Infrastructure investment opportunities in Singapore are no secret. But with a highly rated government and a thriving economy, PPPs may struggle to get a piece of the action, reports Dan Colombini.
With many Asian countries experiencing a boom in infrastructure development over the past decade, September saw Singapore crowned the world’s most attractive market for investment in the sector, according to a report by consultant Arcadis.
The firm’s global infrastructure index revealed that Singapore’s aligning of infrastructure development with expanding business and social requirements is paying off, with the republic’s economy expanding by 2.4% from last year in the third quarter of 2014 – coinciding with vast infrastructure plans.
And it is not difficult to see why it is top of the charts at present. The population has been predicted to grow from 5.5 million today to seven million by 2030. As a result, the government is currently planning to double the length of the light rail system, significantly increase airport capacity, and relocate the main container port, to name just a few of its proposals.
So, the wider outlook for investors looks rosy. “A key difference that we have seen in the Asian and Middle Eastern markets is that those countries that have a clear integrated strategy tying infrastructure development plans to business and economic objectives have higher rankings,” says Rob Mooren, global director of infrastructure at Arcadis.
“This gives long-term clarity to investors and is something that developed markets would do well to copy if they are to succeed in attracting more private finance into infrastructure.”
In September, the Public Utilities Board (PUB) announced the BESIN-UEN Consortium as the preferred bidder for the second NEWater Plant at Changi. The plant will be constructed under a design, build, own, operate (DBOO) model over 25-years from 2016. The plant will add 50 million gallons (mgd), or 228,000 cubic metres per day, to the nation’s water supply.
And in the waste sector, this May saw the National Environment Agency release the pre-qualification tender for the development of a waste-to-energy plant, also under a DBOO scheme.
The deals currently in the market follow a pipeline dating back to 2003, which include the landmark Singapore Sports Hub (pictured), a deal signed in 2010 with the Singapore Sports Hub Consortium led by Dragages Singapore. It was procured under a design, build, finance and operate model that was based on the UK’s PFI procedures.
In addition, there is also the Tuas Desalination Plant and the country’s first social deal, the ITE College West PPP– all of which have reached the holy grail of financial close.
So on the surface, Singapore seems to have all the credentials to become a key destination for PPP investors. While many countries around the world are still feeling the strain from the financial crisis, the republic is in the enviable position of possessing a thriving economy and government that is not afraid to utilise its financial resources.
But while other countries in the region are seeing a rapidly expanding PPP pipeline, new opportunities for the model in Singapore remain relatively scarce. In part, that is down to the fact it has such a thriving economy: projects can be funded out of government coffers rather than needing private investors.
Many circling the market also feel that opportunities are often closed to outsiders, but also warn that there just isn’t the political will to see the model thrive. “The statutory boards have shown a reluctance to persist with the lengthy process that exists with the procurement of PPP projects in Singapore,” says James Harris, partner at law firm Hogan Lovells. “The government has also largely been able to achieve satisfactory results through direct contracting.”
As a result, despite firm backing at the legislative level, there remains a sense that the government views the PPP model with scepticism. “They [the government] certainly know what they are doing,” says Michael Horn, partner at law firm Clyde & Co. “They have very good legislation and the concession agreement was modelled on the UK, with variations that the Australian market introduced. It is not a capacity question. That explains a lot of problems in other markets but not Singapore. I think it is that the government is very highly rated and can and does reach into its pockets to pay for this stuff. They just don’t have the balance sheet pressures.”
But all is not lost. Recently, the government has been touting the PPP model to develop the country’s utility sector. And work is already underway. In June, the PUB appointed consultants to conduct a feasibility study for the next phase of the Deep Tunnel Sewerage System (DTSS 2). This is intended to extend DTSS coverage to the western part of Singapore and will include a new water reclamation plant and new water facilities to be developed in Tuas.
Water supply, treatment, use and recycling systems are also to be developed at the new energy and chemicals industrial hub at Jurong Island.
But whether this is enough to attract the attention of the international investment community remains to be seen. “There is a question as to whether Singapore will ever deliver to investors in PPP deals as it is such a small market,” says Horn.
“The current issue for many firms if they don’t have a presence in Singapore is the requirement for a solid pipeline of projects. Without these, people just can’t justify setting up there and traditionally that is why many haven’t.”
One of the key challenges for Singapore as we approach 2015 is to establish a sufficient dealflow and to maintain enough projects in the pipeline to keep the PPP market thriving. A clear indication of future deals will be vital to attract foreign investors to the country and for the market to grow – but whether the government will facilitate this is another matter.