Project ProfileJAPANPublic-Private Partnership
Private Finance Initiative

Cabinet Secretariat

ContentsIntroduction

2

Section 1: Overview of PPP/PFI in Japan
What are PPPs/PFIs

4

Project Experiences

6

Institutional Framework

7

Supporting Public Agencies in overseas business

14

Section 2: Project Profile
Projects in Japan

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Projects Overseas

321Introduction
Japan’s national and local governments are facing severe financial conditions, a declining
population, an aging society with a low birthrate, and an aging public infrastructure. To respond
appropriately to these economic and social challenges while striking a balance between thedevelopment of social infrastructure and fiscal soundness, public-private partnerships thatutilize the funds and ingenuity of the private sector must be considered as an effective way ofrevitalizing the economy and improving administrative efficiency.
The “Act on Promotion of Private Finance Initiative” (PFI Act) was enacted in Japan in July
1999. In March 2000, the following year, the “Basic Policy” was published, which sets forth thebasic principles of PFI projects and policies to promote its smooth implementation, laying out
the legal and institutional framework for the promotion of PFI projects.
Between 1999, when the PFI Law was enacted, and 2020, the total number of PFI projects
implemented in Japan reached a cumulative total of 875, with a total contract value ofapproximately USD 61 billion. Although the number of projects implemented decreased lastyear due to the spread of the novel coronavirus infection, PFI has become one of the preferred
methods of developing social infrastructure and is steadily gaining traction.
Meanwhile, in overseas markets, due to the huge demand for funds for infrastructuredevelopment and the reluctance of governments in emerging countries to accept foreign loans,
PPP methods for infrastructure development and operation have become an increasingly
important topic. Based on the “2025 Policy Program for Promotion of Overseas Infrastructure
Systems” formulated in December 2020, the Japanese government is actively involved informing PPPs from the upstream, including support for the establishment of the system andawarding projects to receiving orders for PPP projects in which Japanese companies canparticipate. The government is working to build a unified public-private partnership system
based on intergovernmental approaches, including yen loans for O&M, Overseas Investment
Loans, support from public financial institutions, and building relationships with local partners.
This Project Profile introduces the institutional framework of PPP/PFI in Japan and PPP/PFI
project experiences by Japanese companies in Japan and abroad to foreign governments, publicinstitutions, and other parties involved in PPPs around the world.
We hope that this Project Profile will deepen your understanding of Japan's efforts in PPP/PFI
and be actively used in your countries, as you consider partnering with our government andprivate institutions.

2Section 1
PPP/PFI in Japan

3

OVERVIEW OF PPP/PFI IN JAPAN

1. What are PPPs/PFIs▶PPP＜Public-Private Partnership＞
PPP (Public-Private Partnership) is a generic term for the partnerships formed between the private
sector and public institutions, in which the government and the private sector collaborate in thedesign, construction, maintenance, management, and operation of public facilities, etc., to provide
better public services through the efficient use of financial resources and improved administrative
efficiency. There are many types of PPPs depending on the scope of work undertaken by the privatesector, and PFI is one type of PPP. Besides PFI, many PPP methods are used in Japan, such as thedesignated manager system, comprehensive private-sector consignment, leasing of public land toprivate sectors, etc.
▶PFI＜Private Finance Initiative＞

Basis Laws: Act on Promotion of Private Finance Initiative (PFI Act)PFI is a type of public procurement method in which all or part of the construction, maintenance,management, and operation of public facilities, etc., is carried out by utilizing private sector funds,management, and technical capabilities implemented under the PFI Act. In the development ofpublic facilities, instead of ordering design, construction, maintenance, management, operation,
separately, these tasks are carried out under a comprehensive, multi-year, long-term contract basedon the concept of a performance-based ordering, which maximizes the capabilities of the private
sector to provide public services of superior quality at a lower cost. In Japan, since the enactmentof the PFI Act in July 1999, many PFI projects have been implemented in compliance with thislaw.

Convention facility development & operation project (Satsumasendai, Kagoshima)4

OVERVIEW OF PPP/PFI IN JAPANExpected effects of the PPP/PFI
PPP/PFI projects create new business opportunities byutilizing private sector funding, managerial know-how,and technical capabilities, thereby creating a virtuous
cycle in the local economy and contributing to reducing
public burdens and achieving fiscal soundness. The
effects of introducing PPP/PFI vary depending on theproject’s nature, but mainly, the following effects areexpected.

