Public Private Partnership (PPP) for Asian Infrastructure: A Public Investment Perspective (George...

8/3/2019 Public Private Partnership (PPP) for Asian Infrastructure: A Public Investment Perspective (George Abonyi and David

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http://exed.maxwell.syr.edu/exed/sites/policyApril 2011

Public Private Partnership (PPP) for Asia Infrastructure:

A Public Investment PerspectiveBy George Abonyi and David Abonyi

I. Introduction

Asia is faced with an enormousinfrastructure investment challenge overthe next 10 years (2010-2020) in order tosustain its impressive economic growth.Public-private partnership (PPP) is seenby governments, investors, andinternational financial institutions as acritical part of the needed response to thischallenge. This brief has a simplemessage: in meeting Asias massivefinancing needs for physical and socialinfrastructure, public-private partnership(PPP) initiatives, generally involvinglarge-scale or mega-projects, should beundertaken within the broader frameworkof public investment planning. The basicargument is as follows. It is thefundamental responsibility of governmentto ensure that infrastructure services servethe public interest. In this context, allforms of PPP commit societal resources toa varying extent, whether explicitly orimplicitly. Therefore governments must

clearly identify options and weigh thebenefits of private participation againstthe real costs to the economy and societyof public obligations and commitmentslikely to be incurred. For this, it isessential to approach PPP from an explicitpublic interest perspective in order toensure that such investment decisions arewell informed starting from aconsideration whether a project should beundertaken at all. This will help avoid apotential bias in favour of PPPs simplybecause they involve private finance, and

may under some conditions generaterevenues for government. Therefore awell-thought out public investmenframework must provide the foundationsfor an effective PPP strategy, and this islikely to lead to a more successful use ofprivate resources and skills ininfrastructure services to serve broadersocietal interests. Korea provides aninteresting example of this generaapproach to infrastructure investmenplanning and PPP, and will be referred to

in this note.

The next section summarizes Asiasinfrastructure financing needs. Keyelements of PPP the why, what, andhow are then discussed briefly. Thefollowing section then outlines keyelements of a public investmenframework for an effective PPP strategythat is more likely to serve the publicinterest. The concluding section toucheson the institutional dimension of PPPfrom this perspective. It should be noted

that this Brief is not intended to be acomprehensive paper on the details ofPPP, or on how best to implement itThere is a wide range of excellentreferences available for this purpose, e.gADB (2008), APEC (2009), UNECE(2008), and the World Bank Instituteconvened Global PPP Network.

1

George Abonyi, Visiting Professor,

Dept. of Public Administration

and Executive Education

Program, Maxwell School,

Syracuse University.

David Abonyi, Researcher, Fiscal

Policy Research Institute,

affiliated with the Ministry of

Finance, Royal Thai Government.


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Asia Policy Briefs April 27, 2011 2

A well thought out publicinvestment framework mustprovide the foundations for aneffective PPP strategy

The primary potential sourceof financing for Asianinfrastructure should be theregions vast domesticsavings

II. The Challenge: AsiasInfrastructure Investment Needs

Asias infrastructure financing challengeis estimated at $8-$10 trillion over the 10years 2010-2020, or averaging $800billion - $1 trillion per year; most of it inSoutheast, East, and South Asia.

2 This isequivalent to 5-6% of the annual GDP ofthe region, which is also the rule of thumbsuggested for a growing economysannual investment in infrastructure, ascompared for example with the 2% perannum average of infrastructureinvestment in Southeast Asia and India inrecent years. The required investment isapproximately 2.5 times (in real terms) theinfrastructure investment undertaken inthe preceding 10 years (2000-2010),which was around $4 trillion, or 4% of theregions GDP. Of the total investment of$10 trillion, approximately 20% is

projected as needed for socialinfrastructure (e.g. health, education);40% for energy (electricity), 25% fortransport, 11% for telecommunications,and 4% for water and sanitation.3

