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ADB Assistance for Public-Private Partnership in Infrastructure Development (1998-2010)

Charting a Way Forward

June 2013

Abon, A., Chiplunkar, A. 2013. ADB assistance for public-private partnership in infrastructure development (198-2010): Charting a way forward. GREAT Insights, Volume 2, Issue 4. May-June 2013. Maastricht: ECDPM

The Asian Development Bank’s (ADB) long-term strategic framework, 2008–2020 (Strategy 2020), emphasizes public–private partnerships (PPPs) (1) and private sector engagement for ADB infrastructure operations (2) to help developing member countries (DMCs) achieve greater economic growth.

Background

Asian infrastructure investment needs up to 2020 were estimated (3) at $8 trillion, or $750 billion per annum over the period 2010-2020. Available funding for infrastructure from traditional sources falls far short of the investment needs. ADB’s sovereign and non-sovereign lending portfolio for infrastructure of $11.02 billion (ADB Annual Report 2009) and the World Bank’s $23 billion (World Bank Annual Report 2009) can only make modest contributions to the region’s growing demand for infrastructure investment. 

Leveraging resources is therefore a key priority in ADB’s development agenda of Finance ++ (4). By leveraging ADB’s financial resources and institutional strengths, additional resources and finance from other sources, particularly from commercial sources, are proposed to be mobilized to make more PPP projects happen on the ground. 

Nonetheless, in addition to finance, investment in preparation and pre-development of PPP projects – ahead of bidding and backed by ADB technical guidance/support – is the key to achieving the maximum leverage for ADB DMC governments – and ADB itself. 

ADB approved the PPP Operational Plan (5). in 2012. It has four pillars as depicted in Figure 1. Each pillar includes illustrative activities that ADB can undertake to support PPP in the DMCs.

 

Figure 1: The Four Pillars of ADB’s PPP Operational Framework 

 

Assessment of ADB PPP financing from 1998-2010

Public Sector Projects with PPPs

ADB’s public sector PPP portfolio comprised 137 projects with actual and indicative (6) PPP components. Of the 137 public sector projects with PPPs, Pillar 2 (enabling environment) had the highest funding amount, followed by Pillar 1 (advocacy and capacity development), illustrating the importance of “soft” investments in support mechanisms for infrastructure development as well as the investments in infrastructures themselves (see table 1). 

Table 1: Classification of Public Sector Projects with PPPs

 

Particulars
Pillar 1
Pillar 2
Pillar 3
Pillar 4
No. of projects (7)
52
63
26
16
Amount ($ million)
3,115.0
6,770.6
2,628.4
2,073.6

Source: ADB.

 

Under Pillar 1, the majority of projects dealt with providing assistance in designing, piloting and/or implementing model PPP arrangements such as performance-based maintenance contracts, concessions, and build–operate–transfer. The rest sought to explore PPP and/or private sector participation options in subprojects or sector plans, provide training on PPPs and/or private sector participation, and facilitate knowledge transfer to promote PPP. One project worth $400 million presented options to finance Powergrid’s (a state-owned firm in India) equity investment at its request for joint venture transmission projects with private sector investors and financial institutions. 

The 63 projects under Pillar 2, mostly helped develop policy, legal, and regulatory frameworks for PPPs, as well as private sector development strategies. Several of these projects also involved components on encouraging institutional framework for PPPs particularly through tariff reforms, and developing guidelines for promoting PPPs.

One of the 26 projects under Pillar 3, the Infrastructure Reform Sector Development Program in Indonesia, supports the establishment of a project development facility for PPPs. This is expected to help prepare feasibility studies and provide transaction execution support, including tendering and procurement, to at least 10 national and about 40 decentralized PPP projects. 

Of the 16 projects under the Pillar 4, six projects worth $1,325 million supported infrastructure financing facilities. These facilities support on-lending activities to PPP projects. Two of the facilities have already identified PPP projects, mostly in the road sector. Five projects are supporting a joint venture, two concession arrangements, performance-based deferred payment structure procurement and/or performance management contracts, and onlending activities to health service providers. 

Private Sector Projects with PPPs

Under Pillar 4, loan and equity financing of $5,324.24 million was provided to 49 ADB’s private sector projects structured as PPPs. This included financing equity investments of governments in private organizations or special purpose vehicles created to implement specific projects. One project was under Pillar 3.

Financing instruments used by ADB to support these private sector projects with PPPs include private sector loans, political risk guarantees, partial credit guarantees, complementary financing schemes, and equity investments. PPP modalities supported by these projects range from build–operate–transfer, build–own–operate–transfer, concession, private independent power producers, joint ventures, service contracts, build–own–operate, design–build–finance–operate, financing facility, and purely private sector investments such as direct loans to and equity investments in private organizations.

Technical Assistance with PPPs

Technical Assistance (TA) projects supporting PPPs were primarily used to develop government capacity to manage PPPs, as well as to foster an enabling environment for PPPs. The TA projects with PPPs numbered 219, amounting to $226.04 million. It must be noted that 58 TA projects were simultaneously classified under two or more pillars. 

