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Closing Asia’s infrastructure gap

Bambang Susantono

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Closing Asia’s infrastructure gap
'We need to close the infrastructure gap, and we can do it by engaging the private sector'

With the world looking to Asia to drive economic growth, it’s time to remove a major roadblock to the region’s prosperity: subpar infrastructure. We need to close the infrastructure gap, and we can do it by engaging the private sector.

Public-Private Partnerships, or PPPs, are contractual arrangements between a government and a private partner to deliver infrastructure services. They can be simple contracts for private sector-run services, or complex agreements where private firms finance, build and operate big infrastructure projects, before handing them back to the government.

PPPs are not a silver bullet, but should form a core component of plans to overhaul national infrastructure. Quality infrastructure is key to economic growth and prosperity in developing countries. However, in ASEAN countries there are just 10kms of roads for every 1000 people, compared with 200kms in OECD countries. The electrification rate in ASEAN is only 72%, compared to almost 100% in OECD countries.

In fact, nearly $1 trillion a year is needed by 2020 across Asia and the Pacific to bring infrastructure up to scratch. Governments can only supply about 60% of this amount, so private sector financing of infrastructure and related services is essential.

There are some encouraging signs. Papua New Guinea and Vietnam are implementing PPP frameworks. China now has a $27 billion fund for PPPs. The Philippines has awarded 12 projects worth the equivalent of $4.8 billion, and Mongolia recently awarded its first PPP – a $1.3 billion combined heat and power plant.

Indonesia has established instruments such as an infrastructure fund and a guarantee fund, a project development facility, a viability gap funding facility, and has made good progress on a PPP-friendly legal and regulatory framework.

But overall, PPPs are not gaining enough traction to deliver world-class infrastructure across the region. There are three critical issues that need to be addressed to get PPPs on track – securing the right knowledge and skills; improving the investment climate; and better project preparation.

On the first point, we can take some license with the acronym to define PPP as “Procuring Professional People.”

ADB is cofinancing with a syndicate of Philippine banks the expansion of Mactan Cebu International Airport's passenger terminals. Photo credit: ADB

These might be public officials who are confident, capable leaders with the vision and political will to lay the groundwork for PPPs. Or they might be technical experts who make the projects happen on the ground.

The expertise to appraise, manage and deliver successful PPPs is crucial. Thankfully, moves are afoot to upskill people involved in PPPs.

The Asian Development Bank (ADB) and other multilateral agencies will soon launch a global PPP skills accreditation program to foster a benchmark of expertise and knowledge. Proficiency tests for PPP practitioners will be offered in coming months by global accreditation services company APMG International.

This is an important initiative, and more such measures are needed to fill the gaping demand for PPP-related skills. To grasp the extent of that demand, consider that a webpage of PPP guidance and basic concepts launched recently by ADB’s country office in Beijing often gets 10,000 hits a day.

The second challenge—enhancing the investment climate—requires bold action by policy-makers based on a thorough evaluation of their country’s strengths and weaknesses.

Governments should minimize risks for private investors by addressing policy, institutional and regulatory barriers to investment. They should fix governance problems, implement transparent procurement systems, and establish viability funding gap mechanisms to mobilize public funding for investments that private sector firms cannot undertake.

Fortunately, there is a mechanism that can help governments evaluate their PPP enabling environment. The Infrascope, a methodology developed in 2009 by the Inter-American Development Bank, ADB and the Economist Intelligence Unit (EIU), gives insightful snapshots of regulatory framework quality, government institutional set-up, as well as the investment climate and financial markets of 75 countries.

The EIU is expected to update the Infrascope later this year, a process that Asia’s governments should follow closely.

Finally, and to take yet more license with the acronym, PPP could also stand for “Properly Prepared Projects.”

Overall, Asia lacks a pipeline of bankable, sustainable deals, largely due to the deficits in skills and investment climates outlined earlier. This is the biggest hurdle to attracting more private investment in infrastructure.

For guidance on how to resolve this problem, look no further than the Philippines. Its PPP Center—supported by ADB—is the government’s lead agency for facilitating PPP projects and encompasses a Project Development and Monitoring Facility to prepare and monitor transactions. From just 11 projects in 2010, the Philippines now has 51 projects at various stages in its PPP pipeline.

Another positive step is the Asia Pacific Project Preparation Facility, the result of a partnership between Japan, Canada, and Australia. This facility will help developing country governments in obtaining strong technical, financial and legal advice on preparing and structuring PPPs.

Asia’s infrastructure challenges are also opportunities. With better skills, more investment and strong project preparation, it can build the infrastructure needed to drive global growth. – Rappler.com

Bambang Susantono is Vice-President, Knowledge Management and Sustainable Development at ADB.

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