Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

The Effectiveness and Limitations of the PFI for a Water Utility:
Case Study of the Kawai Purification Plant Reconstruction
Project in Japan
Ooshima Makoto

Association of International Arts and Science,Yokohama City University
E-mail:ooshima@yokohama-cu.ac.jp

Abstract
This study investigates the reconstruction of the Kawai purification plant that supplies water
treatment for the city of Yokohama in Japan. The purpose is to clarify the effectiveness andlimitations of the so-called Private Finance Initiative (PFI) method, as applied to a water utility.
The PFI method is said to demonstrate higher efficiency compared with traditional utility
maintenance methods. The primary conclusion is that the use of the PFI method at the Kawai
purification plant has not achieved a large cost reduction or value for money (VFM) as expectedcompared with other PFI water service projects in general or other PFI projects in Yokohama
specifically. In other words, future bidders should bear in mind that excessive cost reductions
are expected. The effectiveness of the PFI approach should, instead, be measured against theusefulness of the technical and management knowledge of the business partner, such as
membrane filtration technology or the continuous operation of older facilities during thetransition to new facilities and equipment.
Keywords: PFI method, Water Utility, Privatization methods
2017; Yoshimoto, 2018. The (PFI) method 2 —（1）Introduction
Water utility

here, the "waterworks PFI method"— is said toprojects across Japan face

many challenges, and several studies 1offer greater efficiency compared with thehaveclaimed that the introduction of the waterworks

conventional

private finance initiative (PFI) approach candevelopment projects, where local governments

help address these (Amano, 2017; Kume et al.,provide administrative services directly. This

2015; Takizawa, 2015; Hashimoto & Murata,

paper is an investigation and a clarification of

1 Amano (2017), Kume et al. (2015), Takizawa(2015), Hashimoto & Murata (2017), Yoshimoto(2018).
2 Defined by the Japanese Cabinet Office's
Public Private Partnership/Private FinanceInitiative (2017), the PFI method is "a methodof providing the same stand-ard of services at alesser price or a higher quality of services for thesame price through the application of private
funding, management capability, and technicalcompetence to public utility construction,
operation & maintenance, and manage-ment."

17

approachtopublicutility

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

the effectiveness and limitations of the PFI

and Amano (2017) have also showcased casemethod, using the Yokohama City Kawai Water

studies of the cities Yokohama and Yubari that

Treatment

Project

applied the PFI approach to their waterworks.

(hereinafter referred to as the Kawai Project),Thus, existing studies have summarized thethe first project in Japan to adopt the PFI

various issues facing water service projects,

method, as a case study.

examined multiple privatization methods, and

Plant

Renovation

In 2006, the city of Yokohama formulated its"Long-Term

Visionforthespotlighted case studies.

Yokohama

However, most of the existing studies focus on

Waterworks: A 10-Year Plan," with thepointing out problems, enlightenment by"Yokohama City Waterworks Project Medium-

government officials, or only provide an

Term Plan" dividing the longer term plan into

overview of the project. In contrast to previous

three stages. The goal of the medium-term plan

studies, this study is based on evidence andis sustainable waterworks management thatinvestigates the effectiveness of waterworks

utilizes the technical abilities and knowledge

PFI

available to the city of Yokohama, based on

associated with it. Specifically, it took up thesocietal trends and various needs of civic life

Kawai project as Japan's first case study of PFI(Kume et al., 2015)3. However, as its Kawai

for waterworks, and investigated the outline of

purification plant was faced with many issues4,

services

Yokohama chose not to use the traditional

realistically be expected through the PFI

utility maintenance approach but instead

method. The analysis covered data andintroduced the PFI method, which relies onmaterials published by the City of Yokohama

business partners.

and the Ministry of Health, Labor and Welfare,

implementation

and

cost

and

the

reductions

challenges

that

can

Existing research on the privatization andas well as internal data and materials that aremanagement of water services has looked at

not available on the internet. Specifically, thesemany of the issues facing the industry.

are internal documents and data, including

Takizawa (2015) summarizes the issues local

materials from the public hearing (Sep. 19, 2018,

Japanese governments are facing in terms of

13:30 to 15:30, Kawai Purification Plant). As

their waterworks as well as the initiatives

Japan's first application of the PFI method to aunderway to address these. There have been awaterworks project, the Kawai project has been

series of studies that examine the pros and cons,

positioned as cutting-edge by both Japan's

efficacy, and challenges of using privatization in

Cabinet Office and its Ministry of Health,resolving these issues, including the PFILabour and Welfare.

approach (e.g., Obayashi, 2018; Kishimoto et al.,The rest of the paper is organized as follows.

2018; Nakajima, 2018; Hashimoto & Murata,

Section 2 provides an overview of the Kawai

2017; Watanabe, 2018). Like Hashimoto andproject,

Murata (2017), Kume (2014), Kume et al. (2015),

Yokohama's water services, and the differences

3 Kume et al. (2015).

deterioration,
declining
efficiency fromprocessing untreated water from different
sources at a single filtration plant, and the needfor facility earthquake-proofing.