 

Table 2: Classification of Technical Assistance Projects with PPPs

 

Pillar 1
Pillar 2
Pillar 3
No. of TA projects
165
102
28
Amount ($ million)
131.42
58.55
36.07

Source: ADB.

Under the Pillar 1, TA projects on improving government capacity in designing and implementing model PPP contracts are the most numerous and have the highest value. Of these TA projects, several were project preparatory TAs.

Under Pillar 2, TA projects sought to develop regulatory and institutional framework for PPPs and private sector participation, as well as to prepare PPP policies, guidelines, and manuals. They also focused on policy and legislative reforms aimed at bolstering legal and business environment for PPPs. 

There were 28 TA projects counted under Pillar 3. One of these is the project preparatory TA for the PPP Pilot Project Initiative (Mainstreaming PPP) in India. This supports project development collaboration between ADB and the Government of India-funded Infrastructure Project Development Fund. It will help conduct project feasibility reviews and PPP options development, structure the PPP model in detail, and assist in the PPP bid process management and transaction and contractual documentation. The project preparatory TA will share the development cost with the fund on a project-by-project basis, with ADB shouldering 25% of the costs. 

Several TA projects under Pillar 3 were also used to structure or establish project development facilities, including those on Mainstreaming Public–Private Partnerships and Public–Private Partnership Development in the Brunei Darussalam–Indonesia–Malaysia–Philippines East ASEAN Growth Area and Indonesia–Malaysia–Thailand. Others were used to help prepare or implement projects that were structured as PPPs such as those on Solicitation of Private Sector Implementation of the Meghnaghat Power—Supplementary and Tendering Process for Independent Power Producer Plants.

Way forward

The ADB PPP Operational Plan approved in 2012 provides a consistent analytical and operational framework for PPP assistance. ADB strives to include PPP needs into each of its country partnership strategies (CPSs) and country operations business plans (COBPs) with its DMCs. 

The need to develop the project to a transaction or bankable level requires investment in Pillars 1 and 2. ADB will continue to provide holistic support to enhance the capacity of DMCs and strengthen the enabling frameworks for PPPs such as the ADB PPP initiative in India (8) and the Philippines (9). In order to get a macro perspective, ADB had also commissioned The Economist Intelligence Unit for evaluating the environment for PPPs in 11 Asia-Pacific countries that were benchmarked with mature PPP countries like Australia and UK (10). These preparatory activities will ultimately help in identifying candidate PPP projects that would be developed under Pillar 3 to feed into a pipeline of bankable PPP projects. 

Aura Abon is Infrastructure (PPP) Officer, Sustainable Infrastructure Division, Regional and Sustainable Development Department, Asian Development Bank, Manila, Philippines. Anand Chiplunkar is Director, Urban and Water Division, Central and West Asia Department, Asian Development Bank, Manila, Philippines.

Footnotes
1. For more details refer <http://www.adb.org/publications/classification-adb-assistance-public-private-partnerships-infrastructure-development-1998-2010>
2. ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 2008–2020. Manila
3. ADB and ADBI. 2009. Infrastructure for a Seamless Asia. Manila.
4. ADB aims to provide DMCs value addition beyond finance, hence the first + is for knowledge enhancement of DMC through ADB involvement and second + is for leveraging ADB financial resources.
5. Refer <http://www.adb.org/documents/public-private-partnership-operational-plan-2012-2020>.
6. “Indicative PPP components” refer to envisaged PPP elements in projects that are still in the early stage of implementation, particularly project approvals during 2009–2010. Other projects with indicative PPP components include those that envisage PPP arrangements upon completion of the construction of project facilities.
7. The number of projects would not equal to 137 since some projects were classified under two or more pillars.
8. PPP Cells set up in 23 States and 7 Ministries over 5 years with $15.3 million of ADB technical assistance. The TA focused in addressing the constraints and challenges to PPP development by providing capacity development and support to strengthening of the policy and institutional framework. Pipeline development and support for pilot projects as well as financing support for bankable projects is also provided under the initiative.
9. Technical Assistance in Strengthening PPPs in the Philippines. The TA’s outcome is an improved government capacity to promote, develop, and implement PPP projects. The TA will achieve its outcome through (i) capacity building to improve the government’s PPP systems and capacity; and (ii) funding for the PDMF for preparation, competitive bidding, negotiation, and monitoring of environmentally friendly PPP projects.
10. ADB and Economist Intelligence Unit. March 2012. Evaluating the environment for public-private partnerships in Asia-Pacific – The 2011 Infrascope <http://www.adb.org/publications/evaluating-environment-public-private-partnerships-asia-pacific-2011-infrascope>.

This article was published in Great Insights Volume 2, Issue 4 (May-June 2013)

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Economic Transformation and TradeBusiness and DevelopmentDevelopment Finance and TaxationInfrastructurePrivate sectorPublic Private Partnerships (PPPs)Africa

External authors

Aura Abon

Anand Chiplunkar