Emerging regulatory frameworks and a need for consistent risk allocation between governments and private sectors constrain the market for public-private partnerships, or P3s, in Asia Pacific, says Moody's Investors Service.
"With the exception of Australia and India, P3s have been slow to develop in the Asia-Pacific region," says Patrick Mispagel, a Moody's Associate Managing Director.
Mispagel notes that emerging regulatory frameworks may be subject to an elevated risk of political interference, and strong legislative frameworks to enforce P3 contracts are still developing in some countries.
Despite these constraints, a new Moody's report notes that the P3 markets in the Philippines and China are expanding, with deal flow accelerating in the Philippines under the current administration and its P3 center.
China has recently started to promote P3s, with 80 projects to be offered to the private sector in this format.
Moody's report further points out that P3 projects are more common in Australia and India, with a trend in Australia toward larger project sizes, but fewer projects. Projects range from social infrastructure, such as schools, hospitals and rail stations, to toll roads.
While more than 100 projects valued at AU$65 billion have been delivered through the P3 framework, effectively all new P3 projects since 2008 have been financed in the bank market through shorter-dated bank loans.
As such, Moody's notes that improved access to the long-dated capital markets and development of a liquid P3 bond market would support the Australian P3 market.
In the case of India, the government has outlined the need to spend US$1 trillion on infrastructure. In order to fulfill this, the government intends to use P3s as one of the ways to raise as much as US$150 billion of private investments.
Currently, about 1,400 projects amounting to US$115 billion are in the P3 pipeline in India, with almost half of that spent on road and highway projects.
While the Indian government has taken steps to streamline the P3 process, including the release of a national policy, several challenges remain. These include inadequate knowledge of the project development process, and a scarcity of financing sources.