The Role of Private Sector Financing for Sustainable Transport

(c) RECAP 2015

Workshop participants discussing in front of the skyline of Hongkong

(c) RECAP 2015

Mr. Sodnom, Director General PPP Office, Mongolia and Undersecretary Maria Catalina Cabral, Department of Public Work and Highways, Manila/The Philippines

RECAP

Ms. Yiu, SLoCat and Mr. Verougstraete, UN ESCAP

RECAP

Prof. Gupta, Delhi Schools of Economics

RECAP

Dr. Hefele, Director of KAS RECAP, following Mr. Sinhas, Ministry of Urban Development, India, explanations

2015 is a critical year for the two major global processes on sustainable development and climate change: for sustainable development, the Post -2015 Development Framework and a final list of Sustainable Development Goals (SDGs) are to be adopted by World leaders in September 2015. In the context of climate change, a global agreement is likely to be reached at the 21st Conference of the Parties (COP21) of the United Nations Framework Convention on Climate Change (UNFCCC) in Paris, France in December 2015.

These international processes will set out quantified targets to guide the directions for sustainable development and climate change action in the next 15 years. In short, the international community has to come to a consensus on what and how much needs to be done to achieve sustainable development goals and climate change mitigation and adaptation priorities. The role of the transport sector in achieving sustainable development and climate change action is indispensable. Considering the urgency and scope of change required by these commitments, it is critical to quickly scale up current levels of funding for sustainable low carbon transport infrastructure and services. Much of the additional funding will be required to develop transport infrastructure and services that currently do not exist, particularly in the global South.

Over-arching problems

Participants agreed that private sector financing for sustainable transport in the Asia Pacific region is being held by the “lack of an enabling environment with a transparent, predictable and enforceable regulatory framework providing adequate flexibility in structuring Public Private Partnership (PPP) projects (PPPP)”. Participants furthermore agreed that there is a need for greater involvement of institutional investors in the funding of sustainable transport in Asia if the region is to be successful in meeting investment targets for sustainable transport set by the 2015 global processes on Sustainable Development and Climate Change.

Round Table discussions resulted in a series of Key Takeaways in three areas:

Policy Framework for PPPP, Fare Setting and Subsidies

1. Government’s core responsibility is to establish a transparent policy framework which allows development of high priority Sustainable Transport projects; identification of optimum means of procurement, which depend on circumstances and can be public or private.
2. An effective PPP framework should recognize:

• Transport’s enabling role for economic and social development;
• Commercial tariffs (forming the basis for agreement between PPP partners) and socially acceptable tariffs (charged to users) may be different
• Government’s ability to provide financial support for the difference between commercial and social tariff may vary

1. The selection of appropriate PPP contracting modality needs to be contextual/project specific taking into account government’s ability to manage risks, which varies greatly in the Asia-Pacific region.
2. There is a need for standardized PPP contracts that include review and negotiation process. This should be supported by a sound legal framework including adequate provisions for in and out of court dispute settlement mechanism.
3. There is a need for encouraging unsolicited proposals to promote private sector financing for sustainable transport.

Institutional Investors and Risk Allocation

1. To increase the attractiveness of sustainable transport projects to institutional investors review potential of credit enhancement mechanisms with the aim to improve the risk profiles.
2. Introduce standardized sustainability rating criteria for institutional investors that allow for independent assessment of proposed transport investments.
3. Conduct further research on financial incentives, including tax breaks, for investing in sustainable transport projects. This should also include the possible monetization of sustainable transport projects like increased land values or health savings.
4. Initiate more structured dialogues between institutional investors, governments and suppliers of sustainable transport infrastructure and services, to identify additional opportunities to motivate investment in sustainable transport.

Capacity building

1. Capacity building of developing Asia is crucial to identify and develop much needed sustainable transport project pipelines for the development of the region.
2. There is a need to significantly increase the “scale of ambition” in capacity building efforts to achieve doubling of private financing for sustainable transport over the next 5 years.
3. A clear division of labor for concerned stakeholders is necessary in order to prevent fragmentation and/or possible duplication of efforts on capacity building. Individual efforts including on-going undertakings such as the Asia PPP Practitioner Network, the APEC Urban Infrastructure Network, etc. need to be coordinated in an efficient and well-functioning framework that addresses the needs of sovereign nations, local governments, private sector and development organizations.
4. Capacity building is an ongoing, permanent activity. In order that capacity building functions well and in a sustainable manner, it should demonstrate concrete benefits for all concerned stakeholders.
5. To take capacity building efforts on private sector financing of sustainable transport forward, discussion of the Round Table should be followed up by scoping process to flesh out the institutional and financial arrangements for a capacity building program and other details of its scope, form and content.