This presentation was given by Cledan Mandri-Perrott, Lead Financial Officer, World Bank, at the OECD Southeast Asia Regional Forum, held March 25-26 in Bali, Indonesia.
East Asian Public-Private Partnerships in a Global Context
1. East Asian PPPs in a Global Context
Asia-Singapore Infrastructure Roundtable
Cledan Mandri-Perrott, Lead Financial Officer,
Infrastructure Policy
Singapore Hub
The World Bank
3. Infra Financing Gap
Current Infrastructure Finance
Yearly Infra Finance Needs – Developing Countries
c. $1 trillion
c. $ 1 - 1.5 trillion
PPI = $182 billion
MDBs = c.$40 billion
Green Investment Gap c. $ 0.2 – 0.5 trillion
4. Future financing requirements
for infrastructure
Future investment requirements
2020
EAP (35–50%)
ECA (5–15%)
LAC (10–15%)
MENA (5–10%)
SA (20–25%)
SSA (5–15%)
$1.8–$2.3
By region
2020
Water (15–30%)
Electricity (45–60%)
Telecom (10–15%)
Transport (15–25%)
$1.8–$2.3
By sector
Source: “Infrastructure for Development: Meeting the Challenge”, background paper for Brookings-G24 High-Level Seminar, April 11, 2012, Washington, DC. The estimates are based on various
World Bank papers and a paper on infrastructure prepared by the MDBs for the G20 in 2011.
Note: MENA=Middle East and North Africa; SSA=Sub-Saharan Africa; ECA=Eastern Europe and Central Asia’ LAC=Latin America and Carribean; SA=South Asia; EAP =East Asia and Pacific
($ trillion per year, 2008 constant prices – financing figures in $ billion)
4
5. $125 B
$30 B
$5 B
$58 B
$52 B
$26 B
$11 B
Private vs. PPP Priv & Public Debt & Equity
Divestitures
Telecom
Private Equity
Public Equity
Public Debt
Private Debt
PPPs
How much of PPI is private?
Source: World Bank Infrastructure Policy, PPI Database
7. Cumulative by Country over last 5 years
Source: World Bank Infrastructure Policy, PPI Database
8. Latin American APEC members tend to attract
more private investment in infrastructure…
Source: World Bank and PPIAF, Private Participation in Infrastructure Database
0.00% 0.40% 0.80% 1.20% 1.60% 2.00%
China
Vietnam
Indonesia
Malaysia
Thailand
Chile
Philippines
Mexico
Peru
PPI as a % of GDP in Low and Middle Income APEC Economies (excluding
telecom)
9. Room for Greater Leverage in EAP
0.0% 0.5% 1.0% 1.5% 2.0%
EAP
ECA
LAC
MNA
SA
AFR
PPI % of GDP, 2012
2
14
25
71
111
131
340
0 50 100 150 200 250 300 350 400
China
Indonesia
India
Russian Federation
South Africa
Turkey
Brazil
PPI Investment per person, 2012
Source: World Bank Infrastructure Policy, PPI Database
11. -0.3
-0.2
-0.1
0
0.1
0.2
0.3
0.4
0 10 20 30 40 50 60 70 80 90
FDI/GDP
Country Risk
Correlation between Country Risk and predicted value of FDI/GDP
FDI/GDP predicted
Linear (FDI/GDP
predicted)
FDI and Sovereign Risk
Source: Araya, Schwartz & Andres, World Bank (2013)
12. PPI and Sovereign Risk
-0.003
-0.001
0.001
0.003
0.005
0.007
0.009
0.011
0.013
0 20 40 60 80 100
PPI/GDP
Country Risk
Correlation between the predicted value of PPI
Concessions/GDP and Country Risk
PPI
concessio
ns/GDP
predicted
Linear
(PPI
concessio
ns/GDP
predicted)
-0.003
-0.001
0.001
0.003
0.005
0.007
0.009
0.011
0.013
0 20 40 60 80 100
PPI/GDP
Country Risk
Correlation between the predicted value of PPI Greenfield/GDP and
Country Risk
PPI green
field/GDP
predicted
Linear (PPI
green
field/GDP
predicted)
Source: Araya, Schwartz & Andres (2013) Source: Araya, Schwartz & Andres (2013)
13. 13
New environment – costlier and more
uncertain
Before the crisis Now
Dominated by Banks
(US & Europe)
Caution by Commercial Banks:
Increase of financing costs &
restructuring balance sheets
due to Basel III
Monoline Insurance for total
wrap
Disappearance of Monoliners
Price (for UK): LIBOR +90bps Price (for UK): LIBOR + 275
bps
Term (for UK): 30 years Term (for UK): <7 years
18. UPSTREAM
knowledge
strategic
advice
transaction
support
financing
and
guarantees
PPP / Infra
Data & Trend
Analysis
M&E /
Impact
Evaluation
Infra
Planning &
Investment
Prioritization
Regulatory
Framework
PPP Units
and
Regulatory
Capacity
Best
Practices &
Standardized
Contracts
Sector
Strategy /
Market
Structure
Project
Design/
Feasibility
VGF
Estimates
/ Financial
Structure
Bidding
Documents
and
Transaction
Gov’t PPP /
VGF
Financing
DOWNSTREAM
Project
Pipeline
Development
Design of
New
Facilities
Design of
New Risk
Instruments
Private Debt
& Equity
Guarantees
Where is support needed
22. Debt Financing
Costs
Capital
Expenditures /
Depreciation
Operational
Expenditures
Dividends / Return
on Investment
Debt Financing
Cap Ex /
Depreciation
Op Ex
Dividends / RoI
Reduce
Costs
Revenues Costs
Costs with
Support
Loan, Partial Risk Guarantee,
Partial Credit Guarantee,
Political Risk Insurance
PRI, PRG, Financing of
project preparation
Analysis and Research
