Japanese quake opens the door to private partnerships

Fresh opportunities for Australian builders, project managers and financiers may emerge in Japan with the cash-strapped government successfully changing contracting laws to allow a big expansion of public-private partnerships.

The Australian version of The Wall Street Journal had an interesting article recently about how the earthquake-tsunami disaster has led to changes in business regulations affecting foreign companies in Japan. One of the changes has been the government’s pledge to double the size of PPP (Public–private partnership) projects in Japan over the next 10 years.

Government and business relations in Japan are generally very good. Some services that were once completely managed by the government have been privatized, partially or sometimes entirely. Some major examples include Japan Post, NTT, and NHK. Even tax collection has been somewhat delegated.

Rick Wallace’s article points out that in the past, most PPP projects have been for school or hospital projects. The projects have been low risk, and thus have had low returns on investment–only 3 or 4 percent. The problem with this is foreign companies are reluctant to invest internationally in such projects when domestic projects have higher returns. In May the government passed changes that would lift certain restrictions on PPPs:

The amendment will allow the concession model, often used in Australia, where the successful bidder will finance, design, construct and operate the asset in exchange for user charges to be rolled out in Japan.

It’s also anticipated the government will use the change to sell concession rights to some existing public infrastructure, such as the Kansai and Itami airports near Osaka, although there will need to be a big restructure to make these debt-laden facilities appealing to a buyer.

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