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MAPA Highlights

Building an Open and Efficient Infrastructure Sector

Efficient infrastructure is a powerful contributor to growth in the region and to strengthening the sense of community within and among APEC member economies. Securing and increasing private sector participation in infrastructure building will help ensure adequate and quality infrastructure. APEC members are committed to deepening the public-private partnership to meet the infrastructure challenges in the region. These are reflected in the following:

• Individual Action Plans (IAPs) containing specific actions that will build and strengthen public/private partnership.
  
• An Action Programme for Economic Infrastructure prepared.
  
• Experiences shared on Best Practices in infrastructure.
  
• Cooperative actions initiated to give impetus to the development of the telecommunications and energy sectors, including:
  • Recognition of the Reference List of Elements of a Fully Liberalized Telecommunications Sector by the APEC Telecommunications Ministers.
  • Endorsement of the Agreed Non-Binding Energy Policy Principles by the APEC Energy Ministers.
• An Asia Pacific Energy Research Center set up in Japan.

Background

In the past, most infrastructure facilities were provided by government, and foreign participation tended to be excluded, resulting in monopolies and an absence of pressure to be innovative and efficient. Lack of transparency in public infrastructure policies also created uncertainties for the private sector users or potential investors.

At the same time, the scope for private sector participation was limited by the lack of development of financial markets. Expectations that the private sector did not have the resources to play a role were reinforced.

Meanwhile, the scale of the task has grown enormously. The World Bank estimates that the investment in infrastructure for the East Asian developing economies alone will be in the order of US$1.5 trillion for the period 1995-2005.

A public/private partnership

APEC members are committed to increased participation of the private sector in the construction, management and ownership of infrastructure facilities. This commitment, alongside macroeconomic stability and a series of sector specific reforms in APEC economies, will help deal with the issues in the region's infrastructure.

The key to reducing the constraint is a public/private sector partnership. Some economies are also exploring arrangements for risk-sharing between government and the private sector.

Sector specific proposals are contained in the IAPs of member economies. These include: 

• Raising if not totally removing the caps on foreign participation
• Encouraging joint ventures
• Expanding geographic access by foreign firms within member economies
• Relaxing constraints on the employment of foreign nationals
• Removing foreign exchange restrictions
• Reviewing taxation and immigration restrictions on foreign suppliers
• Reforming price setting systems
• Accepting mutual recognition of conformity assessment.

Action Programme for Economic Infrastructure

Under the Action Programme on Infrastructure, APEC is working to improve the environment for private sector investment in infrastructure, drawing on business advice obtained through Public-Private/Business Sector Roundtables on key issues such as "best practices" in risk management and mitigation, as well as discussions by APEC Finance Ministers on ways to improve the flow of funds to infrastructure and to use technical assistance and financing/guarantee facilities of international financing institutions. Sectoral infrastructure issues in the energy, transportation and telecommunications sectors are also a key part of APEC's overall infrastructure work.

The Action Programme has two parts: common policy concepts and joint activities/ dialogue. The common policy concepts reflect the goals of the member economies in the provision of infrastructure; basic principles which recognize the diversity in the capacity and needs of the APEC economies; and priority activities. The joint activities involve the conduct of analytical work on issues affecting infrastructure as well as exploring ways to enhance the environment for infrastructure.

Telecommunications

The goal of universal telephone access is a vital part of the community building process in APEC. This agenda will also reduce the costs of doing business. It will create new business opportunities and new delivery systems for services, education and health for example. Businesses now not even imagined will be created. It will bring the members closer together.

APEC members will accelerate the work to extend telephone access to every APEC business and household. This commitment entails the implementation of individual and collective actions associated with the Osaka Action Agenda and consistent with the Reference List of Elements of a Fully Liberalised Telecommunications Services Sector (Box 14 on page 26) which has been recognized by the Ministers responsible for telecommunications and information industry. Its concept of universal access is an outcome of a market oriented approach. It is not the result of monopoly provision and the application of a policy of restrictions on entry in conjunction with cross subsidies between users.

Many members have already made substantial progress towards opening up their telecommunications sectors. Box 15 on page 27 summarizes the IAP commitments of APEC members in the telecommunications sector.

Many members are significantly deregulating their domestic telecommunications markets. So far, mobile services and value added services such as paging, cellular, satellite communications, etc. are generally relatively more open than basic telecom services. This trend towards deregulation among the members reflects their recognition of wider access to telecommunications services at lower cost. The work of the WTO Negotiating Group on Basic Telecommunications is vital to this process. Talks of this group are scheduled to conclude by February 1997. Nine APEC members explicitly commit themselves to these negotiations in their IAPs. They will build the critical mass which will resolve outstanding issues and push the negotiations to a successful conclusion.

Energy

APEC economies' rapidly increasing demand for energy in an environmentally responsible way will be essential if the region's economic growth potential is to be fully realized. In this regard, the response of many APEC members has been outstanding as evidenced by the unilateral reforms carried out in the sector as documented in the IAPs.

On a collective basis, APEC members have developed non-binding energy policy principles that will enhance closer cooperation in the sector and at the same time guide the formulation of domestic energy policies. The set of non-binding principles, which appears in Box 16 on page 28, has been endorsed by the Energy Ministers.

