&KDOOHQJHV#DQG#3URVSHFWV#IRU#WKH#-DSDQHVH#3),
Nobuhiro MORI
General Manager, Research Department, KRI International Corp.
T
he use of a private finance
progress towards implementation.
all appropriate areas.
initiative (or “PFI”) as a new
The increase in public works
A clear delineation should be
vehicle for building infrastructure
projects in general under the com-
made of roles to be filled by the
has recently become a focus of
prehensive economic policy, as well
national
attention. In May 1998 the Liberal
as the promotion of a private sector
governments and by the private
Democratic Party submitted a “Bill
lead PFI vehicle, have the potential
sector, and the public sector’s
to Enact the PFI Promotion Act” to
to forge major changes in Japan’s
involvement in the private sector
the Diet in the form of a legislator’s
approach to improving its infra-
bill. Whereupon the Ministry of
structure.
should be kept to a minimum.
Project Selection:
Construction published its Guide-
therefore discusses the challenges
lines for the Japanese PFI (MOC
and prospects for the Japanese PFI.
The
present
paper
government,
by
local
The selection process is to be
made transparent through means
such as open competition.
Guidelines), which was followed by
a similar promotional proposal by
SUMMARY OF PFI BILL
the Ministry of International Trade
Core Concept:
Objective evaluations will be
made and published of particulars
and Industry, thereby bringing Ja-
The private sector should be
pan’s PFI into its first stage in
relied upon as much as possible in
3
such as the benefits and efficiency
of the projects.
%DVLF#6WUXFWXUH#IRU#D#3),
Assistance by Government:
The national government and
local governments may allow public
National and Local
Governments
property to be used free of charge or
for a consideration that is lower
than the market rate.
The national government and
Contracting of
Construction
and Operation
Provision of Facilities and Services
Financial
Institution
local governments may make equity
Financing
investments or guarantee the obliCorporate Group
gations of the project entity.
Government affiliated financial
institutions may make no interest
loans.
Contracting
Contracting
1. What is the Japanese PFI
The PFI concept was introduced
in the United Kingdom in 1992, and
has been used as a mechanism to
Construction
Company
Operating and Management Company
procure public services from administrative entities, and to exploit
By introducing the PFI concept,
the expertise of the private sector in
Japan will be able to reduce the
areas of financing, design, con-
financial burden of the national and
As a result of (i) and (ii) shown
struction and operation in the course
local governments, while at the
in the diagram, public investment
of providing public services. The
same time improving the country’s
must be cut.
PFI vehicle differs from privatiza-
infrastructure. The Japanese PFI
tion, in which the private sector is
will also offer the possibility for
Current Level of Public Investment
liable for providing services. Instead
increased business possibilities for
¥44 trillion (8.5% of GDP)
this vehicle mainly involves a
the private sector. The government
structure in which the government
is also placing emphasis on putting
to ¥30-¥35 trillion
purchases services such as the con-
this vehicle into practice, as it will
4% of GDP at year 2010
struction and operation of public
also help stimulate the country’s
facilities from the private sector,
economy.
and provides administrative services
for general public use.
administrative, as set forth in the
diagram on page 6.
Japan, however, will have a sub-
Several issues are presented by a
stantial need for infrastructure in the
comparison between the Japanese
future, and the country’s existing
The Japanese PFI utilizes the
PFI and the PFI in the United
infrastructure needs to be improved.
concept of the British PFI, and en-
Kingdom, the country of origin.
This means that investment from the
hances it with mechanisms such as
These have been organized into
private sector must be introduced
Japanese style subsidies. The legis-
three categories, i.e,. the scope of
into infrastructure projects, in order
lative
under
eligibility, standards for approval
to cover the resulting funding gap
deliberation in the Diet, and will
and auditing mechanism, and have
(which is projected to be from ¥9 to
likely be put into force in the Spring
been summarized in Table 1.
¥14 trillion). It is also true, however,
bill
is
currently
of 1999. This comes six years after
the British version was put into
that simply using private sector
2. Why Does Japan Need the PFI
financing for the public sector will
effect, and the impact of this vehicle
PFI can be seen as an extension
not allow the market mechanism to
in the UK is beginning to become
of Japan’s administrative and fiscal
work and will be inefficient, which
apparent, with approved projects
reform. The administrative and
would contradict the purpose of
substantially exceeding 10% of total
fiscal reform consists of two ele-
expenditures for public works.
ments,
both
fiscal
4
and
Table 1. Comparison of PFI in Japan and the United Kingdom
Japanese PFI (PFI Promotion Bill)
British PFI
Limited Application
Scope of Application
Construction, Management, Maintenance and Construction of
Public and Similar Facilities
Public and Similar Facilities Covered
Public Facilities
Facilities such as roads, railroads, airports, rivers and
streams, parks, and water and sewer lines
Facilities Provided for Public Use
Government offices and lodging facilities, etc.
Facilities Offering a Public Benefit
Public housing, educational and cultural facilities, waste
disposal facilities, medical facilities, social welfare
facilities, correction and custody facilities, parking lots
and underground arcades.
Information and Telecommunications Facilities
New energy, recycling, tourism and research facilities
Other
Such other facilities as are designated by Cabinet Order as
being equivalent to the above
Lack of Clarity in Project Approval Standards, and Incompleteness
of Rules for Fiscal and Financial Efficiency
Projects that are appropriate for implementation by the private
sector should be contracted to the private sector to the extent
possible.
