The need for a mindset change in both the private and public sectors to allow more and better use of public-private partnerships (PPPs) to build much needed new infrastructure in Asia was a key theme of a recent conference in Bangkok.
Asia has a deep need for new hardware. The region will need around US$8.2 trillion for national infrastructure investment projects between 2010 and 2020, according to a research note from Deutsche Bank. “Another US$300 billion was needed for regional projects,” the note said, adding roads and energy have the largest financing requirements.
Those figures, large as they loom, might be on the low side. “US$7 trillion was estimated by McKinsey to be needed for infrastructure and real estate investment in ASEAN – US$5 trillion alone between 2014 and 2030,” the report said.
However much is needed, the amount of money actually coming forward is small, and how PPP deals are being set-up means it is not as effectively used as it could be.
“Not nearly enough money is being mobilized,” said Mark Giblett, senior infrastructure finance specialist, World Bank Group, at the 6th PPPs in Emerging Markets conference in Bangkok.
“Not all projects are structured properly, with risk [sometimes] structured poorly” he added. Pushing risk onto the private sector meant it was not with those who can best handle it.
A good elaboration of this problem came from Vietnam, where US$5 billion has been mobilized from investors and lenders for some 60 road projects, according to Trong Nguyen, a former PPP consultant for Vietnam’s Ministry of Transportation.
Initially, these figures were regarded as “impressive,” but over time it was realized that private sector companies were turning to banks, usually government-owned, for help. The projects were becoming, Nguyen said, “more like public-to-public partnerships.”
Looking ahead, Vietnam faces the problem of fewer self-financially-viable projects, and more projects will need a form of government support for viability gap funding in order to attract investors, Nguyen told Asia Cargo News in follow up responses.
The need for the public and private sectors to partner up, and how they do so, is clear and pressing, requiring as it does clear policy and regulatory frameworks, Peter Brimble, principal country specialist for the Asian Development Bank in Myanmar, told the conference. For the public sector this means a new way of thinking.
“Unless we are able to change the paradigm of the official, it will be very difficult,” Freddy Saragih. director of government support and infrastructure financing management at Indonesia’s Ministry of Finance, said.
Indonesia also shows the scale of the need. Based on the Medium Term Development Plan 2015-2019, basic infrastructure financing needs are estimated at around US$355.3 billion. Of this, nearly a third, US$118 billion, will be on communication, water and housing. Maritime will need US$43 billion, while connectivity is more than double that at US$91 billion. A lot of money still needs to be found and carefully deployed.
Going forward, more of the money will be directed towards logistics hardware: roads, rail and ports. “For transportation, [the needs are starting] to be resolved. In future, most of the project will be infrastructure,” Saragih told Asia Cargo News.
Emerging economies are sometimes reluctant to open up key sectors to foreign interests and the issue of procurement, whether local or international, can also be an issue.
Part of the solution lies with top-level support. The phrase the conference heard and used was that of PPP Champion, a starred politician or official who will fight and win the case for the principle of PPPs. Also helping is legislative reform more in line with the way markets work and international practices.
In Vietnam, where the Ministry of Transportation is working on a pipeline of viable PPP projects (reportedly 14 build-operate-transfer projects in all) which will be tendered under international best practices.
More tellingly, the ministry is developing international best practice PPP contract samples and “enabling tariff mechanisms so basically investors investing in other transportation infrastructure besides road (such as maritime and in-land waterway, railway, airport) can collect tolls as well,” Nguyen added.
Another large part of the issue is capacity – officials being skilled in knowing what to do and how to do it. PPPs sound good, but require a lot of attention to some very modern details and risks. This should be built into both line ministries and outside capital cities, said Brimble.
In Myanmar, where demand for all sorts of hardware goodies is sky high after 50 years of neglect and isolation, officials note a difference between those working in Yangon and Naypyidaw, the business and administrative centres, and Mandalay, where projects will be.
“The role of capacity-building in the provinces is also becoming critical,” noted Brimble. “We really need to build regional capacities as well.”
By Michael Mackey
Southeast Asia Correspondent | Bangkok