4 Kume et al. (2015) and Watanabe et al. (2010)

identified the issues as the degrada-tion ofwater treatment capability due to facility

18

the

background

of

the

city

of

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

between the traditional utility maintenancesystem's ability to form sufficient flocculation

approach and the PFI method. Section 3

for settling and removal is problematic.

examines the effectiveness and limitations of

Additionally, seismic analysis has identified

the waterworks PFI method. Section 4

issues with the earthquake resilience of thesummarizes the results of the case study.

primaryequipment—the

distribution

reservoirs, the sedimentation basins, and（2）Background: The Kawai project and thefiltration pools—pointing to the need for drastic

PFI methodrenovations to the entire plant.
Against this backdrop, a plan was drafted for

1.The Yokohama waterworks projects and thethe

Kawai purification plant5

completerenovation

of

the

Kawai

Yokohama's water purification operations

purification plant, introducing a membrane

purify water at four locations: the Kawai,

filtration system capable of processing the

Tsurugamine, and Nishiya purification plants,

entire Doshi

which all use gravity flow systems, with theuse of water pressure. The facility would be

Doshi River and Lake Sagami as water sources;

reconstructed to contribute to the stable andand the Kosuzume purification plant, which iscontinuous provision of good quality water. At

pump-based. These facilities prioritize the use of

the same time, a decision was made to eliminate

water from gravity flow systems to minimize

unnecessary equipment and simplify operation

environmental impact and the cost of waterand maintenance within the plant. The PFI

intake, transportation, and purification, withwater service method was chosen based on theminimal usage of pump-based systems.

need for greater capabilities to handle these

However, all water from the gravity flow

updates,systems cannot be used because the facilities

initiatives.

River system through effective

maintenance

operations,andand equipment are deteriorating, thereby

The target operations for the Kawai project

reducing their purification ability. Factors such

were the filtration facility reconstruction —as changes in water source quality also pose

installing new equipment and removing old

efficiency issues for processing untreated waterequipment—as well as facility operations andfrom different sources at the same plant.

maintenance6( Kume et al., 2015). The project

The Kawai purification plant is the oldest

chose the build, transfer, operate (BTO)

rapid filtration plant in Yokohama, with theapproach where business partners would

Doshi River as its water source. The system hasconstruct and install new equipment, thenbeen in operation for 50 years, and during thisoperate and maintain it after the transfer oftime it has deteriorated. Prior to the plant's

ownership to the city. The total project duration

renovation,

chemicalwould be from April 2009 to the end of Marchclarification and rapid sand filtration methods.

2033. Specifically, Stage 1 construction (removal

The water from the Doshi

River is too cleanof old equipment and installation of new

and the amount of suspended matter too small

equipment at each facility) lasted from April

to operate a flocculating clarifier; thus, the2009 to March 2014; Stage 2 construction

5 Kume et al. (2015).

6 Yokohama Waterworks Bureau (2007).

thefacilityused

19

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592(removal of old equipment and installation ofstability would continue to increase andnew equipment at each facility)

government spending would eventually levellasts fromout8.

April 2014 to March 2017; and an operation andmaintenance period from April 2014 to March

Table 1 details the major features of each2033. The contract was valued at about 27.6

method in terms of implementation and bidding.

billion yen, with facility and equipment

For specific business activities, according to theinstallation accounting for about 18.0 billion.

Cabinet office, when the total costs of the service

Payment would be handled via the service

transfer fees paid to the business partner by thetransfer method, with the contract pricegovernment are lower than the hypothesized

distributed proportionately according to thetotal costs and quantified risks accompanying

work conducted throughout the project period.

conventional

publicutilitydevelopment

The entire Kawai project, from planning andmethods, the PFI method offers value for money

construction to operation and maintenance, was(VFM)9. If VFM is anticipated, then using theconsigned to a given business partner in

PFI method promotes ingenuity on the part ofaccordance

withperformance-based

the business partner, blanket ordering, and thestipulations

dependentonsharing of risk between the government and thequantitativeevaluations. The expectation was that thisbusiness,approach would reduce Yokohama's financial

responsibilities.

reducingthepublic's

financialburden by 7% compared with commissioning
work for individual projects piecemeal (Kume et（3） Assessment results:

effectiveness andal., 2015)7.

limitations of the water service PFI method
In this chapter, the expected effectiveness and2.Differences between conventional public

limitations of the PFI approach compared toutility development methods and the PFI

traditional utility development methods are

methodexamined in three categories: cost reduction,
service

The city of Yokohama considered whether to
employaconventional

publicquality

improvement,

and

risk

allocation.

utilitydevelopment method or the PFI method for the
Kawai project. According to the Yokohama

1.Cost reduction

Waterworks Bureau (2008), the PFI method

The total Kawai project was consigned to a

was chosen after a qualitative assessment's

single business partner long-term in an

determined that project operations could be

integrated manner. The use of blanket orderingstabilized

and performance ordering was expected to yield

via

optimaloperations

andmaintenance service assessments and the

reductions in cost. In fact, a cost reduction ofidentification of risk allocation. Moreover,

7 Kume et al. (2015).

"the provision of services for the op-timal value:
payment ratio."

