“Infrastructure Export” is Japanese government policy of national growth strategy inaugurated last year. Precisely, we say “Packaged Infrastructure Export” meaning Japanese companies shouldn’t satisfy with exporting just only equipments of infrastructure, but should aim at getting long term operational business as well as selling infrastructure.

Typical example is winning USD 12 billion nuclear power plant export to Vietnam in November 2010. In this trade, Japanese government formed a consortium with Japanese nuclear power plant manufacturers and largest electric power companies to aggregate advantages, in other words, to make a “package” of power plant equipments, long term operational contract with financing and transferring operational know-how of nuclear power plant. Some gift-like infrastructure investments such as building a port were incorporated, too.

Historically, Japanese major trade houses such as Mitsubishi have been accumulated experiences of building and operating traditional thermal power plant mostly in Middle East and Eastern Asia according to the format of Public-Private Partnership. However, for most Japanese heavy electric machinery manufacturers and electric power companies, long term contract of PPP, sometimes with contract term of 20 years or more, is the unprecedented world. Operating infrastructure facility in foreign country is completely different business from selling equipments. So, Japanese governmental promotion is needed.

In the contractual format of PPP, major difficult points for companies are, getting long term financing that covers whole capital investment and incurring risks assumed to occur in the long term operation. For these, Japanese government established financial measures provided by public lending bank JBIC and public export-import insurance company NEXI. Also, complementary measures were prepared by export agency JETRO and ODA agency JICA. As information liaison role, many infrastructure project specialists to keep contact with foreign government counterparts were assigned to Japanese embassies. Given these measures, difficulties to embark on infrastructure export might become small. But realistically, it depends on entrepreneurship of each company.

Japanese government decided to focus on following eleven fields to export as infrastructure.

  • Water
  • Coal power plant
  • Electricity grid
  • Nuclear power plant
  • Railroad
  • Recycle system
  • Space industry
  • Smart grid and smart community
  • Renewable energy
  • Information and communication technology
  • Urban development and industrial complex development

Of all, nuclear, rail and smart community are the most focused area so far.

From foreign government view point, theses measures prepared by Japanese government are opportunities to consider feasibility, especially for governments that already built firm legal framework of PPP. Since infrastructure is the business which must get enough return (this is the most critical point for public companies) from long term operation, the business environment stability especially of long term legal viability of the contract is the main concern for most companies. If this point is addressed, interested companies would talk positively with the government.

Another point to address is preparedness of operating company. As usual infrastructure business in the format of PPP would have one special purpose company which runs operation of the infrastructure facility, existence of ready-to-go operating company on the infrastructure planned area is critical. Because most Japanese companies don’t have infrastructure operating arm which can deploy abroad, realistic option is buying an operating company there or doing similar thing. Except for successful case of major Japanese trading houses in independent power producer business area, most Japanese companies must start from searching for operating entity in the planned site. For this point, if a foreign government can offer a nice alternative, things will change greatly. I personally believe this is the most challenging point before actual infrastructure export, from foreign government view point, infrastructure import will happen. Most Japanese companies don’t have information on which local operating company is reliable and which partner is good to talk with.

Originally posted on Infrastructure Investment Journal authored by Daisuke Imaizumi, CEO of InfraCommons.