The Rising Role of Public Private Partnerships in Asian Development

Editor’s Note: The following is a guest post on the growth of public private partnerships by finance writer Diana Morton. If you wish to contribute to The Asianist, please email pprashanth711@gmail.com. 

Public Private Partnerships (PPPs) have long been a method of completing business ventures in the developed Western world. Many of the world’s largest and most challenging construction projects, such as the $3.5 billion Victorian desalination plant in Sydney and the Hudson/Bergen Light Rail in New Jersey, USA, have been made possible by the respective countries’ government teaming up with private sector companies in order to fund and operate the ventures.

In Asia, as many of the continent’s main business hubs continue to grow at an exponential rate, the PPP method is becoming an increasingly effective means to an end. Cities such as Singapore are certainly no strangers to PPPs; in 1994, the government teamed with Singapore conglomerate, Keppel, which formed a private consortium of companies, to invest in the Suzhou Industrial Park in China.  The same group of companies has since been investing in a wide range of public development projects; more recently in 2007, it played a large part in the construction of the Tianjin Eco-City project. However, until recently, the majority of investment and funding in Asian countries has come from their governments.

Private investment

Recent figures released by the Asian Development Bank (ADB) indicate that investment from private companies is now on the rise. This could well be due, in part, to the challenges faced by companies in Western countries; as their economies slow, they are now looking to invest in the development and infrastructure of Asian countries. According to the ADB, as much as 40 per cent of  global infrastructure spending will take place in Asia. With this global figure set to reach USD $40 trillion within the next 20 years, this percentage represents a huge turnaround in the way Asian countries will develop compared with their Western counterparts. This level of investment has only been made possible by the partnership of private companies with governments.

Gaining traction

Wolfgang Schiefer, Chief of Regional Partnerships at the International Labor Organization (ILO), recently said that PPPs were being increasingly used by his organization and were gaining traction in aiding international development. “Public-private partnerships (PPP) have the potential to increase the visibility and advocacy of the ILO,” he said. “They also provide a channel for influencing public and private sector investment, policies, and practices, and so promoting decent work more effectively.”

As countries become more developed, it becomes clearer that governments do not have the necessary expertise to handle large infrastructure projects single-handedly. This is why developing Asian nations are seeing an increase in the number of projects that are operated using a PPP method. The government recognizes that, in order to build the most state-of-the-art and up-to-date buildings, it is necessary to call on the help of private companies, which possess the required levels of expertise to put their projects at the forefront of technology. ”A strong PPP recognizes that the public and private sectors each have certain advantages and optimizes the allocation of tasks, obligations and risks to play to these particular strengths,” says Schiefer. “For example, the public sector can offer social responsibility, environmental awareness and local knowledge, while the private sector can offer expertise in commerce, innovation, efficiency, management and operations.”

More complex

However, as levels of development increase, so does the complexity of PPPs. Asia is beginning to see a new breed of PPPs for complex projects such as medical centers and hospitals. Simon Brooker, Director of professional services company, KPMG, says that this change from using discrete PPPs to using those with much more complex infrastructures is due to one main factor. This factor is due to the recognition of the need to scale back government involvement in the service delivery of such projects, instead handing the responsibility to private sector companies. “This is about creating and expanding commercial markets,” he said. “In other cases, economic, funding and liquidity constraints drive interest.”

Widespread benefit

PPPs have the potential to provide the highest quality infrastructures, as they provide the benefit of private sector specialist knowledge along with the security of government backing. This method, in turn, presents the opportunity of creating a more stable nation, especially since 31% of the population in Asian countries currently resides in urban regions. This figure is set to increase to more than 50% by 2050. In turn, creating stable cities and infrastructures will help the continent to deal with the issue of housing finance for low and mid-income families. While promoting the adoption of PPPs, the ADB is also putting into place initiatives for improving access to home mortgage financing. This is in response to the needs of the private sector in developing countries within the Asian continent.

Experts are now calling on Asian governments to draw up long-term national development and infrastructure plans that will encourage increased private sector involvement. This would include putting active measures in place to lower the risk of investment perceived by the private sector. If adoption of PPPs continues to rise, Asia could be on track to ensuring long term stability and prosperity.

