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ADB calls for law to broaden PPP participation

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Asian Development Bank (ADB)

THE Asian Development Bank (ADB) said the government must start developing its Public-Private Partnership (PPP) policy to encourage broader private sector participation in infrastructure projects.

In a transport forum in Pasig City on Wednesday, ADB President Takehiko Nakao said the private sector must play an important role in enhancing transportation, but cited the lack of a clear government policy that ensures financial risks are mitigated keeps them from participating.

“PPP is important because it is directly connecting financial resources of the private sector together with the expertise of doing things (to government projects). In airports, it’s better to ask the private sector to do the work, because they know how to capture the clients (like) shops and restaurants, to make the airport more attractive. We need to think about not just finance but about drawing on the expertise of (the private sector),” he said.

Mr. Nakao said PPP involves large sums, noting that ADB estimated Asia’s annual infrastructure needs at $1.7 trillion to Asia last year, although the bank estimates that Asia and the Pacific will need $8.4 trillion by 2030 on transportation alone.

He added, “The current investment level for transport in Asia and the Pacific is about half of what is required. Opportunities exist to address this shortfall through increased cooperation between the public and private sectors.”

The main factor that renders the private sector reluctant to take on PPP projects is regulatory uncertainty hanging over their investments, he said.

“Sometimes there can be regulations… that even if they start from a good revenue expectation, a change of government will change the regulations, and they face economically unfeasible toll structures,” Mr. Nakao said.

He said companies may also abort projects in midstream because of higher costs or less revenue than expected.

“How we forecast revenue is important, as is risk mitigation,” he added.

He pointed out, however, that PPP is not a universal solution to encouraging the building of more infrastructure.

“PPP is not easy, and it’s no panacea,” Mr. Nakao said, citing the lack of financing transparency, litigation risk and high cost to end-users, which he said can be mitigated by proper project design, particularly in the sharing of costs and risks.

In the Philippines, a PPP bill is currently pending at committee level in both chambers of Congress. — Denise A. Valdez