Infrastructure Public-Private Partnership Case Studies of APEC Member Economies
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___________________________________________________________________________ 2014/FMM/019 Agenda Item: 3.3 Infrastructure Public-Private Partnership Case Studies of APEC Member Economies Purpose: Information Submitted by: China 21st Finance Ministers’ Meeting Beijing, China 21-22 October 2014 Content Foreword Executive Summary 1. Australia (1) Peninsula Link (2) Victorian Desalination Project (3) Rolling Stock PPP 2. Canada (1) Autoroute 25 (2) Chief Peguis Trail Extension (3) Iqaluit Airport Improvement (4) Royal Canadian Mounted Police E Division Headquarters Relocation Project 3. Chile (1) Metropolitan Center for Vehicles Removed From Circulation (2) East-West System 4. People’s Republic of China (1) Municipal Natural Gas Infrastructure Development Project (2) Beijing Metro Line 4 (3) Shanghai Huadian Xinzhuang Industrial Park CCHP PPP Project (4) Baiyinchagan-Yongtaigong Highway, Inner Mongolia (5) Improvement Project of Southern Main Pipe for Sewage, Shanghai (6) The Syndicated-loan-funded Construction of Xinxiang-Changyuan Section of Jiyuan-Dongming Highway (7) Jamaica H2K Highway North-South Link Project 5. Indonesia (1) Umbulan Water Project (2) Central Java IPP 6. Japan (1) Haneda Airport International Passenger Building (2) Kawai Water Purification Plant Rehabilitation Project (3) Trans-Tokyo Bay Highway(Tokyo Bay Aqualine) 7. Korea (1) The Landfill Gas Resource Project (2) Restructuring of the Geoga Grand Bridge Project (3) Busan New Port Development Project 8. Malaysia (1) Hospital Support Services (2) North-South Expressway 9. Mexico (1) National Infrastructure Program (2) Toluca and Tlalnepantla Hospitals (3) Ciudad Victoria Hospital (4) Atotonilco Wastewater Treatment Plant 10. New Zealand (1) Auckland South Prison PPP 11. Peru (1) Peruvian Amazon Waterway (2) Line 2-Basic Network of the Metro of Lima and Callao (3) General San Martin Port Terminal (4) IIRSA Amazonas Norte Highway 12. Philippines (1) School Infrastructure Project Phase I (2) Improving Access to Water Services for Poor Households in Metro Manila (3) NAIA Expressway (4) NKTI Hemodialysis Project 13. Russia (1) Integrated Development of Lower Priangarye Project (2) Integrated Development of South Yakutia Project (3) Pulkovo Airport Expansion Project 14. Singapore (1) Waste-to-Energy Infrastructure Development Project (2) Sembcorp NEWater Plant at Changi 15. Chinese Taipei (1) High Speed Rail Project (2) Freeway Electronic Toll Collection (3) Sewage System BOT Project in Lotong Area of Yilan County (4) Kaohsiung Port International Container Terminal Phase I Construction Project 16. Thailand (1) Toll Expressway System Stage 2 (2) The Container Terminal B5 at Laem Chabang Port 17. United States (1) Port of Baltimore, Seagirt Marine Terminal (2) Chicago Skyway (3) Port of Miami Tunnel (4) Florida I-595 Road Project 18. Vietnam (1) Phu My 2 Phase 2 Power Project 1 EXECUTIVE SUMMARY The Asia-Pacific region is the locomotive that has been driving world economic growth in the recent decades. Infrastructure investment and development have played a critical role in this process in terms of improving connectivity and unleashing growth potentials. In the face of a huge infrastructure gap in the Asia-Pacific region, public-private partnership (PPP) is considered by APEC member economies as a cost-effective solution to bridging this gap. The PPP modality mobilizes private financial resources and know-how, promotes efficient use of public funds, and improves service quality. PPP projects require a multiple of key factors to ensure its success. These include, among others, an enabling policy and legal environment, proper design and preparation, strong institutional capacity, long-term contract management, and careful monitoring over the project life cycle. In this collection, 55 case studies were provided by contributing APEC member economies, as well as international financial institutions. The case studies cover infrastructure PPP projects in the transport, energy, water supply and wastewater treatment, and service sectors of 18 APEC member economies. A careful review of the case studies reveal the following lessons and experiences: The PPP model offers significant advantages over traditional public procurement in terms of efficiency, service quality and value for money. Australia, Canada, Japan, the People’s Republic of China (PRC), and Peru have all reported significant cost savings by applying various PPP methods on infrastructure projects. Australia tendered bids for a road (the Peninsula Link), water (Victorian Desalination), and a rail infrastructure (rolling stock) project. The financial proposals were evaluated against a public sector comparator (estimate of the risk- adjusted, whole