A New Vision for Public-Private Partnerships (PPP) in Asia-Pacific

Your Excellency, Mohammadreza Rahimi, First Vice President
of the Islamic Republic of Iran,

Your Excellency, Behrooz Moradi, Vice President for Planning & Strategic Control
of the Islamic Republic of Iran,

Excellencies,
Distinguished Delegates,
Ladies and Gentlemen,

Introduction

One of my favourite philosophers – from whom I often draw inspiration – is actually the 13th century Persian poet, Jalaluddin Rumi. Amongst his most striking works was a challenge, which I believe captures the essence of the tasks before us today. Rumi wrote: “Stop acting so small. You are the universe in ecstatic motion”.

It is an honour and a privilege for me to be opening this 3rd Asia-Pacific Ministerial Conference on Public Private Partnerships (PPP) for Infrastructure Development, here in Tehran – a city that has, for centuries, stood as a crossroads of trade and cultural advancement between nations and regions.

Rumi’s challenge – to stop acting so small – speaks to the power of what we can achieve if we embrace our opportunities, build on our experiences, and work together to forge a more inclusive and sustainable Asia-Pacific region. To do this, I believe we need a new vision and a new approach to PPP. We need to focus our partnerships with the private sector on what I call the three different P’s – People, Planet and joint Prosperity.

What better forum to achieve this, than the first major intergovernmental meeting on infrastructure since the landmark Rio+20 Conference on Sustainable Development, which I attended?

I would like to begin by expressing our deep appreciation to the Government and people of the Islamic Republic of Iran, for your very generous support and hospitality in hosting this Ministerial Conference. Your Excellency, Mr. Rahimi, Your Excellency, Mr. Moradi, please accept my heartfelt thanks for the warm welcome and support you have extended to all of us, and for your own participation in the Conference today.

Excellencies, Distinguished Delegates,

Infrastructure for inclusive and sustainable development

The countries of Asia and the Pacific have become the drivers of the world economy in this time of global financial crisis, that we heard about form you Mr. First Vice President. Our regional economic growth has been unmatched for more than three decades, our manufacturing sector is without peer, the innovation and adaptability of our business community is second to none, and the productivity of our people is justly renowned.

Yet, we have also recognized that high levels of economic growth have not always translated into shared and sustained prosperity. Indeed, most countries of our region remain in the low and middle income brackets, and both within and between countries there are wide and growing inequalities. As we make our last big push to 2015 on achieving the Millennium Development Goals (MDGs), entrenched poverty and other persistent challenges have combined with emerging transboundary threats, such as increased numbers of natural and man-made disasters and the impacts of climate change, to threaten our development gains.

Above all, infrastructure bottlenecks have still prevented many of our countries from realising their full potential, and are major obstacles to development and achieving real social equity. Erratic power grids hamper productivity; poor transport infrastructure limits access and competitiveness; and inadequate water and sanitation systems pose health hazards to millions of our most vulnerable people.

If our challenge, in accelerating development and reducing inequalities, is to stop thinking and acting so small, then the key is to address these major infrastructure deficits and needs. Public sector funding – already stretched by the demands of non-infrastructure spending – is not sufficient, and other sources of investment capital need to be secured.

Excellencies, Distinguished Delegates,

Asia-Pacific PPP Successes

For more than three decades, PPP’s have mostly proven, that they can be effective tools to complement the efforts of Asia-Pacific governments in developing infrastructure and providing related services.

In India, for instance, PPP projects have a long history of support - making it the world’s largest PPP market. The Indian Government has broken new ground with different forms of PPP implementation - turning minor ports into major revenue sources, such as in the State of Gujarat. Success breeds success, so the enhancement of port infrastructures have in turn created new industrial centres and significant numbers of new jobs.

Another good example of Asia-Pacific good practice in PPP has been the Republic of Korea. Private investment in infrastructure was stalling in the mid-1990s, due to a lack of transparency in PPP projects, a deficit in expertise to develop complicated contracts, and a lack of investment incentives. In response, the Government revised the PPP Act establishing a special PPP centre, to influence the legal framework and to address these problems. As a result, PPP investment in Korean infrastructure ballooned from about US$500 million in 1998 to US$3.5 billion in 2009.

Right here in Iran, I have seen the impact of more accessible and sustainable infrastructure on development – the provision of better roads and transport services has played a critical role in the improvement, for example, of child and maternal mortality rates, as well as access to education – including for women and girls.