As many things in Asia, the infrastructurefinancing needs of the region should beseen against the backdrop of the AsianCrisis (1997/98) which led to a significantdrop in investment and from which it isyet to fully recover. For example,Thailands gross capital formation fell

from 41.8% of GDP in 1996 to 21.8% ofGDP in 2009; Malaysia from 43% of GDPin 1997 to 14.5% in 2009; and thePhilippines from 24.8% in 1997 to 14.6%in 2009.4 This very sharp drop in totalinvestment has been the result of a fall inforeign direct investment, as well as lesspublic investment because of accumulatedfiscal imbalances. Private investment hasalso followed this trend. The 2008 globalfinancial crisis led to further decrease inavailable financing in the region,shortened available credit, reduced cash

flow revenues (because of the generaleconomic downturn), and heighteneduncertainty in exchange rate movements all of which further constrained privatefinancing for project investment in Asia.5

The primary potential source of financingfor Asian infrastructure should be theregions vast domestic savings. Forexample, Asias official reservesincreased from $485 billion in 1997 at theonset of the Asian Crisis, to $5.3 trillion

in 2010, of which developing Asiasreserves stood at $3.63 trillion withChina holding an estimated $2.45 trillion.In response to the global financial crisismany Asian countries implemented largefiscal stimulus programs, much of iaimed at infrastructure spending. (SeeTable 1) These programs, in turn, putvarying levels of strain on the respective

governments budgets. However, suchfiscal deficits must be viewed against thegeneral performance of an economy. Forexample, some Asian economies, such asChina, with relatively low public debt-to-GDP ratios (15.7% in 2008) and strongexport earnings, may be able to finance asignificant fiscal stimulus package; whileothers like Thailand (42% of public debt-to-GDP ratio in 2008) or Vietnam (38.6%)may find it more difficult.7

Therefore the key issue is how can Asian

economies meet the challenge ofinancing the massive infrastructurespending needs of the next 10 years, andthe related fiscal deficits, necessary forsustaining economic growth foremployment and income generation. Thisis where the role of the private sectorbecomes essential. As of 2010 the privatesector accounted for around 20% ofinfrastructure investment in Asia, whilepublic funding accounted for 70%, andofficial development assistance for theremaining 10%.

8 Given the constraints onAsian government budgets, significanadditional private sector financing and acorresponding decrease in publicinvestment requirements will be essentiato meet the regions infrastructurechallenge.

III. The Response: Public-Private-Partnership (PPP)

1. Why PPPThe basic rationale for attracting privatesector investment in Asian infrastructureis primarily twofold: to provide newoptions for public service delivery, givengovernment budget constraints; and tointroduce private sector efficiency andinnovation in the provision of what havebeen traditionally public services. Beyondloosening public budget constraints, a PPPproject can be said to generate valueimprovements whenever it achieves oneor more (preferably all) of the following


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Many large-scaleinfrastructure projects are notlikely to be viable on a purelycommercial basis due tounreliable cash flows or non-commercial project risk.

The key difference betweenPPP and publicly providedservices is that governmentcan transfer key project risksto the private sector withefficient allocation of risk tothe party based suited tocontrol or manage it at leastcost.

benefits: (i) reduced life-cycle costs; (ii)more efficient allocation of risks; (iii)faster implementation; (iv) improvedservice quality; and (iv) additionalrevenue.

If private participation in the publicservice delivery has all these expectedbenefits, then why not have all or most

such services be delivered just by theprivate sector is PPP one P too many?In practice, many large-scaleinfrastructure projects, particularly indeveloping economies, are unlikely to beviable on a purely commercial basisbecause of project economics (e.g. notable to generate reliable and sustainedcash flows), or because of non-commercial project risk (e.g. political andinstitutional uncertainty and constraints).Projects characterized by high economicreturns, but marginal financial returns, are

good for the economy--but not necessarilyattractive to private investors. These arelikely to require public/privatecooperation in some form PPP --including support from host governmentsand/or multilateral institutions. Forexample, urban mass transit systems arapidly increasing requirement in anurbanizing Asia are generally not likelyto be viable on a purely commercial basisgiven the large construction costsinvolved and uncertain demand; andtherefore public sector support in someform is usually required, e.g. partial publicfinancing (e.g. government financing ofconstruction costs of the Singapore North-East Line and the Bangkok Metro); or fullpublic financing even if private sectorfirms implement a system (e.g. ManilaMRT2 and the Delhi Metro); governmentshouldering operating and revenue risks(e.g. Manila MRT3); or combiningproperty/real estate-based financing withrail income to help provide sufficientrevenue stream (e.g. Hong Kong MTR).