Standards for Determining Whether a Project is Appropriate
Standards included the following:
Consideration is to be given to the proper allocation of roles
between the national and local governments, and the private
sector, as well as efficient use of fiscal funds; while at the
same time,
Support for expenses will be possible from sources such as
revenues to be earned from the project.
Main Incentives
No Interest Loans
Loans at no interest shall be permitted within budgetary
constraints for funding of those selected projects that can be
recognized to be particularly in the public interest.
Fiscal and Financial Support
In order to promote implementation of identified projects,
national and local governments will implement the necessary
legal regulations and tax incentives and provide support in
the form of fiscal policy and financing in accordance with the
basic policy and policy of implementation.
Application
Public
service
projects
requiring the formation of
public assets which would be
difficult
to
privatize
or
outsource.
Standards for Project Approval,
Etc.
Standards for Eligibility
All projects for which greater
VFM can be expected than
would be the case if the project
were to be implemented using a
traditional structure are to be
carried out through a PFI.
Standards Set Forth by the
Ministry of the Treasury
The services must be
needed, and there must be a
need for these services to be
provided by the public
sector.
The possibility of a PFI is to
be
considered
without
exception when providing
public services requires the
need to create capital assets.
Reasons must be stated if a
study
determines
that
pursuit of a PFI is difficult.
Incompleteness of Auditing Mechanisms
Auditing
The Commission to Promote Private Sector Funded Projects Etc., Is
to Be Created Under the Prime Minister’s Office
Particulars to Be Deliberated by the Commission
Particulars for which authority is to be delegated to the
Commission under the PFI Promotion Law
Status for determining implementation guidelines to be put in
place in accordance with the Basic Guidelines
Status for selection of specified projects as well as the use of
vehicles such as private sector financing to improve public
facilities, etc., in Japan.
The National Audit Office
(NATO, the equivalent of
Japan’s Board of Audit)
Definition of Capital Assets
Capital assets are long term
assets. In addition to tangible
fixed assets, capital assets also
include intangible assets such
as computer software and
patents.
Source Documents Presented at a Symposium of the PFI Symposium Committee on New Energy and
Recycling (June 15, 1998)
5
administrative reform.
The private
sector must participate not only in
3.
Sectors Suited to the PFI
Vehicle
computer
systems,
government
buildings, office facilities, urban
transit, subways, hospitals, schools
financing, but also in all areas of
For the public sector, a PFI proj-
design, construction, operation and
ect would be any project through
management. Thus in the future the
which it can enter into a partnership
In Japan, many local govern-
private sector is to be relied upon to
with the private sector and thereby
ments are beginning to consider the
implement
of
achieve a means for providing pub-
PFI vehicle as they face an increase
infrastructure of which it is capable,
lic services of the nature described
in obligations for prefectural bonds
and
those
areas
and social insurance services.
will
above at a lower cost than has pre-
issued during the country’s bubble
meticulously carry out its role as a
viously been the case. Theoretically
economy, and are in a period of
purchaser of services. Moreover,
therefore, the PFI vehicle could
fiscal restructuring.
existing
the
must
public
sector
administrative
services
apply to any type of public service
- The Osaka Municipal Govern-
streamlined
through
that the government provides.
ment has decided to introduce PFI
be
In the United Kingdom PFI has
in their civil engineering division on
thereby
been adopted by all sectors of gov-
a test basis. The government has
sector
ernment and has spread to each
identified pay parks (renovating
economy. Consequently the PFI
agency and local government. A PFI
pools in municipal parks), parking
structure constitutes a policy vehicle
may be used for any public service
lots (replacing municipal parking
for administrative and fiscal reform,
involving the provision of buildings,
lots), and toll roads, and is consid-
as well as a means for outsourcing
facilities or services. Actual projects
ering the possibility of employing
to the private sector and privatizing
extend across many sectors and
PFI as well as reviewing case studi-
entities such as special corporations.
include
es to extract issues.
contracting to the private sector and
through
privatization,
stimulating
the
private
roads,
bridges,
prisons,
Proposed Fiscal
Restructuring
(i)
Fiscal Collapse
Reducing the
fiscal deficit to
3% of GNP by
2003
(Currently this
stands at 4.5%)
Fiscal Structural
Reform Law (Enacted
in November 1997)
National and local
governments have a
combined debt of ¥5
trillion. Tax revenues are
being consumed in
paying the interest to
service this debt
(ii)
Bloated Government
Eliminating
government
deficit financing
issues by 2003
Government
Downsizing
Basic Law for Reform of
Central Government
Agencies
(Enacted in June 1998)
Streamlining
Organizations
1.2 million employees in the
national government.
3.6 million employees in
local governments.
Reduction in
Government
Workers
Outsourcing
Use of Private
Sector
3),
3),
Spin Offs and
Privatization
6
businesses); and
- Saitama Prefecture has decided to
can only be made at a later date,
make a public offering using a PFI,
once the details of the project have
financiers must exist in financial
in addition to the former land read-
been clarified, market tests have
markets who are willing to finance
justment project vehicle, as a means
been completed, the project has
the project in question (capacity of
for exploiting the vacant site of the
been placed up for bidding and
financial markets).
former Musashino Line train depot
contract negotiations are close to
(83.8 ha).
completion.