In other words, Asia-Pacific has many PPP success stories – mainly where there has been recognition by government that business can be the primary driver of economic globalization and can shape markets, technology and finance in ways that can contribute not only to wealth generation, but also potentially to a more inclusive and sustainable economy. At the same time, these successes have mainly been in countries where business recognized that it had a vital interest in effective governments, able to set and enforce clear fiscal rules and norms, regulate competition, correct excesses and integrate independent business activities into a broader national development vision.

Excellencies, Distinguished Delegates,

Learning from 30 Years of Asia-Pacific PPP

I have said that PPP’s have been mostly effective, but part of our knowledge-sharing must also be to identify and learn from those instances where they have not been as successful – where partnerships for infrastructure development have not borne the expected fruits – for the investment partners or for the communities who should have benefited from them.

In South-East Asia, for example, private investment in infrastructure was very popular in the 1990s - attracting US$18.7 billion. The 1997 economic crisis, however, revealed some structural weaknesses in our financing mechanisms. Inadequate pre-investment work, absence of proper feasibility studies, lack of competitive tendering and inaccurate estimates of demand, also undermined the completion of projects - which in turn impacted the overall levels of support for PPP in South-East Asia, where private sector investment in infrastructure fell more than 40%, to US$10.4 billion, in the following decade.

The good news is, that after more than thirty years of PPP, our region has the experience to know what does and doesn’t work. Partnerships where government loses control, where accountability is lacking, where fiscal rules are ignored – these are the instances where PPP fails. Insufficient planning, poor contract design and flawed project evaluations are the hallmarks of the PPP models that we must avoid – because when these fail, they leave our people doubly worse off: by not having received the infrastructure they need – or which is below standards – but also by having to fund large government bail-outs of failed projects through their taxes.

Our challenge today is to use this wealth of regional experience to agree on better approaches to PPP project development and implementation. If we are to make the best use of the opportunities PPP offers for sustainable infrastructure development, we must focus on improving the transparency and the accountability of the projects. For too long the governance models we have used have meant that the mistakes of the private sector have been paid for by the public sector – and this must change. Risks and rewards must be more equitably shared. This is the only way to establish a climate of lasting trust and real partnership, and to dispel the perception that PPPs serve vested interests rather than the wider public good.

Excellencies, Distinguished Delegates,

Four Specific Calls to Action on PPP

It is indeed the public interest which must drive our efforts. As I travel and work for our vast and diverse Asia-Pacific region, I am humbled and amazed at the huge obstacles being surmounted by our local entrepreneurs and small and medium size enterprises, and the hardships which our people still overcome every day in supporting their families and building a more prosperous future.

They need efficient power grids and telecommunications networks, all-weather roads, water pipes and proper drainage systems, schools and clinics, and better water quality. Yet, all too often they get power blackouts, overloaded telecommunications systems, impassable roads, water shortages, blocked sewers, and limited access to education and health facilities.

We should therefore approach PPPs as enablers of sustainable development, which must transcend national, sectoral and economic differences and improve the lives of all our people through better delivery of quality public services.

I would like, therefore, to propose four specific improvements that are necessary to improve the implementation of our regional PPPs:

1. The first is the creation of mechanisms to ensure transparency and accountability on all PPP projects: bids must be made and considered transparently, and the bid-criteria by which winners are selected must be easily accessible, not only to institutional agencies, but also to the media and the public.

2. The second is the much-needed and much-delayed development of PPP units in the region - based on international best practice. These units should be designed to facilitate the PPP procurement and delivery process from start to finish; in particular with the authority to approve or deny projects before contracts are signed. The units should also provide support for officials from both public and private sectors through appropriate guidelines for each step in the PPP process. Drafting their terms of reference is now an urgent task.

3. The third is the need to invest in human resources for PPP. We must improve the skills and knowledge across a broad spectrum of specialties, from institutional to technical to finance. Sufficient resources should be allocated to identify and train the best people, through partnering with experienced countries.

4. The fourth is the importance of agreeing a new business paradigm for sustainable infrastructure development. This new paradigm for business must go even beyond the United Nations own Global Compact, to incorporate different measures of costs and returns, alternative understanding of shareholder value, and which sees the relationships between business, government, society and the environment as ones of mutual respect and mutual benefits.

Excellencies, Distinguished Delegates,

Conclusion

In conclusion, the 3rd Asia-Pacific Ministerial Conference on PPP for Infrastructure Development is our opportunity to not only live up to Rumi’s challenge of more ambitious action – but also for us to work better together to improve the lives of all our people through more inclusive and sustainable development partnerships to build the future of shared prosperity that we want.

I wish us all success and shared prosperity for our own future and that of our children.

I thank you.