2. What is PPPThere is no generally agreed definition ofPPP: it is used to refer to a wide range ofmechanisms and structures where theprivate sector is involved in deliveringpublic (infrastructure) services. These canrange from traditional governmentprocurement of limited private services,for example related to operations andmaintenance of a service, through fullprivatization of traditionally publiclyprovided services and related state

enterprises. As used here in the context ofAsian infrastructure, PPP fundamentallyrefers to projects where the privatesectors returns are linked to serviceoutcomes and the performance of the asseover the contract life.

9

From this perspective, at the heart of PPPare innovative financing mechanisms such

as build-transfer-operate (BTO), buildoperate-transfer (BOT), build-own-operate-transfer (BOOT). These provide arange of options for governments andprivate investors. In general, investorsparticipate in PPP projects with the aim ofachieving full recovery of their investmenand earning a reasonable return. Basic toall PPP is the application of projecfinance principles. The revenue generatingpotential of the project, or project cashflow, is the fundamental basis forfinancing. A PPP project is then a

pyramid of contracts defining rolesobligations, relationships, and expectedreturns for the various participants. Theviability of a project depends ultimatelyon the integrity of such contracts, andtherefore the supporting legal frameworkAn example of a typical project structureis illustrated in Figure 1 for a powergeneration PPP project.

Fundamentally, PPP is then a contractuaagreement between the public and privatesectors, where a private operator providesspecified services traditionally suppliedby public institutions; there is a clearlydefined sharing of risks betweengovernment and the private sector; and theprivate participant receives paymentslinked to mutually agreed performancestandards. The quality of the output ofPPP projects is to be ensured byappropriate control mechanisms exercisedby government in the public interest.

10 Akey difference between PPP and publiclyprovided services is that government cantransfer key project risks to the privatesector; a well designed PPP allows the

efficient allocation of risk to the party bessuited to control or manage it at the leastcost. Therefore identifying and agreeingon an appropriate risk transfer from thegovernment to the private sector isfundamental to getting the full benefifrom private financing and/or a change inmanagement responsibility in a PPPproject.

Given the above, the challenges of PPP togovernment include (i) the generally


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Investment in large-scalemega-projects is especiallyimportant in shaping nationaldevelopment since theseinvolve significantexpenditures and long-term,

hard-to-reverse commitmentsand impacts that shape thesocio-economy, perhaps inways not anticipated withsuch investment commitmentsare undertaken.

higher cost (as compared with governmentborrowing), in terms of the returns onequity and debt financing demanded byinvestors, as a kind of risk premium; (ii)usually lengthier and more complexproject preparation process where thevarious roles, obligations, and returns arenegotiated; (iii) constraints on the projectsponsors flexibility, e.g. with respect to

changing key parameters such as price ofthe service; and (iv) limits on thegovernments ability to change thebusiness environment for project (e.g.initiating new projects that may impact ona given PPP projects revenue generatingcapacity and viability).

IV. Public Investment Framework forPPP Projects

1. Role ofpublic investmentplanning

As noted, the basic reason for privateinvestment in infrastructure in Asia is tobetter serve the public interest in theprovision of such services, in order tosupport economic growth anddevelopment. Private participationthrough PPP is then intended to replacegovernment in what has traditionallyinvolved the public provision of suchservices. If, as suggested here, an effectivepublic investment framework is essentialto provide the foundations for a successful

PPP strategy, then it is important tobriefly highlight the general role andrationale for such a framework, startingwith a brief definition of what is publicinvestment.

