PPP trends and initiatives in the Asia-Pacific region
PPP National Workshop in Bhutan
Organized by UN ESCAP
19-20 August 2014
Page 2
Agenda
Infrastructure Assessment of Asia-Pacific Region 1
Emergence of PPPs in Asia-Pacific Region
India’s experience so far 3
Comparative assessment of PPPs in Asia-Pacific region 4
2
Challenges and Way Ahead for PPPs in Asia-Pacific Region 5
Page 3
Asia-Pacific region lags behind in infrastructure development…
Key points:
►Very few countries in top 10 infrastructure ranking (Singapore and Japan)
►Huge infrastructure gap in most of the countries of Asia-Pacific region
Source: The Global Competitiveness Report 2013–2014
Infrastructure Ranking/ Gap
9
85
132
29
82
47 61
87
48
96
18 2
Page 4
…hence, the region requires $15-20 trillion of investment by 2030…
Key points:
►Investment to a tune of USD 15-20 trillion required between 2010 and 2030 to
bridge the gap
Americas
$16–17 trillion
Europe
$8–10 trillion Asia/Oceania
$15-20 trillion
Africa/Middle-East
$2–3 trillion
US / Canada
~$6-6.5 trillion
China ~$6.5-7 trillion
India ~$3-3.5 trillion WORLD TOTAL
$40 – 50 trillion
Source: BCG report – The Global Infrastructure Challenge 2010, Secondary research, EY Analysis
Infrastructure Investment Requirement
Page 5
Public sector spending alone wouldn’t suffice $15-20 trillion investment requirement…1/2
-8.2
-5.7
-4.9
-4.4
-4.2
-4.0
-3.3
-2.4
-2.1
-1.8
-1.3
1.3
-10 -8 -6 -4 -2 0 2
Japan
India
Bangladesh
Malaysia
Vietnam
Thailand
Indonesia
Bhutan
China
Philippines
Australia
Singapore
Budget Surplus/Deficit (% of GDP)
Source: www.cia.gov, EY Analysis
Key points:
►Huge budget deficit has put substantial constraints on scarce public resources
Page 6
Public sector spending alone wouldn’t suffice $15-20 trillion investment requirement…2/2
Source: www.cia.gov, EY Analysis
226.1
51.8
30.9
54.6
48.2
45.9
24.2
38.9
22.4
50.2
32.6
105.5
0 50 100 150 200 250
Japan
India
Bangladesh
Malaysia
Vietnam
Thailand
Indonesia
Bhutan
China
Philippines
Australia
Singapore
Public Debt (as % of GDP)
Key points:
►Huge public debt puts further constraints on scarce public resources
►Major share of USD 15-20 trillion of investment to come from the private sector
Page 7
…therefore PPPs in infrastructure have been gaining momentum in the region since 1990…
12 9 19
51
80 60
96 111
48 44 47
72 87
104 85
106 109 129
84 78 62
116
86 86
3 2 4 6 10
33 31 17 24 25
14 23 21
36 34 35
84 72
62 70
117 129
142
34
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Number of PPP Projects (Financial Closure Achieved)
East Asia & Pacific
South Asia
Source: http://ppi.worldbank.org/ , EY Analysis
Early Days Kick-off Phase (1994-2001) PPP Boom (2002 onwards)
South Asia surpassing East Asia & Pacific
Region
► Total 106 projects worth USD 26.7 billion
► Only 15 projects in South Asia
► 44 projects in Energy sector and 37 projects in Transport sector
► Total 735 projects worth USD 181.5 billion
► Only 177 projects in South Asia
► 333 projects in Energy sector and 240 projects in Transport sector
► Total 1,968 projects worth USD 548.8 billion
► About 50% projects in South Asia (836 projects)
► India major contributor; 2010 saw a shift in pattern with South Asia overtaking East Asia & Pacific region
► 1,005 projects in Energy sector and 513 projects in Transport sector
Page 8
India and China are leading the way for PPP projects in the region…
Bangladesh Bhutan
China
India
Indonesia
Malaysia Philippines
Thailand
Vietnam Japan
0
50
100
150
200
250
300
350
0 200 400 600 800 1000 1200 1400
To
tal In
ve
stm
en
t in
US
D b
illio
n
Total Number of PPP Projects
Country wise PPP projects and investments till 2013 ► India and China front runner in PPP projects; Combined, they have achieved financial closure for 1,928 projects amounting to USD 450 billion
► Out of USD 450 billion investment from India and China, India’s contribution is more than two-third
► Energy and Transport sectors have been the focus of private sector participations in the Asia-Pacific region with 50% and 20% share of the total number of projects respectively
Key points:
►India and China are front runners in terms of numbers and PPP investments
►Malaysia, Philippines and Indonesia also have major market for PPP investments
Source: http://ppi.worldbank.org/ , http://www8.cao.go.jp/pfi, EY Analysis
Page 9
India’s PPP story so far 50% of infrastructure investment to come from private
22%
37%
48%
Tenth FYP Eleventh FYP Twelfth FYP (P)
Infrastructure investment
Private
Public
Source: Twelfth Five Year Plan and Eleventh Five Year
Plan, Planning Commission
0123456789
20
02
-03
20
03
-04
20
04
-05
20
05
-06
20
06
-07
20
07
-08
20
08
-09
20
09
-10
20
10
-11
20
11
-12
*
Investment (as %age of GDP)
Private Public Total
Tenth FYP Eleventh FYP
* Estimated, Source: Gajendra Haldea, “Building Infrastructure: Challenges and
Opportunities,” 7 July 2010; Twelfth Five Year Plan 2012-2017, Planning
Commission
Key points:
►Private sector participation has continuously increased with 12th FYP envisaging
around 50% of infrastructure investment to come from private sector
Page 10
India’s PPP story so far Significant increase in PPPs since 2003-04
- Few notable PPPs could be found as early as 19th century: 1) The Great Indian Peninsular Railway Company (1853), 2) The Bombay Tramway Company's tramway services in Mumbai (1874)
- PPP models were there in power generation and distribution in Mumbai and Kolkata in the early 20th century.
