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JICA’S PRIVATE SECTOR

PARTNERSHIP ACTIVITIES

April 24 2013

Takehiro Yasui

PRIVATE SECTOR INVESTMENT

FINANCE DIVISION I

PRIVATE SECTOR PARTNERSHIP

AND FINANCE DEPARTMENT

JICA

Contents

1. Background and Role for JICA to be involved in

Assistance of Private Sector

2. Assistance Scheme to Private Sector

(1) Overall Image of Assistance

(2) Private Sector Investment Finance (PPP F/S)

(3) F/S for Private Initiated Infrastructure Project

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3

1. Background and Role for JICA to be involved in Assistance of

Private Sector (1)

Increasing private sector

presence in developing

countries: Increase in the flow of private

funds

Changes in private

companies’ activities: CSR activities and BOP

businesses

・ Increase in development and investment by private companies in

developing countries as a result of rapid globalization, the expansion of

emerging economies and growing concerns over food, resources, energy,

water, etc.

・ Rapid increase in the flow of private funds into developing countries

(Private funds account for 70% of funds for developing countries)

・ Private companies gaining access to infrastructure and other areas that

previously had been reserved for the public sector

・ Development from conventional CSR activities into more positive ones

(strategic CSR)

・ Growing interest in BOP businesses (Next 4 Billion)

Principle

Assist Social and Economic Development of Developing Countries,

thereby contributing to sound development of world society

through -Technical Assistance

-Loan Assistance (ODA Loan and PSIF)

-Grant Assistance

Recently, private sector is getting more important role in social and

economic development of developing countries

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Need for global

collaboration between

public and private sectors

Japanese government

policies New growth strategies

・ Expectations regarding the public sector reducing risks for private

companies

・ Suggestions and requests from economic organizations to enhance

collaboration with the private sector

・ Other aid agencies also regard private companies as important partners

and are enhancing private sector partnerships (USAID, WB, ADB, EBRD,

UNDP, etc.)

・ In April 2008, the government announced its “New Strategies for the

Enhancement of Collaboration between ODA programs and Japanese

Companies: Public Private Partnership for Growth Acceleration”

・ In June 2010, the government announced its “New Growth Strategies:

Scenario for the Revitalization of Japan” in order to promote “packaged

infrastructure exports”.

・ New LDP Governments keeps policies to promote technology and

experience of Japanese Company be utilized for oversea infrastructure

projects.

JICA has strengthened partnership with private sector and its

activities which contribute to development -Establish Private Sector Partnership and Finance Dept.(starts as OPSP

in 2008 and strengthened in this April)

-Introduce new schemes for assisting such private sector activities

Main Agenda for Today

1. Background and Role for JICA to be involved in Assistance of

Private Sector (2)

JICA’s Role

JICA’s additionality in supporting developing countries’ private sector

Finance

Long-term financing with modest lending condition

Technical Assistance (TA) Integrated support for indispensable factor for private business’s success

=> e.g.: TA for policy/system improvement, planning, human resource development

Risk Control Risk control by utilizing the close relationship with developing countries’ government

=> e.g.: ensure the tariff execution

Information/knowledge/network

Provision of developing countries’ information/knowledge/network

=> e.g.: Complement the lack of information (lower the cost / entry barrier)

JICA, utilizing various methods, will provide one-stop supports

for projects including sourcing and structuring, construction,

operation, and maintenance of projects/business.

PPP F/S, BOP F/S Technical

Assistance ODA Yen Loan

Private Sector

Investment Finance

2. Assistance Scheme to Private Sector

(Private Sector Promoting Operation)

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(2) PSIF (Private Sector Investment Finance)

- Outline, Target Sector, Major Conditions,

- Candidates, etc.

(1) Overall Image of Assistance

- JICA’s Support to PPP Promotion as a Whole

(3) PPP F/S (F/S for Private Initiated Infrastructure Project)

(1) JICA’s Support to PPP Promotion as a Whole

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JICA

Government Policy and Framework

Government Portion (if any)

(Government Support)

Private Portion

(Project Company)

Govern

ment A

gen

cie

s

(eg.

Wate

r S

upply

Com

pany,

Railw

ay C

om

pany)

Govern

ment

Win

dow

(R

eg

ion

al a

nd

Se

cto

r D

ep

t.)

Pri

vate

Win

dow

(O

PS

P)

PPP Project

Technical Cooperation (Law and Regulation,

Tariff Framework,

Feasibility Study (F/S),

etc.)

