～最近の取り組みから～

SpotLight

With Director Kazushige Gobe and Deputy Director Hideki Hiramoto＊,Unit 1, Transportation and Telecommunication FinanceDepartment, Infrastructure Finance Group

Partnering Up with U.K. Intercity Express Programme

British rolling stock made and maintained by a Japanese company

JBIC signed in July 2012 a loan agreement with Agility Trains West Limited in the United Kingdom (U.K.), in which Hitachi, Ltd. (Hitachi) has equity stakes, to fund the Intercity Express Programme (IEP). This is one of the most prominent projects for the British government and is the first Public Private Partnership- (PPP) based project for procurement and maintenance of rolling stock to be undertaken in the U.K. Increased demand to upgrade and replace rolling stock is expected in the foreseeable future, as are greater business opportunities for Japanese companies.

Overcoming the Stagnation Caused byFinancial Crisis

The April 2010 amendment to the Japanese cabinet orderpaved the way for JBIC to support intercity express projectsfor developed countries in which Japanese companies take

part, including the IEP. Although Hitachi had preferential negotiating rights for the IEP, feeling the impact of continuing instability in financial markets triggered by the financial crisis, the newly formed U.K. government at the time had decided to conduct a spending review, which placed the IEP in de facto suspension. Against this backdrop, the Japanese government made the decision to revise the cabinet order to enable JBIC to provide financial support for the IEP. In October 2011, structuring banks for the loan were brought in and negotiations for the project finance began. Nevertheless, the road ahead would not always be straight.

Interest Adjustment Was the Big Hurdle

Many hurdles had to be crossed before the deal was finalized, some of which arose because there were many aspects which were ”firsts” for all participants. The IEP was the first project finance in the railway sector for JBIC, the first rolling stock PPP project for the U.K. government, and the first full-scale PPP project in the U.K. for Hitachi as well. It therefore required the establishing of entirely new precedents satisfactory to all parties. Director Gobe remembers facing “the negotiations with a determination to make the deal a model for future railway

infrastructure finance.” A number of private banks in Japan and the U.K. joinedwith JBIC and European Investment Bank (EIB) in thedeal, and the financing structure became quite complex.Testifying to the complexity, Deputy Director Hiramoto says,“The lawyer specializing in structured finance, who was supporting us in the deal, claimed he’d never seen anything so complicated.” There was a challenge to seek equitable adjustment of interest among the parties, and an agreeable compromise was difficult to reach, prolonging the tough negotiations. “Realizing that the deal was key for the integrated overseas infrastructure deployment promoted by the Japanese government, we faced negotiations with a strong will to succeed,” recalls Director Gobe.

Understanding the True Goal of Our Partner

On July 27, 2012, after protracted discussions and justbefore the London Olympics, the loan agreement was finallysigned. An important factor in the negotiations was to maintain close communication in order to understand the counterparts’ true intention. “As it was the first project in which JBIC had been involved in the U.K. PPP market, we strived hard to comprehend the issues of the counterparts and the priorities of respective issues,” says Director Gobe. On this subject, Deputy Director Hiramoto recalls that “Luckily, as a governmental institution, JBIC was positioned to access various parties. Through synergistic communication, we had firmly established mutual trust between private banks, sponsors, and the U.K.’s Department for Transport, which culminated in bringing the deal to a successful close.” The track record of bringing the deal to a financial close within the given time frame proposed by the U.K. government will have a positive impact on our future projects. To this end, JBIC will continue to support overseas infrastructure projects in which Japanese companies participate.

First Railway Project Finance Loan

Deputy Director Hiramoto

Director Gobe

Project Finance SummaryJBIC signed in July 2012 a loan agreement totaling up to one billionSterling Pounds (JBIC portion) with Agility Trains West Limited,in which Hitachi has equity stakes, to fund the Intercity ExpressProgramme. The project finance loan is co-financed with private financial institutions as well as the EIB for an aggregate total up to 2.2 billion pounds. Nippon Export and Investment Insurance (NEXI) will provide overseas untied loan insurance partially for the loan provided by private financial institutions.

