to client demand for greater WBG support for infrastructure.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Persaud

	Author	Deunden Nikomboriak
	Title	Research Director for Economic Governance, Sectoral Economics Program, Thailand Development Research Institute (TDRI)
	Summary	Transport and telecoms are the 2 sectors with the most contracts. Transport projects are concentrated in toll roads and the mass transit system in greater Bangkok. The major obstacles to private participation in infrastructure are the lack of a uniform regulatory approach across modes and ineffective market protection clauses. Despite these obstacles Thailand remains an attractive place to invest simply because the ability to generate satisfactory returns, relatively sound contract compliance and the nature of the obstacles are 'contract specific' rather than 'inherent' to the country's investment regime.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Deunden

	Author	Mark Paterson
	Title	Head of Corporate Affairs, Connex Group, Australia
	Summary	The process of corporatization then privatization is complex and expensive. Management of such a process should not reside in finance agencies it must be in an operating agency with an ongoing interest. 'British style' privatization in Melbourne was a failure, the PPP must be built on role clarity and sensible risk allocation.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Paterson

	Author	Joy Abrenica
	Title	Associate Professor, School of Economics, University of the Philippines
	Summary	Power crisis struck the Philippines in the early 1990s. Between 1991-1993, 22 contracts for 2648 MW were signed between the National Power Corporation (NPC) and independent power producers (IPP) and 42 power contracts during 1989-1998.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Abrenica

	Author	Simon Limmer
	Title	Executive, International Development, Dalkia
	Summary	To date there is no standard model in Dalkia's services provison, each contract needs to be adapted on a case by case basis according to client needs. Although its focus has been on Europe, Asia and in particular China are seen as growth areas over the next 5 years.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Limmer

	Author	Nachrowi Djalal Nachrowi
	Title	Professor, Faculty of Economics, University of Indonesia
	Summary	Demand growth for electricity in Indonesia is set to grow at 6% a year from 2004-2012 (World Bank), a total of between US$16-18 billion of investment is needs for generation, transmission and distribution. The possible sources of financing are PLN, domestic/private investors or international investors. While international investment is most likely, investors have pulled back from the energy sector and they also insist on full government guarantees.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Nachrowi

	Author	Somkiat Tangkitvanich
	Title	Director for Information Economy, Science and Technology Development Program, Thailand Development Research Institute
	Summary	BTO concessions have been the dominant mode of private participation in the Thai telecoms market. There have been some difficulties in liberalizing the telecoms market. Policy decisions can have adverse locked-in effects. Private operators planning to participate in developing countries must consider: market structure, incentives of investors to observ contracts; and future plausible reforms.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Tangkitvanich

	Author	Peter McVean
	Title	CEO, Veolia Water, Australia
	Summary	In water, Australia started with infrastructure model and has moved more towards the operational model. Solutions to PPP’s problem needs to be worked out in accordance with local context; varied and flexible financing methods, combining public and private resources.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Mcvean

	Author	Peter Forsyth
	Title	Deputy Director, Tourism Research Unit, Monash University
	Summary	Full privatization in the airport sector is increasingly common. Competition is not strong enough to discipline pricing so regulation of some form is necessary. Regulation varies a lot but there is some preference for incentive regulation.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Forsyth

	Author	Yeo Hyung Koo
	Title	Chief, New Airport Planning Division, Ministry of Construction and Transportation, Korea
	Summary	Incheon International Airport serves 55 airlines flying to 123 cities. It has a capacity to serve 240,000 movements or 30 million passengers a year. It is the 10th busiest passenger terminal and 3rd busiest cargo terminal in the world.The main facilities of the airport operation were financed, built and owned by the government and the Incheon International Airport Company.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Yeo

	Author	Daniel Wagner
	Title	Senior Cofinancing Specialist, Asian Development Bank
	Summary	Risk asessment presents a real challenge for infrastructure development, getting good data is relatively easy but accurately assessing the data ithe challenge. Some guidelines to protecting private investors include: getting political risk insurance; due diligence on business partners; ensure arbitration takes place outside host country; ensure third third country has the rule of law; ensure host government waives its right to immunity; develop relationships with key government officials.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Wagner2

	Author	Campbell Wratt
	Title	Director, Projects and Finance, Dexia Credit
	Summary	PFI/PPP programs have spread across Western Europe over recent years. A large proportion of France's infrastructure is delivered under "Delegated Management Schemes". A large array of structures are used in France: Gerance; Regie Interessee; Affermage; Concession; BEA; and MEPT. New models are being developed to cover types of infrastructure that don't fall under DMS regulations.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Wratt

	Author	Simon Reillyand Bill Banks
	Title	Project Finance Advisory, Ernst and Young
	Summary	Key challenges facing PPP in Asia are to develop PPP model of standard framework, processes and documentation, particularly in facilities management; access to project finance market at good rates and development of pipelines of transactions.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-ReillyandBanks

	Author	Raffy Rios
	Title	Executive Director, Trade Credit and Political Risk, Aon Risk Services Singapore Pte Ltd
	Summary	Political risk has four features - equity risk such as confiscation, lenders - non-payment as a result of political events; contract frustration, breach of contract/arbitration awards. The 1997 Asian Financial Crisis has opened opportunities for risk mitigation instruments.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Rios

	Author	Yves Cousquer
	Title	Special Advisor, Ministry of Public Works, Chair, European Center for Services of General Interest, former Director General, La Poste and President of Paris Airports
	Summary	From the EU experience, conditions for a PPP to succeed are: a good balance competition vs partnership with a clear legal frame to allow for competitive dialogue; building confidence between partners; balanced contract with sensible and coherent relationship between financial obligations and required actions and efficient use of operator according to its skills.
	Paper Ref	Paper Ref: 2004-PPP-Sydney-Cousquer