Government to encourage private sector-led growth

The PPP Monitor outlines the key advances in the PPP framework, which include enabling availability/performance-based payment schemes, removal of the previous limit on viability gap funding of 49% of total investment cost, enabling wider scope of infrastructure projects to be procured as PPPs and establishing processes for PPP project identification, appraisal and approval.

From 1990 to 2016, the country closed 84 PPP projects amounting to US$16.2 billion, with 79% of them in the energy sector. 

However, there are no PPP projects that have been implemented under this latest framework.

The PPP Monitor finds that current challenges include foreign lenders’ security issues, as the framework for credit enhancements and guarantee mechanisms remains unclear and the restrictions on mortgage over land-use rights in favor of foreign banks where land is conferred on a rent-free basis.

ADB President Takehiko Nakao said PPPs were crucial contributors to the development of countries in the Asia and Pacific region, but an enabling environment is required for these projects to succeed.

“This report will help both policymakers and investors make informed decisions, manage risk better and ensure a more stable environment for PPPs,” said Nakao.

The report reveals that India, the Philippines and Thailand have the most developed financial markets, which can provide longer-tenor loans (above 10 years) in local currency to support infrastructure. These markets also have a wide array of financing options, including project bond financing.

The report finds that China has the most PPP projects that reach financial close; but there is scope to scale up PPPs in the country by drawing on more private sector companies.

Among the key trends identified in this year’s report is that energy generation is one of the most successful sectors in developing PPP frameworks. Thermal and renewable power generation is the dominant sector for the majority of the countries surveyed in the PPP Monitor. 

The water sector is also a major area for PPP investment, with over 40% of PPP projects in the PRC in this sector.

Challenges remain for further PPP development, including enhanced development of financial facilities, further diversification of the investor base, managing the risk of fluctuating traffic in transport projects, developing a credible pipeline of PPP projects and expanding toward sectors beyond energy.

“There are many ways countries can overcome challenges to PPP development,” said Alexander N. Jett, PPP Specialist in the Office of Public Private Partnership.

He said among the solutions are greater use of credit enhancements to attract better financing terms, reducing restrictions on foreign ownership in PPP contracts and introducing annuity payment systems that are based on performance instead of traffic volume to mitigate traffic risk.

“Strengthening the institutional capacity to screen and prioritise projects can also help countries develop a credible pipeline of PPPs, while the development of sector-specific regulations for non-energy sectors would address concerns about key bankability issues, such as foreign exchange risk,” said Jett.