Trend  and  Overview  of  PPP  Framework  in  ASEAN  5  

Economic  Research  Ins/tute  for  ASEAN  and  East  Asia  (ERIA)  PPP  Seminar:  U"lizing  Efficient  Infrastructure  Development  Framework  

Phnom  Penh,  4th  of  July  2013  

Fauziah  Zen  

Supported  by  

Outline  

Background  

General  SituaIon  

Country  Fiscal  Landscape  

PPP  Trends  

Challenges  

Lessons  

Background  

ERIA  has  been  acIvely  studying  and  supporIng  ASEAN  member  countries  to  maximize  their  potenIal.    

Infrastructure  is  one  of  the  keys  to  accelerate  development  

Problems  in  infrastructure  boRleneck:  regulatory  framework,  technical  and  financing.  

PPP:  as  an  alternaIve  to  the  tradiIonal  ways  to  finance  infrastructure  

PPP  is  not  a  panacea  for  infrastructure  problems  but  has  several  advantages  

General  SituaIon  

ASEAN  member  states  have  different  

stages  of  infrastructure  policy,  financing  method,  

and  financial  capacity.  

Singapore  and  Brunei  have  abundant  

domesIc  financial  resources  to  build  infrastructure.  Play  fewer  roles  in  AC.  

Malaysia,  Indonesia,  Thailand,  and  

Philippines  have  been  adopIng  PPP  quite  progressively  to  fill  financing  gap  and  to  tap  private  sector’s  

competence.  

In  Cambodia  and  Vietnam,  private  

sector  parIcipaIon  is  increasingly  becoming  

important  in  infrastructure  

development  even  though  they  need  to  conInue  the  reform.  

Laos  and  Myanmar  are  sIll  facing  mulIple  challenges:  lacking  fiscal  resources,  low  capacity,  lacking  

regulatory  framework,  and  challenging  fiscal  

sustainability.  

Regulatory  Framework  Some  countries  have  too  many  and  complicated  

regulaIons,  but  oXen  sIll  inadequate.  

Some  countries  lack  sufficient  regulaIon.  

The  main  regulaIon  should  be  at  the  proper  level  in  regulatory  hierarchy  of  respecIve  country,  since  PPP  involves  cross  sectors  and  insItuIons.  

PPP  regulaIons  can  be  dynamic  but  should  be  kept  straighZorward  and  (quite)  simple.  

InsItuIon  and  Technical  Capacity  Keyword:  CAPACITY  

InsItuIonalized  fundamental  process  

Champion  for  PPP  

Strong  leadership  

Involve  key  stakeholders  (incl.  subnaIonal  governments,  line  ministries,  etc.)  

CooperaIon  with  internaIonal  supporters  

Capacity  building  is  not  an  instant  process  

Financing  

Broad  opIons  are  available  with  different  requirements.  

Recognize  fundamental  requirements  to  aRract  funding.  

UIlize  both  domesIc  and  

external  financial  resources.  

Manage  fiscal  sustainability.  

Prepare  the  Projects  properly  

before  selling  the  ideas.  

Financing'Infrastructure'

Commercially+Viable+Project+

Economically+Viable+Project+

Nonviable+Project+

Private'Sector'

Government' ODA/OOF'

PPP'Contract'

SPV'

Contractors'

Lenders/Sponsors'

Gov'Contrac>ng'Agency'

Private Sector

Public Sector

Construction-Operation

Financing

Guarantee

O@aker'or'User'

Loan/TA

Awarded

Form

Form

Pay Pay

Fiscal Support

Traditional Procurement PPP Scheme

Available  Funding  Sources  

9  

Funding  Sources  

External  Sources  

Public  

Private  

ODA  

OOF  

Grants  

Technical  Assistance  

Concessional  Loan  

Loan  

Equity  

Foreign  Direct  Investment  

Bank  Loan  

PorZolio  Investment  

Internal  Sources  

Public  

Private  

Tax  Revenue  

Bank  Loan  

Direct  Investment  

PorZolio  Investment  

Government  Bonds  

Source:  Isono  and  Sugiyama  (2013)  