Public investment generally refers tocapital projects that make claims onpublic resources and whose productivelife extends into the future. It includesboth physical infrastructure, e.g. airport,port, urban rapid transit systems; andsocial infrastructure, e.g. health andeducation. Types of public investment can

range from small, one-off, limitedexpenditures, implemented in a shortperiod of time (e.g. 1 year), such as a roadextension to large-scale mega-projectswhose implementation and productive lifeextend over several years, even decades inthe future, such as an urban mass transitsystem. Investment in large-scale mega-projects, of particular interest here, isespecially important in shaping nationaldevelopment since these involvesignificant expenditures and long-term,

hard-to-reverse commitments and impactsthat shape the socio-economy often inways that are not anticipated when suchinvestment commitments are undertakenFor example, selection of a particularconcept, design, and location for an urbanmass transit system will have far-reachingand economic, social and environmentaimpacts.

Public investment therefore plays acritical role in shaping a countrys growthand development. It also representssignificant long-term resourcecommitments and thus fiscal risks in anuncertain future environment. Without arealistic and systematic assessment ofoverall public investment commitmentsand of the quality of individual (i.e. mega)projects, neither the expecteddevelopment impact of investments, northe fiscal discipline necessary for

managing societal resources in asustainable manner over the long-termmay materialize. Therefore the rationalefor an effective framework for publicinvestment planning includes thefollowing:

Ensuring alignment of a countrysdevelopment strategy and policypriorities with resource allocationse.g. through the budget;

Long-term preservation of nationawealth through appropriate

investments, particularly in light ofpotential future revenue uncertaintiesand

Increasing the social returns fromlong-lived assets by strengthening thequality and efficiency of individualprojects, and the overall portfolio ofpublic investment.

An effective public investment frameworkprovides the means for selecting in asystematic and coordinated mannerinvestment projects involving publicresources on the basis of expectedcontribution to development priorities. Iallows for:

Vertical coordination: linkinginvestments up to policy prioritiesand down to annual budgeallocations;

Horizontal coordination: identifyingtradeoffs and ensuring consistencyand coordination among investmenprojects; and


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Given the potentiallysignificant public resourceimplications and developmentimpacts of large-scale mega-projects, it is important toassess such proposed

investments from a broaderpublic interest perspective

Many studies have shown thatdecisions at the concept andinitial design stage have thegreatest influence on aprojects likelihood of successand on its actual socio-economic and environmentalimpacts.

At the individual project level:strengthening effectiveness andefficiency in project selection, design,and management - particularly forlarge infrastructure projects thatcommit significant resources andhave hard-to-reverse societal impacts.

2. Public InvestmentFramework for PPPproject selection

Given the potentially significant publicresource implications and developmentimpacts of large-scale mega-projects,whether publicly or privately initiated, itis important to assess such proposedinvestments from a broader public interestperspective. In the case of PPP, this isessential in order to ensure that privateparticipation is consistent with the publicinterest.

Role of macro-economic and fiscal

framework: The key first-level challengein public finance that defines the contextfor PPP, is determining the size of theoverall government fiscal ceiling. Thisinvolves taking into account macro-economic forecasts and projectedgovernment revenues over the mediumterm, multi-year forecast of currentpolicies and expenditures and levels ofpublic service. Therefore reliablemacroeconomic and fiscal framework and

projections are the starting point forestimating an overall public expenditureceiling for the medium term, and thefoundations for spending ceilings forministries and implementing agencies,including PPP project sponsors. Theoverall public expenditure envelope thensets the boundaries for the selection ofpublic investment projects and/or projectswith claims on public resources. This isoften further subdivided into sub-ceilingsfor sectors (e.g. transport, health,education) and/or selected strategic issues(e.g. economic diversification) that

reflect government policy priorities.Korea provides an example of theapplication of a macro-economic andfiscal framework (Fig. 2) as the basis forpublic investment planning and relatedstrategic budgeting.

