Although PPP polices across Southeast Asia are at various stages of maturity, the following recommendations are offered to help strengthen the policy frameworks of infrastructure PPPs:
Conducive business environment. Strong macroeconomic fundamentals are vital to attract private sector investment. It is important for Southeast Asia's developing countries to maintain macroeconomic stability through prudent fiscal management, and to improve their sovereign ratings and good governance practices. Because the infrastructure industry affects not only the finance sector but other entities, such as contractors, consultants, and users, a conducive business climate will nurture these components and facilitate efficient markets. Both are essential for economic development and to increase competitiveness. Infrastructure is a long-term investment whose sustainability requires continuing political and macroeconomic stability, and a promising economy.
Infrastructure financing. To advance PPP systems, governments should develop compatible financing systems. A PPP is a sophisticated financing modality, which is very different from traditional procurement. A PPP's performance is based on service quality and delivery, not on inputs; and the contract period is defined by a project's life cycle. These features are a big incentive for implementing agencies to show market discipline. To this end, risk-sharing schemes reduce moral hazard from both sides and allow greater support from governments. To lower the cost of capital, governments can provide credit enhancement, typically through guarantees. Governments can also use various forms of support offered by multilateral agencies. ADB (2017) highlights how risk sharing in PPPs creates a compelling incentive for the private sector to avoid failure and deliver high-quality infrastructure and associated services on time and cost effectively.
Institutions and capacity. Public sector leadership is vital to guide the whole PPP process. Institutional aspects include the legal system, the institutions involved, and procedures for implementing PPPs. These require strong regulatory frameworks and the capacity to design, negotiate, and reach mutually beneficial contracts. Private entities require certainty in these partnerships, which only governments can provide. Equipping PPP units with enough power and capabilities to make crosscutting decisions will increase efficiency, enhance certainty, and speed up processes.
Credible project pipelines. Providing potential investors with regular and well-prepared project pipelines gives a strong signal that a government is committed and capable to work on PPPs. A pipeline of well-prepared projects and clear procedures will boost the confidence of both private partners and potential investors. Credible project pipelines will increase market efficiency and smooth deal flows, and allow investors to pick the most appropriate projects to bid.
In sum, for PPPs to be successful, countries should have achievable project pipelines, engage with qualified private sector partners, and put in place processes to ensure effective, efficient, and competitive mechanisms for these partnerships.
The following are recommendations for Southeast Asia's more developed PPP markets of Indonesia, Malaysia, the Philippines, and Thailand:
(i) Focus on a few well-prepared priority PPP projects to attract investors, rather than maintain long lists of candidate projects for which governments do not have the capacity to deal with. Well-managed deal flows are important so that potential investors know what to expect, and to attract the most ready bidders. Successful PPPs also have powerful demonstration effects to attract more investors. Brownfield projects might also be more attractive, given their historical data and performance.
(ii) Use geographical challenges and urban poverty as rationales for advancing pro-poor PPPs. Here, it will be best to start with a few projects that have superior feasibility studies, and to provide legal and institutional frameworks and standards for "lite PPPs" to accommodate medium-sized projects.
(iii) Ensure risks in PPP projects are fairly shared in accordance with best internalization principles, combined with government support and openness to foreign participation, including investors and multilateral development banks.
(iv) Explore innovative financial schemes for PPPs; for example, land value capture and tax increment financing.
(v) Provide technical skills training on PPPs for officials working on PPP projects, including in local governments.
The following are recommendations for Southeast Asia's less-developed PPP markets of Cambodia, the Lao PDR, Myanmar, and Viet Nam:
(i) Focus on building good governance by ensuring transparent and accountable PPP projects that can set benchmarks. It is important to show strong commitment for PPPs; this can be done by improving governance systems and providing legal certainty, and by establishing special funds and agency for these partnerships.
(ii) Explore and develop options for infrastructure finance and provide regulatory and institutional frameworks. This can be started by setting up a general framework for projects or by developing one from a showcase project. The choice will depend on a country's governance system and how its political economy interacts with PPPs.
(iii) Publish a list of priority projects that are compatible with a country's capacity to handle them; avoid a "shopping list" of projects.
(iv) Mobilize public resources to support infrastructure PPPs by increasing tax and customs revenue for government and project bonds.
(v) Focus on the following capacity-building areas for PPPs: understanding the infrastructure industry, PPP characteristics, building strong regulatory frameworks, and involving local governments.