Financing  Infrastructure  (incl.  ASEAN  ConnecIvity)  

Background  

General  SituaIon  

Country  Fiscal  Landscape  

PPP  Trends  

Challenges  

Lessons  

Indonesia    unequal  infrastructure  development  

across  regions,    progress  on  regulatory  development,    good  pracIces  on  managing  conIngent  

liabiliIes  (fiscal  discipline),    mulI-­‐Ier  government  in  handling  PPP.  

Philippines    progressive  implementaIon  of  PPP  in  both  hard  

and  social  infrastructures,    championship  of  inter-­‐departmental  

coordinaIon,    mulI-­‐Ier  government  in  handling  PPP,    quite  substanIal  use  of  external  support.    

Malaysia  clear  objecIves  of  naIonal  development,    

sIll  unclear  framework  of  infrastructure  financing,    uIlizing  bonds  (especially  Islamic  sukuk/bonds)  to  

finance  infrastructure  development.  

Thailand    lessons  from  over  esImated  revenue  of  PPP  

projects,    challenges  in  managing  risk  allocaIon,    new  PPP  law:  hope  for  clear  framework,    list  of  projects,  and  PPP’s  commiRee.    

Country  Highlights  

Singapore  dual  roles  of  public  sector  both  as  

regulator  and  operator  have  weakened  interests  in  PPP,    no  project  list  for  PPP,    

no  champion  for  PPP  outside  MOF,    idenIfying  moIvaIon  to  have  increasing  role  in  advancing  AC.    

Brunei  small  populaIon,    

abundant  oil  and  gas  revenue  in  the  long  term  has  reduced  the  needs  of  

strong  private  sector,    idenIfying  moIvaIon  to  have  increasing  role  in  advancing  AC  

Country  Highlights  

Country  Highlights  

Vietnam    Macroeconomic  instability,  high  inflaIon,  price  volaIlity  à  higher  risks  for  infrastructure  projects,    

high  debt  makes  difficult  to  increase  ODA,    

implementaIon  of  new  PPP  law  is  compeIng  with  government  priority  

for  reducing  inflaIon  

Cambodia  increasing  role  of  private  

parIcipaIon,    breakthrough/innovaIon  taken  by  

government,    managing  debt,    

improving  credibility  before  internaIonal  donors  

Lao  PDR    lacking  fiscal  resources,    

low  capacity,    lacking  regulatory  framework,    challenging  fiscal  sustainability,    problem  with  managing  debt,    

low  credit  raIng,  undiversified  sector  of  private  sector  

parIcipaIon  (hydropower),    inappropriate  financing  mechanism  has  led  to  macroeconomic  instability.    

Myanmar    lacking  fiscal  resources,    

low  capacity,    lacking  regulatory  framework,    

no  credit  raIng  challenging  fiscal  sustainability,    heavily  dependent  on  ODA  

Financing  Infrastructure  

Background  

General  SituaIon  

Country  Fiscal  Landscape  

PPP  Trends  

Challenges  

Lessons  

PPP  Trend  (1)  

PPP  starts  with  tradiIonal  cooperaIon  between  public  and  

private  sectors.  It  oXen  is  introduced  through  BOT  and  concession  models.  

The  Governments  found  that  the  model  could  be  

developed  further  towards  PPP  as  in  

internaIonal  common  pracIces.    

The  primary  raIonale  for  PPP  is  to  fill  financing  gap  

in  public  sector.  

The  moIvaIon  is  enlarged  to  uIlize  private  sector  

competencies  into  public  services  provision  and  to  secure  output  of  public  

faciliIes.  

PPP  Trend  (2)  

Some  countries  have  been  adopIng  PPP  scheme  without  having  specific  law  on  it,  then  they  improve  the  framework  by  

issuing  the  required  law.  

