PPP trends and initiatives in South Asian Countries Policy Dialogue on PPP for Infrastructure Development in South Asia Organized by UN ESCAP 21-22 September 2015
Agenda 1 2 3 4 Infrastructure Assessment of South Asian Countries Emergence of PPPs in South Asia India s experience so far Challenges and Way Ahead for PPPs in South Asian Countries Page 2
South Asia region lags behind in infrastructure development Infrastructure Ranking 127 132 119 92 87 75 Bangladesh Bhutan India Nepal Pakistan Sri Lanka Source: The Global Competitiveness Report 2014 2015 Note: Information not available for Afghanistan and Maldives Key points: No South Asian country in Top-50 Huge infrastructure gap in all South Asian countries Page 3
hence, the region requires $ 4-5 trillion of investment by 2030 Infrastructure Investment Requirement US / Canada ~$6-6.5 trillion Americas $16 17 trillion WORLD TOTAL $40 50 trillion Europe $8 10 trillion Asia/Oceania $15-20 trillion China ~$6.5-7 trillion India ~$3-3.5 trillion Africa/Middle-East $2 3 trillion Source: BCG report The Global Infrastructure Challenge 2010, Secondary research, EY Analysis Key points: Investment to a tune of USD 4-5 trillion required between 2010 and 2030 to bridge the gap Page 4
Public sector spending alone wouldn t suffice $ 4-5 trillion investment requirement 1/2 Sri Lanka Budget Surplus/Deficit (as % of GDP) Pakistan Nepal India Bhutan Bangladesh Source: www.cia.gov, EY Analysis (As per 2004 estimates) -12-10 -8-6 -4-2 0 2 Key points: Budget deficit has put substantial constraints on scarce public resources in most south Asian countries Page 5
Public sector spending alone wouldn t suffice $ 4-5 trillion investment requirement 2/2 Public Debt (as % of GDP) Sri Lanka Pakistan Nepal India Bhutan Bangladesh Source: www.cia.gov, EY Analysis (As per 2014 estimates) 0 20 40 60 80 100 Key points: Huge public debt puts further constraints on scarce public resources Major share of USD 4-5 trillion of investment to come from the private sector Page 6
PPPs in infrastructure have gained momentum in the region since 1990 Number of PPP Projects (Finacial Closure Achieved) 117 129 142 84 72 62 70 3 2 4 6 10 33 31 17 24 25 14 23 21 36 34 35 34 40 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Early Days Kick-off Phase (1994-2001) PPP Boom (2002 onwards) Total 15 projects worth USD 1.8 billion 8 projects in Energy sector; 1 in Transport sector and 6 in Telecom sector Source: http://ppi.worldbank.org/, EY Analysis Page 7 Total 177 projects worth USD 33.3 billion 86 projects in Energy sector and 46 projects in Transport sector Total 876 projects worth USD 351.4 billion India major contributor 458 projects in Energy sector and 377 projects in Transport sector
Investment in USD billion India is leading the way for PPP projects in the region Country wise PPP projects and investments till 2014 400 350 300 250 200 150 India India front runner in PPP projects - Financial closure for 847 projects (76% of total projects) amounting to USD 338 billion 100 50 0 0 100 200 300 400 500 600 700 800 900 Total Number of PPP Projects Energy and Transport sectors have been the focus of private sector participations in the region Source: http://ppi.worldbank.org/, http://www8.cao.go.jp/pfi, EY Analysis Key points: India is front runner in terms of numbers of PPP projects and investments Afghanistan, Bhutan and Maldives have not seen much PPP investments Page 8
2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12* India s PPP story so far 50% of infrastructure investment to come from private Infrastructure investment Investment (as %age of GDP) Private Public 37% 48% 9 8 7 6 5 4 3 2 1 0 Tenth FYP Eleventh FYP 22% Tenth FYP Eleventh FYP Twelfth FYP (P) Private Public Total Source: Twelfth Five Year Plan and Eleventh Five Year Plan, Planning Commission * Estimated, Source: Gajendra Haldea, Building Infrastructure: Challenges and Opportunities, 7 July 2010; Twelfth Five Year Plan 2012-2017, Planning Commission Key points: Private sector participation has continuously increased with 12 th FYP envisaging around 50% of infrastructure investment to come from private sector Page 9
India s PPP story so far Score on Critical Success Factors (CSFs) encouraging PPP Well developed Financial Market Strong Legal/ Regulatory Framework Robust Risk Allocation Framework Transparent & Fair Procurement Process PPP Projects in India Economic & Financial Viability Stable Political Situation & Will Adequate Government Support Stakeholders Participation & Interactions Strong & Matured Private Sector *Scoring is based on our perception Weak Page 10 Moderate Strong
India s PPP story so far But still lot to be achieved 1 2 Policy / Regulatory Reforms Preparation and implementation of dedicated PPP policy and rule Creation of an Independent PPP Regulator and Dispute resolution courts Making Value-for-money (VFM) mandatory for each project in the PPP policy/ rule Institutional Reforms Development of institutional capacity at state and local body level Improvement of PPP database management at national and state level 3 Financing Reforms Development of long term lending financial markets in the country Development of new financial products such as take-out financing and refinancing Page 11
PPP projects in the South Asia region face multi-facet challenges Weak Legal/ Regulatory Framework Poorly Prepared/ Structured Projects Lack of Capacities Weak Financial Environment Absence of legislation Absence of sector specific regulators in many countries except India Absences of Model Concession Agreements (MCAs) with robust risk allocation framework in many countries Dispute resolution mechanism is a major area of concern Value for money analysis not given much priority Except for India, most countries in the region significantly lack in capacities, both in public and private sector Lack of dedicated financial institutions in most countries Limited involvement of insurance/ pension funds Lack or underdeveloped financial products such as long term loans, take-out finance, etc. Page 12
To foster infrastructure investment and thus growth, the Region needs to overcome existing challenges by Regional co-operation on knowledge sharing, improvement of financial climate, and capacity building of both private and public sector Strengthening the regulatory and legal framework Putting more emphasis on project preparation including value for money analysis Development of robust risk allocation framework and dispute resolution mechanism Development of local infrastructure bond markets, long term lending institutions, and innovative products such as take-out financing and refinancing Page 13
Thank You Abhaya Agarwal Partner - Infrastructure and PPP Ernst & Young LLP 6th Floor, Hindustan Times House, 18-20, Kasturba Gandhi Marg, New Delhi, Delhi 110 001, India Phone: +91 11 4363 3000 Email: abhaya.agarwal@in.ey.com Page 14