＊Deputy Director Hiramoto is currently assigned to the Representative Office in Manila.

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JBIC Today January 2013 3

特　　集FEATURESpecial

The demand for infrastructure development has never

been greater, not only in emerging countries where

populations and economies are booming but also in

developed countries where antiquated infrastructure is

in dire need of upgrading. Power grids, water and sewage

facilities, railways, airports and telecommunication─

in these and many other related fields, Japanese

companies face intensive competition with enterprises

from developed countries as well as emerging countries.

Given the massive, long-term funds required for

overseas infrastructure development and the financial

constraints of host countries, public private partnerships

(PPP) have become an attractive means of realizing

these projects. However, success depends on several

factors including the proper division of roles between

public and private sectors.

PPP was the main theme of the JBIC Infrastructure

Development Seminar held in October 2012 during the

International Monetary Fund (IMF) and World Bank

Annual Meetings in Tokyo. Some 200 people from

domestic and foreign firms, private financial institutions,

government offices and foreign embassies, etc.,

attended, reflecting a high level of international interest

in the subject.

JBIC has been providing financial support to

Japanese companies for exports of plant components

and for their participation in overseas infrastructure

projects. In this issue, we will examine how the roles

are best divided between public and private

sectors to ensure a successful project outcome.

At the beginning of the JBIC Infrastracture

Development Seminar, Governor Okuda discussed the

JBIC stance on overseas infrastructure development.

Fueled by economic growth, demand for infrastructure

development in emerging countries is expanding, while

at the same time, governments are finding it harder to

fund such projects as they once did. Bridging the growing

gap between the infrastructure investment needed for the

future and the capacity of the public sector to meet those

requirements from conventional public finance sources,

including foreign aid, has been a critical priority for

emerging countries to fully utilize their potential growth.

The strong demand for infrastructure has been seen as a

great new opportunity as the private sector needs to tap

into new engines of growth.

Thus, infrastructure development through the use of

PPP has gained more attention as an attractive alternative

Hiroshi OkudaGovernorJapan Bank for International Cooperation

JBIC Infrastructure Development Seminar held in October 2012

Natural gas-fired combined cycle power plant project, Oman

Subway project, EgyptPort expansion project, South Africa

Power and desalination project, United Arab Emirates

Renewable energy project, India

Division of Roles Between Public and Private SectorsThe Key to Overseas Infrastructure Development─

The Key to Overseas Infrastructure Development─ Division of Roles Between Public and Private Sectors

as one effective measure to deal

with such a widening gap. However,

it should also be noted that a

successful PPP relies heavily on

building an effective institutional

framework in which an adequate

risk-sharing and cooperative

scheme is designed among related

parties, including the public and

private sectors. Moreover, such institutional framework has to

be transparent.

JBIC has extensive experience with infrastructure

development projects around the world. We contribute

to global infrastructure development that would promote

international trade and investment by supplementing the host

government’s effort to introduce an effective institutional

framework towards successful PPP projects and by enriching

our financial menu.

1 A report on the Practitioner’s Review Meeting, Infrastructure System Export

Sub-Group, Trade and Economic Cooperation Committee, Industrial Structure

Council, Ministry of Economy, Trade and Industry (June 2012)2 Asian Development Bank estimate3 Dealogic Project Finance Review: First Nine Months of 2012

Status of Worldwide Infrastructure Development and Fund Procurement

Global infrastructure development is projected to reach

US$24 trillion between 2011 and 20301; in Asia alone, some

US$8 trillion2 will be spent on infrastructure from 2010 to

2020.