A 3-stage project appraisal and selectionprocess for specific PPP mega-projects,within the overall public expenditureceiling, then includes the following:

Stage 1 - project concept assessmentMega-projects have a very uneventrack record, experiencing significanimplementation problems, whetherundertaken by government, privatesector, or as public-privatepartnerships.11 A wide range ofstudies have shown that decisions at

the concept and initial design stage, athe front-end, have the greatesinfluence on a projects likelihood ofsuccess and on its actual socio-economic and environmental impactsInadequate appraisal and preparationat the concept stage are the primarycause of significant mega-projecimplementation problems (e.gunderestimation of cost and riskfactors, and overestimation ofexpected benefits), the emergence ofunexpected negative impacts (e.g

economic, social, and environmental)and more fundamentally, theselection of the wrong projects toaddress perceived problems (i.einappropriate project outputs evenwhen they meet expected budget andschedule targets).

12 As aconsequence, in countries with well-developed public investmenpreparation systems increasingemphasis is placed on assessment athe front-end (e.g. Koreas pre-feasibility studies of mega-projec

proposals; UKs Office ofGovernment Commerce (OGC)Gateway 0 analysis; the 1st stage ofNorways 2-stage Quality Assurance(QA)) framework prior to decidingwhether to move to a detailed designstage and financing of the project)The focus of assessment at the front-end is to minimize the likelihood thathe choice of the project concept turnsout to be the wrong one in terms of itsdevelopment impact orimplementation requirements. This 1s

stage, often involving extensive

stakeholder engagement, is intendedto identify projects that should begiven priority based on sound publicinvestment considerations e.gconsistency with policy prioritiesneeds assessment, economic, sociaand environmental impacts, as well asconsideration of alternatives.

Stage 2 design, detailed appraisaland public sector comparator:

Projects that pass the 1st-level


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Perception, allocation, andmanagement of risk affectshow a project is designed andmanaged, its total coststructure, revenue generatingcapacity, or even whether it

will be implemented at all, i.e.whether private investors seean acceptable risk-rewardtradeoff.

benchmark a public sectorcomparator to assess whether privatesector participation will achieve valuefor money; and (3) if privateparticipation is deemed adding value,appropriate PPP (termed PrivateFinance Initiatives (PFI)) alternativesare formulated and assessed.

Example from Norway:Norway alsohas an interesting approach to theappraisal and selection of mega-projects (whose total budget exceeds60 million euro), called the quality-at-entry regime, involving a 2-stagequality assurance (QA) appraisal. Itputs an emphasis on assessment ofthe project concept at the front end,as noted, the critical stage in theproject cycle. The first stageassessment, QA1, is called the(pre)feasibility stage, and focuses on

the choice of project concept,including alternatives. If the projectconcept passes the QA1 appraisal, thesecond stage, QA2, known as thebasic design/engineering or pre-project phase, addresses the details ofthe chosen project design. If theproposed design passes QA2, theproject may enter the budget process,but with no guarantee that it willactually be selected (i.e. by thepolitical decision process) as apriority project for financing and

implementation, which will dependon comparison with other projectswithin the overall budget ceiling.(Figure 3)

3. Allocation of risksBasic to all PPP is that project cash flow,or the revenue generating potential of theproject, is the fundamental basis forfinancing. In this context, the central issuein project design then is the allocation ofrisks -- in the case of PPP betweengovernment and private participants. Thishas a direct impact on project costs andrevenues, and therefore investor returns.To assure investors of a reliable cashflow, governments often shoulder certainproject risks (e.g. performance andfinancial guarantees; off-take agreementssuch as take or pay); use nationalresources to offset private risk (e.g. realestate or resource concessions); orintroduce or relax legislative measures(e.g. zoning ordinances) to facilitate

project completion or operations. Forexample, PPP contracts may provide forminimum revenue guarantees that limithe private operators exposure to demandrisk, particularly when such demand maybe influenced by public policy (e.g. onpricing) or possible future publicinvestment (e.g. in potentially competingprojects).

