Water infrastructure business abroad is one of key agendas Japanese government is currently promoting as the national growth strategy. Ministry of Economy, Trade and Industry (METI) estimates global water business market will grow from USD 360 billion in 2007 to USD 870 billion in 2025. But a portion Japanese manufacturers can get from this large pie is very small at present, because they have focused in just selling equipments, not in investing in long-term business operation.
From infrastructure investment viewpoint, most business benefits will come from series of annual cash flow generated by water expense that end users will pay. In this business landscape, construction and selling facility equipments are non-negligible capital expenditure but still they are building blocks of the whole. Larger opportunities lie in the rest as the estimation above signifies. In typical PPP water business of 40 years, 20% of trade amount comes from selling goods, while about 50% is generated from operations, according to METI’s report. Considering the size of broad market, that 50% should be addressed.
On 14th February 2011 at Tokyo, METI, Ministry of Land, Infrastructure, Transport and Tourism and Ministry of Health, Labour and Welfare held a meeting “PPP Council for Overseas Water Infrastructure” whose members, more than 100 in number, are Japanese companies interested in PPP water business abroad. For this meeting, delegates from Asian governments, namely Cambodia, Indonesia, Malaysia, Philippines, Sri Lanka and Vietnam, were invited to share their status of water infrastructure necessity. This meeting might be the first of its kind. Documents shared in this meeting are available on the MLIT’s web site. Most contents are in English, though titles are in Japanese.
In these six months, Japanese government has prepared several measures to support Japanese player’s entering in water business abroad. Most important measure established recently is public financing for foreign government’s PPP project. Japan International Cooperation Agency (JICA) whose main mission is ODA (Official Development Assistance) for countries in necessity will be an interface and a lender of public project financing. For example, if a PPP water project, which is planned by a foreign country that needs to grow by infrastructure enhancement, has a certain level of sound profitability from operator’s viewpoint and from lender’s viewpoint, and if an awarded bidder of the project is Japanese consortium, JICA may finance for the project with other project finance lenders or with other investors. As a whole, this is very normal pattern of project financing for an infrastructure project, but with public aid.
So, this might be an opportunity for foreign government that looks for a chief finance arranger for water PPP project. Regarding to long-term operation, though most Japanese manufacturers don’t have experience, water operation agencies in large Japanese municipalities could cover. Some of water agencies such as Tokyo’s are interested in entering in overseas water operation. You can see overview of them on the link above.
Originally posted on Infrastructure Investment Journal authored by Daisuke Imaizumi, CEO of InfraCommons.