Catalog

	Table of Contents
p. 13 of 32 BACK | NEXT I. Introduction II. Assessment of Past Performance III. Rationale and Role IV. Operational Strategy A. Focusing Primarily on Existing Strengths B. Extending the Country and Sector Reach C. Wider Use of Innovative Financial Instruments D. Building Strategic Alliances and Partnerships V. Operational Improvements VI. Resource Requirements VII. Conclusions and Recommendations

Private Sector Operations: Strategic Directions and Review : IV. Operational Strategy

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A. Focusing Primarily on Existing Strengths

50. The PSO operational strategy capitalizes primarily on the established strengths of PSG in infrastructure and capital markets (including financial intermediaries, securities market institutions, and investment funds), where PSG has built a core mass of expertise and a successful track record and where there is strong demand for ADB’s involvement. Since available resources will always be small in relation to the needs of the DMCs, the guiding principles in defining the core business activities of PSO are selectivity and excellence for a given level of capital and human resources. Seeking excellence in a limited number of areas (primarily infrastructure and capital markets) will contribute to a more focused development impact and better risk management, and will highlight PSG’s comparative advantage in these sectors.

51. Over the past six years, PSG has delivered successful, developmental PSO in (i) large and medium-scale infrastructure projects; and (ii) capital market investments, including funds. Experience in large and medium-scale infrastructure has built a high level of expertise in project finance within PSG.³⁹ This strength is enhanced by PSG’s access to and use of sector and country-specific expertise in other ADB departments and offices. Clearly, the strength in infrastructure is an ADB-wide competency. The accumulated project finance skills within PSG are applicable to medium- and large-scale investment projects in different sectors and give ADB flexibility to meet the changing demand for project finance services. With these PSG skills, ADB is in a position to consider not just “greenfield” (new) projects, but also “brownfield” (rehabilitation and/or expansion) projects in the infrastructure sector, as well as service contracts, leases, management contracts, and privatization transactions.

52. Privatization programs in various DMCs, particularly those covering state-owned utilities and other infrastructure facilities could be a major source of activities for PSG in the medium term: many ADB client countries are now planning to divest their public utilities after unbundling them—often with ADB support. As these divestiture programs ripen—Pakistan expects to privatize Karachi Electric Supply Corporation in 2003, for example—ADB support through PSG should be available to facilitate specific transactions. It is important for PSG to collaborate with the concerned public sector departments in these exercises. PSG staff engaged in project finance are developing the capability to evaluate and structure privatization transactions. Work in these areas will have natural linkages with the promotion of public-private partnerships.

53. The strength of PSG in capital markets has been built over close to two decades of generally successful project work in the sector. Since 1983, PSG (including its predecessor units) has helped launch more than 30 investment funds of diverse types, operating in many countries and regionally. As a result, PSG has established close relations with a number of institutional investors, beginning in North America and now also in Asia and Europe. PSG has also accumulated expertise in fund structuring and governance, fund manager selection, and fund risk management. In addition to funds, PSG has delivered financial projects in such areas as banking, insurance, leasing, securities trading, and credit rating. These activities will be continued, to ensure effective inputs to PSD interventions of ADB as a whole in capital market and financial sector reform. Development of well-functioning capital markets and banking systems in Asia is key to reducing vulnerability to crisis and therefore contributes to poverty alleviation.

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