How to get deals flowing

Discussions at the fifth World Bank Singapore Infrastructure Finance Summit focused on building the proper ecosystem for the public-private partnership (PPP) model to blossom in Asia, as well as developing other tools to bridge the gap between politicians’ and infrastructure investors’ very different timeframes.

James Harris, global head of infrastructure and managing partner at law firm Hogan Lovells Lee & Lee, sees PPPs as one solution among others, albeit that he has a strong affection for these government-private sector relationships.

“In Asia, and particularly in emerging markets,” Harris explained, “governments have tried to put PPPs in place without all the necessary build up. All the ‘hard yards’ needs to be undergone, and there are no short cuts,” Harris urged.

However, in this part of the world, governments change every four to five years, and want to see results while they are in power.

Not ‘PPP or bust’

His suggestion is therefore to carry on using traditional government procurement methods, while building up the knowledge necessary to conceive sustainable PPP programmes. This would allow governments to cope with imminent needs for infrastructure assets by delivering projects in an approximate three-year timeframe, while phasing in a PPP framework, which, according to him, typically takes six years to build (not to mention extra time to improve it) without going for a “PPP or bust approach”.

Harris drew parallels with the Private Finance Initiative (PFI), launched in the UK in the 1980s, which required an extra 20 years of honing after PPPs were first introduced.

Alternatively, he envisaged that countries could reform their constitutions to create longer political terms. This would enable officials to continue in their roles and give them more incentive to carry projects to full term.

Whereas the assumption in Asia is that project inception naturally lies in the hands of central governments, Anne Skovbro, finance administration director of the City of Copenhagen, advocated delegating the task of choosing a private sector partner to local or regional authorities.

This is the approach that Denmark has chosen for PPPs to withstand political changes. While infrastructure project planning is estimated to last on average 12 years, parliamentary terms are four years. Also, there is a perception that infrastructure needs, other than highway projects, are best served by partners who are from the region or community.

Skovbro stressed that, in her country, “for every party, when it’s long-term issues, there is a responsibility not to go AWOL. It’s achievable if all understand the local interest,” she added.

No matter how structural changes are enacted, the assessment at this stage is that PPPs are not taking off in Asia. “Whereas Indonesia and the Philippines may not be doing so badly in conceiving the preliminary framework, other governments have struggled,” said Harris. The main reason, according to him, is that government contracting agencies on the ground are not familiar enough with PPPs, entailing a loss in translation: “They are the weakest link,” he said.

The success of the PPP process relies on a combination of “capacity building at grass-roots level, and a political will and champion at the top level to oversee implementation of a programme”.

Central governments and their local representatives need to work to fill the gap in the middle in terms of deal pipeline (with the emphasis more on quality than volume at the outset) and feasibility studies. This is where multilateral organisations come in. There was a general consensus across panel participants that they help create original financial products and identify specific market needs.

Furthermore, multilaterals are perceived as trustworthy partners, benefiting from an excellent track record of successful transactions and perceived high professional standards which help to bring commercial banks and a variety of private sector players to participate in the financing of infrastructure projects.