8 Yokohama Waterworks Bureau (2008).
9

Cabinet Office (2001) considers VFM to be20

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

Table 1 Conventional public utility development methods vs. the PFI method
MethodPublic utility
PFI
Implementation

The

design,construction, The

design,construction,

operation&

operation & maintenance, and maintenance, and management of the facility
management of the facility are are handled in an integrated manner by theconsigned piecemeal to private PFI firm over the long term.
entities or undertaken directly The public sector monitors and approves theby the public.

masterplan,

imposesconditions,andmonitors operations.
Bidding

Bidding by stage or work item: Blanket ordering: An integrated order for
Bidding is divided by work operation & maintenance, management, etc.,stage or construction area; is placed; work items are not divided between
work is divided and ordered by vendors.
item(civilengineering, Performance ordering: The public sector

construction, installation, etc.) presents basic performance targets for theOrdered to spec: The public facility, etc., and the business creates a plan
sector drafts and presents a and constructs the facility to fulfill these.
specification
detailing

document

theconstruction

method, materials, etc.
Business selection Price-based

biddingasa Comprehensive assessment, taking price andgeneral rule.
Risk allocation

proposal content into account.

Determined upon consultation Defined at time of contract; shared between
whenever risk is incurred, but the public and private sectors.
fundamentally borne by the
public sector.

Funding

The public sector supplies The private sector supplies funding from thefunding via municipal bonds, market (the project financing method).
subsidies, etc.

Source: Kume et al. (2015, p. 18), partially amended for clarity.
about 7% was expected for the Kawai project,

project estimated at 26,531,579,000 yen;

Table 1: Public utility development methods vs.

representing a cost savings of about 1.1 billion

the PFI methodyen (City of Yokohama, 2008a; Yokohama

with the total price of the21

Journal of Japanese Management Vol.6, No.2, May 2022

Waterworks Bureau, 2008)10.

ISSN 2189-9592

adoption of the PFI method has other hidden

In the PFI method, project funding is suppliedFor

example,withnot through taxes or public funding, such as

development

methods,

funding

government securities, as with public utility

through municipal bonds, issued at an interest

development methods, but rather by therate lower than the market rate or other sourcesbusiness partner. Under this arrangement,of project funding, such as taxes. However, theYokohama merely makes regular service

PFI method incurs higher interest rates thantransfer fee payments to the business as

municipal bonds, taxation, or other publicpredetermined compensation for the project.

funding options, as funds are raised by the

Therefore, the city does not need to issue bonds

partner by borrowing from financial institutions

to install the new facility, leading to a leveling-or

off in government spending (Kume et al., 2015)11.

companies (SPC), such as banks or major

As Kume et al. (2015) point out, thecorporations, lend funding at certain profitable

reconstruction of the Kawai plant and theinterest rates. As the nature of the PFI method

consequent closure of the Tsurugamine plantis private, details on the Kawai project funding

have

fixed

are not available. However, if the businessadministrative costs as well12. This approach

conducts fundraising, it is highly probable thatallows for the issuing of government grants

it does so at an interest rate far higher than one

through the BTO method with no property

that taxes or public fundraising would incur.

taxes levied13.

Limiting

producedareductionincosts.

others.

theSpecifically,

scope

to

publicspecialutilityisraisedpurposeoperations

andAdditionally, the transition from traditional

maintenance in the Kawai project, a "publicly

rapid filtration to the membrane filtration

built, privately owned" model applies, whereas,

method reduces the amount of power used toin a design-build-operate (DBO) system or atreat each m³ of untreated water from 0.040

designated management system, Yokohama

kWh to 0.024 kWh, lowering annual power costs

would undertake the "hardware" part of thefrom about 34 million yen to about 21 million

project, such as facility and equipment

yen14.

The amount of condensing agent used

installation, while the "software" side, such as

per 1 m³ of untreated water fell from 0.0255 L to

operation and maintenance, would be entrusted

0.0164 L, with annual chemical costs dropping

to private enterprise. However, by consigningfrom about 42 million to 27 million yen (City ofthe project as a whole to private business,

Yokohama, 2016)15.

Yokohama expects fixed fundraising costs and a

However, achieving these cost reductions

high VFM. Second, by evading the need to issue

reveals two major issues. First, while thesepublic bonds, the belief is that the negative

utility and chemical cost reductions are

impact on various financial indices16 applied to

expected to achieve a 7% overall VFM, thelocal governments throughout Japan, including

City of Yokohama (2008a) and Yokohama
Waterworks Bureau (2008).
11 Kume et al. (2015).
12 Ibid.
13 Ibid.

14 City of Yokohama (2016).

10

15 Ibid.

When local governments issue municipal
bonds allocated to public enterprises, theirconsolidated real deficit ratios, real debt service
16

22

Journal of Japanese Management Vol.6, No.2, May 2022

Yokohama, would be avoided.

ISSN 2189-9592

PFI method of consignment of specific duties to

Although the PFI method has been shown tothe private sector and the aforementioned

reduce certain costs, based on the overall Kawai

higher interest rates incurred as the businesswater production costs post-project, it is difficult

needs to secure its own financing. While waterto say whether an overall reduction in costs wasproduction costs for the Doshi River system are

actually achieved. As a result of examining four

ultimately lower than they are in the district,water systems: the Sagami Lake system, thethey are higher than those for the Lake Sagami

Ba'nyu River system, the Doshi River system

or Ba'nyu River districts.