To materialize infrastructure projects, a large amount

of long-term stable funding is usually required. According

to an announcement by Dealogic3, the market size for

infrastructure-related project finance (limited-course

finance, PF hereinafter) as of 3Q FY2012 remains about

15% lower than the same period of the previous year,

affected by a series of European debt crises that originated

in Greece. In fund procurement we can also see a shift

from loans to “project bonds,” and in 2012, the ratio of

fund procurement through project bonds in the entire

PF has almost doubled from the previous year (approx.

3.8% in 2011, 7% as of 3Q 2012). Reasons for this include

an increasing need to procure funds from capital markets

through project bonds, etc., rather than those previously

supplied by overseas private financial institutions, which

were major PF bearers but whose long-term funding has

become constrained due to a lower credit rating and the

Basel III regulation. Further, expectations are rising that

Japanese financial institutions, public financial institutions

such as JBIC, and international organizations will enter the

field.

Sharing Risk and Responsibility Between Public and Private Sectors

Infrastructure fund procurement in the form of PPP

occupied about a quarter of all fund procurement in 2011,

up 25% from the previous year. One reason is an increasing

awareness, especially in emerging countries, that reducing

the debt of one’s own country and promoting infrastructure

development using private sector funds is crucial to

achieving sustainable growth. Various systems have been

developed in emerging countries to pursue infrastructure

development through PPP, but not all of them are workable.

For example, some schemes may lack a perspective of

“bankability” entailing excessive risk for the private sector,

while others fall short of profitability. Infrastructure is a

cornerstone of economic activity and people’s livelihoods;

the policies of a host country affect how prices are set,

how the project should be operated and so on. The risk

is one that private business operators alone cannot bear.

Therefore, a certain commitment by the host government

is an important factor in the success of a project.

In emerging countries in particular, many problems

have arisen including setting the tariff lower than the

project cost, inefficient and opaque administration

procedures, lack of consistency in institutional aspects

between central and regional governments, and inability of

the host country’s government to implement the PPP. This

is where JBIC comes in.

JBIC not only provides finance as a public financial

institution, but also works with governments to ensure

that they undertake a bankable PPP system that inspires

confidence in the private sector. In this regard, JBIC strives

to create a long-term synergy among the “5Ps”: “People,” the

beneficiaries of the service; “Providers of Finance,” the

private investors and financial institutions; and long-term and

constructive “Partnerships” with the “Public” and “Private”

sectors. By harmonizing the 5Ps, risk and responsibility

are shared between the public and private sectors.

Affordable good-quality service Social benefitEconomic growth Employment

People’s Perspective Project Operator’s Perspective

Harmony of 5Ps

Roles of Public Sector Fund Procurement

artnershipsPUBLIC PRIVATE

Appropriate risk- and

role-sharing

P ・Multilaterals・Bilaterals, ECAs

・Local Banks・International Banks・Bonds (Local, International)

・Beneficiary of Service・Stakeholders, NGOs

・Local and International Sponsors・EPC Contractors (Local, International)・O&M Operators (Local, International)

eople of the CountryP

・Municipalities・Contracting Agencies

・Central Government・Ministries・State-Owned Enterprises

ublic EntitiesP

rivate Investors and ContractorsP

roviders of FinanceP

Return on Investment Leverage comparative advantage (efficient service) Build relationship of trust

Appropriate legal system Government support Strengthen international competitiveness Attract investment Prepare bidding

Consider long-term loansBusiness foreseeability (country risk)

■ Feasibility of Projects in Emerging Countries: PPP Tasks/Challenges

4 JBIC Today January 2013 JBIC Today January 2013 5

0º

MOU with HCMC People’s Committee Vietnam

■ Examples of Infrastructure Development Projects with Participation of JBIC

Wind power project Bulgaria

Intercity Express projectU.K.

