Adrian Torres, Director of ADB's Special Initiatives and Funds, discusses public-private partnerships challenges in developing Asia and how ADB is helping through financing and knowledge sharing.
Contents
- Importance of PPPs
- Success stories
- Important lessons
- Transaction Advisory Service (TAS)
- Reassuring investors
- Legal and contractual framework for PPPs
- Knowledge sharing
- Funds for projects
Why are PPPs important in helping the region meet its huge annual infrastructure needs?
The impact of COVID-19, climate change, and inflation, means the region now needs in excess of $200 billion per year from the private sector to meet its infrastructure needs. The ongoing impact of the pandemic means there’s a deficit on the revenue side and increased government expenditure in most DMCs. In this constrained environment, governments are looking towards PPPs to play a key role in green, sustainable recoveries.
These deals are notoriously challenging to set up, so what’s ADB’s track record in successfully brokering PPPs in the region?
ADB has successfully delivered many PPP projects throughout Asia and the Pacific. Its projects have reduced congestion in Dhaka and provided heating in Uzbekistan’s capital, Tashkent. ADB brokered PPPs have helped promote sustainable development in New Clark City in the Philippines and introduced solar energy to the islands of Palau.
ADB’s long expertise in setting up PPPs includes roads and railways, water, sanitation, district heating, solid waste management, renewable energy, vaccine development, elderly care, and information technology.
What important lessons has ADB learnt in brokering PPPs in recent years?
The private sector will not invest in PPPs, despite ample liquidity, unless there are well-prepared and properly structured projects with fair risk allocation. Most ADB developing member countries (DMCs) do not have enough capacity to create such opportunities for the private sector to invest in.
ADB provides upstream support to create a conducive enabling environment for PPPs. This is because continuous regulatory reform and institutional strengthening are required to facilitate PPPs. ADB’s midstream help consists of our advisory and project preparation services. This can assist DMCs in preparing bankable projects that can attract private capital. On the downstream side, our sovereign and nonsovereign financing windows can crowd in private investments.
What added value does ADB’s Transaction Advisory Service offer?
ADB’s Transaction Advisory Services (TAS) plays a critical role in bringing investable projects to the market. Clients benefit from ADB’s expertise, along with its global reputation for transparency and fairness. The bank also has a strong track record in catalyzing and mobilizing financing.
ADB also supports clients through the whole PPP process. The process includes national capacity building and enabling, project definition, commercial closure (concession agreement), and financial closure (financing documents). ADB ensures that value for money is achieved throughout the structuring process.
Public-private partnerships can help address Asia and the Pacific's infrastructure deficit and boost development.
Learn more about the importance of PPPs
Asia and the Pacific lacks quality bankable projects, a major challenge to attracting private capital for infrastructure.
Learn more about Transaction Advisory Services (TAS)
Investors are often reluctant to put finance into PPPs because of the perceived risk, how do you work to reassure them?
Private investors and governments are attracted to ADB’s PPP services because of its reputation as an ’honest broker’. Transactions also benefit from ADB’s proven ability to catalyze and mobilize financing.
ADB also offers a wide range of financing products to mitigate perceived risk. In certain circ*mstances, financers can transfer specific risks that they cannot easily absorb or manage on their own, to ADB. Accessibility to concessional financing for private sector investment may also help reduce perceived risk.
Lack of national capacity is an issue, so how does ADB work with member governments to establish proper legal and contractual frameworks for PPPs?
ADB provides, via technical assistance or knowledge, critical support for governments in establishing the right policy and regulatory frameworks for capital mobilization at scale. This creates an enabling environment for PPPs to thrive. Building these policy and regulatory frameworks increases investment opportunities.
Knowledge transfer is important in identifying investment opportunities and developing robust PPPs. Has ADB helped broker a PPP in one country that has been broadly replicated elsewhere?
Every country is unique due to its fiscal challenges, legal structure, and development needs. So, PPP support is generally country specific to address these and other variables. Cross border PPP replication therefore, is not very common. But PPP structures have been replicated within a country, attracting more and more private sector interest and investment.
Where a potential PPP that has clear development benefits proves not to be bankable, what other creative ways exist to get that project funded?
ADB continues to innovate in identifying financing products to enhance PPP projects and PPP programs in DMCs. These include policy-based loans and technical assistance. Other financing products applicable here include loans for viability gap funds, standby facilities, and credit enhancement.
ADB extends guarantees for eligible projects which enable financing partners to transfer certain risks that they cannot easily absorb or manage on their own to ADB. Accessibility to concessional financing for private sector investments may also help the bankability of a project.