(which encompasses the Kawai and Nishiya

The second issue lies with VFM—the deciding

plants), and the district as a whole, the following

factor in why PFI was chosen over a public

was found. Specifically, according to Yokohama

utility for the Kawai project. VFM here includes(2019), in the 2018 fiscal year, the cost of

not only the costs associated with the Kawai

producing 1 m³ of treated water was 159.321

project's installation, development, operation,

yen for the Doshi River system, 147.59 yen for

andthe Lake Sagami system, 143.88 yen for the

improvements

Ba'nyu River system, and 193.17 for the district

represented in financial terms, as well as theoverall, with an average of 170.51 yen. Chemical

benefits for Yokohama of reducing its risk; ascosts per 1 m³ of treated water were 0.61 yen forwell as the environmental impacts.

maintenance,
gainedbut

also

qualityfromtheproject,the Doshi River system, 1.81 yen for the Lake

VFM is generally considered "the provision of

Sagami system, 1.78 yen for the Ba'nyu River

services for the optimal value-to-payment ratio"

system, and 0.04 yen for the district overall, forfor administrative services, such as the

an average of 0.79 yen. However, commission

development, operation and maintenance, andcosts were 20.8 yen per 1 m³ of treated water forcertain facilities 17 . When the life cycle cost

the Doshi River system, 15.53 yen for the Lake

(LCC) for providing these administrative

Sagami system, 13.06 yen for the Ba'nyu River

services is calculated and compared between

system, and 11.26 yen for the district as a whole,conventional methods and the PFI approach,for an average of 13.76 yen. Interest paid totaled

the method with the higher value-to-payment

11.54 yen per 1 m³ for the Doshi River system,

ratio is said to have VFM; and the other method

7.44 yen for the Lake Sagami system, 7.71 yen

is said to lack VFM. Comparing conventional

for the Ba'nyu River system, and 6.19 yen formethods with PFI and calculating VFM means

the district, for an average of 7.44 yen.

examining both approaches to assess whether

In other words, for the Doshi River system

the public service quality from the project(which encompasses the Kawai plant), chemicalremains the same in both. The specific formula

costs were less than for other systems, but

is as follows18:

commission payments and interest expenses
were more. This result is associated with theVFM （ ％ ） ＝ (PublicutilityprojectLCC －ratio, and future burden ra-tios as stipulated by
the Fiscal Reconstruction Act suffer.
17 Cabinet Office (2001) considers VFM to be"the provision of services for the op-timal value:

payment ratio."
18
From the Cabinet Office homepage(www8.cao.go.jp/pfi/pfi_jouhou/tebiki/kiso/kiso1
3_01.html; accessed Feb. 9, 2021).

23

Journal of Japanese Management Vol.6, No.2, May 2022

PFILCC)/PublicutilityprojectLCC

100

×ISSN 2189-9592

while VFM is supposed to be calculated from all
items related to project costs, factors such as(1)
In formula (1), LCC is defined as income andrisk allocation, cutting-edge technology, andexpenditure over a defined project period,

environmental impact were not included in its

composed of planning and construction costs,

calculation for the PFI method.

operation and maintenance costs, interest, andIn fact, according to part of the 2016

national and local taxes. If the PFI method

Environmental Accounting 19 initiative, which

equates to lower costs than the conventional one,quantifies environmental challenges as much as

the PFI method is said to have VFM.

possible, not just for the Kawai project but also

According to the PFI project Guidebook (2003)

for waterworks in all of Yokohama, the sumfrom the PFI Project Research committee,

total of waterworks projects in Yokohama inmethods of calculating VFM "should include thedelivering tap water to consumers equated toquantification

traditionally(consumed) an environmental burden in terms

acknowledged explicitly; the optimization ofof resources and energy of 132,188,000 kWh ofrisk allocation between the public and private

electricity; 195,809 ℓ of fuel oil, gas, andsectors; the hedging of risk via insurance; thekerosene; and 154,177 m³ of city gas andestablishment of an appropriate cost reductionliquefied petroleum gas. Emissions totaled

rate achievable by a private entity; a precise

72,538 t-CO₂ of carbon dioxide, 4,285 DS-t ofunderstanding of the conditions of loans

waste soil from wastewater treatment, andborrowed

85,653 m³ of waste soil from waterworks

of

from

risks

not

financial

institutions;anunderstanding of issues within the system; andoperations.

revisions of the system."

To add environmental considerations to the

The Yokohama Waterworks Bureau (2007)

calculation of VFM for the Kawai project, thestates that the quantitative assessment of VFM

following method could be used. For the Kawaifor the Kawai project was calculated based on

project, Yokohama (2008b) established the level

its expected groundbreaking costs, design costs,of performance it sought from its businessconstruction costs, construction administrative

partner and the level of service required forcosts,

costs,

target operation and maintenance activities.

insurance premiums, taxes, and monitoring

One of the stipulated duties, "environmental

costs to be borne by the public. The only

consciousness," included "the utilization offundraising approaches listed were bonds, self-

unusedfinancing, and bank loans. However, whileconservation plans, recycling, measures tooperation and maintenanceservices, risk

address the 'heat island' effect, and theallocation, safety, and environmental impact aslimitation and reduction of greenhouse gas

basic

emissions" 20 .

operation

project

andconcepts

maintenancewerelistedasenergy,theadoptionofenergyTheoretically, a monetary

quantitative assessment items, these were notamountincluded in the VFM calculations. Therefore,

greenhouse gas emissions achieved by the

Yokohama Waterworks Bureau (2019), "Yokohama no Suido 2018 ( Yokohama

20 City of Yokohama (2008b).

representing

Waterworks 2018)."