- Only 86 PPP projects worth USD 5.7 billion were awarded till 2004 (World bank study of 13 states in 2005)
- Most of the projects were in bridges and roads sector
- Large-scale private financing has been limited to Vishakapatnam and Tirupur
- Increasing acceptance of PPP model due to favorable policy reforms and innovative PPP structures
- As on March 2013, 693 PPP projects worth USD 26.9 billion were completed across sectors at national and state level
- In addition, 794 PPP projects were under implementation and another 1,076 PPP projects were in pipeline
Early Phase
Kick-off Phase
(1991 – 2004)
PPP Boom
Source: Planning Commission
Page 11
India’s PPP story so far Score on Critical Success Factors (CSFs) encouraging…1/3
Weak
Moderate
Strong
*Scoring is based on our perception
PPP Projects in India
Robust Risk
Allocation
Framework
Economic &
Financial
Viability
Adequate
Government
Support
Strong &
Matured
Private Sector
Stakeholders
Participation &
Interactions
Stable Political
Situation & Will
Transparent &
Fair
Procurement
Process
Well
developed
Financial
Market
Strong Legal/
Regulatory
Framework
Page 12
India’s PPP story so far Score on Critical Success Factors (CSFs) encouraging…2/3
CSFs Description Score
Strong Legal/
Regulatory
Framework
• Sector specific acts/ regulations and agencies at National level
for key sectors (Airports, Roads, Power, Ports, Railways);
• In addition, few states have enacted infrastructure legislations;
however no PPP specific policy or law
Strong
Robust Risk
Allocation
Framework
• All MCAs have in-built risk allocation framework which is robust
enough and has been developed based on learnings from past
projects and views of experts;
• Risks generally includes Land acquisition, Sponsors’ credit,
Revenue, Political and Financing risks
Strong
Economic &
Financial
Viability
• Huge demand supply gap;
• However, Value for money analysis not a mandatory task and
Relatively lower willing of user to pay
Moderate
Adequate
Government
Support
• Existence of Viability Gap Funding and other fiscal support;
• But decision making & approval granting processes are slow Moderate
Page 13
India’s PPP story so far Score on Critical Success Factors (CSFs) encouraging…3/3
CSFs Description Score
Strong &
Matured
Private Sector
• Large number of private firms with sufficient technical and
financial capabilities;
• Presence of Enabling environment for Consortium
Strong
Stakeholders
Participation &
Interactions
• Absence of any platform for interaction between Authority,
Private players and End users Week
Stable Political
Situation & Will
• Existence of several policies and Vision Documents;
• However, fluctuation of Government and Awareness amongst
political leaders is major concern
Moderate
Transparent &
Fair
Procurement
Process
• Model RFQ/RFP to streamline and expedite decision-making by
the authorities in a manner that is fair, transparent and
competitive
Strong
Well developed
Financial
Market
• Large number of commercial banks, Support from Multilaterals,
Foreign Direct Investment (FDI), Specialized lending institutions
(IIFCL, IDFs, etc.);
• Limited involvement of Pension and Insurance funds
Moderate
Page 14
1
India’s PPP story so far But still lot to be achieved
Policy / Regulatory Reforms ► Preparation and implementation of dedicated PPP policy and rule
► Creation of an Independent PPP Regulator and Dispute resolution courts
► Making Value-for-money (VFM) mandatory for each project in the PPP policy/ rule
2 Institutional Reforms
► Development of institutional capacity at state and local body level
► Improvement of PPP database management at national and state level
3 Financing Reforms
► Development of long term lending financial markets in the country
► Development of new financial products such as take-out financing and refinancing
Page 15
Key PPP initiatives/ support in the Asia-Pacific region Comparative assessment of countries…1/5
Country
Name
Legal
Framework
Institutional
Framework Financial Support Land Acquisition
Indonesia
Strong
regulatory
framework
including
Presidential
regulation 67
(2005) on
PPPs
National
Development
Planning Agency
(BAPPENAS),
Investment
Coordinating Board
and Ministry of
Finance are key
agencies
Financial support via
Indonesia Infrastructure
Guarantee Fund, VGF
and Land Funds; Project
development fund
through PT SMI (PT
Sarana Multi
Infrastruktur)
Specific
regulations on
land acquisition
and specific fund
for it
Malaysia
No specific
PPP rule; but
PPP
Guidelines
(2009) and
Privatization
Master Plan
(1991) exist
PPP Unit under
Prime Minister’s
department is the
responsible authority
No direct incentives /
financial support to PPP
projects; However,
project facilitation fund
exist
Land Acquisition
Act exist;
Facilitation Fund
have separate
budget for land
