Report: Long-Term Investment in Infrastructure in APEC 2017

Transcription

1 2017/FMM/007 Session: 2 (i) Report: Long-Term Investment in Infrastructure in APEC 2017 Purpose: Consideration Submitted by: Viet Nam 24th Finance Ministers Meeting Hoi An, Viet Nam October 2017

2 REPORT ON LONG TERM INVESTMENT IN INFRASTRUCTURE IN APEC 2017 Report by Ministry of Finance of Viet Nam I. APEC 2017 Work Plan for Long term Investment in Infrastructure The Finance and Central Bank Deputies Meeting in Nha Trang last February approved the APEC 2017 Work Plan for Long term Investment in Infrastructure, in which the Deputies set two goals for long term investment in infrastructure, including: (i) Attracting long term private capital into infrastructure investment; (ii) Promoting PPP projects in delivery of infrastructure facilities through dealing with risk allocation issues and applying instruments to mitigate risks. In order to achieve those goals, the Finance and Central Bank Deputies approved three following activities: First, organizing an APEC seminar on Longterm Investment in Infrastructure in May 2017 to share knowledge and experience in long term infrastructure financing and risk allocation issues in PPP projects. Second, collaborating with international partners (OECD, WB, ADB, GIH, etc.) to promote good practices in risk allocation matrices and risk mitigation instruments relevant to APEC developing members. Third, building capacity for government officials and experts in some APEC developing members in infrastructure project management by using Source, a joint global initiative from ADB and Multilateral Development Banks and an advanced project preparation solution. II. Implem entation of APEC 2017 Action Plan 1. In May 2017, a Seminar on Long term investment in infrastructure - risk allocation in PPP projects was held in Ninh Binh province with participants from APEC members, international organizations such as ADB, GIH, OECD and other partners. In the Seminar, many relevant issues of long term finance for investment in infrastructure were discussed, including: (i) Overview of infrastructure financing and related policy issues in APEC; (ii) Diversifying sources of finance for infrastructure; (iii) Risk allocation and risk mitigation instruments; (iv) Exchanging both successful and failed experiences in implementing PPP projects, especially building risk allocation matrices and applying risk mitigation tools in reality. The ideas related to a policy statement which will be reported to Finance Ministers in October also were discussed. Main findings related to long term investment in infrastructure were recognized: First, the involvement of private sector in infrastructure projects is particularly important in the context of limited public financing sources. Through PPP model, the private 1

3 sector is more engaged in providing infrastructure and bridge the shortage of capital as well as capacity of the public sector. Second, diversifying sources of finance for infrastructrue is necessary to mitigate risks of infrastructure projects, lower funding cost and attract more capital. Third, an optimise risk allocation align with appropriate risk mitigation instruments is a key to improve confidence from investor and success of PPP transactions. Fourth, institutional investors (such as pension funds, insurances, sovereign wealth funds, etc) are potential sources for long term investment in infrastructure. In order to attract institutional investors, infrastructures needs to be structured as attractive investment opportunities, providing revenue streams and risk-return profiles that match investors return expectations and liability structures. Fifthly, policy framework and regulations play an important role to foster private to engage in investment into infrastructure projects. 2. In terms of building capacity, Viet Nam, Peru and China collaborated with Sustainable Infrastructure Foundation (SIF) and ADB organized training courses on using Source. Source, initiated by Multilateral Development Banks and ADB, provides the public sector with an infrastructure project preparation tool, a project selection tool, a project coordination tool, a project funding tool, a project financing tool, a project promotion tool and a projectmonitoring tool. Through a standardised template, it covers the governance, technical, economic, legal, financial, environmental and social dimensions of the project definition. It encompasses the whole project lifecycle; it is organised in stages, including the preparation, procurement, development and operating phases. Using Source can improve the quality of project preparation by public sector and strengthen their technical capacities and abilities to manage risks. This makes infrastructure projects become more attractive to the private sector. 3. Report on Risk mitigation and allocation in infrastructure, including public private partnerships in APEC economies is built by coordination among GIH, ADB, OECD and discussions held by the APEC members at the APEC Seminar on long term investment in infrastructure. This report provides an overview of the type of risks in infrastructure projects and the tools available to policymakers and contracting authorities effectively manage and allocate risks amongst the various stakeholders. It includes four contents: (i) Analysis of risks in infrastructure financing, (ii) Risk transfer by contractual arrangements, (iii) Risk mitigation instruments and blended finance approaches to facilitate private investment, (iv) Selected good practices and case studies. It is an useful reference for APEC members, particularly APEC members with lack of experience in PPP transactions, to deeply understand kinds of risk of infrastructure projects in terms of politics and regulations, macroceconomic and business, technical. It describes how risk transfers among the project companies and other subcontractors in PPP contracts as well as project finance transactions. 2

4 A range of risk mitigation instruments in infrastructure projects, such as guarantees, insurance and some of the blended finance approaches, for example loan syndiction and debt subordination, to facilitate private investment are reported. Selected good practices and case studies in the report describe how to allocate infrastructure risks (such as demand risks, currency risks, commercial risks, political risks, etc) between private sector and public setor and how to apply risk mitigation instruments such as: guarantee, insurance, etc through contractual arrangements in reality. Learning from experiences of APEC members (Mexico, Chile, Peru) and international organizations (OECD, ADB, GIH, etc) will benefit APEC members in mobilizing finance of private sector to infrastructure. The appendixes provide useful information, including: (i) Mapping of instruments and vehicles for the financing of infrastructure, (ii) Main PPP contractual schemes, (iii) examples of intervention of national development bank/investment fund, (iv) GIH PPP risk allocation tool, and (v) Description of risks. 4. Based on discussion of the Seminar in May as well as the report, we have been working closely with OECD to prepare the draft policy statement on diversifying financing sources and fostering private sector involvement in infrastructure investment in APEC economies. The final policy statement will be submitted to Finance Ministers as Annex to the Joint Finance Ministerial Statement. The policy statement made some following recommendations, on a voluntary and non-binding basis: (1) Diversifying sources and instruments for the finance of infrastructure could broaden the financing options available for infrastructure projects and lower cost of funding. The formation of local capital markets, including debt and equity, is a crucial step to secure long-term financing for infrastructure projects and can increase the options available for governments. By using blended finance - the strategic use of public finance to mobilise further additional private investment in frastructrure. Strengthening policy framework and regulations, APEC members could promote reliable long term funding basis of infrastructure projects. (2) Institutional investors are potential sources for long term investment. APEC members should review financial regulations that may potentially pose unintentional barriers to infrastructure investment of institutional investors. (3) A deep understanding of the risk allocation principles, risk mitigation measures and government support arrangements is a precondition to attract private sector capital. The enabling environment with the rule of law, enforcement of contracts and regulatory quality is found to be of key importance to attract the private sector to partcipate in infrastructure markets. (4) APEC members, particular APEC developing economies can use public financing to support the viability of infrastructure projects. In addition, there are a variety of techniques to mitigate risk in infrastructure and improve effectiveness. 3

5 (5) Building project pipelines is conducive to encouraging private sector involvement in infrastructure, and may benefit from a concerted APEC effort to increase or expand capacity, project preparation facilities, and technical assistance. The formation of a project pipeline may be a prerequisite for certain infrastructure finance strategies, for instance, the use of project bonds through local debt markets. 4