19

24

the

reductioninJournal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

Kawai project, as well as the environment

would make it difficult to keep the existing

impact of each step of the project, should befacilities running during renovations.) The

added to the numerator of formula (1) used tosecond is the use of potential energy22. Generally,

calculate VFM.

membrane

filtration

systems

requirea

In practice, for an accurate assessment, it issignificant amount of electricity to power the

essential to determine the environmental

pump used for the high pressure difference at

impact of each step of the project via

the membrane; however, at the Kawai plant,

environmental performance indices and thenpotential energy can be used due to theadd their economic value to the VFM calculation.

difference in elevation at the water supply

Specifically, the differences in environmental

conduit. The difference in elevation from theperformance indices, such as total energy

junction well along the water supply route (fromexpenditure, greenhouse gas emissions, andthe intake to the filtration plant) to the plant is

output of environmentally harmful substances

35 m; the water runs through a pipeline, and by

before the start of the project and after its

the time it arrives at the filtration plant,

completion, must be calculated and converted topressure equivalent to 11.5 m remains. Thisa monetary value (e.g., calculating the cost ofpressure is used to conduct membrane filtration,

carbon emissions through carbon pricing).

whereon the water flows into the distribution
reservoir.
The third expectation concerns water quality

2.Service content
There are four primary elements expected in(Watanabe, 2010)23. At the Kawai plant, thethe Kawai project's service standards. The firstclean water standards required from theis the use of a membrane filtration system in thebusiness partner are more severe than thosepurification plant (Kume et al.,2015) 21

(21).

imposed on drinking water. Quality standards

This would be difficult for the Yokohama

for drinking water demand a standard plate

Waterworks Bureau to construct, but possible

count of no more than 100 per mL; no more thanfor a business partner with such technology. A

3 mg/L of organic matter; turbidity of no morebusiness introducing proprietary membranethan 2°; and chromaticity of no more than 5°.

filtration technology would make sedimentation

However, the Kawai plant clean water quality

basins and filtration ponds unnecessary;standards require a general plate count of no

additionally, space-saving construction could

more than 1 per mL; no more than 1 mg/L ofenable the existing water treatment facilities toorganic matter; turbidity of no more than 0.01°,

remain in operation while renovations wereand chromaticity of no more than 1°.

conducted on the current site. (Other rapid

The fourth expectation concerns the role offiltration systems besides membrane filtration

the business partner (City of Yokohama, 2008a)

21 Kume et al. (2015).

Purification Plant Renovation )" (Japan River
Association homepage, www.japanriver.or.jp/taisyo/oubo_jyusyou/)jyusyou_katudou/no17/no17_pdf/yokohama_city.pdf; accessed Feb. 13,
2021)
23 Watanabe (2010).

22

Yokohama Waterworks Bureau, " Kawai

Jyousuijou Sai Seibi Jigyou niyoru Kankyou ni
Hairyo sita Suido Sisutemu no Jistugen( Creating an Environmentally-Conscious
Water-works System through the Kawai

25

Journal of Japanese Management Vol.6, No.2, May 2022

24.

The city required a business partner for the

Kawaiproject

that

would

potential bidders have a past track record withthat

public works in Yokohama, significant expertise

construction would be efficient, with effective

in and experience with water filtration projects

new water purification equipment and facilities;

and the required materials, among othera smooth transition to a membrane filtration

aspects. The Kawai project was Japan's firstsystem; and stable, uninterrupted provision of

genuine waterworks PFI project and, as the citywater, maintaining the required clean waterof Yokohama was proactively pursuing aquality standards during the operation andnumber of privatization projects, PFI andmaintenance period. Thus, Yokohama imposed

otherwise, many businesses were interested.

bidding requirements regarding membrane

However, despite successful project briefings

filtration

andand 2,710 inquiries from participants andconstruction results (at least 1,000 m³ per day),

potential partners, ultimately, only one businessmembrane filtration equipment operation andsubmitted a bid. Despite the single applicant,maintenance (O&M) results (at least 1,000 m³

the Yokohama PFI Project Review Committee

per day), membrane chemical scrubbing results(2008) determined that the successful bidder's(on-sitereservoir

seven constituent enterprises had enoughconstruction results (at least 10,000 m³ ofexperience in the given tasks and gave the bid

reservoir space), and overall ratings forhigh marks. However, the experimental VFM

operation inspections.

factor analysis in Japan conducted by Ueno andequipment,

cleansing),

ensureISSN 2189-9592

manufacturing,

distribution

Furthermore, the Kawai project consigned

Maeno (2010) indicates that many applicants

facility management and operations, including

are necessary to activate the competition

responsibility for complying with Japan's

principle, leading to lower prices and reduced

Waterworks Act, to a third party, entrusting all

expenses through lower construction costs,

the purification activities at the core of thethereby achieving higher VFM.

water supply process to private enterprise. To
address potential

concerns 25 ,Although, as mentioned, it is difficult tothe project

obtain information on PFI projects because theyrequired that the SPC have an internal, first-

are private projects, there were confirmed theclass water purification manager or a consulting

number of applicants and VFM results in theengineer to oversee the water supply technology

case of PFI water projects comparable to the(City of Yokohama, 2008b; Kume et al., 2015;

