Public Private Partnerships (PPP) concessions taking off in Japan

Japanese business newspapers reported this week about the first concession in the public sewage systems sector to be given to a consortium of private companies, including French water treatment giant Veolia. Hamamatsu City, located in the central Japanese prefecture of Shizuoka, has granted the right of first refusal to a consortium consisting of six companies, such as JFE Engineering and leasing group Orix and with Veolia as the foreign partner.

It is the second time in a year that a French company is participant in a contest for a concession of a public service. Last year, airport management division of VINCI S.A. won the concession to manage Kansai International Airport and Osaka International Airport in a consortium led by Orix.  

Public Private Partnerships (PPP) are promoted more aggressively by the Abe government as part of its economic growth strategy. Ballooning costs to maintain deteriorating public infrastructure, much of it built during the period of high growth, in combination with falling fees and populations are also pushing local governments to look for alternative ways to pay for the upkeep of public assets. Public sewage facilities form the biggest class of public infrastructure with more than 3,600 public enterprises active in Japan.

In March 2016 the number of PFI/PPP projects amounted to 527, double the number of projects 10 years earlier. It currently involves primarily operations and management of public facilities such as cultural centers, medical facilities and waste treatment plants. PPP/PFI projects that are awarded in concession have still been in the minority with 13 projects awarded or currently in the pipeline. It is however designated by the government as one of the focal areas.

 

Concessions of Japanese public infrastructure

Category

Name of enterprises

Prefecture

Start

Operator/status

Airport

Tajima Airport

Hyogo

January 2015

Tajima Airport Terminal K.K.

Airport

Kansai International Airport, Osaka International Airport

Hyogo

April 2016

Special Purpose Company (Orix, Vinci Airports)

Airport

Sendai Airport

Miyagi

September 2016

Special Purpose Company (Tokyu Corporation and 6 others)

Airport

Takamatsu Airport

Kagawa

April 2018

currently recruiting

Airport

Kobe Airport

Hyogo

April 2018

currently recruiting

Airport

Shizuoka Airport

Shizuoka

April 2019

Market sounding

Airport

Fukuoka Airport

Fukuoka

April 2019

Market sounding

Waterworks

Osaka City Waterworks

Osaka

April 2018

Under investigation

Waterworks

Nara City Waterworks

Nara

April 2018

Under investigation

Sewerage

Hamamatsu Sewerage

Shizuoka

April 2018

In negotations

Sewerage

Osaka City Sewerage

Osaka

TBA

Under deliberation

Sewerage

Nara City Sewerage

Nara

April 2017

Under deliberation

Sewerage

Miura City Sewerage

Kanagawa

April 2018

Under deliberation

Roads

Aichi Prefectural Road Public Corporation

Aichi

October 2016

Special Purpose Company (Maeda Group)

Source: http://www8.cao.go.jp/pfi/concession/pdf/concession1610.pdf (J)

 

Private sector involvement in large public enterprises such as sewerage and waterworks was until recently impeded by difficulties to assess the business risks. Prospective operators were reluctant to participate in these ventures as the exposure to damages of infrastructure due to natural disasters. However, legal changes in the Waterworks Law, to be implemented this year, are expected to decrease the burden on prospective private parties, by arranging shared responsibility with municipalities in case of recovery from a natural disaster.

Moreover, the government has also indicated it is planning to take fiscal measures  to promote private sector participation in PPP/PFI projects in public infrastructure.