Diana Morton is a 29 year old finance writer from England who specializes in personal finance articles for a range of magazines. She enjoys traveling and finding ways to save money on hotels, cruises and exchanging money. Her research was put to good use when she helped to arrange her brother’s marriage in Bali.

How Does ASEAN Recover After Phnom Penh?

I’ve published a piece over at The Diplomat on what ASEAN should do after its unprecedented ‘failure’ to issue a joint communique at the foreign minister’s meeting in Phnom Penh earlier this month. You can read the full thing here, but I’m also placing it below.

Soul Searching After Phnom Penh

Prashanth Parameswaran

Questions are still being asked about ASEAN’s unprecedented failure to issue a joint communiqué for the first time in its 45-year history at Phnom Penh earlier this month due to disagreements over the South China Sea. Regardless of what transpired at the meeting, it was an embarrassing moment for ASEAN and it raises questions about the ability of the organization to preserve its autonomy and centrality amidst great powers with the potential to dominate the region. If the grouping needs to do some “soul searching” over the next few months, as ASEAN Secretary General Surin Pitsuwan put it, where should it start?

A logical start should be to try to make some progress on the South China Sea (SCS), since events at Phnom Penh illustrated that intra-ASEAN divisions on the issue can clearly tarnish the organization’s image.

As a first step, the four ASEAN claimants- the Philippines, Vietnam, Brunei, and Malaysia- should aim to clarify and codify their various South China Sea (SCS) claims in order to present a more unified front to China, as others have advised. Beijing has a proven record of exploiting ambiguity to make contradictory claims in the SCS, some of which have very little basis in international law.

If ASEAN countries make their claims explicit by codifying them in domestic legislation and multilateral frameworks in accordance with international law and the United Nations Convention on the Law of the Sea (UNCLOS), they can sort out areas where disputes are particularly intractable and aspects where their opinions converge. The ball would then be in China’s court to clarify the basis for its own claims. As of now, ambiguity on the SCS only allows Beijing to make dubious claims while simultaneously exposing divisions within ASEAN. While ASEAN should continue efforts toward a code of conduct with China, there is no substitute for clarity on this question.

Secondly and more broadly, ASEAN as a grouping should redouble efforts to preserve its centrality and cohesion. The organization is receiving greater international scrutiny these days and it will continue to grapple with tough issues like the SCS in the future. Yet at the same time, much like Cambodia in 2012, the next few years will see ASEAN chaired by smaller or less-developed states (Brunei in 2013, Burma in 2014, Laos in 2016). While these countries are capable in their own right, they may not have the same capacity to drive regional integration or tackle contentious disputes as an Indonesia or Singapore. And while Southeast Asia has other great leaders, it will be difficult to sustain the decade of vigorous and dynamic leadership ASEAN has enjoyed under Secretary Generals Ong Keng Yeong (2004-2008) and Surin Pitsuwan (2008-2012).

Confronting this challenge will require greater efforts on various fronts. For one, ASEAN must move faster on its goal of creating an ASEAN Economic Community (AEC) by 2015, given that the bloc is behind on several aspects of that initiative. Greater regional cohesion creates a stronger collective identity among all members of the organization and strengthens economic linkages between them, both of which will incentivize putting ASEAN first. But if states choose to “keep to themselves,” as Pitsuwan told the Myanmar Times earlier this year that will only hold ASEAN back. Repeats of Phnom Penh could also be avoided by agreeing on innovative ways to express legitimate disagreements, which will require flexibility from both the chair and other ASEAN countries. And if future crises do occur, solving them may require ASEAN’s older members to demonstrate leadership and innovation, like Indonesian foreign minister Marty Natalegawa’s “shuttle diplomacy”’ that led to the organization’s six-point principle agreement on Friday.

Outside actors like the United States and China should continue to support a strong and united ASEAN. Despite its shortcomings, the organization remains the best hub around which to structure a regional architecture that will socialize actors into a set of acceptable norms and behaviors, and guide Asia towards a prosperous and peaceful future. Equally important, they should also resist short-sighted attempts to undermine the bloc’s unity or exploit its divisions, since they will only undermine this shared goal and leave themselves increasingly isolated in a more integrated world.