Technical Cooperation (Capacity Development, Management Improvement,

etc.)

PSIF Technical Assistance (PSIF T/A) (Capacity Development, Management Improvement,

etc.)

JPN ODA Loan (Long term, Low Interest)

PSIF (Loan/Equity) (Long term, Low Interest)

PPP F/S (Private Initiated F/S)

Contract (Off Take, etc.)

(2) PSIF (Private Sector Investment Finance)

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(A) Outline

PSIF

One of Official Development Assistance (ODA) Schemes

⇒ Purpose: Support economic development and Poverty Reduction

Loan (long tenor) & Equity

Direct Support for Private Companies

(available for JV with Government Companies)

⇒ therefore, request or other procedures taken by recipient

Governments are NOT required

Recipient Government

PSIF

Japanese ODA Loan

(Yen-Loan)

Executing Agencies Private Companies

(Project Companies)

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(2) PSIF (B) History

Dec. 2001： Stop Operation of PSIF（due to Public Sector Reform）

●Increase of role of Private Sector in Development of Developing Countries ●Movement of Japanese Private Companies toward promoting oversea business and project

Starting Discussion Restart of PSIF

Cabinet Decision “Strategy (Honebuto) 2009”： Start PSIF after establishment of

implementation arrangement, etc.

Mar. 2011：Restart of PSIF under Pilot Approach

● “Industrial Human Development Project in Vietnam” and “Microfinance Project in

Pakistan” Approved

● For “Utility Management of Environment Friendly Industrial Parks and Water

Supply Project in Long An Province, Vietnam”, D/D completed

Oct. 2012：Start of Full Operation of PSIF

Regulations and Guidelines for implementation of PSIF developed

So far, 3 projects approved under PSIF Operations after restart

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1. MDGs and Poverty Alleviation: Assistance to Projects for the Poor

Enhanced financial access to the poor （microfinance and SME-

finance） Assistance with businesses leading the improvement of lives of the

poor (BOP business)

2. Climate Change: To Prevent and Reduce Negative Impact to the Poor by

Climate

(e.g. forestation, renewable energy, energy efficiency projects, etc)

3. Infrastructure and Growth: To Accelerate Economic/Social Growth

through Infrastructure Development Infrastructure for the poor (e.g. social infrastructure in education and

health, rural electrification, water supply services, roads, etc) Projects for Social / Economic Development （e.g. infrastructure in the

sector of power, transportation, water and waste disposal, etc）

(C) Operating Rules of PSIF Target Sector

PSIF supports Projects which Private Financial Institutions cannot

finance without JICA’s Involvement

PSIF JPN ODA Loan

Project Type Private Project Government Project

Financing Tool Equity Investment / Loan Loan

Currency Japanese Yen (Loan)

Local Currency (Equity)

Japanese Yen

Terms of Loan

- Interest Rate

- Repayment Period

- Grace Period

- Maximum Share

Fixed Rate (Base rate :GoJ Bond

plus), JPY-denominated*

Up to 20 years

(Up to 25 years in special cases)

Up to10 years

70% (80% in special cases)

(For Vietnam)

Normal ODA loan: 1.4%

Special Condition: 0.2%

Normal ODA loan: 30 years

Special Condition: 40 years

(Revised periodically)

10 years

85%

Procedure -Initiated by the private company’s

request

-Initiated by official request of

government of recipient countries

Security -Sovereign guarantee is not required -Sovereign guarantee or

Government borrowing

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1

Major Conditions

• Investees

JICA invests in commercially viable projects (or fund)

e.g. PPP infrastructure project company (SPC), individual project

sponsors

• Share of Equity

JICA cannot take majority share, maximum 25 % of the total capital

• Exit Policy

Pre-arrangement of exit plan required for successful transition to

sustainable private business

Major Conditions

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2

Equity Finance (Investment)

To construct, operate and maintain by a Japan-Vietnam Joint company a treatment plant for

industrial waste water and water purification plant for surface water for industrial parks in Long An

Province (part of water will be supplied to the Public through Long An Province

Project Company

- Utility service such as waste water

treatment

- Water supply

Japanese company

(KOBELCO Eco Solution)

Vietnamese

company

JICA

Equity Equity

PSIF Loan

1. Introduction of Japanese technologies and know-how

Vietnam is facing problems such as land subsidence by

too much intake of underground water or environmental

damages by waste water

The project is expected to contribute to environmentally

friendly industrial development through Japanese reliable

environmental technology

First project for Kobe city to participate through its

subsidiary company (Partnership with Japanese Local

Government)

2. Platform development for Foreign SMEs

Long An Province is strongly inviting Foreign (especially

Japanese) companies (including SMEs)

Long An Province is preparing for value added service

such as rental factories and one-stop service. JICA is also

planning to provide TA.