acquisition for
highway projects
Page 16
Key PPP initiatives/ support in the Asia-Pacific region Comparative assessment of countries…2/5
Country
Name
Legal
Framework
Institutional
Framework Financial Support
Land
Acquisition
Myanmar
No specific
PPP law/
regulation
Ministry of National
Planning and
Economic
Development is the
nodal agency
No direct incentives /
financial support to PPP
projects
There is no
Land
acquisition
framework
Philippines
Presence of
specific BOT
Law
PPP center under
National Economic
and Development
Authority (NEDA) is
the nodal agency
Financial support to PPP
projects on case to case
basis; Project
Development and
Monitoring Facility
(PDMF) is dedicated fund
Act to facilitate
for acquisition
of right of way;
PPP Strategic
Support Fund
provides fund
for acquisition
of land
Page 17
Key PPP initiatives/ support in the Asia-Pacific region Comparative assessment of countries…3/5
Country
Name
Legal
Framework
Institutional
Framework Financial Support Land Acquisition
Singapore
PPP projects
follow general
laws together
with guidance
provided in
PPP
Handbook
Ministry of Finance
through its PPP
Advisory Council
plays the central
coordinating role
No direct incentives /
financial support to
PPP projects; Private
Investment Promotion
Fund is to be
established under the
revised PPP Act
Land Acquisition
Act exist
India
Sector specific
acts; however
no PPP
specific policy
or law
PPP cell at national
level, Ministry of
Economic Affairs
nodal agency for
national level PPP
projects
Viability Gap Funding
(VGF), Infrastructure
development fund,
Long term lending
support
Land acquisition
act exist but
needs
improvement
Page 18
Key PPP initiatives/ support in the Asia-Pacific region Comparative assessment of countries…4/5
Country
Name
Legal
Framework
Institutional
Framework Financial Support
Land
Acquisition
Thailand
Presence of
dedicated PPP
Act
PPP Policy
Committee and State
Enterprise Policy
Office (SEPO) are
responsible
authorities
Financial support to PPP
projects on case to case
basis; Private Investment
Promotion Fund is to be
established under the
revised PPP Act
Few
legislations
related to land
acquisition
exist
Vietnam
Few legislations
on PPP exist;
Unified PPP
decree /
legislation under
preparation
Ministry of Planning
and Investment is
the responsible
authority
Financial support to PPP
projects on case to case
basis; Government is
planning to establish the
Project Development
Fund
No dedicated
Land
Acquisition
Policy or Act
Page 19
Key PPP initiatives/ support in the Asia-Pacific region Comparative assessment of countries…5/5
Country
Name
Legal
Framework
Institutional
Framework Financial Support
Land
Acquisition
Australia
Sector specific
acts; National
Public Private
Partnership
Policy and
Guidelines in
2008
Australian PPP unit
and National PPP
forum has
institutionalized and
gave structure to the
PPP activities
Equity/ debt contribution
from government up to
50% of equity/ debt
Land
acquisition act
exists and
supports
infrastructure
development
Page 20
PPP projects in the Asia-Pacific region face multi-facet challenges…
Weak Legal/ Regulatory Framework
Poorly Prepared/ Structured Projects
Lack of Capacities
Weak Financial Environment
► Only few country
such as Indonesia,
Philippines and
Thailand have
dedicated
legislation on PPP
► Absence of sector
specific regulators
in many countries
except few
countries such as
India
► Only few countries
have Model
Concession
Agreements
(MCAs) with robust
risk allocation
framework
► Dispute resolution
mechanism is a
major area of
concern
► Value for money
analysis not given
much priority
► Except for
countries such as
India, China and
Australia, most
countries in the
region significantly
lack in capacities,
both in public and
private sector
► Lack of dedicated
financial
institutions in most
countries
► Limited
involvement of
insurance/ pension
funds
► Lack or
underdeveloped
financial products
such as long term
loans, take-out
finance, etc.
Page 21
To foster infrastructure investment and thus growth, the Region needs to overcome existing challenges by…
►Regional co-operation on knowledge sharing, improvement of financial
climate, and capacity building of both private and public sector
►Strengthening the regulatory and legal framework
►Putting more emphasis on project preparation including value for money
analysis
►Development of robust risk allocation framework and dispute resolution
mechanism
►Development of local infrastructure bond markets, long term lending
institutions, and innovative products such as take-out financing and
refinancing
Page 22
Thank You Abhaya Agarwal Partner - Infrastructure and PPP
Ernst & Young LLP 6th Floor, Hindustan Times House, 18-20, Kasturba Gandhi Marg, New Delhi, Delhi 110 001, India
Phone: +91 11 4363 3000 Email: [email protected]