ROLE OF DIFFERENT STAKEHOLDERS AND HYBRID FINANCIAL MECHANISM OF MHI Public Private Partnerships or PPPs as Means of Financing Infrastructure in MHI Projects

Ancillary infrastructure can be defined as standard facilities situated along roads and aimed at supplying drivers with water, food and bare necessities, as well as providing overnight accommodation, refueling and timely technical maintenance for vehicles as well as safe parking areas. Thus, the development of ancillary infrastructure would specifically include: the expansion of the network of refueling stations; the creation of a network of parking facilities, which would provide convenient and safe (secure) (i) parking places for international haulage vehicles, (ii) technical maintenance facilities and (iii) retail outlets for spare parts and convenience goods; the expansion of a network of hotels and motels along the route to cover driver rest periods; and the construction of warehousing and logistics facilities at economically strategic locations.

PPPs have been used in developed countries in a wide range of sectors, and they are increasingly being seen as part of solutions to the lack of infrastructure services in developing countries. However, PPPs can fulfil this role only if they appropriately combine the interests of the two partners, i.e. (i) the interests of the government in expanding and improving services for citizens that are sustainable and (ii) the interests of private investors in obtaining reasonable returns on their investment for the risks they incur.

A public private partnership for infrastructure services has four key characteristics: it involves an efficacious sharing of risk between public and private sector; it provides a public service; it offers value for money; and it is a long term partnership over many years.

Notion of Project Finance: Private sector finance for PPP projects normally consists of a mixture of equity, provided by investors in the project, and third-party debt, provided by banks or through financial instruments such as bonds. Alternatives to traditional public financing are playing an increasing role in the development of infrastructure. In recent years, new infrastructure investment in various countries has included projects with exclusively or predominantly private funding sources.

The two main types of funding are debt finance, usually in the form of loans obtained on commercial markets, and equity investment. However, financing sources are not limited to those only, since public and private investments have often been combined in PPP projects, as mentioned above. Infrastructure investment creates a positive cycle of growth, providing essential networks and services for today’s generations, stimulating economic growth and improving the standard of living for current and future generations.

(i)Equity capital (ii)Commercial loans (iii)“Subordinated” debt (iv)Institutional investors (v)International financial institutions and export credit and investment promotion agencies (vi)Insurers (vii)Political Risk Guarantees and Guarantee Funds (viii)Other Forms of Guarantees

(ix) Independent experts and advisers (x) Capital market funding (xi) Financing by Islamic financial institutions (xii) Financing by international financial institutions (xiii) Support by export credit and investment promotion agencies (xiv) Combined public and private finance (xv) Funding for Project Preparation (xvi) Legal Authority

The explosive economic growth of the economies in China and India, plus the developing economies in Latin America, contribute to a worldwide need for additional transportation capabilities which most growing nations need but lack the internal financial resources to provide. Particularly important are potential political risks arising from the implementation of PPP arrangements for specific projects where the local or national economy or political environment is unstable. The World Bank study, released in May 2011 on PPPs in Europe and Central Asia, found demand for public-private partnerships recovering and advocates governments go “back to basics” in policy, design and implementation.

The revival of the Great Silk Road is a colossal and far reaching project of the 21st century. To turn it into reality, all stakeholder countries must pool their efforts to allow the caravan tracks that used to link Asia and Europe to become, thanks to road transport, a new powerful trade route of the 21 st century, interconnecting all businesses along the Silk Road between themselves and to major world markets, thus bringing economic growth, progress, prosperity and ultimately peace to the entire Eurasian landmass. Thank you.