Public-Private Partnerships in Asian Infrastructure Deals – January 2015

by Jie Xin Choo

  • 08 Jan 2015
  • INF

The vast infrastructure spending gap in Asia has been well-publicized. According to the Asian Development Bank’s report, ‘Infrastructure for a Seamless Asia’, the region requires $8tn of infrastructure expenditure between 2010 and 2020 to maintain current levels of economic growth. However, many Asian governments are running budget deficits, preventing them from investing in the necessary infrastructure. Furthermore, traditional sources of capital are restricted from such investment through Basel III, which constrains banks’ ability to hold long-term debt. One solution that can help to fill this gap is the Public-Private Partnership (PPP) model, as private investors seek the potential for long-term, stable returns offered by investing in infrastructure.

Preqin’s Infrastructure Online service currently holds information on 976 PPP deals worldwide, completed between 2005 and 2014, with an aggregate deal size of $584bn. As shown in the chart below, Asia-based PPP deals formed the lowest proportion of annual aggregate deals when compared to other regions over the same time period, with no more than 8% of global deals undertaken in the region since 2009.

A turnaround, however, may be in sight. India’s Union Cabinet recently gave approval to waive a clause under the Land Acquisition Act, which previously mandated companies and state governments to obtain at least 70% of landowners’ consent before purchasing land for PPP developments. This move could potentially lead to the implementation of PPP projects in infrastructure sectors such as power, housing, highways and defence in India.

India and China are two of the largest participants in PPP in terms of number of deals, making up 27% and 32% respectively of all Asia-based PPP projects in the last decade. However, a look at aggregate deal size paints a different picture of the magnitude of influence each country has in the Asian PPP space. The aggregate value of deals for India and China each sits at $4bn, despite their relatively high number of transactions. In contrast, South Korea tops the list by accounting for $8bn worth of infrastructure assets. It is a forerunner in Asian PPPs, with its own interpretation known as BTL (build, transfer, lease) or BTO (build, transfer, operate). Australasia, a neighbouring region that is known for utilizing the PPP model for infrastructure investments, has an aggregate deal size of $77bn for the last decade, more than two times that of the entire Asian region. 

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