Under-Secretary-General of the United Nations & Executive Secretary Of

Dr. ShamshadAkhtar,

Under-Secretary-General of the United Nations & Executive Secretary of

The Economic and Social Commission for Asia and the Pacific

3rd China Public-Private Partnership Financing Forum

New Concepts, New Ideas and New Drivers: Building a PPP Common Community

Co-hosted by the China PPP Center and the Shanghai Financial Association

Shanghai International Convention Center, China

1 November 2017

Excellencies,

Distinguished Delegates,

Ladies and Gentlemen,

With the 2030 Sustainable Development Agenda, we have entereda new era of infrastructure development. Not only do the Sustainable Development Goals generate huge demand and urgency for a diverse set of infrastructure assets, theyalso call for socially inclusive, environmental friendly and climate resilient infrastructure.

Developing Asia will have to invest $26 trillion in infrastructure between 2016 and 2030 to effectively support the 2030 Agenda. Incorporating the cost of building climate friendly infrastructure, this investment is equivalent to some 6 per cent of GDP annually, and more than 2 per cent of GDP above the current investment levels.[1]Financing gaps for least developed, landlocked and small island developing countries are steeper at roughly 10.5 per cent of GDP.[2]Across the region, the scale of investment requirement far exceeds the limited public budgets so raising public revenues and leveraging private finance and skills through public-private partnerships is vital. Driving private and institutional capital into sustainable future investment calls for action on five fronts.

First, the development ofa robust and viable project pipeline with proper sustainability considerations has to be an integral part of infrastructure design and planning.Screening of projects has to factor in socio-economic benefitsas well as environmental considerations, such as energy efficiency, air pollution and climate resilience. For instance, adding disaster resilience measures in infrastructure projectscould be realized with limited incremental expenditure though significantly reducing the lifecycle cost of a PPP project.[3]Sustainability considerations have also to be reflected in project preparation and procurement selection criteria.

To support this sustainable transition, governments and development partners couldestablishtechnical assistance facilities dedicated to the identification and preparation of projects that meet predefined sustainability criteria.The objective should be to develop a shortlist of well-prepared projects rather than a long wish list. There are already ongoing initiatives to deliver this ambition,such as the $73 million Asia Pacific Project Preparation Facility (AP3F) launched by the Asian Development Bank in 2016. Fast-tracking the implementation of sustainable projects will help government’s aspirations to improve their competitiveness and trade, while enhancing access to essential services in the energy, transport and water sectors for all.

Second, strengtheningprivate sector involvement calls for effective de-risking of infrastructure investments through credit enhancements that mitigate operational and financial risks. Private interest is contingent on risk-return investment profiles.Limiting risks for PPP projects requiresadequate project selection as well as fair, transparentand competitive bidding process. Risks can also be mitigated if there are guarantees and confidence that Governments willhonor their contractual commitments throughout the project lifetime. Trust in country PPP programmes has to be restored through strong risk management, effective governance and a convincing track record. For PPPs to succeed, trust not only hasto be built with private partners but also with a larger pool of stakeholders, including the users of infrastructure services. By engaging local communities early on and ensuring they benefit from the project, PPPsare more likely to succeed.The State of New South Wales in Australia has a well-developed disclosure framework for its PPP projects providing information and transparency on its project pipeline, tender documents and awarded contracts.[4] These good practices can be emulated in other Asia-Pacific countries.

Third, countries need to tap the around $80 trillion of assets managed globally by institutional investors, such as pension funds, insurance companies and sovereign wealth funds.[5]Many of these investors have made pledges to decarbonize their assets and are interested in sustainable investment opportunities.[6]The rapidly growing green bond market, where China is a global leader,testifies of this strong appetite.[7] Although emerging marketsoffer opportunitiesin terms of return, portfolio diversification and inflationprotection, attracting funds for sustainable infrastructure development in the region still requires:

Deepening and integrating domestic capital and institutional investor markets, which remain largely underdeveloped in most Asia-Pacific developing countries in terms of size, maturity and liquidity;
Developing risk mitigation instruments acceptable to investors such as credit guarantees, political risk insurances and cross-currency swaps;
Promoting a sustainable infrastructure asset class that can offer pension fund managers and their retail investorseasily identified assets to buy;
Reviewing prudential regulation to give more investment flexibility to institutional investors while preserving their solvency;
Improving the pricing mechanisms of sovereign, sub-sovereign and private local currency bonds;
Providing incentives such as tax breaks and grant co-financing for investments that comply with predefined sustainability standards.

