Are Emerging Markets a Better Place to do Public-Private Partnerships?

Image composition assisted by ChatGPT (OpenAI, GPT-5).

MMM Infra Blog No. 12 14 September 2025

On 10 September 2025, my friend Owen Hayford published a thought-provoking paper, reflecting on the decline in Public-Private Partnership (PPP) projects in Australia. (A legal practitioner’s reflections on Australia’s privately financed PPP market, which can be accessed via a link at Clarifying the PPP value proposition — infralegal.). Owen is a very experienced PPP lawyer based in Sydney, and his paper presents a penetrating analysis of the reasons for the drop-off in Australian PPP activity from the levels that existed a decade ago.

The question is: How applicable is Owen Hayford’s analysis to PPPs in emerging markets?

The Key Points in Owen Hayford's Analysis of Australian PPPs

In his paper, Owen Hayford asserts that governments in Australia – at both the national and state levels – have found that most of the advantages of PPPs can be achieved without the use of expensive private finance. Specifically, he argues that Design-Build-Operate-Maintain (DBOM) contracts can yield benefits for government procuring authorities that are comparable to those achievable with a PPP Design-Build-Finance-Operate-Maintain (DBFOM) contract – but at a reduced cost, due to the ability of Australian governments to obtain financing for less than that offered by private sector investors.

Owen notes that the Australian national government has a triple A credit rating, and that Australian states have ratings that are similarly high: AAA or AA+. In contrast, an Australian PPP project company is normally rated at BBB+, which means that government procuring authorities in Australia can acquire debt financing at a better rate than project companies. When combined with the costs associated with the equity component of project company financing, this means that procuring authorities can achieve considerable savings by eliminating the “F” component of a DBFOM transaction.

Owen acknowledges that foregoing private financing means foregoing the benefit of the rigorous supervision of the project provided by private financiers. In addition, he notes that, in the past, governments in Australia have been able, on user-pay PPP projects (such as toll roads), to transfer demand risk to the private sector – but he presents data showing that project companies are now very reluctant to accept such demand risks on PPP projects.

All of this drives Owen Hayford to the conclusion that, in Australia, the privately-financed PPP model should only be used in selective circumstances, where the relatively limited benefits of the model outweigh the additional cost of private sector debt and equity financing.

Applicability to Emerging Markets

As I was reading Owen’s paper, the question which stayed with me was: What are the implications of this for PPPs in emerging markets?

In my view, the conditions faced by most emerging market governments are significantly different than those which pertain in Australia, and there are still compelling reasons for emerging market procuring authorities to use the PPP model for a wide variety of infrastructure projects.

Let's begin with the cost of financing. Unfortunately, most emerging market countries do not enjoy the credit ratings possessed by the Australian national government and the various Australian states. (Indeed, a strong argument can be made that emerging market credit ratings are unreasonably low – see my LinkedIn post of 20 March 2025, at https://www.linkedin.com/posts/mark-moseley-3459941b_publicprivatepartnerships-ppp-soverignrisk-activity-7308381883958976512-CJA9?utm_source=share&utm_medium=member_desktop&rcm=ACoAAAQ9EeUBW879p1VGFNcnf6K6bS-016uQmnw). In addition, a number of emerging market countries face severe restrictions on their ability to borrow. Accordingly, the ‘gap’ between the cost of government financing in an emerging market country and project company financing for a high-quality PPP project in the same country may be quite small, or even non-existent.

Another differentiator as between Australia and emerging markets is, potentially, the willingness of emerging market investors to accept demand risk in user-pay projects. In countries with rapidly growing economies, investors may well be willing to accept the risk of user demand for much-needed infrastructure such as a Bus Rapid Transit (BRT) project. As a result, the use of a conventional PPP model for this type of project would allow an emerging market country to make such a public service available, without having to finance it and without having to accept the demand risks.

A further distinguishing factor is the level of government capacity in most emerging markets, relative to that which exists in Australia. Managing a major DBOM project after financial close is a very complex undertaking, which would be challenging for many emerging market procuring authorities. Accordingly, the benefit of the supervision provided by private financiers in a DBFOM project is especially significant in the context of most emerging markets.

In summary, privately-financed PPPs can provide real advantages for emerging markets – more than might exist in an advanced economy such as Australia.

Some Concluding Thoughts

Owen Hayford’s analysis of the PPP landscape in Australia contains some very cogent points. However, many of the arguments he makes for being highly selective in the use of the PPP model in that country do not apply in most emerging markets.

This leaves us with an interesting proposition: Are emerging markets actually a better place to be doing Public-Private Partnerships?

This blog is in a series that appears on this website. It has been written by Mark Moseley, the Principal of Moseley Infrastructure Advisory Services (Mark.Moseley@MMMInfra.com). Unless otherwise noted, the copyright in this blog is owned by Moseley Infrastructure Advisory Services. The blog is made available for use under a Creative Commons Attribution 3.0 Licence, whereby users are free to copy and redistribute the contents of the blog, if they give credit to the author, and clearly indicate any changes that have been made.