Kawai project, as follows. For the Otokogawa

Watanabe et al., 2010).

purification plant renovation project, five
appropriately

groups applied, with VFM at the stage of

implemented, the following two issues wereselecting a business partner at 54.3%26; for theidentified with the service content. The first is

Samukawa

in regard to the business envisioned as the city's

Treatment Facility qualified project, threepartner. The Kawai project required thatgroups applied, with VFM at the stage of

24 City of Yokohama (2008a).

Otokogawa Jyousuijyo Koushin Jigyou
Rakusatusya Ketei (Selecting the Winning Bid

While

the

project

wasCity of Yokohama (2008b), Kume et al.
(2015); Watanabe et al. (2010).
26 See Okazaki Waterworks Bureau (2012), "25

26

Purification

for the Otokogawa
Renovation Project)."&

Wastewater

Purification

Plant

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

selecting a business partner at 25.0%27. For theof service standards. While the Kawai project

Asaka

used

purification

purification

plant

plant/power

and

plant

MisonothePFImethod,athird-party

renovationconsignment format was used to entrust further

projects, as the winning bidder withdrew andfacility operation and maintenance to private

the runner-up was awarded the contract, atenterprise,least two groups applied, with the VFM at thecompliance with the Waterworks Act 31 .

stage of selecting a business partner at 11.2%28;

Yokohama also established detailed standards

all of these projects with a higher VFM thanfor earthquake-proofing and water quality.

that for the Kawai project.

However, as project knowledge is key, the city ofincludingresponsibilityfor

In addition, although the targets were

Yokohama needs to implement a project schemadifferent from Kawai's project, VFMs were also

capable of extracting sufficient technology andconfirmed at the stage of selecting a business

management know-how from its business

partner for the following PFI projects inpartner's creative forces.

Yokohama City. The City of Yokohama HighThe increase in the service transfer fees paid

School of Science and Technology renovationby the city to the business is determined as

project had seven applicants, with VFM at thefollows.

stage of selecting a business partner at 40.1%29;
for

the

Totsukaredevelopment/

Stationwest

temporary

Formula: individual payment amount for O&M

entrance

costs x 0.001 x bonus points32

maintenanceproject, five groups applied, with VFM at thestage of selecting a business partner at 13.8%30.

In terms of the "bonus points," exactly what

Thus, based on these examples, the implication

constitutes "a significant contribution to theis that the participation of multiple applicants

Yokohama

could have produced VFM beyond the 7%

Yokohama" 33 is not specified. Furthermore,achieved in the Kawai project.

while "the utilization of unused energy, theThe second issue rests with the improvement

waterworks

or

the

city

of

adoption of energy conservation plans, recycling,
See City of Yokohama (2002), " Totuka Eki
Nishiguti Dai 1 Tiku Dai Nisyu Sigaiti
Saikaihatu Jigyou Kasetu Tenpo Seibi Tou
Jigyou Yusen Kousyoukensya Sentei Ketuka
Kouhyou (Totsuka Station West Entrance

Kanagawa
Prefectural
Government
homepage (https://www.pref.kanagawa.jp/docs/
n8g/management/samukawa.html;
accessedFeb. 9, 2021).
28 See Tokyo Metropolitan Government Bureauof Waterworks (2001), " Asaka Jyousuijyou・27

30

Misono Jyousuijyou PFI Jigyou ni kakaru(Contract
Keiyaku no Teiketu nituite

District No. 1 Category 2 Urban Development
Project Provisional Development Priority
Negoti-ator Selection Results Evaluation)."
31 See City of Yokohama (2009), " Kawai

Formation for the Asaka & Misono Purification
Plants PFI Projects)."
29 See City of Yokohama PFI Project Review
Committee (2005), " Yokohama Siritu Kagaku

Jyousuijou Sai Seibi Jigyou Nyusatu Setumei
Syo Tenpu Shiryou 5 Jigyou Keiyaku Syo (An)Gijyutu Koutou Gakou (Kasyou) Seibi Jigyou
Sinsa Kouhyou (City of Yokohama High Schoolof Science & Technology Renovation Project
Inspection & Review)."

27(Kawai Purification Plant Renovation Project
Bid-ding Manual Attachment 5: ProjectContract Proposals)."
32 ibid.
33 ibid.

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

measures to address the 'heat island' effect, andother waterworks projects demand continuity

the limitation & reduction of greenhouse gas

and stability. If a problem occurs, it is the local

emissions"potential

residents and businesses of Yokohama — theenvironmentally conscious measures for thecustomers—who bear the greatest burden, not

Kawai project, it is unclear how these are

the city or its business partner; thus, in this case,measures or assessed, and ultimately, howculpability is irrelevant. Yokohama makes suremuch the service transfer fee should increase if

to minimize risk by ensuring a safety net notthey are met. Therefore, while Yokohama

only through general PFI risk allocation, but

requires advanced technology, high water

also through a third-party outsourcing system

quality, and strong project continuity andfor performance and cleanup activity issues atstability, it needs to specify bonus points thatthe time of bidding, and through direct contracts

reflect the provision of these services and the

between Yokohama and financial institutions.

