REPORT
Research & Insights
A Mechanism for Making Use of Private Sector Proposals Learned from Overseas PPPs
Index Strategy is actively involved in social infrastructure projects overseas that utilize the Public Private Partnership (PPP) method.
In the toll road PPP project that we are working on with the Ghanaian government, we have completed the pre-feasibility study (pre-FS) and are now in the feasibility study (FS) phase. In the FS, in addition to more precise demand and risk analysis, we create a more accurate income and expenditure plan, and consider the specific structure of the SPC, including its representative company, constituent companies, and capital structure, in order to form a corporate consortium.
In addition, the concession project for the North-South Highway (Ho Chi Minh City - Long Thanh - Xo Xai section) connecting Ho Chi Minh City and Long Thanh International Airport in Vietnam has also started its pre-FS in December 2020. At present, projects are moving around the world, including a toll road concession in Peru and a smart city project in the Philippines.
Our role is to identify promising projects and turn them into projects in which companies can easily participate, and to manage the entire project once it has actually started. In the near future, Ghana and Vietnam will become concrete projects in which Japanese and other companies will participate.
Ansoli proposals common in overseas tenders.
I have learned something since I started working on these overseas PPP projects. One thing I have learned since I started working on these overseas PPP projects is that there are many projects overseas that are in need of private-sector technology, know-how, and funding, and that there is ample room for Japanese companies to play an active role. Another thing I have learned is the difference in the stance of each country toward PPP projects.
In Japan, when promoting PPPs for social infrastructure, most of the time we use subsidies from the Cabinet Office, the Ministry of Land, Infrastructure and Transport, and other organizations to investigate the feasibility of the project before bidding for it. Overseas, the Japan International Cooperation Agency (JICA) provides subsidies for preparatory studies for PPP cooperation as a measure to strengthen infrastructure exports, and we have made great use of these subsidies in our projects in Ghana and Vietnam.
However, there are no such subsidies for infrastructure PPPs overseas. The government does not provide subsidies in the name of research costs, etc., and it is normal for private companies to conduct research and FS at their own risk. In the case of expressways, there is a well-established system of unsolicited proposals, in which a company makes a proposal to the government saying, "We would like to build this line and acquire the right to operate it. Under this system, the government considers proposals from the private sector, and if the proposal is excellent, it is adopted as a PPP project.
Because it is not fair to treat a company that has made a proposal after spending a lot of money on research the same as a company that merely participated in the bidding process, when finally deciding on a business operator, the company that made the proposal is given a certain amount of points, or if a competitor appears after a certain period of time and its proposal exceeds the price of the unsolicited proposal If a competitor appears after a certain period of time and its proposal exceeds the price of the unsolicited proposal, the company is given the opportunity to try again (the so-called Swiss Challenge) - although this differs from country to country, in most cases various preferential measures are introduced.
Because of the establishment of such an open system, private companies will actively make proposals at their own risk, and as a result, a virtuous cycle will be created in which excellent proposals will be gathered.
We should incorporate the good points of the leading overseas systems.
It is not widely known, but in fact, Japan has incorporated what is called overseas "unsolicited proposals" into its PFI law. However, unfortunately, it is not being used because there are no operational guidelines and local governments do not see the necessity.
Infrastructure PPPs in Japan have just begun, and the private sector, which is responsible for infrastructure PPPs, has not yet been developed. As an incentive for companies to participate, I think there are still aspects that require subsidies for research and other expenses. However, as Japan's social infrastructure ages, the use of public-private partnership methods for renewal and maintenance, including the use of AI and IoT, is likely to increase in the future. I think that the national and local governments should incorporate more of the good points of leading overseas systems and frameworks so that they can realize the SDGs through their projects, so that they can utilize private sector funds, technology, and know-how.
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