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8/3/2019 Overcoming the Infrastructure Gap in Cities with Private Sector Participation
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Financing Future Cities
Overcoming the Infrastructure Gap in Cities
with Private Sector Participation
Hisaka KimuraHead, East Asia Unit
Private Sector Infrastructure Division 2Private Sector Operations Department
Asian Development Bank
15 November 2011
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Mind the Gap
Area : old city center new outskirts
emerging satellite cities
Money : total investment amount
needs v.s. public budget
Technology: safety, energy & water
efficiency, climate change
Operation Management: large
network v.s small distributed network
PPP is seen as a successful vehicle to
fill in the gaps
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Objective
The session will examine and discuss recent PPP deals that ADB and
other partners have concluded.
Some of the questions that the session will try to address include :
- are PPP deals actually happening in Asia and elsewhere?
- are utilities/governments ready for PPPs?- what are the major stumbling blocks for PPP to happen?
and how do we overcome them?
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Case Study: Water Sector in PRC
Water is one of the PRCs most crucial development challenges.
Growing demand for water is also highlighting importance of water
efficiency: the PRCs per capita water resources are of the global
average, but its water consumption per GDP is 5.5 times higher.
More than 90% of the urban population has access to piped water. But
there is critical shortage in water supply delivery capacity to fulfill last
mile connections to the urban areas and ensure service quality can keep
up with increased demand while the PRC adds another 200 million or
more urban residents by 2020.
Doubling funding needs in the next 5 years. This cannot be met by the
public sector alone.
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Water Supply Value Chain
Local
governmentowned water
companies
BOT started
in late 1990
Local
governmentowned water
companies
Raw waterExtraction
Tap watertreatment
Waterdistribution
End users
Case Study 1 Case Study 2
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BOT Water Treatment Plant
The fist BOT project in the water sector in the PRC
Serving 400,000 cubic meter of treated water per day in Chengdu
city
ADB internal PPP:
ADB public sector operation department provided technical assistanceto the Government on developing tender documents and arranging
competitive bidding.
ADB private sector operation department provided financial assistance
to the winning bidder, consortium of Veolia Environment and Marubeni
Corporation.
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Project Structure
The project supplies treated water under a take-or-pay offtakeagreement, with a performance guarantee from the municipal
government.
Project Sponsor
Project Company
Municipal Waterworks
General Company
(Distribution)
Water Authority
Bureau
Construction
Dept
Municipal
Government
Take or PayOff take agreement
Concession Agreement
Water sales
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PPP Trend
Since the first BOT project, PPP has been seen as an effective means to
address ever-increasing infrastructure needs.
Primary cities have completed flagship large-sized BOT projects.
Guarantee from the central/ local governments are no more available.
High demand exists in a series of small-medium sized green and brownfields projects which involve unproportionally high transaction costs and
substantial project preparation time.
Text book type project finance does not fill in the financial gap in the
current market.
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Municipal Water Distribution Infrastructure
Development Project
ADB offers a portfolio approach to support multiple water
distribution in second- and third-tier cities in the PRC, which are
often too small and time-consuming for international banks to
finance on stand-alone basis.
ADBs loans have two components:
A: USD/ RMB dual currency loan of up to $100million equivalent
B: USD loan of up to $100 million funded by commercial banks
The loans will be channeled to subprojects to improve water
distribution coverage, develop related infrastructure, and increasethe quality and reliability of the water supply.
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Project Structure
WPC WPCWPC WPC
PRC Hold Co
ADB USD Loan
International banks
syndication
ADB
CNY Loan
Local Banks
CNY Loan
100%
Various Municipal Entities
Project
Sponsor
WPC: Water Project Company
WPC WPC WPC WPC
Concession Agreements with municipal governments
ADB
CNY Bond
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Discussion points
Existing water infrastructure as a new asset class Decouple water business and equity investment
Variation of water quality for specific purpose
Majority of tap water is used for cleaning purpose
Water efficiency throughout water chain Waste water as a new water resources (Singapore: NEWater)
Water and energy nexus
Energy & water efficiency
Distributed community sized treatment facility vs large scale facility
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Structuring a Water PPP Project
Appropriate Funding Structure
Equitable risk sharing : risk
should reside with party most
able to manage it.Commercial
Issues such as tenure,termination regime and step-in
rights.
Economic fundamentals:
- Business and financial
viability and affordability
- Equitable tariff structure
Funding
Structure
Risk Allocation
Economic Fundamentals
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A Way Forward
In 2012, and future years, we are looking into the merits of new area ofprivate sector participation that could improve efficiency.
We focus on models involving an enhanced role for the private sector,
with private sector entity taking responsibility for most aspects of service
provisions for a given project, which could yield an improved allocationof risk.
We aim to offer unique financial solution with wide range of financial
options loan, equity, guarantee, private equity fund, etc to ensure
successful launching of projects.