- The Tokyo Metropolitan Govern-
VFM
5. Project Types and Implementwill
need
to
be
ing Procedures for the Japanese
PFI
ment has decided to use a PFI for a
demonstrated by comparison of
12 MW generator at its Kanamachi
private sector PFI bids with a
The Guidelines issued by the
water treatment plant. The govern-
detailed public sector comparator
Ministry of Construction classify
ment also plans to use the same
(PSC). The PSC describes the
PFIs into three types depending on
vehicle at its water treatment plants
option of what it would cost the
the roles fulfilled by government
in Asaka, Misato, and Misono.
public sector to provide the needed
and the private sector.
- Mie Prefecture has started a pub-
services using a traditional vehicle.
lic
to
The following conditions must be
participate in a study of the possi-
satisfied in order for VFM to be
This is a vehicle in which the
bility of utilizing a PFI in tourism
demonstrated and for a PFI to exist
private sector can earn profits. The
and
as a practical option:
private sector builds the facilities,
offering
for
companies
leisure facilities
(including
Type 1:
Fee Payable Type
sanitary facilities using seawater,
the government must have a
and operates the enterprise. The
golf courses, and a business incuba-
need for the relevant services (need
project achieves profitability inde-
tion center in the Eastern Kishu
on the part of the government for a
pendently, as tariffs are collected
region) for the purpose of revitaliz-
PFI);
from customers for their use of the
ing areas that are losing their
the private sector must be able
facilities. The role of government
to operate the project both under
would be limited to initial plan
As discussed below, PFI projects
law and regulation (deregulation
design, approval of the project
for local governments offer a sub-
and opening of markets to the pri-
(which in some cases would also
stantial market potential, depending
vate sector);
involve procuring the necessary
populations.
on the results of the various questionnaire surveys.
4. Requirements for Achieving a
PIF
the private sector must possess
land), and acquiring the facilities
the necessary management capabil-
after a certain time has elapsed. The
ity and expertise (private sector
private sector will bear almost all of
capability and expertise);
the project risk:
Current Projects:
the contract conditions must
The following lessons can be
properly allocate to the private sec-
Trans-Tokyo Bay Highway
learned from Britain’s experiences
tor those risks that the private sector
Multipurpose
with its PFI.
can control in order to exploit the
museum, amusement facilities and
park facilities.
Projects Under Consideration:
sports
stadium,
Achieving solutions with a PFI
private sector’s technical innovation,
should be sought where there is a
management capacity, and creativity
high possibility of achieving value
(existence of conditions for cost
Toll roads
for money (VFM). It is important to
reduction and improved efficiency
Projects to convert sewage to
clearly assess the possibility of
through utilizing the dynamism of
obtaining VFM in a visible sense
the private sector);
within the early stages of the PFI
private sector operatives must
resources (recycling project)
Type 2:
Combined Public and
Private Project
will
exist that are capable of providing
enable some evaluation of the pos-
the services of the project in ques-
This is a vehicle in which public
sibility of reducing costs with a PFI.
tion, and are fully willing to accept
facilities and private facilities are
The final assessment of whether a
the risks involved (desire to partici-
combined into one unit, where the
PFI will generate VFM, however,
pate
project needs of the public sector
procurement
process.
This
on
the
part
7
of
private
Table 2. Project Flow for a Japanese PFI
Government
1. Announcement of Proposed
PFI Project
Private Sector
Announcement of Intention to Implement Project
(2)Statement of Interest in
Participating
(1)Public Notice
2. Recruiting Businesses
(2) Prequalification Examination
(3)Guidelines for Recruiting
Businesses
3. Selection of Businesses
(4)Submission of Proposal
(1)Selection and Negotiation With Businesses Having Preferred Negotiating
Rights
(2)Evaluation of Proposals
(3)Determination of Business That Will Implement the Project
4. Conclusion of Agreement in
Connection With Project
(1)Establishment of Company to
Implement the Project
(2) Conclusion of Agreement in Connection With Project
Obtaining Financing
5. Financing
Construction
6. Construction
Operation, Maintenance and
Management
7. Operation, Maintenance and Management
(1)Project Restructuring by the
Private Sector
8. Countermeasures in the
Event of Project Failure
(2) Countermeasures by the Public
Sector in the Event of Project Failure
9.Transfer of Facilities
Transfer of Facilities
8
and the private sector are in concord,
structure to be designed, built and
projects involving the improvement
and the public sector can reduce its
operated efficiently and effectively.
Current Projects:
and operation of infrastructure, in
None.
Projects Under Consideration:
projects, with the public sector here
costs for the project below what
would be the case if it pursued the
public sector component on its own.
its position as the manager of these
including the national government,
An agreement is concluded which
Housing welfare services, waste
local governments, as well as gov-
clearly classifies the project into its
disposal and recycling projects,
ernment corporations and associa-
public and private divisions, and
water
sewage
tions. Deregulation and liberaliza-
also sets forth the allocation of risk
treatment plants, government of-
tion of current legal regulations is
between the public and private
fices, art museums and sports
urgently needed in order to encour-
sectors.