If government accepts more risks in thisway, the cost as the return on equity anddebt demanded by private investors maygo down. If, however, the private sectorhas to take more of the risks (e.guncertain ridership on a rapid transisystem; or fluctuating power demand)then costs in terms of the returnsdemanded by private investors are likelyto increase. Therefore perceptionallocation, and management of risk affecthow a project is designed and managed

its total cost structure, revenue generatingcapacity, or even whether it will beimplemented at all (i.e. whether privateinvestors see an acceptable risk-rewardtradeoff). A badly designed PPP maytherefore result in a much larger riskexposure and related financial obligationsfor the government because of the long-term contractual agreements it generallyinvolves.

Example of Korean government risk sharing strategy for PPP: The

Korean government introduced aMinimum Revenue Guarantee(MRGs) for both solicited andunsolicited PPP projects. Governmenguaranteed payment to privateinvestors if revenue fell below acertain level of performance (e.g. amutually agreed expected ridershipfor a mass transit system or toll road) with different scales for solicitedand unsolicited projects. Because ofcriticism that government took toomuch of the risk and provided

unreasonably high returns to privateinvestors, and a perceived risk ofmoral hazard of private operators nottrying their best to increase projecrevenues, the MRG scheme wasabolished in 2006 for unsolicitedprojects, and in 2009 for solicitedprojects. However, in order tocontinue to strengthen PPP projecstructure and performance, a newrisk-sharing system was


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When government shoulderscertain project risks onentering into PPParrangements -- such asperformance guarantees, off-take agreements, or resource

concessions it incurscontingent liabilities. Theseshould be reflected in thepublic financial system.

implemented. The government nowpays the amount of shortfall when theactual operating revenue is less thanthe share of investment risk by thegovernment calculated as the sumof the private sectors investmentcapital and the interest rate ofgovernment bonds, on an annualbasis. In addition, the Korea

Infrastructure Credit Guarantee Fundwas established to provide creditguarantees for the private partner inPPP. The overall intent is to providean equitable risk sharing arrangementlikely to accelerate theimplementation and increase theviability of PPP projects.

4. Accounting for hiddencosts: contingent liabilities

When government shoulders certain

project risks on entering into PPParrangements -- such as performanceguarantees, off-take agreements, orresource concessions it incurscontingent liabilities. These representpotential hidden costs that governmentwill have to pay if a particular eventoccurs, for example guarantee of paymentif use of a mass transit system is less thana mutually agreed threshold, or if actualpower use falls short of projected demandin a take-or-pay agreement. These veryreal risks to government budgets and

societal resources are often not recognizedas public financial liabilities, even thoughthe related investment projects may makepotentially significant claims on publicresources well into the future.

Example: government guarantees14:Government guarantees are acommon feature of PPPs, and can bean effective form of governmentsupport for infrastructure investmentwhen government is best placed tomanage risk. Government thenshields the private sector from risks

that it cannot fully anticipate andcontrol, as in the Korean case.A loanor performance guarantee legallybinds the government to makepayments to private investors shoulda clearly specified uncertain eventmaterialize that impacts on therevenue generating capacity and/orcost structure of a PPP project, e.g.shortfall in ridership for a mass transitsystem. However, given theuncertainty of the event, e.g. demand

patterns for new urban mass transiservice, it is not clear whether and/orwhen the government will have to usepublic resources to meet suchguarantees. Such governmenguarantees can have potentiallysignificant multi-year fiscaconsequences, particularly duringuncertain economic times; exposing

governments to higher costs thantraditional public finance. Yet suchguarantees are usually not subject tothe same level of scrutiny through thebudget process as regularexpenditures.

Korean case: As noted, Korea has arisk sharing system to facilitate PPPa variation on minimum revenueguarantees. However, the resultingcontingent liabilities are not presentedas part of the budget and are nopublicly available. Therefore it is no

clear to whether and/or to what extenthe government accounts for suchpotential claims on the public budget.

