IFIs push central Asia PPP

02/05/2010 | Chris Wright

Central Asia may be close to entering the public-private partnership era for infrastructure investment – a development that could help transform these landlocked, inaccessible nations

Central Asia may be close to entering the PPP era for infrastructure investment – a development that could help transform these landlocked, inaccessible nations.

Juan Miranda, ADB Director General for Central and West Asia, said this weekend that “we haven’t had in Central Asia the unique transaction that says: the future looks like this,” – but he believes one is not far away.

PPP arrangements could be applied to a multi-billion dollar project to convert gas into chemicals in northern Uzbekistan, Miranda said.“If that happens, we’ve created a message. We convey an opportunity to the international investment community that this place is open for business.”

Central Asia urgently needs private sector investment, but is not set up to attract it. It is mountainous, making road and pipeline development difficult; population centres are thousands of miles from ports; and the world investment community has been indifferent towards them.

Getting deals completed is limited partly by a lack of private sector risk appetite and partly the absence of an environment that would attract it. “In Central Asia we have the big ticket projects waiting for the private sector to invest, but unlike other parts of Asia the upstream work [such as legal infrastructure] lags behind,” Miranda said.

Concession laws do exist, notably in Kazakhstan – which has a dedicated PPP unit within its government and an approved list of projects for it to pursue – but usage has so far been modest. “There is a comfort zone that is not that huge here, and we need to expand that comfort zone.”

In the meantime Miranda expects gradual progress, with most involvement at the less committed end of the spectrum of private sector involvement.

“Would you be able to have an all-singing, all-dancing concession and BOT? Maybe not right now,” he acknowledged. “But maybe you go in more realistically, and expect a management contract to start with.” That, he feels, is still progress. “If you go from zero to something that’s no longer zero, that still represents success.”

A positive sign for the region came last week with the signing of Russia’s first major PPP deal, a ?715 million loan financing package for the expansion of Pulkovo Airport in St Petersburg. “We think it’s a really path-breaking deal,” Rashad Kaldany, Vice President of the IFC (the World Bank’s private sector arm), said.

Russia has a long history of PPPs faltering, mainly because investors consider them too risky. Kaldany said that the difference here was “the government having a dedicated team that was empowered to negotiate and engage, being willing to adjust if need be, and to listen to investors.”

Kaldany believes that the deal demonstrates “not just for Russia but for all CIS countries that this can be done,” and expects PPPs to follow in Central Asia. The IFC is looking at PPPs for a hospital and part of a road in Kazakhstan, and health diagnostic centres in Uzbekistan, among other things. “There is progress and we are encouraged.”

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