 

A Hint of Sino-Indian Energy Cooperation?

Editor’s Note: The following is a guest post on recent efforts at Sino-Indian energy cooperation written by finance writer Diana Morton. It argues that despite the contentious relations of the two Asian giants and diplomatic disputes over oil exploration in Vietnamese-claimed areas of the South China Sea last year, the vital role of energy in powering their economic success may create opportunities for cooperation as well.  If you wish to contribute to The Asianist, please email submissions to pprashanth711@gmail.com. 

Last month, India and China demonstrated that they may have begun to come to agreement over a number of issues relating to defense and energy. As the two often go hand-in-hand it will be interesting to see how the two most populous countries in the world, and the two major emerging economic powers around the globe, develop their mutual ambitions.

The two countries share a long border along the Himalayas peppered by independent nations such as Nepal and Bhutan. Both countries share borders with Myanmar (Burma). They do not share a maritime border, which has saved the pair from a large number of sea-related border disputes such as those between China and the Philippines or Japan and South Korea. One problem they do share, apart from a hard to define border, is a need for energy.

Neither country is yet able to draw enough resources from within its own land and sea borders to fuel its development. A well worn notion from the previous decade is that China has twenty percent of the world’s population, but America has twenty percent of the world’s energy usage. If China and India want to equal America’s per person energy usage they need to use more energy each per day than the energy world currently produces as a whole.

China National Petroleum Corp (CNPC) and the Oil & Natural Gas Corp of India (ONGC), signed an initial pact last month to undertake joint energy policies. Both companies and countries aim to combine their financial resources to better compete in the energy market and to develop new energy avenues. There are other benefits for both companies. Joint ventures make it easier to cover losses and to mitigate against bad investments. It is also easier to afford insurance and financial advisor cover for other investments and projects they may venture into together.

The deal came as no surprise to many as the companies hold joint stakes in 36 oil fields in Syria as well as others in Sudan. It also builds upon a pact signed in 2006, which was focused on the oil industry. Both sides now hope to share more information concerning their purchases and developments in all forms of energy. Previously, neither nation shared information as the two countries saw themselves as energy rivals.

International instability will form the central challenge to any joint energy development project. There is a state of almost civil war in Syria as the Arab Spring movement gains traction in the face of mounting government brutality. In Sudan there are disputes between the government and the newly independent South Sudan nation over who owns which oilfields. Other nations are in political flux or in a period of transition. Myanmar is hopefully moving towards democracy, while Zimbabwe continues to be in a state of decline.

As energy grows more scarce or needs develop, both nations will have to face the range of political issues that surround their energy needs. This is perhaps where a joint defence agreement comes in. On the sidelines of the Rio+20 Environmental Summit in Brazil, China’s Wen Jiabo and Manmohan Singh of India continued their dialogue towards an enhanced defence and security arrangement designed to facilitate a $100 billion trade target set for 2015.

At the moment talks center around infrastructure development within India and the issue of trans-border rivers. These rivers begin in one country and flow into the next. As the denizens of the Mekong know, if a river is dammed by one country, it directly affects the country into which the river flows.

Dialogue between the two leaders and their successors will have to move beyond issues that directly affect the two nations and move onto international diplomacy. At the moment, oilfields are still producing, but nations may face regime changes such as those seen in Libya and Egypt or those attempted in Bahrain and Syria. International conflicts such as those between North and South Sudan disrupt energy production and major energy consuming nations cannot afford to be held at ransom. As China is a permanent member of the United Nations Security Council and India is a well-respected neutral nation, both countries will need to develop a joint approach to such diplomatic problems. Do they back the regimes or regime change? How do they best secure energy? China has been accused of putting economics before ethics. If this is true, will India be able to go along a similar path? Only the future will tell.

Diana Morton is a 29 year old finance writer from England who specializes in personal finance articles for a range of magazines. She enjoys traveling and finding ways to save money on hotels, cruises and exchanging money. Her research was put to good use when she helped to arrange her brother’s marriage in Bali.