Enhancing Infrastructure Development Through Public-Private Partnerships: Challenges and Best Practices in Asia

Public Private Partnership in Infrastructure Development Kiichiro Fukasaku Development Centre Japan-OECD-Vietnam Public Private Partnership Forum Hanoi  3rd March 2008

1 Introduction 4 5 2 3 Challenges and Best Practice OECD Policy Support PPP in Infrastructure Opportunities for Asia

Introduction • Financing fails to meet infrastructure needs people lack access to infrastructure worldwide 1 billion people without access to roads 1.2 billion without safe drinking water, 2.3 billion without reliable energy 2.4 billion without sanitation 4 billion without modern communication (Source: Promoting Pro-Poor Growth, OECD 2007)

Outlook: Annual World Infrastructure Expenditure Estimated averages in US$ billion and % (Source: Infrastructure to 2030, OECD 2007)

Challenges • Globalisation and impact on infrastructure • Urbanisation • Growing interdependence between infrastructure systems • Meeting future financial needs • Infrastructure vital for growth and vice versa

Infrastructure • Efficiency vs. equity • High up-front costs, late returns on investment • High multi-faceted risks and uncertainty • Political dimension • Public good character • Limited access to financial markets How to raise incentives for private sector involvement?

Investment Commitments 1990 – 2006 PPP in Infrastructure in Developing Countries (Source: World Bank PPI Project Database)

Investment Commitments by Sector 2006 US$ billions Total Telecoms Transport Energy Water (Source: World Bank PPI Project Database)

Investment Commitments by Region 2006 US$ billions (Source: World Bank PPI Project Database)

Global Competitiveness Report World Economic Forum, 2007-2008 (based on: World Economic Forum, The Global Competitiveness Report 2007-2008)

Asia: the Private Sector Re-engaging in Infrastructure Development 2006 US$ billions (Source: World Bank PPI Project Database)

Private sector investment in infrastructure Estimated infrastructure needs (Source: ADB‘s Infrastructure Operations, ADB 2007)

Asia: Regional Imbalance 2006 US$ billions (Source: World Bank PPI Project Database)

Asia: Regional Imbalance (Based on: Nataraj, Infrastructure Challenges in South Asia, ADB Institute 2007)

Vietnam Status of infrastructure development ─ ranking among 131 countries 1st (best) 131th (based on: World Economic Forum, The Global Competitiveness Report 2007-2008)

Vietnam • “Vietnam serves as an excellent example of how infrastructure can foster a sharing of the benefits of growth … Economic development has been remarkably pro-poor, lifting around 20 million people out of poverty.” • Connecting East Asia, 2005

Challenges Ahead • Balance public and private engagement • Double imperative: profitability ↔social ends • Dichotomy of public and private interests • Limited institutional capacity • Specificity of infrastructure market • Commercial risks in developing countries • Political dimension

Connecting East AsiaA New Framework for Infrastructure – ADB, JBIC, World Bank – 2005 • Rapid growth yet marked by 1997 crisis • Urbanisation vs. rural development • Regional infrastructure linkages • Environmental protection • Policy, agency & stakeholder coordination • Funding challenge

Connecting East Asia New framework: Inclusive Development Infrastructure helps connect growth to the sharing of benefits (adapted from: ADB/JBIC/World Bank, Connecting East Asia, 2005)

India Meeting infrastructure investment needs Government investment in infrastructure (Sources: OECD Economic Surveys: India, 2007; IMF World Economic Outlook, 2007; DEA/MoF/ADB, Facilitating Public-Private Partnership, 2006; Rastogi, India Infrastructure Report,2006)

India Viability Gap Funding:funds up to 20% of cost for state projects implemented by private sector developer (competitive bidding) India Infrastructure Finance Company Ltd.: wholly government-owned company to provide long-term finance to infrastructure projects; priority for PPP + strong government commitment to PPP in infrastructure (Sources: OECD Economic Surveys: India, 2007; DEA/MoF/ADB, Facilitating Public-Private Partnership, 2006; Rastogi, India Infrastructure Report,2006)

India: Lessons learnt • Government commitment • Transparency and communication • Innovative financing schemes • Capacity building • Proper risk allocation (efficiency, capacity) • Consideration of alternatives to PPP • Continuous private sector consultation

OECD Contributions • Monitoring OECD country policies in infrastructure development Infrastructure to 2030 Economic Surveys International Investment Perspectives • Support to public policy-making OECD Principles for Private Sector Participation in Infrastructure • Support to donors Promoting Pro-Poor Growth: Four Guiding Principles for Meeting Infrastructure Challenges

Infrastructure to 2030 • Average annual infrastructure investment requirements to 2030: 3.5 % of World GDP • Government budgets tied to social spending in the future • New “business models” and innovative financial solutions needed  Analysis by sector

Policy Guidance for Governments OECD Principles for Private Sector Participation in Infrastructure • practical implementation tool of 24 principles • aimed at governments and private sector actors • illustrates how to : • Design and manage PPP projects in infrastructure • Improve the institutional environment • Encourage responsible business conduct

OECD Policy Guidance for Donors Four Guiding Principles for Meeting Infrastructure Challenges • Use partner country-led framework for coordinated donor support • Enhance infrastructure’s impact on poor people • Improved management of infrastructure investment for sustainable outcomes • Increased and efficient infrastructure financing (Source: Promoting Pro-Poor Growth: Policy Guidance for Donors, OECD 2007)

Thank you! Kiichiro Fukasaku Development Centre

Enhancing Infrastructure Development Through Public-Private Partnerships: Challenges and Best Practices in Asia