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30 May, 2012

ADB Sees Asia Needing US$8 Trillion to Fund Infrastructure; Australia Tops PPP Schemes


MANILA, Philippines (ADB Media Release) – Asia and the Pacific has seen a boom in public private partnerships (PPPs) in the past decade but it needs more effective public sector oversight agencies, and in some instances more political will, to advance the process even further, says a new study commissioned by the Asian Development Bank (ADB).

The 2011 Infrascope, conducted by the Economist Intelligence Unit, uses a benchmark index system to rank the readiness and capacity of a country to carry out sustainable, long term PPP projects.

“In order to leverage the $8 trillion required over the next decade for physical infrastructure in Asia, public financiers like ADB must undergo a complete change of mindset and shift their focus from sovereign projects to PPPs,” said Woochong Um, Deputy Director General of ADB’s Regional and Sustainable Development Department. “Studies such as this one will help our developing member countries address the areas of PPPs that need to be strengthened.”

The assessment, carried out on 11 developing economies in the region, along with four benchmark countries, and one state, Gujarat in India, shows an increasingly open environment for PPPs, though with individual countries at different stages of readiness.

The Republic of Korea, India and Japan, are the top performing countries in Asia and the Pacific, reflecting their robust institutional and regulatory frameworks. Two benchmark countries, Australia and the United Kingdom, were the overall top scorers.

India came in slightly ahead of Japan, reflecting strong political will and rising capacity for PPPs, although problems with implementation remain a challenge. The People’s Republic of China (PRC) also performed well with a mammoth 614 PPPs reaching financial closure between 2000 and 2009, despite a relatively underdeveloped institutional and regulatory environment. The strong willingness and capacity of provincial governments for carrying out PPP projects, a friendly investment environment, and the sheer scale of the PRC market for infrastructure drove activity.

Viet Nam, Mongolia, and Papua New Guinea were at the lower end of the index, due to a lack of experience with PPPs and underdeveloped institutions and regulatory frameworks. However the study found that they, and other emerging economies such as Pakistan, Bangladesh, Kazakhstan, Thailand, Indonesia and the Philippines, are moving swiftly to put in place the necessary laws and structures to attract more private investment.

At the same time, the study notes that while overall prospects for PPP development remain bright, governments need to continue reforms and address capacity gaps for the design and implementation of effective projects. “It is the capacity of the public sector to be able to react systematically to the complexities associated with PPP projects that will ensure long term success,” it said.

EXCERPTS FROM THE STUDY which can be downloaded here free:

(+) Australia, the region’s most developed economy and a world leader in PPP practice, tops the 2011 index, scoring 92.3 points out of 100, owing to strong regulatory, institutional and investment conditions. Meanwhile, the country’s state-level success with high-profile initiatives such as Partnerships Victoria bolstered its sub-national adjustment score. The second-ranked country, the UK, demonstrated similar strengths, along with strong institutional capacity and sound implementation practices, scoring a total of 89.7 points. This solid performance is unsurprising, given the UK’s Private Finance Initiatives (PFIs). Both Australia and the UK can be classified as “mature” PPP markets, with substantial levels of PPP activity under their belts and sophisticated frameworks and capacity in place for planning and implementing complex projects.

(+) Republic of Korea, India, and Japan are the top-performing Asia- Pacific countries in 2011 Infrascope, with scores of 71.3, 64.8, and 63.7, respectively. They sit more comfortably with the cluster of countries in the 2010 Infrascope for Latin America and the Caribbean that could be classified as “developed”—all boasting a decent institutional and regulatory framework, but lacking the sophistication of the “mature” markets of Australia and the UK in addressing some of the more nuanced challenges brought about by PPPs. Republic of Korea (71.3) takes third place on the index by virtue of its solid regulatory and institutional framework, and robust financial facilities for infrastructure funding.