34

are

cited

as

method of increasing the service transfer fee
calculated thereby.

（4）Conclusion
This paper outlines the background of theintroduction of the PFI approach in Japanese

3.Risk allocation
In a PFI project, the risks of the project (actswaterworks projects, using the Kawai Project asof God, etc.) are distributed between the local

a case study, and discusses the expected benefits

government commissioning the work and theand limitations based on the practical evidence.

business submitting the successful bid. For the

The key conclusions of this paper are as

Kawai project, as with other PFI projects infollows. First, compared with other waterwork

general, risks for the "soft" and "hard" tasks,

PFI projects or other PFI projects undertaken

involving facility development, O&M, andby Yokohama, the Kawai water project has not

general management, among others, arerealized commensurate VFM or cost reduction

distributed

theresults. Of course, the content for PFI

business partner. Risk is allocated to eachwaterworks projects varies from project toconstituent based on the concept of "clarification

project, and it would be misguided to conductof the hypothesized risk to the greatest extent

simplistic comparisons; however, all future

possible, followed by allocation of the relevant

bidders should recognize that excessive costrisk to the parties most capable of assuming it"35.

savings are expected.

Second, the project"The parties most capable of assuming it" aredemands

utilization

the parties in charge of executing the task.

technological and management expertise that

Therefore, risk is allocated based on the tasks

the business partner possesses in endeavors

undertaken by each constituent.

such as installing a membrane filtration system

betweenYokohama

andsufficient

of

the

However, the allocation of risk for each task isand keeping the old facility operational during

not precise, as water purification projects andthe switch to new equipment. Finally, although

34 ibid.

kansuru Kihon Houshin (Basic Policy on
Constructing Public Facilities by Utilizing
Public Funds)."

35

See Cabinet Office (2000), " Minkan Sikin

Nado no Katuyou niyoru Kou Kyou Sisetu nado
no Seibi nado ni kansuru Jigyou no Jisi ni

28

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

consider environmental awareness as part ofBetupu Siryou 1 Gyoumu Youkyu Suijyun
Syo ( The Kawai Purification Plant

the service content, an assessment that takes

Reconstruction Project Bid Manual Appendix

this into account, as well as a payment scheme

1: Expected Operation Standards)."

Yokohama expects its business partner toCity of Yokohama, (2019) " Hisei 21 Nendo karathat provides an incentive to partners to achievethese goals, is still required.

Heisei 30 Nendo madeno Keitou Betsu Genka
Keisan ni kansuru Siryou ( Cost Accounting

Acknowledgement:

Documentation by System, FY 2009-2018)."

Hashimoto, Y. & Murata, M. (2017). Kadai henoThis paper’s original version (Ooshinma,

Kanmin Renkei (PPP/PFI)

2021) won the Best Paper Award at the Nippon

Taiou ②

Urban Management and Local Government(Problem-Solving

Research Association(NUMLGRA) and wasPartnerships (PPP/PFI) ). Chikashita, Seiji

published

in

this

journal

with

:

2

:

Public-Private(ed.). Suidou Jigyou no Keikei Kaikaku

thewould like to thank the president of NUMLGRA,

Kouikika to Kanmin Renkei (PPP/PFI) no
Shinkoukei ( Waterworks Management

andReorganization: The Shape of Progress inrecommendation of the president. The author
two anonymous reviewers of Journal ofJapanese Management.

Expansion of Coverage and Public-Private

I would like to express our sincere gratitudePartnerships (PPP/PFI)). Diamond, pp. 112-

for the research assistance provided by the

129.

Japan Water Works Association. (2006) Suido

Kurita Water and Environment Foundation's

References

Jigyou niokeru Minkanteki Keiei Shyuhou no
Dounyu ni Kansuru Tyousa Kenkyu
Houkokusyo. (Investigative Research Report

Amano,T.(2017). Yubarishi niokeru Suido PFI

on the Introduc-tion of Privatization Methods

Environmental Science Promotion Foundation.

in Water Utilities)."

Jigyou (Waterworks PFI Projects in the Cityof Yubari). Waterworks Forum, 53(3) , pp. 23-

Kume, Y. (2014). Nihon Saidai Kibo no Maku
Roka Sishetu wo Dounyu sita Kawai

26.

Cabinet Office. (2001). "VFM(Value For Money)

Jyousuijou Sai Seibi Jigyou (Installingni kansuru Gaidorin (VFM (Value for Money)

Japan's

LargestMembrane

Filtration

System: The Kawai Purification Plant

Guidelines)".

Reconstruction

Cabinet Office PPP/PFI Promotion Office.

Project).

Waterworks

Technology Journal. 72, pp. 15-20.

(2017). "PFI no Gengyou ni Tuite (On the

Current State of PFIs)."

Kume, Y., Tomii, T., Mikami, Ch., & Yoshihara,

City of Yokohama, (2008a) " Kawai Jyousuijou

M. (2015). PFI Houshiki niyoru Kawai

Sai Seibi Jigyou Nyusatu Setumei Syo ( The

Jyousuijou Sai Seibi Jigyou ga Suido Jigyou

Kawai Purification Plant Reconstruction

Keiei ni Oyoboshita Kouka (The Impact of the

Project Bid Manual )."PFI Kawai Purification Plant Reconstruction

City of Yokohama, (2008b) " Kawai Jyousuijou

Project

Sai Seibi Jigyou Nyusatu Setumei Syoon

Waterworks

Management).

