Sweetening the soured reputation of PPPs

Reading Time: 3 minutes

public-privateThe inconceivability of zero-risk investment seems so evident that it should be a collectively inscribed axiom of the private sector. Yet in our drive to reap the greatest return, we feel forced to search for this illustrious pipe dream, and while not a picture-perfect solution, PPPs and new innovative tools surrounding them can still find the end of the rainbow.

By Justin Calderon

First of all, with the rising role the private sector is playing in the development of transport and energy infrastructure, the PPP model seems unavoidable.

Yes, the tool that aims to fill the dearth in liquidity available to the public sector with private funds has been acrimoniously sullied at times by tenors turned sour, but minds are at work to make the PPP landscape brighter and investors have continued to respond.

“The private sector spending in hydropower is dramatically increasing with most hydropower projects having private sector investments,” Richard Taylor, executive director of International Hydropower Association said on March 6.

Multinational institutions have also increasingly raised their hands to buttress public spending and attract private sector investors with innovative risk-management tools.

In an effort to meet the forecast demand of $60 billion in infrastructure investment into energy, transport and other projects in ASEAN over the next decade, the Asian Development Bank (ADB) has lent its support to the ASEAN Infrastructure Fund (AIF), a landmark initiative led by nine members of the Southeast Asian grouping. In its role under the AIF, ADB has committed to lend $300 to $400 million a year for ASEAN’s key infrastructure projects and offer funds as a tool to mitigate perceived risk.

Furthermore, ADB will also provide risk guarantees to private investors.

“ADB like other multinational organisations offers political risk guarantees, which do have a positive impact on private investors. If the contract sours because of a government’s change in policy, then this modality could come into effect,” Principal Economist Jin Cyhn of the ADB, a specialist on the AIF recently told Inside Investor.

“Additionally, we are working with governments to improve regulatory reforms and enhance polices,” he added.

Innovative financing tools are another way to strip the risk burden of those involved with projects run by the fund.

“ADB is also a shareholder, with the AIF’s equity capital reaching about $485.2 million, a figure that will be augmented with hybrid long-term bonds, an instrument with equity characteristics,” Cyhn noted.

Projects that emphasise regional connectivity would be priorised by the AIF, namely those outlined in the Master Plan on ASEAN Connectivity in 2010. Some of them might include:

  1. Completion of the ASEAN Highway Network (AHN) missing links and upgrade of Transit Transport Routes (TTRs);
  2. Completion of the Singapore Kunming Rail Link (SKRL) missing links;
  3. Establishment of an ASEAN Broadband Corridor (ABC);
  4. Melaka-Pekan Baru Interconnection (IMT-GT: Indonesia);
  5. West Kalimantan-Sarawak Interconnection (BIMP-EAGA: Indonesia)

Speaking with complete candour, the PPP model ultimately remains incomplete without the voices of the community, the recipients of the final product and beneficiaries of the poverty-reducing effects infrastructure brings along with it.

Hearing the voices of the local community part of the developmental efforts through a so-called people-private-public partnership (PPPP) mechanism would add extra security to the long-term acceptance and acceptance of the project.

This evolutionary step to the traditional model could be particularly of use. Having the community on the private sector’s side keeps transactions transparent and payments in check, especially if the project’s development is completed in stages that would gain the support of the greater population.

Nothing makes government’s work fastest than a community itching for an unfinished prize.

 

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Reading Time: 3 minutes

The inconceivability of zero-risk investment seems so evident that it should be a collectively inscribed axiom of the private sector. Yet in our drive to reap the greatest return, we feel forced to search for this illustrious pipe dream, and while not a picture-perfect solution, PPPs and new innovative tools surrounding them can still find the end of the rainbow.

Reading Time: 3 minutes

public-privateThe inconceivability of zero-risk investment seems so evident that it should be a collectively inscribed axiom of the private sector. Yet in our drive to reap the greatest return, we feel forced to search for this illustrious pipe dream, and while not a picture-perfect solution, PPPs and new innovative tools surrounding them can still find the end of the rainbow.

By Justin Calderon

First of all, with the rising role the private sector is playing in the development of transport and energy infrastructure, the PPP model seems unavoidable.

Yes, the tool that aims to fill the dearth in liquidity available to the public sector with private funds has been acrimoniously sullied at times by tenors turned sour, but minds are at work to make the PPP landscape brighter and investors have continued to respond.

“The private sector spending in hydropower is dramatically increasing with most hydropower projects having private sector investments,” Richard Taylor, executive director of International Hydropower Association said on March 6.

Multinational institutions have also increasingly raised their hands to buttress public spending and attract private sector investors with innovative risk-management tools.

In an effort to meet the forecast demand of $60 billion in infrastructure investment into energy, transport and other projects in ASEAN over the next decade, the Asian Development Bank (ADB) has lent its support to the ASEAN Infrastructure Fund (AIF), a landmark initiative led by nine members of the Southeast Asian grouping. In its role under the AIF, ADB has committed to lend $300 to $400 million a year for ASEAN’s key infrastructure projects and offer funds as a tool to mitigate perceived risk.

Furthermore, ADB will also provide risk guarantees to private investors.

“ADB like other multinational organisations offers political risk guarantees, which do have a positive impact on private investors. If the contract sours because of a government’s change in policy, then this modality could come into effect,” Principal Economist Jin Cyhn of the ADB, a specialist on the AIF recently told Inside Investor.

“Additionally, we are working with governments to improve regulatory reforms and enhance polices,” he added.

Innovative financing tools are another way to strip the risk burden of those involved with projects run by the fund.

“ADB is also a shareholder, with the AIF’s equity capital reaching about $485.2 million, a figure that will be augmented with hybrid long-term bonds, an instrument with equity characteristics,” Cyhn noted.

Projects that emphasise regional connectivity would be priorised by the AIF, namely those outlined in the Master Plan on ASEAN Connectivity in 2010. Some of them might include:

  1. Completion of the ASEAN Highway Network (AHN) missing links and upgrade of Transit Transport Routes (TTRs);
  2. Completion of the Singapore Kunming Rail Link (SKRL) missing links;
  3. Establishment of an ASEAN Broadband Corridor (ABC);
  4. Melaka-Pekan Baru Interconnection (IMT-GT: Indonesia);
  5. West Kalimantan-Sarawak Interconnection (BIMP-EAGA: Indonesia)

Speaking with complete candour, the PPP model ultimately remains incomplete without the voices of the community, the recipients of the final product and beneficiaries of the poverty-reducing effects infrastructure brings along with it.

Hearing the voices of the local community part of the developmental efforts through a so-called people-private-public partnership (PPPP) mechanism would add extra security to the long-term acceptance and acceptance of the project.

This evolutionary step to the traditional model could be particularly of use. Having the community on the private sector’s side keeps transactions transparent and payments in check, especially if the project’s development is completed in stages that would gain the support of the greater population.

Nothing makes government’s work fastest than a community itching for an unfinished prize.

 

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