Current Projects:
facilities.
age broad based participation in PFI
treatment
plants,
Under the Guidelines from the
projects by businesses that are in-
Ministry of Construction, PFI pro-
fused with the entrepreneurial spirit.
jects
implemented
Specific changes required involve
comprehensive housing and urban
according to the project flow set
amendment to the Highways Act,
development projects, projects to
forth in Table 2.
the Harbor Act, the Airport Im-
Land readjustment projects, urban
redevelopment
projects,
are
to
be
provement Act, the Rivers and
use free space over sewage treatment plants, and rebuilding of
6. Issues at Present
Streams Act, the Metropolitan Parks
public housing projects to include
Japan faces many challenges in
Act, the Water Supply Act and the
private sector facilities, as well as
promoting the PFI and enabling it to
Sewage Act, to include the PFI
projects to use available land around
be accepted to the extent that has
business entity within the definition
large levies and expressways.
Project Under Consideration:
been the case in the United King-
of “manager.”
(3) Creating an Organization to
Public park over recycling facili-
dom.
(1) Steady Implementation of the
ties, combined public park and
Comprehensive Economic Policy
Promote PFIs from the Perspective of the Private Sector
Japan’s recent “Comprehensive
- In order to promote the PFI con-
operated
Economic Policy” has included the
cept in Japan, the country must deal
facilities in central urban areas,
following provisions in connection
with the complexity of its proce-
improving public walking areas
with the Japanese PFI (see Table 3),
dures resulting from the large
through
rehabilitating
and the content of this policy should
quantity of permits required, the
building
optical
be persistently put into effect.
extent of discretion available to
cemetery, public parking lot combined
with
privately
fiber
buildings,
networks
bureaucrats, and the bifurcation of
using the space around rivers and
streams, and using the area over
- Prompt enactment of the “PFI
the country’s bureaucracy into ver-
flood retention ponds associated
Promotion Act.”
tical units that lack coordination. At
with housing developments.
- Building
organizational
the present time a private company
structure within the government to
must compile a veritable mountain
Purchasing of Public
promote the PFI (PFI Promotion
of documents if it wishes to begin a
Services
Committee).
PFI, and must make repeated visits
This is a vehicle in which the
- Support measures (study coordi-
to government offices in Kasumi-
private sector builds a facility and
nation expenses and creating a
gaseki, the relevant prefecture, as
recovers its investment cost by re-
facility to extend financing to PFIs).
(2) Liberalization of Legal Regu-
well as the local municipality. This
ceiving payments from the public
sector (generally in the form of
lations in Order to Encourage
companies concerned. It is also true,
lease payments). Since the private
Participation by the Public Sector
however that PFIs do involve public
sector has expertise in management
on a Broad Scale
services even if they are led by the
Type 3:
an
places a substantial burden on the
and operations, this is an area in
In many cases under present law
private sector and in many cases
which relying on the private sector
only the public sector can function
require public assistance in order to
can be projected to enable infra-
as the core entity implementing
assure project viability. These ele-
9
ments require some type of approval
which Japan operates. Two per-
and a market orientation. Thus the
mechanism for the private busi-
spectives are essential for the
PPO must in all senses serve to
nesses that will implement the PFI
establishment of this organization:
clarify the position of the private
project.
first the PPO must be given a high
sector of promoting participation by
To that end a PFI Promotion
status that is not limited by the dis-
private businesses into PFI projects.
Organization (“PPO”) is required in
cretion or territory of a particular
Approval of private sector pro-
order to provide qualification for
agency or local government, and the
jects requires the full integration of
projects and to facilitate permits, in
second is that the PPO must have
a bidding system that accommo-
view of the business environment in
objective standards for evaluation,
dates this shift from the public
Table 3. Summary of the Comprehensive Economic Policy Relevant to PFI’s
1. Enactment of the Draft Law in Connection With Promoting the Improvement, Etc., of Public
Facilities, Etc. Through the Use of Private Finance, Etc. (PFI Promotion Bill) at This Ordinary Session
of the Diet
Summary of Bill
- A broad category of public facilities, etc., are eligible (including roads, harbors, airports, water and
sewage lines, industrial water, waste treatment plants, new energy resources, recycling facilities, heat
supply facilities, and information processing facilities)
- Compiling of Basic Guidelines for the Entire Government
- Compiling of Guidelines for Implementation (in the form of requirements for seeking offers) on the
part of each agency in the central government and by local governments
- Legal measures (including deregulation), assistance packages (fiscal, financial and tax incentives),
allowing government investment, credit guarantees, no interest loans, use of government property for
no consideration or at reduced cost, and acceptance of long term government obligations
- Establishment of the Commission to Promote Private Sector Funded Projects Etc., as the promotion
organ within the national government
2. Fiscal Measures
Establishment of a PFI Financing Vehicle Based on the Concept of Project Finance, Within Government
Affiliated Organizations Such as the Japan Development Bank
Summary of System
- Facilities to Be Covered:
Facilities such as Refuse Derived Fuel Powered Generators, recycling facilities, heating
facilities, general waste treatment facilities, and circuit facilities to test mobile
communications
- Interest: To Be Determined
- Ratio Eligible for Financing Through Debt:
50% Projected Provided that this is to be applied flexibly within 1998
3. Budget
The cost of studies and coordination in connection with PFIs is to be placed in the account of the
government as a whole.
10
- Moreover, a suitable organization
bringing down construction costs.
