30 TRADE & FINANCE
PUBLIC-PRIVATE
PARTNERSHIPS
Wencai Zhang , Asian Development Bank Vice-President for Operations
I would like to discuss four aspects of PPPs:
1. First, the decisions and responsibilities of
governments when they come to infrastructure,
2. Second, some of the leading sectors and
markets,
3. Third, some of the impediments and
challenges, and finally
4. I will briefly discuss ADB’s support in the Asia
and Pacific region.
So first, what are the decisions and
responsibilities of governments?
Excerpts from speech at the
International Seminar on Public-
Private Partnerships 8 April 2015 in
Nanchang, People’s Republic of China
Governments across the world
are very keen on using PPPs to
deliver infrastructure and public
services, in order to find more
ways to meet the huge demand for
infrastructure financing. According
to ADB’s research, the Asia and
Pacific region requires infrastructure
investment of at least $8 trillion
from 2010 until 2020. Traditional
public funding sources falls far
short of this investment need.
Thus, many countries are seeking
to mobilize private funds, including
through PPPs.
Essentially, PPPs are long-term contractual
arrangements where a government partners
with the private sector to deliver infrastructure
services. PPPs can take several forms – from
simple contracts for private-sector-run road
maintenance services, to more complex build-
operate-transfer or BOT agreements which
necessitate funding by the private sector.
When governments plan to make major
infrastructure investments, they have to make
two separate decisions. The decision is to plan
and prioritize individual investments. The second
and separate decision should be about how to
deliver those investments, including PPPs.
I want to highlight the separation of
these two decisions.
On the necessity and prioritization of
investments, governments must make
decisions that will achieve their policy targets.
These include such things as movement of
goods and people, electrification, access to
water and waste facilities, healthcare and
education programs. In making such decisions,
governments must ensure that they are properly
prioritizing the needs of the people and the
economy. They must also ensure that the
investments are well-founded.
Once the necessity and priority of projects are
confirmed, the government needs to determine
how to deliver the investment, and here, value
for money is key. PPPs should be considered
where the private sector partner’s skills,
knowledge, technology and capital are adequate
to assume the project’s risks and deliver high-
quality design, construction and a performance-
based service.
It is very important that the government’s
decision on procurement – in other words,
determining the method of delivery – be
done with strong market-based technical,
financial and legal advisory inputs from top
class advisors. If designed and implemented
improperly, PPPs can bring adverse
consequences such as delay of project delivery,
deterioration of services, and increase of public
burden to cover operational losses. In the
worst cases, the projects themselves could be
abandoned.
Turning to my second point, where we
can expect to see PPPs?
In Asia and the Pacific region, PPPs have
been found most commonly in the energy
sector, followed by the transport sector. In
particular, the power sector has a strong track
record of private sector participation and a
broadly accepted contractual structure. In
the transport sector, PPPs have been most
frequently adopted in roads. However, more
recently, several PPP airport projects have been
developed, such as in India and the Philippines.
Water and sewage is another sector where
PPPs are widely adopted. For instance, China
has a track record of over 400 PPP projects
in that sector. PPPs are increasingly used
in the social sector as well. In the education
sector, for example, PPPs have been used for
BOT-type projects of relatively large size, and
for technical and vocational education training
(TVET) services. Thus, PPPs can help contribute
not only to economic development, but also to
social development.
Some key markets, such as India and China, have
emerged as the largest PPP markets in the region.
According to the World Bank’s databases, India
awarded more than 600 PPP project contracts
between 2000 and 2013, mostly in the transport
and power sectors. In the same period, China
awarded more than 800 PPP project contracts.
In China, PPPs are widely applied, particularly in
energy and water & sewerage projects.