The APEC Energy Working Group is implementing a program of work aimed at facilitating increased private sector investment in power infrastructure through a series of practical, cooperative actions. The work program, which was recommended by representatives of the business sector and endorsed by APEC Energy Ministers, will address some of the major issues identified by the business sector as requiring urgent action. These include developing non-binding guidelines, based on international best practice, for tender/bid processes and permits/approval processes for IPPs, and enhancing the regulatory conditions for investment in power infrastructure. The work program is being implemented in partnership with the business sector.

As in the other infrastructure sectors, the contribution of the private sector in the provision of energy services is critical. Many APEC economies such as China, Indonesia, Malaysia, the Philippines and Thailand have commenced implementation of power development programs by the private sector, commonly referred to as independent power producers (IPP). Of particular note is the experience of the Philippines in mitigating its power supply crisis in the early 1990's.

Public / Private Partnership: Best Practices

With the government providing the proper macroeconomic fundamentals as well as a transparent and predictable legal and regulatory framework, the role of the private sector is encouraged. Business can play a role as a consequence of the privatization of government owned firms, or as a result of the use of strategies such as BOT. Best practice examples of these activities are listed in the box.

There are in principle different paths and sequences of steps to infrastructure sector reform. There is no one model which is appropriate for all APEC members. The private sector should not expect a "cookie cutter" approach to policy in this area. There are, however, some commonly accepted principles, as illustrated by those applying to the energy sector. The APEC process also plays a role by encouraging the comparability of policy in these sectors and facilitating the exchange of experiences. Its work facilitates the evolution in policy as members strive to attract the finance required for infrastructure development. An important example of this work was the July 1996 public-private sector Infrastructure Roundtable dialogue in Seattle, Washington. APEC has published the Roundtable dialogue and recommendations of the participants, as well as the case studies developed and discussed.

Northumberland Strait Crossing Project (NSCP) in Canada

The NSCP is a 13.5km. high level bridge structure linking New Brunswick to Prince Edward Island. This is the first significant BOT project undertaken in Canada which includes a full financial plan and 35-year concession period. The goal of the developer was to achieve a non-recource financing solution and to obtain an equitable balance of contractual risk with the government of Canada. A unique form of real rate bond was developed to finance the project.

Hong Kong BOT Franchise for a New Strategic Road Link

Involves construction of a dual-three lane expressway connecting the urban areas of Hong Kong with the northwest new territories. The franchisee is required to construct the project within 38 months at a fixed budget of US$930 million. Franchisee shoulders all market risks and financial risks of cost overruns and late completion, with no financial or any other form of guarantee from government. However, the government is responsible for completing necessary statutory or administrative processes so project construction can start on time. For delays genuinely outside the control of the franchisee, risks are shared by government and the franchisee through extension of the construction/franchise period. A toll adjustment formula which sets out the objective criteria for determining toll increases during the entire franchise period was formulated to assure the franchisee of a reasonable return on investment.

Government support is manifested through effective coordination between relevant government departments to assist the franchisee in meeting his contractual obligations; a level playing field for investors through a clear and open tendering system; and a clear contractual and legal framework which reduces business risks while protecting the interests of government and the general public.

Toll Road Investment Program in Indonesia

Indonesia's current toll road investment program calls for private sector investment in 767 kilometers of toll road estimated to cost US$3.5B. Funding through an innovative international competitive bidding process that emphasizes transparency, risk allocation, speed of execution and effective communication between the public and private sectors.

Clear laws including policies on foreign investments and joint venture arrangements with state-owned enterprises, combined with a transparent bidding/selection process (where laws and regulations as well as requirements and procedures that must be met are clearly described), have helped attract investors in or bidders for BOT projects in Indonesia. Well-crafted tender documents have also helped mitigate risks associated with the program.

Effective communication is achieved through a committee composed of senior representatives of all major divisions plus legal, financial and technical consultants to review the tender documents in detail and reach a consensus thereon. The committee structure is also used in the tender and selection process to reach a consensus on issues as they arise and to evaluate bids.

Pagbilao Power Project in the Philippines

One of the fast-track BOT power projects undertaken to alleviate the Philippines' power crisis. The Philippine Government provided a Performance Undertaking for the obligations and performance of the National Power Corporation - the power purchaser and fuel supplier for the project. Government also enacted the BOT Law and instituted reforms to improve the country's investment environment. Administrative procedures were simplified and the project was opened to transparent international competitive bidding. Multilateral development agencies and bilateral government agencies cooperated to provide long-term financing which helped mitigate various types of risks associated with the project.

High Speed Rail Project in Chinese Taipei

The US$17 billion 345-kilometer long high speed rail project in the western corridor of Chinese Taipei will connect the island's three principal metropolitan areas. It is a BOT project but government will be responsible for acquiring the needed land and providing funds to a significant portion of construction to assure financial feasibility.

Defined legal framework was established to demonstrate government support to the project and both the government and private investors share project risks. Fairness and transparency is achieved through the release of various assessments made by the government for potential investors to review and study and through regular meetings for management level to exchange views and ideas in the course of tender and evaluation procedures.