Furthermore, PPP/PFI projects are expected topromote regional economic development and thecreation of new local communities by increasing thevalue of surrounding areas through the utilization ofsurplus land.

(1) Cost reduction effectBy placing a comprehensive order that integrates all orpart of a project‘s design, construction, maintenance,management, and operation, the private sector is given
more discretion, allowing more room for creativity, andis expected to reduce costs. During the course of aproject, there is a possibility that losses may occur due
to various unpredictable events such as fluctuation indemand, changes in economic conditions, including
price and interest rate fluctuations, and natural disasters,etc. However, having proper risk management in place
for the entire business based on the principle of PFI thatthe person who can best manage these risks bears therisk can have the effect of lowering the overall costs.

In contrast to the conventional approach, which inprinciple “separates and divides work by task and places
orders in a single year,” the PPP/PFI method generally“places an order in multiple years that encompasses
multiple tasks.” In most PFI projects, the design,
construction, maintenance, management, and operation
are comprehensively ordered over multiple fiscal years.

Main features of PPP/PFI(2) Improvement of the quality of public services
By placing performance-based orders, the quality ofservices is expected to be improved by allowing theprivate sector more room for creativity that applies theunique experience of the private sector. For example, inthe case of facilities that attract visitors, it is more
likely that the quality of services will be improved if
the design, construction, maintenance, management,
and operation are outsourced to private sectors thathave sufficient know-how in the operation of thefacilities, rather than the public sectors implementing
the projects themselves. The new forms of partnership
between the public and private sectors, with anappropriate division of roles, will lead to better public
services as a whole.

(3) Revitalization of the local economy(regional revitalization)
By handing over projects traditionally carried out by
the national or local governments to the private sector,
new business opportunities and job-creation effects
will be created. Additionally, by maximizing the use of
the ideas and knowledge of local companies in thedevelopment and operation of public facilities, it willbecome possible to develop facilities and provide
public services that meet the specific needs of localresidents.

Comprehensive ordering:

Performance-based ordering:

In performance-based ordering, the client does not place
an order based on detailed specifications and conditionsof the project but rather by specifying the obligations tobe fulfilled by the private business operator (workrequirement level), focusing on the output (performance).
In implementing the project, the method proposed by theprivate sector is adopted on the premise that theconditions stipulated in the required level of work aresatisfied, thus allowing the private sector more room forcreativity and ingenuity than the conventional method.

Public culture facility development project(Higashine, Yamagata)

5

OVERVIEW OF PPP/PFI IN JAPAN2. Project Experiences
As of March 2021, the cumulative
number of PFI projects implemented
under the PFI Act is 875, and thecumulative contract value has reachedapproximately USD 61billion¹ (7 trillionyen) ². In Japan, the PFI method is usedin various business sectors, as per thefollowing breakdown.
292 projects for educational and culturalfacilities (social education facilities,cultural facilities, etc.), 220 projects forurban development (roads, parks,sewerage facilities, port facilities, etc.),
131 projects for health and environment(medical facilities, waste disposal
facilities, funeral halls, etc.), 76 projects
forgovernmentbuildings
anddormitories (office buildings, civilservants' dormitories, etc.), 27 projectsforindustry(tourismfacilities,agricultural development facilities, etc.),
26 projects for security (police,firefighters, etc.), 25 projects for living
and welfare (welfare facilities, etc.) and78 projects for other fields (complexfacilities, etc.)

Number of PFI Projects

875(Note)
The number of projects indicated is the number of projects implemented under
the PFI Act as identified by the Cabinet Office survey through the publicationof the implementation policy and does not include projects which were canceled
or discontinued during the service provision period or projects that wereabandoned after the announcement of the implementation policy.

Contract Value of PFI Projects

USD 61billion (JPY 7 trillion)¹ The figures shown are different from theproject scale used in the “Action Plan for
PPP/PFI Promotion.”² Exchange rate: 113.36yen/$ (2021/12/08)

VFM (Value for Money):
Based on the results of a survey of VFM
trends for projects in which implementation
policies were announced between 1999
(enactment of the PFI Law) and fiscal year
2015, shows that VFM at the time of awardof the projects were around 17.9% for the“services purchase type” and 23.1% for the“mixed type.”(Note)
The contract value is the total of the initial contract amount for projects in which theimplementation policy was made public and for which public expenditure wasdetermined for the relevant fiscal year, as ascertained by the Cabinet Office survey. Thecontract amount does not include the compensation for operating right under the “theright to operate public facilities system,” which is a different indicator from the projectscale in the “Action Plan for PPP/PFI Promotion.”6