Asian countries need to focus on PPP to support infrastructure: ADB

Asian countries should focus more on public-private partnerships (PPPs), as it will help them attract private capital and technical expertise in the infrastructure sector, which has been hit hard by the pandemic, Asian Development Bank (ADB) said in a blog.

The demand for existing infrastructure has fallen sharply due to the coronavirus pandemic and Asia Pacific countries should revisit their public-private partnership frameworks, making government support an integral element for seeking value-for-money through PPPs, ADB said.

Covid-19 is directly impacting infrastructure services around the world. The demand for existing infrastructure has fallen sharply. Construction of new infrastructure has slowed, if not stalled, everywhere, the blog noted.

While some infrastructure sectors like health and information & communications technology (ICT) are experiencing unprecedented demand, others like airports are witnessing a demand dry up, it added.

"But uniformly, across all sectors, the costs of service delivery are going up as governments rush to make service delivery pandemic-proof," said the blog.

"In seeking value for money, public-private partnerships (PPPs) are becoming an important modality for governments to attract private capital and expertise into infrastructure in Asia," said the blog written by three authors.

Governments in Asia will need to quickly assess the potential short-term impact of reduced demand and increased costs across their PPP portfolio," said the blog written by Sanjay Grover, Hanif Rehamtulla and Colin Gin.

Even though PPPs projects are increasing rapidly in Asia, most programmes are still considered developing or emerging by international lenders, they said, adding only 13 per cent of the countries in Asia and the Pacific had procedures that align PPPs with public investment priorities.

"As in the periods following the Asian Crisis (1997-2001) and the global financial crisis (2008-2012) that were followed by a dip in the number of PPPs worldwide, this pandemic will drastically change the risk profile of infrastructure PPPs," said the blog.

"With declining GDPs and decreasing fiscal headroom, this is not going to be easy, and new sources of revenue such as bonds, land value capture, and asset recycling - may have to be mobilised," it said.

"Covid-19 is an opportunity for leadership to strengthen local governments so that cities, many of which are struggling to meet the social and economic challenges of the pandemic, can become frontliners in the recovery process."

"More than 80 per cent of the PPPs that reached financial closure in Asia in the last two decades were in the transport sector, and were usually structured so demand risk is retained by the project company through user fees," the blog said.

"Pair the impact of declining revenue and increasing costs with the uncertainty of a timeline to complete recovery or an as-yet-unknown new-normal, and you can start to see the formidable challenges facing governments and investors in navigating the long-term contractual nature of operational PPPs," the authors said.

"Multilateral financial institutions will also have a big role to play in supporting governments in this transitionary period, with capacity building, technical, and financial assistance through this period. In the long-run, there is a lot of uncertainty about what the new normal will bring, but a few things can be safely assumed," the blog said.

"One, a significant infrastructure gap to attain UN's Sustainable Development Goals will remain, and the private sector will have an even bigger role to play in closing that gap and ensuring we build back better. Two, the unit cost of the infrastructure-service provision will increase as we make current projects pandemic-proof, and newer, efficient and disruptive ways of delivering services will have to be found," it said.

"Whatever way the new-normal shows up, governments in Asia will take a bigger step towards resilient and quality infrastructure," it added further.

"PPPs can help by bringing in private sector capital and technical expertise as governments continue to look for value for money in infrastructure provision," the authors said.

Grover and Rehamtulla are PPP and public management specialists, while Gin is Assistant General Counsel with the ADB.