G20 Foundation Publications Turkey 2015 | Page 30

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.