Japan serves as an example of a country that employs a private finance initiative (PFI). A PFI is a form of a public-private partnership (PPP) that uses private finance, management abilities and technical capabilities in the construction, maintenance and management of public facilities. Japan added its private finance initiative to its commitments in the recent revision of the WTO Government Procurement Agreement (GPA). It expanded its coverage of construction services to include procurement for construction projects within the scope of the “Act on Promotion of Private Finance Initiative, as of 30 November 2011″ (PFI Act).
Since 1999 when the PFI Act was enacted, Japan has implemented more than 400 PFI projects. Most of the projects were build-transfer-operate (BTO) projects for constructing new infrastructure such as governmental buildings and local public facilities. However, as a consequence of its aging and declining population, Japan’s need for new infrastructure is decreasing. Reflecting its changing needs, the Japanese government has made the maintenance and renovation of existing infrastructure a national priority. For these projects, the government is looking to the private sector in light of severe fiscal conditions facing national and local governments and the perception that the government’s handling of facilities is often poor and inefficient.
In 2011, Japan revised the PFI Act to increase the private sector’s involvement in infrastructure projects. The revision introduced a new type of PFI project – the PFI Act Concession – that allows private entities to operate and manage existing infrastructure by relying on fees charged to users. Under a PFI Act Concession, a public entity that administers public facilities grants concession rights to a private operator to manage existing facilities and collect service fees from users of the facilities. The private sector operator, in principle, determines and collects the fees. The level of the fees may be subject to the concession agreement with the public entity or to laws and regulations that apply to the relevant infrastructure business, such as laws relating to airports, water supply and sewage service.
In 2013, the Cabinet Office issued PFI measures: new “Guidelines for Concession Right and Operation of Public Facilities” (Concession Guidelines) and revised “Guidelines for the PFI Project Implementation Process”. The Concession Guidelines, the first detailed guidance on the PFI Act Concession, clarify the bidding process and specify the scope of expansion, renovation and construction that a private operate may undertake with regard to the public facilities covered by the concession.
Based on a 2013 action plan, the Japanese government aims to promote PPP/PFI projects to provide more efficient operations or renovations of infrastructure. It is particularly focusing on the use of the concession PFI in fields such as airports, water supply and sewage.
To facilitate the use of PFI for airports, Japan enacted legislation that allows private players to operate government-owned airports through the concession PFI. According to Japan’s WTO Trade Policy Review earlier this year, the New Kansai International Airport Company, Ltd. (NKIAC), in September of 2014, began the process of selecting a private business entity to operate Kansai International Airport and Osaka International Airport under the PFI Act and a law on integration of the two airports.
In October 2013, the Japanese government, together with its financial institutions, established the Private Finance Initiative Promotion Corporation of Japan under the PFI Act to provide sufficient funds for infrastructure projects. The new fund has approximately USD 200 million at its disposal and is expected to provide financing for infrastructure projects.
Japan’s coverage of the PFI projects under the GPA should provide new opportunities for its trading partners to participate in its construction sector. The extent of new market access, however, will depend on whether the entities that undertake the PFI projects are covered under the GPA.
Jean Heilman Grier
August 31, 2015
Howard, R., Is Japanese PPP/PFI Set to Take Off?, Clifford Chance (Feb. 28, 2014).
Sato, M. & Okatani, S., Recent developments in public-private partnerships (PPP) in Japan, International Financial Law Review (June 2, 2014).