PPP design, regulation,
market structure. Equity
investment in providers
Political Risk Insurance,
Partial Risk Guarantee
d Rev’s
Cost Reduction
Measures
User Fees,
Tariffs or Tolls
Government
Transfers
WBG
Tools
Closing the Project Viability Gap
23. Assess PPP
Prospects
WBG Support for Infrastructure Finance
Projects
Transaction
Structuring
Implement
Tender
Bid Award
& Contract
Signing
Construction
& Commercial
Operation
Date
Contract
Management
1-2 months 6-9 months 9-12 months 1-2 months 2-3 years 10-30 years
Identification Phase 1: Structuring Phase 2: Implementation Project Construction & Operation
Project Preparation Active Project
IFC PPPAS (Structuring & Tendering Advice)
World Bank Policy Advice
IFC Equity Investment
World Bank / MIGA
IFC (Lender)
World Bank/MIGA
IFC Advisory/Investments
World Bank
Notas del editor
Private INV in 2012 =182Telecom $52.4 billionDivestitures $5 billion Remaining INV = 124.6At this point at least 31.5% is private. Based on a survey of Brazil, India and Mexico done for our Brazil ESW for the remaining sectors En. Tr. and Water, Mexico had 38%+5% from = 43% from public sources, Brazil 70%+5% IFI=75% public Our report in India indicates that approximately 80% of debt is from public sources.I realize that I am taking shortcuts and not weighting the AVG, but here you end up with (43+75+80)/3= 66%If we assume a standard D/E ratio of 70:30, then .70 * .66 = .462 or 46.2% of the remainder 124.6 is from public sources. (i.e. 57.5 billion)57.5/182 = 32% from public debt sources or 57.5 billion Without telecom it would be about 46% Public sources may also finance these projects through equity, which has not been included here. In Russia, the percentage of private equity is only about 60%, in China it is 68%.
APEC member states in Latin America tend to have greater private participation in infrastructure, particularly in energy, transport and water.LATAM APEC countries have been better at attracting PPI, partly because of better institutional structures coupled with clarity of legal regime (contract enforceability) as well as better developed regulatory structures (gives long term certainty – a critical factor for long term investors)ASEAN APEC countries have a long way to catch up. In some instances (eg China) although public investment has increased as a share of the total infra investments, actual PPI has come down. For example, China:Attracts the lowest share of PPI in APEC (excluding US and Canada). China PPI has been reducing steadily from 4% in 2006 to 0.01% in 2011.Despite PPI reduction, China has rapidly increased its public spending on infrastructure since the financial crisis (possibly crowding out the private sector).
We built a panel data of 124 developing countries between1990 and 2010.The Country Risk ratings were obtained from Euromoney and are calculated as follows:• Political risk (25%—non-payment or non-servicing of payment for goods or services, loans, trade-related finance and dividends; and non-repatriation of capital)• Economic performance (25%—GNP per capita, and average from poll of economic projections)• Debt indicators (10%)• Debt in default or rescheduled (10%)• Credit ratings (10%—average of Moody's, S&P and Fitch IBCA)• Access to bank finance (5%)• Access to short-term finance (5%)• Access to capital markets (5%)• Discount on forfeiting (5%) (average maximum tenor for forfeiting and average spread overriskless countries)We also have the (International Country Risk) ICR ratings, and although EM and ICR move in similar directions and are highly correlated, we decided to use Euromoney’s ratings because the sample they offered was larger—it covers countries like Cambodia, Georgia, Rwanda and Tajikistan.These are the results of a random effect model, although the fixed effect model showed similar results.In this specification (with the lag of the explained variable as an explanatory variable) we can see a significant relation between between Country Risk and PPI/GDP, but not between Country Risk and FDI/GDP.The specification with a lag is utilized in the literature as an approach to forecasting. If we want to predict the percentage of investments, the country risk is an excellent predictor in the case of PPI, but not for the case of FDI where the coefficient related to Country Risk is zero.
We can see the same story when we breakdown by Greenfield Projects and Concessions Projects. On average the Greenfield projects are more sensitive than Concessions to a change in the country risk, but there are still very different investments for a given country risk, while for the case of Concessions the country risk has a more accurate impact for the whole sample.