stakeholder management to ensure sufficient ownership and decision-making to move
the project forward. There is typically inadequate financing set aside for robust project
preparation, largely because the work is done much before the actual transaction, which
may or may not result in a closed deal. Private investors as well as development banks
find this unattractive given the long time lines and high risk. Some entities, such as the
Asian Development Bank and the African Development Bank, have initiated efforts to
develop a project pipeline and preparation tool that can offer transparency.
Further, the feasibility studies must be credible. Insufficient data and lack of rigorous
analyses result in misinformation on costs and inaccurate demand projections for the
project. When the project preparation is done accurately and transparently, it also speeds
up the downstream procurement process. South Korea established an independent
central government agency (PIMAC) to review projects for cost underestimation, benefits
overestimation, and fraud, by forming a multi-disciplinary feasibility team. This team
rejected 46 per cent of projects (up from 3 per cent), reducing cost overruns from 122
per cent to 41 per cent. The UK’s Cost Review program, published by Infrastructure UK,
identified 40 major projects for prioritization. The review resulted in a reformed planning
process and then created a cabinet sub-committee to oversee and ensure quicker
delivery of projects through reduced spending from GBP 18-20 billion to GBP 12-18 billion
reflecting 10-15 per cent in savings.
Governments across the ASEAN countries would benefit from the establishment of
mechanisms that encourage upfront investment in rigorous and high-quality project
preparation. For example, the Ministry of Finance could set up a national revolving
fund that is dedicated to reimbursing the project preparation costs; the tender winners
from projects that go to financial close will then pay the equivalent project preparation
expenses into the fund. They could also draw on best practices from the private sector
capital projects (e.g., oil and gas megaprojects) that have clearly outlined stage-gated
processes. The stage gates serve as important check points and have clear deliverables
that the project must meet in order to get clearance to move forward. Example
performance indicators could include cost-benefit analysis, including a value at risk that is
revised at each project stage.
Further encouraging the private sector to bring their expertise in economic business case
analysis and project preparation early in the project life cycle can be helpful. For example,
the government can introduce “Swiss auction rules” for PPP projects. This means that
when the private sector brings a prepared project, and the PPP unit tenders it, the private
sector entity essentially gets the right of first refusal to match the final bid price.
For unsolicited projects, i.e., those initiated by the private sector, the government could
enable a mechanism to fund or reimburse the project preparation costs, with appropriate
controls. The tender preparation is still undertaken by an appropriate government
entity (e.g., PPP unit) to ensure it is a fair process. The private sector entity could still
bid competitively for the project in the open tender. Chile, Brazil and South Africa have
introduced frameworks for private sector project initiation.
CREATING MECHANISMS FOR LONG-TERM FINANCING
Solutions to incentivise the private sector for investing long-term in the ASEAN countries
will be important. This includes mechanisms such as infrastructure guarantee funds
(similar to that which Indonesia has established), transparency on foreign investors
operating in a country, and domestic bond market development (e.g., Malaysia has
enabled project companies to raise bonds for their infrastructure projects). For example,
the European Commission and the European Investment Bank (EIB) have initiated the