Use of this type of performance
- Public Assistance Involving
Project Coordination, Acquiring
to promote PFIs is also needed at
contracting will also contribute to
Land, and Improvement of Public
the local government level, since a
prompt revision of technical stan-
Infrastructure
considerable number of PFI projects
dards determined by the purchasing
As stated in the MOC Guidelines,
are likely to be pursued at the local
agency, to prevent designs by the
the following support policies are
level. This specifically involves:
contractor that contain specifica-
needed in addition to public finan-
Disclosure of information that
tions in excess of what is truly
cial assistance, to achieve profit-
publishes an evaluation of the cost
needed. Work quality, safety and
and performance of each project;
performance on the contract after
ability for private sector projects:
(a) Project Coordination
sector to the private sector.
Using structures such as the PFI
the bid is awarded will be secured
PFI projects are for the purpose
Creation Fund, to seek out local PFI
by thorough project management
of improving public facilities, and
projects;
(PM) in cooperation with consult-
thus must be coordinated with infra-
ants.
- Public Financial Assistance
structure development plans on the
Establishing a local PFI task
force; and
part of the public sector. It would be
Execution of responsibility to
The services that are likely to be
desirable for the public sector to
provide explanations to the taxpayer,
covered under the PFI have hereto-
handle tasks such as determining the
and ensure transparency (to that end
fore been provided by the public
position of the PFI project within
it is essential that thorough project
sector and in many cases have a
public development plans as well as
management be implemented over
lower profitability than products
handling studies and environmental
PFI projects).
(4) Putting a System Into Place to
and services offered by the private
assessments at the time this takes
sector. Consequently some public
Reduce Risk and Improve Prof-
assistance will be required in many
place.
(b) Acquiring Land
itability
cases, even though the project is
Although PFI projects may in-
in
Connection
With
Projects
being shifted to the private sector. In
volve instances in which the private
Some policy measures are re-
this case it is essential to consider
sector acquires land for a project,
quired to reduce the risk and
assistance policies with a goal of
and instances in which the public
improve profitability for private
creating sound and healthy private
sector provides the land either on a
businesses, in order to promote PFI
sector operatives.
fee payable basis or for free, in
In the UK public assistance has
many cases the proper course will
been approved in the form of issu-
be for the public sector to handle the
This involves revising Japan’s
ing government guaranteed bonds,
actual work involved in acquiring
traditionally rigid contracting sys-
in France this takes the form of
the land, given factors that include
tem and introducing a bidding
subsidies, while in the US this is
the accumulated expertise that the
system based on output specifica-
provided through tax exempt mu-
tions in order to encourage cost
nicipal bonds.
public sector has at its disposal.
(c) Improvement of Public
projects.
- Simplification of Contracting
Infrastructure
reductions by exploiting the cre-
A similar financial assistance is
ativity and inventiveness of the
needed in Japan, as it will be diffi-
In many instances it would be
private sector. One example would
cult for the private sector to commit
desirable that the building of access
be to take bidding for a bridge
itself to the PFI vehicle unless the
roads and other relevant infrastruc-
solely on the basis of essential con-
possibility of funding is introduced
through unsecured loans or credit
ture to support a project is performed
ditions such as the number of lanes
and loading conditions, leaving the
guarantees using the fiscal invest-
type of the bridge, its structure,
Fails
materials and method of construc-
ment and loan program, or through
local government bonds, including
tion to the discretion of the private
community bonds (bonds that are
forth rules for allocation of liability
sector. This will allow the principle
mainly subscribed by local residents
between the public and private sec-
of competition to work, thereby
or companies).
tor in the event of project failure,
11
at the public expense.
- Public Assistance if a Project
Whilst the MOC Guidelines set
contracts must be permitted that
term debt contracts (meaning com-
essential
allow for the national government
mitments to bearing obligations by
implementation and management of
or a local government to take over a
the national treasury). Currently
bidding, evaluation and selection of
project, or to provide temporary
these contracts are limited to a peri-
private
funding, provided that the project
od of five years. Accounting on an
designs for facilities, and manage-
has a high public interest compo-
annual basis is a fundamental pre-
nent. Required assistance would
mise set forth in law, and is
ment of projects. These are the
activities covered under project
involve permitting the national or
therefore difficult to overturn. Nev-
management (PM) and they re-
local government to buy out a proj-
ertheless,
exception
quire both specialized capabilities
ect in which the public has a strong
needs to be put in place to cover PFI
and expertise, and capital outlay.
interest, and which would have a
projects. The PFI Promotion Bill in
Construction consultants constitute
major impact on users if there is no
fact does set forth a special excep-
the only organization of specialists
means for payment in substitution
tion that extends long term debt
that can take responsibility for proj-
or if services are interrupted. It
ect management, and these activities
would probably also be necessary
contracts from five years to thirty.
(5) Consultant Activities in the
for local governments to continue
Course of Project Management
sector to the private sector, as envi-
a
statutory
performance
businesses,
required,
approval
of
should be contracted by the public
sioned
by
the
policy
of
projects in the event of failures
Since the private sector takes the
caused by natural disasters or other
lead in a PFI structure, in principle
administrative reform. As downsiz-
acts of God.