3. Model project for PPP projects in Vietnam The project is expected to be a model for future PPP projects

工業団地入口 13

Kobe City

(D) Project 1

Utility Management of Environment Friendly Industrial Parks and

Water Supply Project in Long An Province, Vietnam

Rationale of the Project

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(D) Project 2

Industrial Human Resources Development Project Abstract

The Project aims to secure employment of quality workers for private companies

expanding business in Vietnam (especially foreign companies including Japanese ones)

through providing basic vocational training to Vietnamese students, who will be sent to

Japan for extensive training in Japan and return to Vietnam with high skills.

JICA

Esu Hai -To provide Japanese and basic vocational training

before dispatching students to Japan

-To support employment of the returning students in

Vietnam by introducing them to Japanese companies in

Vietnam

PSIF Loan

Rationale of the Project

1. To accelerate development through Japanese technology - The Project contributes to improvement of quality of

human resources through vocational training before dispatching trainees to Japan and training experiences in Japanese companies

- The Project is expected to introduce a new business model of Japanese human resource development system to Vietnam, and increase the number of human resources with Japanese discipline.

2. To accelerate the expansion of business of Japanese companies to Vietnam Returning Vietnamese trainees are expected to play as a main workforce for Japanese companies coming to Vietnam. This improves the business environment for Japanese companies in Vietnam and may introduce more Japanese newcomers.

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(D) Project 3

Microfinance Project for Poor People in Pakistan

【Abstract】

● To support “The First Microfinance Bank Pakistan (FMFB-P)” for the expansion

of its business through strengthening management and financial basis expansion

The First MicroFinance Bank Pakistan

(FMFB-P)

JICA IFC

Poor and Low Income People

●Job Generation by assisting Micro Enterprises

●Endowment of Women

●Improvement of Living Conditions

Equity Equity

Expansion and Provision of

Financial Service for Poor People

Aga Khan

Group

Equity

【Rational】

１．Poverty Reduction though Improvement of

Financial Access by Poor People

２．Collaboration with NGO and Donor

Supporting Poverty Reduction

Background:

F/S is necessary for project implementation.

F/S costs are risk money for private companies. However, conducting a F/S on

challenging projects in developing countries are in many cases difficult without public

sector support.

JICA bears all or part of cost of F/S by means of soliciting proposals for F/S on PPP

projects from private companies, and entrusting implementation of F/S to the proponents

who submitted successful proposals.

(1) Overview of the Scheme

Eligible projects:

PPP infrastructure projects in developing countries

Preparation for utilizing JICA ODA assistance or PSIF

Proponents should have an intention to invest in the project (not only construction)

Results:

5 batches since 2010, 34 proposals awarded.

JICA’s PPP F/S

No Country Project Title

1 Indonesia Application of Waste water Reclaiming in Sothern Bali water supply system

2 Indonesia West JAVA Regional Solid Waste Treatment and Final Disposal

3 Malaysia Creation of the Best Optimized Water Infrastructure PPP in Major Urban Areas

4 Philippines PPP project for Development of a connector road in Manila

5 Vietnam Utility Management of Environment-Friendly Industrial Parks

6 Vietnam Song Hau 1 Coal Fired Power Plant Project and its related common

infrastructures

7 Vietnam Urban Development with Above-and Under-Ground Combined Structures at Ben

Thanh Station Area in Ho Chi Minh City

8 Vietnam PPP Duong River Water Supply System Project

9 Vietnam Long Thanh International Airport Development Project

10 Vietnam Yen Xa Wastewater Treatment Plant in Hanoi

11 Vietnam Phap Van-Cau Gie Expressway Project

Fir

st

Batc

h (

as o

f M

ar,

2010)

Seco

nd

Batc

h (

as o

f N

ov

, 2010)

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PPP Infrastructure F/S Assistance: 11 projects were selected in JFY 2010.