Clear  Regulatory  Framework  of  PPP  is  important,  since  it  

will  provide  potenIal  investors  with  sufficient  iniIal  informaIon  and  

security.  

Single  law  is  usually  not  all-­‐inclusive  for  

PPP,  since  it  involves  several  

sectors  and  requires  inter-­‐departmental  coordinaIon.  It  also  

needs  some  flexibility  for  direcIves.  

PPP  law  usually  needs  several  supporIng  

regulaIons  (e.g.:  VGF,  PDF,  Land  

Clearing,  Ownership,  

Guarantee,  etc.)  

Financing  Infrastructure  

Background  

General  SituaIon  

Country  Fiscal  Landscape  

PPP  Trends  

Challenges  

Lessons  

Financing  Problem?    

•  YES.  But  it’s  not  on  the  lack  of  supply  per  se.  Instead  there  are  quite  abundant  potenIal  financial  resources  that  can  be  uIlized.  

•  More  serious  issues  are:  

18  

•  regulatory  framework,  legal  certainty,  appropriate  incenIves.      

Lacking  investor  friendly  environment  

•  poor  preparaIon,  lacking  competent  human  resources,  low  fund  allocated  for  Project  Development  Facility  (PDF),  lacking  communicaIon  to  internaIonal  community.  

Lacking  properly  prepared  projects  

Shopping  List  

PPP  Challenges:  Causal  Nexus  

Project  PrioriIzaIon  

Project  PreparaIon  

Tender  

SelecIon  

Awarded  

Project  ImplementaIon  

Poor  Project  PreparaIon  

Market  bias  

SelecIon  bias  or  Fail  

Poor  risk  esImaIon  

Failures  

BAD  Precedence  

Financing  Infrastructure  

Background  

General  SituaIon  

Country  Fiscal  Landscape  

PPP  Trends  

Challenges  

Lessons  

Shopping  List  List  of  important  Project  

PPP  Challenges:  Causal  Nexus  

Project  PrioriIzaIon  

Project  PreparaIon  

Tender  

SelecIon  

Awarded  

Project  ImplementaIon  

Poor  Project  PreparaIon  

Market  bias  

SelecIon  bias  or  Fail  

Poor  risk  esImaIon  

Failures  

BAD  Precedence  

PDF    

Transparent  &  sound    promoIon  

Clear  Criteria,  transparent,  fair  

Clear  and  Adequate  Fiscal  Support  

Successful  ExecuIon  

GOOD  Example  

Addressing  the  Challenges  (1)  

Project  PrioriIzaIon:  

• Be  consistent  with  NaIonal  Development  Priority  

• Manage  fiscal  issues  (support  vs.  liabiliIes)  

• Transparent  process    • Market  sounding  

Project  PreparaIon:  

• This  is  criIcal  part,  don’t  rush  but  work  Imely.  

• Start  with  workable  scale  and  size.  

• Adequate  funds,  human  resources,  and  Ime.  

Addressing  the  Challenges  (2)  

Tender  and  SelecIon  Process:  

• Be  transparent  and  Ime  consistent.  

• Contestable  market.  

Awarding  Project:  

• Clear  contract  (output,  dispute  resoluIon,  Imeline,  ownership,  etc.)  

• Sufficient  fiscal  and  poliIcal  support.  

Project  ExecuIon:  

• Monitoring  and  EvaluaIon  

• Addressing  problems  if  any  

• PromoIng  successful  stories.  

S  T  E  P  S  

Determine  the  goals  of  

adopIng  PPP.  

Assess  current  situaIon:  exisIng  condiIon,  missing  elements,  capacity.  

IdenIfy  needs  to  achieve  the  goals  in  #1  

Explore  ways  and  opIons.  

Adjust  if  needed.  

Cooperate  with  stakeholders  and  supporters  (internal  and  external)  

Strong  determinaIon.  

Thank  You  for  Your  ARenIon    

fauziah.zen@eria.org