- Putting a Comprehensive
the private sector should bear the
ing in the public sector progresses,
risk. Nevertheless, some involve-
contracting to project management
Insurance Bonding System for
ment by the public sector is also
consultants will contribute to re-
PFIs into Place
needed. The role played by the pub-
ducing
lic sector extends across many areas,
the
burden
on
the
a
including drawing up plans for PFI
government employees who remain.
(6) Promoting Administrative
considerable amount of project risk,
projects, compiling bidding docu-
Reform
which normally will be covered by
ments and contracts to achieve the
Under the PFI structure the private
sector
will
take
on
insurance. This requires that a comprehensive system for insuring PFIs
be put in place to cover the various
risks that may be incurred over long
term operation of the project, and
not just during the period of design
and construction. It will also be
necessary to introduce a minimum
guarantee system in which the public
sector
guarantees
minimum
traffic or fees for public facilities in
the event that the private sector
cannot cover demand risk. This type
of mechanism is demanded by
lenders to secure their claims in the
course of project finance schemes.
- Special Exceptions for Project
Agreements Between the Public
and Private Sector
The biggest obstacle facing full
implementation of the PFI structure
is the maximum time limit on long
12
The principle objective of the PFI
structure is the use of private sector
The PFI approach was initially
and 20 local governments gave
funding, technology and expertise to
introduced in the UK in 1992 and
specific examples of project sectors.
improve and operate infrastructure
became fully operational 1996, after
These areas of infrastructure devel-
in an efficient manner. Changing the
a three year trial period. In the
opments
allocation of roles between the pub-
fourth year after introduction (1996),
below:
lic
and
PFIs accounted for 6% of total in-
Twenty local governments are
administrative
vestment in infrastructure, which
planning to pursue PFI projects in
reform to achieve efficient govern-
rose to 14% in the sixth year, and is
101 sectors, and the number of proj-
ment is indispensable to successful
expected to reach 19% in the sev-
ects could be larger than this since it
implementation of the Japanese PFI.
enth year, or 1999.
is likely that more than one project
and
private
implementing
an
sector,
have
been
organized
In June of this year the Basic
In contrast with the UK, Japan
is being considered in each sector.
Law to Reform Government Agen-
faces many restrictions and chal-
Nevertheless, the private sector will
cies was enacted. An agency system
lenges in introducing its PFI, and
not show interest in small scale
was introduced to streamline the
cannot expect PFIs to catch on as
projects and consequently these
government bureaucracy, and a
quickly as was the case in Britain.
must be packaged into a project that
decision was made to reduce the
Nevertheless, disclosure of infor-
is of a suitable size. In general it is
number of full-time government
mation,
and
difficult to utilize a project finance
employees by ten percent. With this
opportunities for the private sector
structure unless the project is at
streamlining of government func-
to expand into areas of public sector
least ¥10 billion in scale.
tions and the movement to increase
investment will grow, and contrib-
the assumption is made that twenty
efficiency in fiscal disbursements
ute to systemic reform when PFIs
local governments have 100 PFI
has come a need to aggressively
are introduced in full. Whilst the
projects at ¥10 billion per project,
pursue the transfer of operations to
pace for introduction may be some-
this would yield ¥1 trillion in total
the private sector.
what slower in Japan than in the UK,
PFI projects. Moreover, in the sur-
there is a strong possibility that PFIs
vey 45 local governments indicated
in Japan will gradually approach the
that they wished to consider intro-
results that Britain has achieved.
(2) Micro-Level Prospects
ducing PFI projects in the future,
7. Prospects for the PFI Market
Below we consider the prospects
for the PFI market in Japan from a
deregulation,
Thus if
and consequently if this ¥1 trillion
variety of perspectives, including
The following discussion makes
figure is multiplied by 2.5 times,
the macro-policy level as well as the
projections based on the results of
this gives a PFI market of ¥2.5 tril-
micro-level of businesses within the
the Survey on Intention to Introduce
lion for 250 projects in the course of
market.
(1) Macro-Prospects
PFIs that was given in early July of
two to three years. In addition, Ja-
this year to the 47 Prefectures and
pan has 600 cities and at least 100
The following discussion refers
12 cities designated by cabinet order
cities with a population of at least
to the results presented in Table 4
(for a total of 59 local governments).
200,000, which makes these mu-
for PFIs in the UK, on which the
Out of the 59 local governments,
nicipalities suited for the PFI market.
Japanese PFIs are modeled, to pro-
45 stated that they intended to con-
These figures make it likely that the
ject macro trends for Japan.
sider introducing the PFI vehicle,
market for PFIs involving
Table 4.
Trends and Plans for Capital Expenditures in the United Kingdom
(Unit: ¥100 Million)
Fiscal Year
93
94
95
96
97
98
99
Central Government
98
91
86
65
60
60
60
Local Government
67
73
72
64
64
70
70
National Corporations, etc.
34
42
42
44
46
46
46
Public Sector Accounts
199
206
200
173
170
179
179
PFI
1
2
4
11
15
30
42
Total
200
208
204
184
185
209
221
(Note)
The Fiscal Year in the United Kingdom extends from April of each year to March of the next
(Source) Financial Statement and Budget Report (March 1998)
Values for 1997 are estimates, and figures for 1998 - 1999 are projected figures.