No Country Project Title

1 Indonesia Central Sewerage Treatment System in Jakarta

2 Indonesia Capacity Expansion of Railway Line – Lahat – Kartapati in South Sumatera

3 Indonesia Jakarta Integrated Urban Hub Development Project

4 Indonesia Umbulan Spring Water Distribution System Project in East Java

5 Vietnam Hanoi Urban Railway Line No.5

6 Vietnam Water Supply and Sewerage System Development in Phu Quoc , Kien Gian

Province

7 Vietnam Trung Luong-My Thuan Expressway Project

8 Mongolia PPP-based Ulaanbaatar Metro Project

9 Indonesia Small Hydro projects in Sumatra and Sulawesi

10 Philippines Water Supply and Sewerage Development Project in the West Zone of Metro

Manila

11 Vietnam PPP Project for Development of Bien Hoa-Vung Tau Expressway

12 Vietnam Can Tho City Water Supply Improvement Project

13 Vietnam Wastewater Management and Solid Waste Management for Da Ｎang City

14 India Urban Railway Project in Pune City

15 Sri Lanka South Container Terminal for Colombo Port Expansion Project

16 Iraq New Fertilizer Plant and Intermodal Transportation Terminal Project in Khor Al

Zubair

Th

ird

Batc

h (

as o

f M

ar,

2011)

Fo

urt

h B

atc

h (

as o

f S

ep

, 2011)

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PPP Infrastructure F/S Assistance: 16 projects were selected in JFY 2011.

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No Country Project Title

1 Indonesia The Preparatory Survey on Intelligent Transport System Project to Eliminate

Traffic Congestion in Jakarta

2 Vietnam The Preparatory Survey on Long Thanh New International Airport Development

and Passenger Terminal Management Project

3 Vietnam The Preparatory Survey on Water Supply Project in New City and Industrial Park

in Northern Part of Binh Duong Province

4 Vietnam The Preparatory Survey on Da Nang Hoa Lien Water Supply Project

5 Laos The Preparatory Survey on Xe Katam Hydropower Plant Project

6 Cambodia The Preparatory Survey on Phnom Penh Autonomous Port Container Terminal’s

Special Economic Zone and Associated Facilities Construction Project

7 Mozambique The Preparatory Survey on Urea Fertilizer Complex Project

PPP Infrastructure F/S Assistance: 7 projects were selected in JFY 2012.

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Way forward: Some Key Issues in PPP and JICA’s role

Insufficient

Risk Allocation

- Private sector needs Public to bear major risks

(e.g. land acquisition, project risks, financial risks)

- On the other hand, the Government side’s main

interest tends to be nothing more than to procure

the finance from the private.

- As a result, private investors tend to feel that they

have to bear too many risks to enter PPP projects.

Private sector in general cannot take the risks

which are beyond their control

- Risks should be borne by those who can best

control and manage them, but the government

side tend to put too much risk to private investors,

assuming private sector must take all the risks in

PPP projects

JICA’s role

• To explain the importance of risk allocation to public entities, through

TA program

• To make necessary regulatory advice on PPP-related law to allow

more optimal risk allocation

Low payment capacity for service:

In the example of water sector

USD/ton

HCMC 0.19

Hanoi 0.23

Manila (Maynilad) 0.25

Shanghai 0.31

Beijing 0.46

Jakarta 0.46

Mexico 0.49

Korea 0.77

Portugal 1.23

Greece 1.40

Italy 1.45

Canada 1.58

Japan 1.85

Spain 1.92

New Zealand 1.98

Hungary 2.02

Poland 2.12

Czech Republic 2.43

Australia 2.44

Switzerland 3.13

Sweeden 3.59

France 3.74

Great Britain 3.82

Belgium 3.92

Finland 4.41

Denmark 6.70

*These tariffs are based on 2010’s value,

and may be lower than the current ones

Water tariff is generally very low in developing

countries, which makes PPP projects challenging

without any support from the government side

Water tariffs around the world

JICA’s role

•Capacity building of water companies to

strengthen operational and financial

capacities, ultimately increasing the payment

capacity

•VGF*

•Concessional financial facilities

(longer terms and grace period, low interest

rate)

*under consideration

Low tariff & service charges

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Thank you!

For inquiries, please contact

Nobuhiro KAWATANI

Deputy Director, Private Partnership Division

Office for Private Sector Partnership

Kawatani.Nobuhiro@jica.go.jp

Ph: +81-3-5226-6962