The Key to Overseas Infrastructure Development─ Division of Roles Between Public and Private Sectors

Panama Canal expansion Panama

Coal-fired power projectIndonesia

Submarine power cables Indonesia

Beltway project Brazil

Subway projectBrazil

0º

Support of Integrated Infrastructure Projects Overseas

The booming demand for infrastructure development is a

good opportunity for Japanese industry and local authorities

to maximize their proven technological strengths. A recent

development has been that export of infrastructure-related

components alone exposes manufacturers to fierce price

competition. Another is the desire in host countries for

“total infrastructure development” packages that include

cooperation in peripheral fields, facility operation and

maintenance, and even staffing. To respond to this vigorous

overseas demand and connect it to domestic economic

growth, the Japanese government is promoting

infrastructure deployment overseas. A quick glance at

Japan’s economic structure shows that its dependence on

foreign trade (export & import / GDP) is less than 30%,

behind the U.S. Japan’s recent expanding surplus shows

returns from overseas investment; securing further profit

by exporting Japan’s fine infrastructure technology suits

the country’s economic structure.

JBIC Supports Overseas Infrastructure Deployment by Japanese Companies

JBIC launched its Infrastructure Finance Group in July

2011 to provide detailed support to Japanese companies

across all infrastructure sectors. In April 2012, JBIC was

separated from the Japan Finance Corporation and became

a new entity. Since then we have been actively supporting

Japanese industries in their overseas infrastructure and

other projects.

Based on government policy regarding the

aforementioned integrated infrastructure deployment,

JBIC provides financial support to Japanese firms by

investing in infrastructure funds and business operators,

in addition to offering loans and guarantees for a wide

range of infrastructure fields such as power grids,

waterworks, railways and ports. Following the enactment

of the Japan Bank for International Cooperation Act in May

2011 and subsequent related legislation, JBIC’s financial

services expanded to include export finance for industrial

nations, and its scope of investment finance also expanded.

Further, its functions have been strengthened in the areas

of providing short-term bridge loans, financing in local

currencies, and support for M&A by overseas companies.

In addition to these financial tools, JBIC emphasizes

securing the bankability of PPP projects through appropriate

risk-sharing among the parties involved. In recent years

we have created a framework for policy dialogue to advise

host governments on the issues involved in PPP, and to

join the early stages of project formation by participating

in a master plan. Examples of this include projects with

the governments of Indonesia, Mexico and Brazil. Among

them, concrete results were seen in a project for a coal-fired

power plant in Central Java, Indonesia, for which Japan

received the order; discussion through the framework

resolved how the risk should be shared among the public

and private sectors. Other examples include a study of

investment in the Delhi Mumbai Industrial Corridor

Development Corporation Limited (DMICDC), and an

MOU signed in September 2012 with both Hanoi and Ho

Chi Minh City to promote private-sector initiative

infrastructure projects.

Thus, matching projects with Japanese industry

becomes possible when public and private sectors are

brought together and guided from the early stages. JBIC’s

experience and expertise in the areas of contracts, system

implementation and administration enable us to facilitate

the implementation of PPP.

JBIC will continue to actively support the participation

of Japanese industry in overseas infrastructure projects, in

addition to assisting with conventional exports of related

facilities and equipment, and through its role as a

governmental financial institution, help to promote

expanded business opportunities for Japanese industry

amid growing worldwide demand.

Dialogue with host country for adoption of conditions favorable to Japan

Utilization of studies to propose an attractive finance packageUtilization of equity participation to reduce initial project costs

Offering flexible financing to support bidding by Japanese companies

Proactive involvement from the early stages of the formulation of the projectProvision of financing based on the business plan

of the project operator

Dialogue with host country

Competitive bidding

Loan structuring

Offering financing

Project supervision

Awarded concession/orders

Study/response for project feasibility

Examination of the project

Negotiation for conclusion of contract

Maintaining continuous relationship with the government

Support for maintaining debt sustainability

Roles of JBIC

■ Involvement from the Early Stages of Project Formation

6 JBIC Today January 2013 JBIC Today January 2013 7

The Key to Overseas Infrastructure Development─ Division of Roles Between Public and Private Sectors

Cargo railway network project Brazil

Seawater desalination project Singapore

Natural gas-fired combined cycle power plant projectThailand