The Asian Development Bank opened its Office of Public-Private Partnerships in 2014. What has been its biggest achievement so far?
Well, since we opened in 2014, the Office of Public-Private Partnerships (PPP) has received nine transaction advisory mandates for projects in energy, ports and roads, railways, hospitals and urban development in countries such as Philippines, Sri Lanka, Malaysia, Bangladesh, Kazakhstan, Vietnam, Papua New Guinea and Myanmar.
We’ve also launched the Asia Pacific Project Preparation Facility, which is a US$73 million trust fund to help our developing member countries create PPP policies and frameworks, as well as structure operational plan lasting from 2012 until 2020
PPP projects and monitor them. The facility was created with contributions from Japan, Canada, Australia, and with it, we approved six transactions in Kazakhstan, Timor-Leste, Bangladesh, Indonesia, and Myanmar in 2016.
What specific benchmarks has the office of the bank set for the coming three years in the run up to its Strategy 2020 deadline?
In the strategy, private investment in infrastructure, including PPP projects, is one of the bank’s priorities. We currently have a PPP operational plan lasting from 2012 until 2020. It has four pillars. The first is to spread PPP as a concept to our developing member countries. The second is the creation of PPP policy and frameworks for those countries. The third concerns the structuring of those projects. And finally, the fourth is the financing of those projects through public sector money and/ or private sector investment. So those are the benchmarks we set ourselves for 2020.
The technical and advisory services your office provides allows for feedback from individual PPP transactions to avoid frameworks becoming too prescriptive. What have you learned from the feedback you’ve received?
The most important thing about PPP is getting market feedback. We’ve learned that knowing how to share the risk between public and private sector players is something for which this office absolutely needs to confirm the appetite of the market. In the PPP framework, private parties sometimes have to take on risks for what are essentially government actions. This doesn’t make sense. We have to fine tune the framework, and make clear that such risks should be government responsibilities so commercial risks are down to commercial parties.
How is your office managing the challenge of having some member governments take on PPPs without appropriate frameworks?
Governments still have limited knowledge of what drives PPP success. As I’ve already said, the key to that success is appropriate risk sharing. We should not push all the risks on to the private sector, especially political risks, which should be compensated by governments.
Our office aims to help members set up frameworks that are transparent, fairly predictable, and easily implemented by governments. Otherwise, even if the framework is perfect, few projects can actually be delivered. Where a government has no PPP framework, we create a leading business model for an individual project through our transaction advisory services or the new facility. This can be easily copied by successive projects to reduce their transaction time and costs.
What is the bank doing to ramp up its mobilisation of private capital, given that this is an area where ADB is perhaps less active than other institutions generally?
We’re not sure we are necessarily less active in this area, because ADB has been mobilising private capital flows via various facilities, such as through guarantees and co- financing. In our new services for private sector clients, we directly assist with private sector proposals to governments. So I think we’re enhancing our support for the private sector to mobilise their funds.
Our private sector operations department is also expanding a guarantee for capital market products, such as project bonds in the Philippines and India. This is to attract institutional investors.
Enhancing the creditworthiness of capital market products with ADB’s guarantee gives comfort for private investors to acquire those assets with an improved credit rating.
How is the ADB reaching out to institutional investors and pension funds to look at infrastructure investment as an asset class?
In order for us to expand the range of potential investors, it’s really important to assist their due diligence capacity as well as structuring capacity for PPP projects. Commercial banks have plenty of experience with this, but it’s relatively new for institutional investors to invest in infrastructure. The most important thing therefore is how to identify viable projects, and how to structure them.