Debate over the benefits and pitfalls of the public-private partnership (PPP) model is likely to resurface over the ambitious One Belt, One Road initiative currently unrolling across Asia-Pacific.
In late December, one of the leading organisations behind the programme – Hong Kong’s Infrastructure Financing Facilitation Office (IFFO) – announced that it had sealed Memoranda of Understanding with two of China’s top state-owned banks.
Under the arrangements, the China Development Bank Corporation (CDB) and the Export-Import Bank of China (EximBank) will strengthen their existing ties with the IFFO.
Each bank will step up its knowledge-sharing efforts to convey best practices for infrastructure funding, while the CDB plans to go even further by releasing more than $10bn of finance through the IFFO in the coming months.
That will build on the $5bn that the CDB has already put towards 29 infrastructure projects in Belt and Road countries up to October 2016. The bank also plans to boost its Hong Kong staff base from 140 now to more than 210 in two years’ time.
As a result of the arrangements, the IFFO is set to stimulate a wave of new Belt and Road schemes that will bring public agencies together with private corporations in efforts to pool finance and expertise – in other words, a host of new PPP projects.
Just days after the IFFO renewed its pacts with the Chinese banks, news emerged from China itself of increased government support for the PPP model.
In a 26 December statement, the China Securities Regulatory Commission and infrastructure watchdog the National Development and Reform Commission said that PPP schemes for public works were now permitted to raise funds through asset-backed securities (ABSs).
With the government growing increasingly concerned over debt levels among provincial bodies and state-owned enterprises, officials have seized upon the ABS policy as a means of attracting greater investment from the private sector to offset those woes.
Similarly, the government of Kuwait has committed itself to increasing PPP activity throughout 2017, after making significant strides in that direction during 2016.
According to a November report from the National Bank of Kuwait, the government awarded $3.3bn of private-sector contracts for PPP megaprojects in the third quarter of 2016: a 14.8% rise on the previous quarter.
Indeed, in the first nine months of 2016, the government issued contracts worth $11.8bn. But Middle East business intelligence firm MEED says that contracts awarded in 2017 could be worth more than $37.7bn in total.
Just as China’s government is seeking to ease debt pressures on local authorities and state-owned firms, Kuwait is banking on PPP schemes providing a recourse from current low levels of foreign direct investment and the ongoing oil-price slump.
However, while those countries have pinned their hopes on the benefits of PPP, the pitfalls are notorious.
In 2009, a report from the UK National Audit Office found that the 2007 collapse of Metronet – a PPP venture dedicated to carrying out maintenance on the London Underground – cost the taxpayer £410m, with many of the promised improvements unfulfilled as a result of the organisation’s failure.
Highlighting the importance of the strong leadership in PPP deals, the Commons Public Accounts Committee later blamed the Department for Transport’s “poor and inadequate” management of Metronet for the firm’s demise.
In 2010, Tube Lines – another London Underground PPP firm – was purchased by Transport for London following budget disagreements between the contracting parties.
And more recently, in April last year, Edinburgh Council announced the closure of 17 schools constructed under a PPP scheme, as the buildings proved to have serious structural flaws. The defects came to light after a wall at Oxgangs Primary collapsed during a heavy storm.