Fourth,harnessing regional PPP models: Regional connectivity, a key enabler of sustainable development given its potential to foster production inter-linkagesand facilitate international trade, can be improvedby using PPP models to finance cross-border energy, transport and telecommunicationprojects.Attracting PPP flows for multi-country projects, which can be supported by ESCAP’s intergovernmental platforms, requires strong political backing and management of cross border risks with supportive enabling regulatory frameworks and financing arrangements. Later this year, Malaysia and Singapore will blaze the trail for cross-border partnershipsby tendering the estimated $15billion high-speed Kuala Lumpur-Singapore rail project. The two countries will issue a joint tender for a privately-financed asset management company in charge of providing and maintaining the trains and rail systems. This example can be replicated in other projects that support regional connectivity such as those promoted by the Belt and Road Initiative.

Fifth, technology opens the door to new PPP models by changing the way of delivering and financing infrastructure services.For instance, rent-to-own solar energy solutions can provide access to electricity for off-grid rural communities with no significant down payment. Plummeting photovoltaic costs, as well as mobile monitoring and payment systems, make this kind of solution financially viable.[8] Likewise, energy efficiency improvements, such as LED technology for street-lighting, generate savings that could beused to pay back initial capital investments.

Externalities such as air pollution may be priced in a way that encourages the private sector to find environmental friendly options. An interesting initiative is the Perform, Achieve and Trade (PAT) Scheme in India where tradable permits are issued for companies who have exceeded their efficiency targets in energy intensive industries such as thermal power plants. In its first phase, the Scheme triggered close to $4billion investments in energy efficient technologies.[9] Loan-grant blending mechanisms may also be necessary to make sustainable options more attractive.

The enabling environment for privately-driven solutions has yet to emerge in developing countries. Of particular significance is the need for raising the bar on environmental and social standards. Likewise,building effective institutional frameworks for PPP and independent sector regulators are critical to introduce transparent regulations, mechanisms to deal with land acquisition and favorable business environment.

To conclude, China’s experience demonstratesthat PPP is a powerful tool. When China does PPP, it does it well and in a large scale. With some many projects in the pipeline for a considerable value, China has become the largest PPP market in the region. For this tool to further contribute to sustainable infrastructure development, government actions are nevertheless required. Therefore, it is critical to promote exchange of best practices among countries at various stages of PPP development.Similarly, it is important to develop guiding materials and build the capacity of government officials to negotiate deals that contribute to sustainable development, share risk and reward fairly, and preserve fiscal sustainability. In this regard, I am very pleased that ESCAP and the China PPP Center signedtoday a Memorandum of Understanding to strengthen a network of PPP and infrastructure financing experts in Asia and the Pacificthat willenhancecapacity in the region to effectively use PPP for sustainable development. I am convinced this collaboration will be extremely valuable for the whole region.

I thank you.

[1]ADB (2017). Meeting Asia’s infrastructure needs.

[2]CSN Development Report (2017)

[3]Introducing earthquake protection in a building only increase the overall cost by 2 per cent to 4 per cent - Source: Yanev (2010). It is Not Too Late: Preparing for Asia’s Next Big Earthquake. Policy Note. Washington, DC: World Bank.

[4]PPIAF (2015), A Framework for Disclosure in Public-Private Partnerships (PPP)

[5]McKinsey (2016), Financing change: How to mobilize private-sector financing for sustainable infrastructure

[6]See Portfolio Decarbonization Coalition:

[7]While only $11 billion of green bonds were issues in 2013, around $130 billion are expected to be issued in2017. In 2016, China issued $35 billion of green bonds (total for the year was $81 billion).

[8] PV cost has been divided by 5 from 2008 to 2015 – Source: International Energy Agency (2016) - Next Generation Wind and Solar Power

[9] PAT first cycle (2012-13 to 2014-15) – Source: Bureau of Energy Efficiency, India (2017) Achievement under Perform Achieve and Trade