13
Table 5. Responses to Survey of Local Governments
Q1
Q1-1
Q1–1
Q2
Q3
Q4
Hokkaido
Hokkaido
Q1
Q1-1
Q1–1
Q2
Q2
Q3
Q3
Hokkaido
Aomori
◎
◎
A, B, D
B, C
◎
◎
◎
○
Iwate
○
B
×
○
Miyagi
Akita
Yamagata
Fukushima
Ibaragi
Tochigi
Gunma
◎
○
◎
◎
◎
○
○
A, B
B
C
B
B, C
C
D
◎
×
×
×
◎
×
×
○
○
○
○
○
○
×
To be considered
To be considered
9, 10, 11, 12, 13, 14,
15, 18, 19, 20, 21, 22
To be considered
9, 12, 20, 21
Undetermined
Undetermined
Under examination
To be considered
None
Kumamoto
Oita
Miyazaki
Kagoshima
Okinawa
Sapporo
Sendai
Chiba
Yokohama
Kawasaki
Nagoya
○
◎
◎
◎
○
◎
◎
◎
○
◎
○
D
A, D
A, B
D
B
B
B
A, B, C
D
A, B, C
D
×
△
×
×
×
△
○
◎
×
×
×
×
◎
○
×
○
◎
○
◎
◎
◎
×
Saitama
◎
A, B
○
◎
Undetermined
Kyoto
○
A
×
○
Chiba
○
A, D
×
×
None
Osaka
○
D
△
×
Tokyo
Kanagawa
Niigata
○
◎
○
D
A, B
B, C
×
△
×
×
○
○
None
9, 10, 11, 23
9, 11, 18
Kobe
◎
B, C
◎
◎
Hiroshima
◎
A, B
△
○
Toyama
○
A, B
×
○
Undetermined
Ishikawa
◎
B
△
◎
None
○
B, D
△
○
22
Yamanashi
○
A, B, C
×
○
None
Nagano
○
B, C
×
×
Gifu
◎
B, C
△
◎
Not identified at
present
1, 6, 7, 8, 9, 11, 12,
13, 16, 18, 20, 21, 22,
23
Shizuoka
◎
A
○
○
Undetermined
Aichi
○
C
×
×
1, 9
Mie
◎
B, C
◎
◎
11, 12, 24
Shiga
◎
B
×
×
Not identified at
present
Undetermined
Currently Under
Consideration
To be considered
None
Cannot reply
12, 21
Kyoto
○
B, D
×
×
Osaka
◎
D
◎
○
Hyogo
Nara
Wakayama
Tottori
◎
○
○
○
B, C, D
B
B
B, D
×
×
×
×
○
○
○
○
Shimane
○
A, B
△
○
7, 9, 10, 12, 13, 14,
15, 19, 20, 21, 22
Okayama
Hiroshima
◎
◎
B
B, D
△
△
○
○
Yamaguchi
○
A, B
△
○
Tokushima
Kagawa
Ehime
Kochi
◎
○
○
×
A, B
A, B, C
A
D
×
×
×
×
○
○
○
×
Fukuoka
○
B, D
×
○
Saga
Nagasaki
○
△
B
D
×
×
×
×
To be considered
9
1, 3, 4, 6, 7, 10, 12,
16
To be considered
None
Not yet considered
Cannot identify
Not yet under
consideration
12
1, 10
Q4
Q4
12, 21, 22
None
Not identified at present
None
Cannot be answered
9, 10, 11, 12, 14, 20
Cannot be answered
9, 10, 11, 16, 19, 20, 21
Not yet considered
2, 7, 9, 11, 12, 13, 19, 21
Not identified at present
Not yet at a stage for
consideration
Difficult to reach a
decision
None
10, 12, 13, 14, 15, 19, 20,
22
Kita
A, B
○
×
○ 1, 22
Kyushu
Fukuoka
B, C, D
◎
◎
◎ To be considered
Q1What level of interest do you have in the PFI Bill?
◎＝Strong interest
○＝Some interest
△＝No interest at present
×＝Other
Q1-1＝ Reason for interest in PFI Bill
A＝ Expectation that it will stimulate the economy
B＝ Expectation that it will contribute to administrative and fiscal
reform in local governments
C＝ Expectation that it will clarify the allocation of risks and
responsibilities between the government and the private sector
D＝ Other
Q2＝ Have you established an organizat ion to consider the PFI
Bill within your agency?
◎＝ Yes we already have an organization in place
○＝ We plan to establish an organization in the near future
△＝ We will consider creating an organization in the near future
×＝ No organization has been established
Q3＝ Will you consider introducing the PFI in the future?
◎＝ Yes
○＝ As of the present we are not sure, but we are interested in
considering the PFI
△＝ We do not intend to introduce the PFI even in the future
×＝ Other
Q4＝ What Facilities do you forese e as being suited to
introducing the PFI?
1=Roads
17=Underground walkways
2=Railroads
18=Communications
3=Harbors
19=Heating facilities
4=Airports
20=New energy
5=Rivers and Streams
13=Medical
6=Parks
14=Social welfare
7=Water and sewage
15=Corrections and custody
8=Industrial water
16=Parking lot
9=Offices,
Offices,lodging
lodging
and similar
and similar
public public facilities 21=Recycling
10=Public housing
22=Tourism
11=Educational and cultural
23=Research
12=Waste treatment plants
24=Other
（Source）Nikkei Chi-Iki Jouhou (Nikkei Regional Information) （July 30, 1998）“Tokushu/Ugokidasu Nihonban
PFI” (Feature—Putting the Japanese PFI Into Practice)
14
local governments
several
will
reach
trillion yen, in several
Sector
years, which exceeds 10% of total
expenditures on public works by a
considerable margin.
