Although PPPs are playing an increasing role in infrastructure development in Southeast Asia, the pace has been sluggish since about 2010, even in the Philippines, which is energetically promoting them (Table 11.1). Among the handicaps are (i) poor project pipelines; (ii) ineffective legal systems; (iii) lack of public sector capacity to assess risk sharing and incentives, and to negotiate PPP deals; and (iv) lack of supportive financial markets. Because of these obstacles, decision makers in the public sector, as mentioned earlier, may simply decide not to go the PPP route and fund infrastructure through state budgets or assign them to SOEs. But a drawback of using SOEs for this is that they crowd out the private sector.
The difficulty faced by governments with either no or only a few successful PPP projects behind them is how to get momentum for these investments going. Some governments start with concessions or affermage, leases, and renovate-operate-transfer contracts. The main objective is to the upgrade infrastructure and shift the burden of operation from the public to the private sector. Thailand, at the time of writing, was offering an operation and maintenance scheme for its Bang Pa-In-Nakhon Ratchasima and Bang Yai-Kanchanaburi intercity motorways. And Indonesia is selling the government-funded Bekasi-Kampung Melayu toll road in Greater Jakarta.
Poor project pipelines are a major factor for the slow implementation of infrastructure PPPs in Southeast Asia. The Public-Private Partnership Center of the Philippines is trying to address this by providing potential investors with detailed project information, as this can affect the cost of bidding and investor confidence. Typical investor turnoffs are poorly prepared projects or changing the status of a project; for example, canceling the tendering process in a PPP, causing bidders real financial loss. In Indonesia, bidders spend from $5 million to $10 million to participate in a tender.3 Credible project pipelines with clear timelines are imperative for ensuring that investors have confidence in a country's PPP system.
Various financing options can be used to attract investors to PPPs, such as incorporating future incremental land value into a project's valuation and financing projects by adding future tax increments, which are widely used by municipalities in the United States for infrastructure. Land value capture has been used to increase the attractiveness and benefits of urban rail transit development projects in Singapore; Hong Kong, China; and Tokyo. Using land value capture as a financing option requires a systematic approach rather than opportunistic exploitation. Projects using this should be viewed as part of a program and not as an independent entity, since the expected benefits depend on other linked factors.