of life cost of the project if alternatively delivered by the government). The preferred proponents provided bids lower than the public sector comparator by 1%, 14.1%, and 30% respectively. Canada carried out value-for-money assessments throughout the procurement process to estimate value savings that consistently demonstrated that the PPP approach provided a lower overall net present cost to taxpayers compared to the traditional delivery procurement method. Similarly, Peru utilized value-for-money analysis in approving the modern, mass public underground Metro system as a PPP project. The PRC experience in its municipal natural gas infrastructure project is noteworthy in that the successful operation and tangible efficiency gains afforded by PPPs convinced the neighboring municipal governments to launch PPP in their own cities. This supported PPP penetration into smaller cities and subsequently expanded the natural gas market. The Kawai water purification plant rehabilitation project in Japan showed a public sector comparator price higher by about 6%, which further validated the government’s decision to use the private finance initiative approach in the construction of the plant. Because of private sector know-how, the project adopted a state of the art membrane filtration system to increase the water supply and water treatment capacity – a method the public sector has no prior experience with. Today, the water treatment plant with membrane filtration system processes water on a scale that has never been realized in Japan. The PPP design, build, own, operate approach of the five (5) water sector projects in Singapore, has resulted in a lower than expected bid price partly due to economic optimisation, design innovations, and improvements in membrane technology. PPP experiences reported by the China Development Bank indicate that PPP is essential in reducing national government debt, relieving the financial pressure weighing upon local governments, and demonstrate that local enterprises can expand to overseas market with the PPP model (as in the case of Jamaica’s Highway 2000 project where a Chinese engineering company was engaged to construct the 2 highway). Privatizing Malaysia’s hospital support services improved the management of its public health facilities and prolonged the life and reliability of the assets, which translated to better services to patients. Government participation is essential to further encourage private sector interest, particularly in large, complex infrastructure projects. The experiences of Indonesia and Chile showed that the private sector will more likely invest in economic and infrastructure projects with government as their enabling partner. Risks associated with these types of projects are oftentimes too high for the private sector to bear on its own. In Chile, the government allowed for the option of a (government) guaranteed minimum income mechanism to increase the financial viability of proposed projects. Financial closures during the bidding process of a water project in Indonesia were unsuccessful due to lack of government financial support in the form of capital subsidies and government guarantees. Singapore’s initial experience in the procurement process of building its waste-to-energy (WTE) incineration plant also met with setback as the market was not ready. A tender for a pure private sector competition model for the development of a plant in 2001 was unsuccessful because the private sector could not bear the demand risk. The private sector might also be unable to source for or unwilling to commit the required funds to finance such a capital intensive project without demand support. In view of the market conditions, the government decided to adopt a design- build-own-operate PPP scheme, with full take-or-pay approach to ensure project bankability. Invitation to tender was issued in 2004, contract was awarded to the winning bidder in 2005, and plant was completed in 2009. In Canada, two road transport case studies indicated that there were no proposals forthcoming from the private sector to complete the proposed infrastructure projects without public sector involvement. Thailand had an interesting experience in its container terminal project, where the government stepped in to manage demand risks in the face of strong competition among port operators, which drove prices down and adversely impacted revenues that were lower than initially projected. Identifying and implementing risk-mitigating mechanisms for balanced management of risks for the public and private sector. Identification and proper allocation of risks is fundamental to a PPP success story. It is advisable to have in PPP contracts risk mitigation clauses to cover (a) changes in government policy or legal provisions that will mitigate exposure of the private sector