There are several trends that
should be noted. Kanagawa Prefecture has changed its policy so that
leasing is to be used for all financing of public facilities to be built. A
source with the Prefecture has
commented that in principle all
improvement of facilities is to be
done through a leasing vehicle
which uses private sector funds, and
the prefecture will also consider
PFIs where permitted by law. This
source further stated that the private
sector has superior financial capacity
and
expertise
in
building
facilities, and that where possible
the public sector should rely on the
private sector in this field.
The Osaka Metropolitan Government has embarked on a 50%
cost reduction in separate projects
for which subsidies are not received
from the national government, and a
10% reduction for those that are
eligible for subsidies, under a fiscal
restructuring program. Consquently
PFIs have attracted attention as an
effective means to achieve the purposes of public works projects, at
low cost, and in the future the pace
for implementing PFIs will accelerate
in
projects
pursued
independently by municipalities.
8. Responses by Construction
Businesses
Our research has revealed that
many local governments are considering PFIs and that PFIs will
increase in the future. We were able
to confirm that the PFI approach
would be applied to a wide range of
sectors involving public works to
Roads and railroads
Airport and port facilities
Rivers and streams
Parks
Water and sewage services, and
industrial water service
Public facilities such as government
offices and lodging facilities
Public housing
Educational and cultural facilities
Waste treatment facilities
Medical facilities
Social welfare facilities
Juvenile custody institutions
Parking lots
Telecommunications facilities
Heating facilities
New energy facilities
Recycling facilities
Tourism facilities
Research facilities
Total
Number of Local Governments Responding That
They Wished to Introduce
the PFI in this Sector
6
2
0
2
5
11
8
8
12
5
4
3
3
3
5
7
8
7
2
101
provide public buildings, facilities
ting them in place during the 1999
and services in many areas. For the
fiscal year.
construction industry this offers
As of the present, many local
encouraging prospects as local gov-
governments are searching for sec-
ernments are considering employing
tors in which PFIs can be utilized,
PFIs in areas that are the forte of a
while continuing to monitor trends
construction company (please see
in the PFI Promotion Bill, and its
Table 6).
effectiveness. Some governments
Legal regulations are also being
have begun deliberation of projects
put into place for promoting the PFI
for PFIs on a test basis. Moreover,
vehicle. In May of 1998 the PFI
the private sector is also searching
Promotion Bill was put before the
for projects for PFIs to be funded by
Diet in the form of a legislator's bill,
fiscal finance, mainly through the
and was projected to be approved at
Japan Development Bank, and enti-
an extraordinary session in Autumn
ties such as general contractors,
of 1998. The PFI Promotion Bill
financial institutions, consultants
would be the basic law for the Ja-
and think tanks are also pursuing
panese PFI, and the government
planning and marketing activities
agencies, as well as the local gov-
vis-a-vis local governments and
ernments that would be the main
other agencies for the purpose of
promoters for the projects, are pre-
implementing PFI projects.
paring specific guidelines and other
The Japanese PFI is also open for
particulars for implementation, in
participation by foreign businesses,
anticipation that this law will be
and we anticipate that foreign con-
passed.
struction
Moreover,
supporting
companies
will
measures from a fiscal and tax per-
aggressively pursue PFI projects
spective are entering the stage of
within Japan.
actual planning, with a goal of put-
15
Table 6.
Summary of Replies to Survey of Local Governments
Local Governments With a PFI Study Committee Already in Place
The prefectures of Hokkaido, Aomori, Miyagi, Ibaragi, Mie, Osaka, Chiba, and Fukuoka; and the city of Kobe
Local Governments Currently Considering the Establishment of a PFI Study Committee
The prefectures of Saitama, Kanagawa, Ishikawa, Fukui, Gifu, Shizuoka, Shimane, Okayama, Hiroshima, Yamaguchi, Oita; and the cities of Sapporo, Sendai, Osaka, and Hiroshima
Sectors to Be Considered
Local Governments Interested in Considering the Introduction of a
PFI in the Relevant Sector
Roads
The Prefectures of Gifu, Aichi, Yamaguchi, and Nagasaki; and the City of
Kitakyushu
Airports and Harbors
Yamaguchi Prefecture
Rivers and Streams
None
Parks
Gifu and Yamaguchi Prefectures
Water and Sewage, and Industrial
Waste
The Prefectures of Gifu, Shimane and Yamaguchi, and the City of Kawasaki
Waste Treatment
The Prefectures of Iwate, Akita, Gifu, Mie, Tottori, Shimane, Yamaguchi,
Saga, and Kumamoto; and the Cities of Sapporo, Kawasaki and Hiroshima
Parking Lots
The Prefectures of Gifu and Yamaguchi, and the City of Chiba
Recycling Facilities
The Prefectures of Iwate, Akita, Gifu, Tottori, Shimane and Kumamoto, and
the Cities of Chiba and Kawasaki
Tourism
The Prefectures of Iwate, Fukui, Gifu, Shimane, Kumamoto and Hiroshima,
and the City of Kitakyushu
16