Contingent liabilities such as performanceguarantees provided by governmentsshould be reflected in the public financiasystem, for example in a Statement ofContingent Liabilities as part of thebudget documentation, (suggested by theIMF

15). This transparency would allow fora greater scrutiny and management of theoften implicit claims of PPP on publicresources and on the government budget.

V. Concluding Comments: Institutionalarrangements for PPP

An effective public investment frameworkis more likely to lead to successful privateparticipation in the provision of (largescale or mega) projects through PPP, interms of generating value improvementsfor society. It will subject proposed PPPinitiatives to more rigorous publicscrutiny; ensure that they use societaresources in ways consistent with

development priorities; and account moreaccurately for public resourcecommitments.

A key requirement in the implementationof an effective PPP strategy is appropriateinstitutional design. Experience has shownthat a dedicated PPP unit is important toensure the capacity to create, support, andevaluate public-private partnershipagreements by government. Howeverreflecting the basic message of this note, i


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is essential that there exist a close, on-going and credible institutional linkagebetween public investment planning andPPP in order to make certain that a publicinterest perspective informs all PPPproject decisions. Unless such aninstitutional linkage is in place, there is arisk that a dedicated PPP agency becomesprimarily an advocate of private sector

participation in infrastructure projectsirrespective of the public resourceimplications and societal impacts.

Example: Koreas PIMAC: KoreasPublic and Private InfrastructureInvestment Management Center(PIMAC) was established as anindependent public agency within theKorean Development Institute (KDI)in 2005 under the PPP Act. PIMACacts as the PPP unit: it providestechnical support to line agencies and

reviews the documentation submittedby such agencies for approval by thePPI Project Committee, chaired bythe Ministry of Strategy and Finance.PIMAC therefore assesses all large-scale infrastructure investmentprojects, and recommends whether aproject should be considered for PPPdesignation. Unifying the appraisal ofall major investment projects in thisway in an independent public agencymakes it more likely that (i) value-for-money and investment criteria are

applied to PPP; (ii) major projects arealigned; and (iii) perception that thePPP unit is biased towards privatesector participation in infrastructure isreduced or eliminated.


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Table 1: Fiscal Stimulus Packages in East Asian Countries, Impact on Government Budgets, and Infrastructures Share of theFiscal Stimulus

CountryFiscal Stimulus in US$(billions)*

Stimulus as aPercentage of 2008GDP*

Fiscal Deficit as Percentageof 2009 GDP@

Infrastructure Share of theFiscal Stimulus#

China (PRC) 585.0 13.3 (3.3) 45.8%

Indonesia 6.1 1.2 (2.4) 16.9%

Korea (ROK) 84.0 8.9 (2.5) 29%

Malaysia 18.1 8.1 (7.8) 8.5%

Philippines 6.5 3.9 (3.8) n.a.

Thailand 3.3 1.2 (4.2) 65.5%

Vietnam 1.0 1.1 (9.4) 60%

Sources: * from Table 4 and Table 7, Abidin (2010); @ from Table 2, World Bank16 (2009); # from Table 1, Bhattacharyay (2010)

Figure 1. Typical Project Structure for an Independent Power Producer (IPP)

Source: Fig. 1, p. 36, Esty (2003)17


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Figure 2. Koreas Five-Year National Fiscal Management Plan(MoSF: Ministry of Strategy and Finance)

Source: Koh (2009)18

Figure 3. Norways Front End Appraisal of Mega-Projects

Source: Samset, Berg, and Klakegg (2006)19


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A i P li B i f A il 27 2011 12

Endnotes

1 ADB, 2008. Public-Private Partnership Handbook. Asian Development Bank, Manila, September; APEC, 2009.Meeting APECs post-crisis infrastructure challenge: Towards commonality in PPP infrastructure markets. A reportpresented to the 16th APEC Finance Ministers Meeting by Treasury Dept. of the Government of Australia, November;UNECE, 2008. Guidebook on Promoting Good Governance in Public-Private Partnerships. United Nations EconomicCommission for Europe (UNECE), United Nations, New York and Geneva; Global PPP Network, convened by the WorldBank Institute athttp://pppnetwork.ning.com/

