"With the exception of Australia and India, P3s have been slow to develop in the Asia-Pacific region. Emerging regulatory frameworks may be subject to an elevated risk of political interference, and strong legislative frameworks to enforce P3 contracts are still developing in some countries," says Patrick Mispagel, a Moody's Associate Managing Director.
Despite these constraints, Moody's report notes that the P3 markets in the Philippines and China are expanding, with deal flow accelerating in the Philippines under the current administration and its P3 center.
China has recently started to promote P3s, with 80 projects to be offered to the private sector in this format.
Moody's report further points out that P3 projects are more common in Australia and India, with a trend in Australia toward larger project sizes, but fewer projects. Projects range from social infrastructure, such as schools, hospitals and rail stations, to toll roads.
While more than 100 projects valued at AUD65 billion have been delivered through the P3 framework, effectively all new P3 projects since 2008 have been financed in the bank market through shorter-dated bank loans.
As such, Moody's notes that improved access to the long-dated capital markets and development of a liquid P3 bond market would support the Australian P3 market.
In the case of India, the government has outlined the need to spend USD1 trillion on infrastructure. In order to fulfill this, the government intends to use P3s as one of the ways to raise as much as USD150 billion of private investments.
Currently, about 1,400 projects amounting to USD115 billion are in the P3 pipeline in India, with almost half of that spent on road and highway projects.
While the Indian government has taken steps to streamline the P3 process, including the release of a national policy, several challenges remain. These include inadequate knowledge of the project development process, and a scarcity of financing sources.
On a region-by-region basis, Moody's report further notes that the P3 pipeline in Europe remains subdued against a backdrop of austerity measures. Concerns are also growing in the public sector that P3s represent an increasing privatization of public services -- particular in the UK, the most mature P3 market in the region.
In the US, the P3 market is expanding for availability-payment P3s, aided by supportive legislation and public-policy initiatives. Moody's notes that the US has the potential to become the largest P3 market in the world, given the sheer size of its infrastructure.
In South America, infrastructure investment is fundamental to continued development and long-term economic growth. An increase in P3 projects means that investors can now be more selective than in the past. But while some projects have met with success, others have run into trouble.
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