Knowledge Sharing on Infrastructure Public-Private Partnerships in Asia Workshop
Keynote Address by
Ursula Schäfer-Preuss
Vice President, Knowledge Management and Sustainable Development
Asian Development Bank
19 May 2009
Grand Hyatt Hotel, Seoul, Korea
I. Introduction
Dr. Oh-Seok Hyun, President Korea Development Institute, Vice Minister Yong Geol Lee, Ministry of Strategy and Finance, Government of Korea distinguished panellists, delegates, and guests. I am delighted to join you today on a topic of very high relevance for the Asia-Pacific region. All of us agree that knowledge sharing and capacity building to support public-private partnership (PPP), particularly in infrastructure, requires greater harmonization, coordination, and alignment.
I also think it is appropriate that this important event is being held here in Korea. ADB and the Government of Korea have a long standing partnership in economic and infrastructure development. Korea was one of our founding members and one of the first borrowing countries that has become a donor. The third loan in history of ADB was Korea's Seoul-Inchon Expressway Project, in 1968. Then, 30 years later, in 1998, ADB provided financial assistance to Korea during the Asia Financial Crisis. Since then, our partnership has expanded to include knowledge partnerships, ICT, among others.
Currently, Korea has been a strong partner with ADB. A few weeks ago, ADB held its 42nd Annual Meeting in Bali, Indonesia. It was an important Meeting to discuss the future operations of ADB. The Government of Korea strongly supported ADB's General Capital Increase (GCI-V), so that we can provide additional support to the region which is facing the current economic crisis. Last year, we agreed with the Government to cofinance up to $3.5 billion for the region on infrastructure. With these, the partnership between ADB and the Korean Government remains to be active and strong.
In this 3-day workshop, we will not only learn from Korea's experience but also the experiences of other countries all over the world. This knowledge sharing provides us information on the key ingredients to developing successful PPPs as well as information on how to avoid pitfalls when implementing such activities. Today, I would like to share some of our thoughts on the infrastructure needs of the region, its implications for poverty reduction and climate change, the significance of PPP, and impact of knowledge sharing and partnerships.
II. Asia's Infrastructure Needs
Last year, ADB's Board of Governors' approved our long-term strategic framework, Strategy 2020. The strategy has three main pillars to guide our operations: (i) inclusive growth; (ii) sustainable development; and (iii) regional integration. Here, infrastructure development has a key role – as we recognize its importance for poverty reduction, and its significant implications for climate change.
We further recognize that the region faces significant demands for infrastructure financing. Our estimates are that the region will need a minimum of about $3 trillion over the next 10 years or about $300 billion annually. The numbers are higher than those of Sub-Saharan Africa, Latin America, and the Caribbean. These large infrastructure gaps have to be filled to support the region's continued growth and poverty reduction efforts. We also have recognized that at the current growth rate of investments, the Asia and Pacific region will take about half a century to reach the industrialized world's standards. At present infrastructure investment requirements exceed the available public financial resources. This poses a huge challenge to many Asian governments.
III. Financing through Public-Private Partnership (PPP)
Developing countries recognize the need to adopt PPP approaches for infrastructure development. However, the success of PPPs depend on the ability of a government agency to present bankable projects as an investment opportunity to the private sector and at the same time have an enabling environment for long lasting partnerships. As the global economic crisis deepen, many governments are likely to have less financial resources to spend sectors and areas critical for growth.
Clearly, the whole area of PPP is challenging and complex. We understand that it is essential to work with the governments to strengthen governance, build capacity, formulate reform agendas and create conditions conducive to private investment. We also recognize that to be able to develop replicable models on PPP there is a need to create trust in both public and private agencies through well structured projects. It is well within this premise that we are all here to share our experiences and learn from each other.
There are primarily three main measures for governments and development partners to enter into PPPs for infrastructure. Allow me to briefly share this with you.
First, there is a need to attract private capital investments. We all know that governments face an ever-increasing need to find sufficient financing to develop and maintain infrastructure required to support growing populations. Infrastructure services are often provided at an operating deficit, which is covered only through subsidies constituting an additional drain on public resources. Combined with most governments' limited financial capacity, these pressures drive a desire to mobilize private sector capital for infrastructure investment. And if structured correctly, a PPP may be able to mobilize previously untapped resources from the private sector at local, regional, or international level, seeking investment opportunities.
Second, PPP can be a tool for greater efficiency. Private sector operators enter into an agreement with the clear goal of maximizing profits, which are generated, in large part, by increased efficiency in investment and operations. If the PPP is structured to allow the operator to pursue this goal, the efficiency of infrastructure services will likely be enhanced. Improving the efficiency of services and operations also increases the chances that those services are economically sustainable and provided at affordable rates, even after satisfying the profit requirements of private operators.
Third and last, engaging in PPPs can help to reform sectors through a enhancement of roles, incentives, and accountability. Governments sometimes see PPP as a catalyst to stimulate preparedness and commitment to a sector reform agenda, of which PPPs are only one component. A key issue is always the restructuring and clarifying of roles within a sector. I think that a reform program that includes PPP provides an opportunity to reconsider the assignment of sector roles to remove any potential conflicts and to consider a private entity as a possible sector participant.
IV. The Role of ADB in Public-Private Partnership (PPP)
ADB is uniquely positioned to support the developing countries in Asia and the Pacific to raise additional finances for their investments in infrastructure through PPP. Over the past two decades, we have successfully completed large numbers of such infrastructure projects covering the sectors of water, sanitation, transportation, and energy. In the last decade alone, we have provided financing of $13.7 billion in 93 public sector infrastructure projects amounting to about 24% of the total project costs of $56.6 billion. Fifteen of these projects were having a PPP arrangement with ADB's contribution being $1.4 billion. In addition, we also have provided financing of $ 4.4 billion in suitable financial instruments to 36 projects executed by private sector organizations. We will continue to play a catalytic role in mobilizing the private sector resources to help channel such resources in a country's development process. Simultaneously, we will continue to support capacity building initiatives for developing countries, such as this workshop, to enable governments to design innovative and bankable PPP projects.
For ADB, I am happy to note that this workshop spearheaded by KDI through the Regional Technical Assistance Knowledge Sharing on Infrastructure Public-Private Partnerships in Asia takes place in close coordination with the ADB Institute Tokyo. The technical assistance aims to strengthen the capacity of developing countries by sharing knowledge and experience of successful PPP country frameworks and project case studies. This is expected to contribute to the formulation and strengthening of appropriate PPP policy and legal, institutional, and financial frameworks, and their application to develop and implement PPP infrastructure projects.
V. Closing Remarks
Ladies and Gentlemen: thank you again for the opportunity to join you in this event. I want to conclude my address with a clear message that through sharing knowledge and experiences of successful PPP country frameworks, we are building strength and capacities of developing countries to formulate and fortify appropriate PPP frameworks. Let's learn and be informed on ways to contribute to filling the infrastructure gap that many of our developing countries face. Thank you very much again.
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