2 See for example Bhattacharyay, Biswa Nath, 2010.Estimating Demand for Infrastructure in Energy,Transport, Telecommunications, Water and Sanitation in Asia and the Pacific: 2010-2020.Asian DevelopmentBank Institute, Working Paper No. 248, Tokyo, September.; ADB, 2009.Infrastructure for a Seamless Asia. Asian Development Bank and Asian Development BankInstitute, Manila and Tokyo; Barrow, M., 2010. Private Financing of Infrastructure in Asia. Presented at theAPEC Workshop on Asian Growth Strategy, Sapporo, Japan, June.3 ADB (2009); see also Bhattacharyay (2010).4World Bank: Thailand at a glance, 2/25/11; Malaysia at a glance, 2/25/11; Philippines at a glance, 2/25/115 See for example Guasch, J. Luis, 2009. PPPs: Impact and Responses to the Crisis and Moving Forward. Presented at theASEM PPP Conference, Seoul, Korea, October.6Institute of International Finance, various. It should be noted that reserves of Asian countries, particularly China, vary;e.g. Chinas reserves at the end of 2010 are reported by Bloomberg (11 January 2011) at $2.85 trillion.7 Ibid8 ADB staff estimates (interviews).9 p. 44, APEC, 2009.Meeting APECs post-crisis infrastructure challenge: Towards commonality in PPP infrastructuremarkets. A report presented to the 16th APEC Finance Ministers Meeting. Autralian Treasury Dept., Government ofAustralia, November.10This raises a 2-level principal-agent problem implicit in PPP: the private sector is the agent of government inimplementing an infrastructure project; and more broadly, government is the agent of society representing or guarding thepublic interest.11 See for example Flyvbjerg, B., Massimo Garbuio, and Dan Lovallo, 2009. Delusion and Deception in LargeInfrastructure Projects. California Management Review, Winter 2009, Volume 51, No. 2.12 A wide range of studies have shown the critical role of assessment of mega-projects at the front end the

concept and design stage, including Flyvbjerg et al (2009) (endnote 11); Morris, P., 2009. Implementingstrategy through project management: the importance of managing the project front-end. In: Williams T et al(eds). Making Essential Choices with Scant Information. Palgrave MacMillan: Basingstoke, UK; Lessard,Donald and Roger Miller, 2001. Understanding and Managing Risks in Large Engineering Projects. MIT SloanSchool of Management, Sloan Working Paper 4214-01, October 2001; Meier S., 2008. Best projectmanagement and systems engineering practices in pre-acquisition practices in the federal intelligence anddefense agencies. Project Management Journal39: 59-71.13 Kim, Jay-Hyung, 2011. Public Private Partnership in Korea. Presentation at the Fiscal Policy Research Institute(FPRI), Bangkok, February.14 See for example Akitoby, Bernardin, Richard Hemming, and Gerd Schwartz, 2007. Public Investment and Public-PrivatePartnerships. International Monetary Fund, Washington. See also Irwin, Timothy, and Tanya Mokdad, 2009.Managing contingentliabilities in public-private partnerships: Practice in Australia, Chile, and South Africa. Prepared for the World Bank, 30 June.15

See for example Akitoby et al (2007)16 World Bank, 2009. Transforming the Rebound Into Recovery: East Asia and Pacific Update. Washington D.C., November.17 Esty, Benjamin C., 2003. The Economic Motivations for Using Project Finance, Harvard Business School, 14 February.18 Lee, Myoung Sun, 2009. Private Participation in Infrastructure in Korea.Presented at Workshop on Policy and InstitutionalApproaches for PPPs in Infrastructure, Asian Development Bank Institute (ADB), Tokyo, 19 May.19 Samset, K., P. Berg and O. J. Klakegg, 2006. Front End Governance of Major Public Projects. Paper presented at the EURAM 2006Conference in Oslo, May 18.
http://pppnetwork.ning.com/http://pppnetwork.ning.com/http://pppnetwork.ning.com/http://pppnetwork.ning.com/

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