Journal of Japan Water Works Association,

29

Journal of Japanese Management Vol.6, No.2, May 2022

ISSN 2189-9592

Bunseki － Keikakuji VFM to Keiyakuji

84 (1), pp. 15-20.

VFM no Hikaku Bunseki － (Cost Reduction

Kishimoto, S., Mikumo, T., Tsujitani, T., &Hashimoto, J. (2018). Anina Mineika no Tuke

Impact Factor Analysis in PFI Projects: A

ha Dokoni – Senshinkoku ni Hirogaru
Saikoueika no Ugoki – (Why the Rush to
Simple Privatization?: The Trend Back to
Public Operation That's Sweeping theDeveloped World). Imajin Publishing.

Comparison of VFM During Planning andupon Contract Formation). Government

Auditing Review, (42), pp. 49-61.

Takizawa, S. (2015). Semarikuru Suido Jigyou
no

Keiei

Kiki

wo

Norikoeru

tameni(Surmounting the Looming Management

Nakajima, M. (2018). Jyou Suido Infura no
Koushin niokeru Kouikisei to Kouritusei

Crisis in Waterworks). Public Enterprise, 47,(Coverage and Efficiency in Waterworks(7) pp. 5-17.

Infrastructure

Renova-tion).

Obayashi,Tanabe,Yoshimasa & Watanabe, Takuya (eds.). Suido

Katsuyou sita Kawai Jyousuijou Sai Seibino Mineika ・ Kouikika (Waterworks
Privatization & Expansion). Municipal( PFI in the Kawai Purification Plant
Reconstruc-tion Project ) . Civil Engineering.

Government Research Lab. pp. 155-176.
Noda,

T. & Suzuki, M. (2010). PFI wo

65(5), pp. 15-20.

Y. (2003). PFI no Tisiki (PFI Know-

Watanabe, T. (2018). Kakukti de Gutaika suru
Kouikika・Mineika no Ugoki (Trends Toward

How). Nihon Keizai Shimbun.
Obayashi, Y. (2018). Suido no Mineika・Kouikika

Expansion of Coverage and Privatization

wo Kangaeru (Considering the Privatization &Throughout Japan). Obayashi, Yoshimasa &Obayashi,Watanabe, Takuya, (eds.). Suido no Mineika・no Mineika ・ Kouikika (Waterworks
Privatization & Ex-pansion). Municipal

Expansion). Municipal Government Research

ExpansionofWaterworks).

Kouikika (Waterworks Privatization andYoshimisa & Watanabe, Takuya (eds.). Suido

Lab. pp. 33-40.
Yokohama PFI Project Review Committee.

Government Research Lab., pp. 155-176.

(2008) " Kawai Jyousuijou Sai Seibi Jigyou

Ooshima, Makoto. (2021). Suido PFI Hoshiki no
Yukousei to Genkai - Kawai Josuijo SaiseibiSinsa Ketuka Houkoku Syo ( The Kawai

Jigyou wo Jirei ni (The Effectiveness andPurification Plant Reconstruc-tion Project

Limitations of the PFI for a Water Utility:

Review Results Report)."Case Study of the Kawai Purification Plant

Yokohama Waterworks Bureau, (2007) " Kawai

Urban Management and Local Government
Research, 36(1), pp.66-78.
PFI Project Research Committee. (2003) PFI
Jigyou Saiyou no tameno VFM Hyouka no
Tetsuzuki ( Guidebook for Evaluating VFM(The Kawai Purification Plant Reconstruction

Jyousuijou Sai Seibi Jigyou Jitushi Houshin

Reconstruction Project in Japan) . Journal of

Project : Implementation Policy)."

Yokohama Waterworks Bureau, (2008) " Kawai

Jyousuijou Sai Seibi Jigyou Tokutei Jigyou no
Sentei ( The Kawai Purification Plant

for PFI Projects). Taisei Shuppan.

Reconstruction Project: Selection of Qualified

Shimono , K & Maeno, T. (2010). PFI Jigyou

Projects)."

niokeru Keihi Sakugen Kouka no Youin

Yokohama Waterworks Bureau Foundation Inc.,
30

Journal of Japanese Management Vol.6, No.2, May 2022

Japan Economic Research Institute. (2007) "Kawai Jyousuigyou Koushin PFI Dounyu
Kanousei Tyousa Itaku Houkoku Syo ( The

Kawai Purification Plant Renovation: PFIIntroduction Feasibility Study Consignment
Report)."Yoshimoto, N. " Suido no PPP : Gunma Tohbu
Suido Kigyoudan no Keisu Sutadi ( PPPs in
Waterworks : A Case Study of the East
Gunma Water Supply Authority)." Yamamoto,Tetsuzo & Sato, Hiromi (ed.) "Atarashii

Jyouge Suido Jigyou Saikoutiki to Sangyouka

(

New

Water

Reconstruction

&
and

Sewer

Services:

Industrialization)."Chuokeizai-sha Holdings, 2018, pp. 69-83.
Note:

I would like to thank Editage(www.editage.com) for English language editing.
(Received: December 12, 2021)(Accepted: May 8, 2022)

31

ISSN 2189-9592