Of the 20 countries covered in the Economist Intelligence Unit's 2014 Infrascope survey, which ranks the readiness and capacity of PPP projects in Asia and the Pacific, only one-Australia-has a mature PPP environment (EIU 2015). Four countries in the region have developed environments for PPPs: India, Japan, the Philippines, and the Republic of Korea. According to Infrascope, the People's Republic of China has the highest readiness and capacity ranking among emerging PPP market economies in the region. Taken overall, the Infrascope survey reflects the growing importance of PPPs in Asia and the Pacific, and how some developing countries in the region are getting more experienced and adept in implementing PPPs. That said, the survey highlights a wide range of obstacles undermining PPP projects, including weak legal and regulatory frameworks, poorly prepared or structured projects, lack of capacity to carry out projects in the public and private sectors, and weak financial markets.
Moszoro et al. (2014) show that private investment in infrastructure is highly sensitive to freedom from corruption, rule of law, quality of regulations, and the number of disputes in a sector. Further, PPP enabling-law provisions allowing unsolicited project proposals and for the comingling of public and private funds are particularly useful for facilitating private investment in infrastructure (Albalate, Gel, and Geddes 2015). Ismail and Harris (2014) identify the top five negative factors for getting PPPs off the ground in Malaysia: (i) lack of government guidelines and procedures, (ii) lengthy delays in negotiations, (iii) high user charges, (iv) project delays caused by political opposition and confusion over government objectives, (v) and the evaluation criteria for projects.
The long-term nature of PPP contracts and the many different stakeholders in these partnerships can heighten project risk, making PPPs less attractive to private partners. This is widely discussed in the literature. Nijkamp, van der Burch, and Vidigni (2002) and Scharle (2002) identify obstacles to project success. These include long-term planning horizons, overly complex projects, inappropriate or lacking institutionalized competition rules for public projects, hold-ups caused by a change in the position of public partners, and technocratic implementation practices. Li and Zou (2008) group the identified risks based on project life cycles, from the feasibility study and project design to financing and construction, operation, and transfer. Soomro and Zhang (2013) examine failure factors at different stages for transport PPPs: among them, poor economic and financial assessments for feasibility studies, inappropriate risk allocation between partners during procurement, delayed land acquisitions, and lower user demand once a project is operating.
Delayed land acquisitions are a prominent barrier to PPP projects in developing Asia, particularly for the relocation of informal settlers and disputes between landowners and environmental groups. Under the law in the Philippines, acquiring rights-of-way for infrastructure projects must involve a court process. Right-of-way problems and high resettlement costs have delayed infrastructure PPP projects there, including the North Luzon Expressway Project, to improve the transport network between provinces and municipalities in North Luzon.
De Clerck and Demeulemeester (2014) point out that complex procurement procedures for PPP projects are bottlenecks to competition and keeping bidding costs manageable. Several empirical studies, including Carrillo et al. (2008), Chen and Doloi (2008), and Riedl et al. (2013), acknowledge that bidding for PPPs is expensive and that governments should be more selective in their choice of suppliers to reduce the uncertainty of a supplier's performance. Soomro and Zhang (2013) argue that improper risk allocation is equally harmful to public and private sector partners for achieving project goals.
Harris (2003) examines reasons for the failure of electricity PPP projects, and finds problems in enforcing and maintaining cost recovery pricing policies, and in collecting payments owed by consumers or government off-takers. Water and sewerage PPPs face similar problems. The author finds the main reasons for the cancellation of telecommunication PPP projects are because cellular services are unable to attract enough customers, and because of government changes to the market's structure.
Jandhyala (2016) identifies two main channels where multilateral development banks (MDBs) can lower PPP project risks. The first is through operational assistance to ensure that project contracts are thoroughly reviewed, and by encouraging greater supervision of project implementation. The second is through policy dialogue to positively influence PPP negotiations and help resolve project disputes between client governments and their private sector partners. PPP projects in which MDBs participate are likely to face lower project risks and be less likely to run into trouble or get cancelled. Applying a logit model to 2,117 infrastructure PPPs projects in 45 developing countries from 1995 to 2009, Jandhyala (2016) finds the odds of project distress with the participation of MDBs is 50% lower than for projects without their participation. Bhattacharyay (2010) finds that MDBs can help facilitate regional cooperation by providing public goods in neighboring countries.
Empirical evidence confirms that macroeconomic factors can determine the success or failure of PPP projects by affecting operations and profitability. Allport et al. (2008) cite an elevated railway PPP project in Thailand that faced severe financial problems from overly optimistic demand projections and failing to mitigate exchange rate risk. Another good example of macroeconomic risk is Kuala Lumpur's light rail transit project, which failed because rising inflation during the Asian financial crisis hit profits and the concessionaires were unable to service the loans. The rising frequency and severity of natural disasters, and the effects of climate change, need to be addressed in PPP contracts and managed as a risk in infrastructure PPP projects.
Categorizing these and other hazards is important for managing risk in PPP projects. Ng and Loosemore (2006) group them in two basic categories: general risks (those not directly associated with a project), and project- related risks. Li et al. (2005) classify risks in three categories: (i) macro risks that are exogenous to a project but still have project impacts (for example, socioeconomic and political conditions); (ii) meso risks, which occur within the boundaries of a project (for example, risks related to project demand, design, and construction); and (iii) micro risks from the inherent differences between the public and private sector partners. Salzmann and Mohammed (1999) group risks into four categories: host country risks, investor risks, project risks, and project organization risks. Tah, Thorpe, and McCaffer (1993) categorize project risks based on the factors that affect contractors, and structure these factors into internal and external risks.