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

2. 2 What is the potential for PPPs?

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

6. 0 50 100 150 200 250 300 350 400 450 0 50 100 150 200 1990 1995 2000 2005 2010 2011 2012 Private investment in infrastructure in low and middle income countries, by region EAP ECA LAC MNA SAR AFR # of projects 2012 US$ billions* Source: World Bank Infrastructure Policy, PPI Project Database. * Adjusted by US CPI How much private infrastructure investment is going into East Asia?

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

10. 10 How is the risk appetite for investment?

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

14. 14 - 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 Pre-Crisis Crisis & Post-Crisis Equity Bond Loan 18 % 28 % Source: World Bank Calculations from ProjectWare Database Gearing has decreased

15. 15 What instruments are out there?

16. 16 Risk mitigation - Tools Risk Instrument Availability Convertability, expropriation Political Risk Insurance High – MIGA, commercial insurers Breach of contract, Regulatory Change Non-honoring Contractual & Regulatory Cover Partial Risk Guarantee Moderate but increasing WB, MIGA, some private insurers Debt service Partial Credit Guarantee High – WB / IFI’s, private insurers ForEx Cover Devaluation Low to none Construction Ramp-up (early demand) Project Bonds New PPP Structures Under design

17. 17 Where is support needed? Where do the opportunities lie?

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

19. Debt Financing Costs Capital Expenditures / Depreciation Operational Expenditures Dividends / Return on Investment Revenues Costs User Fees, Tariffs or Tolls Closing the Project Viability Gap

20. Debt Financing Costs Capital Expenditures / Depreciation Operational Expenditures Dividends / Return on Investment Revenues Costs d Rev’s User Fees, Tariffs or Tolls Government Transfers Closing the Project Viability Gap

21. 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 d Rev’s Cost Reduction Measures User Fees, Tariffs or Tolls Government Transfers Closing the Project Viability Gap

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