The land of the rising sun is gearing up to launch its own private finance initiative bill this summer – and British firms with experience of the PFI could find it wins them a place in a new market.
With economic gloom still hanging over the country and stories of middle-aged “salary men” committing suicide over the shame of losing their jobs, Japan seems an unlikely destination for British firms keen to win new business. But in fact, the sun is rising on a new, potentially lucrative form of procurement for foreign firms: Japan is launching its own version of the private finance initiative.

The Japanese government is due to pass its PFI bill this summer, political manoeuvrings between the three main parties – the LDP, the Koumei and the Democrats – permitting. It estimates that the PFI market will, in time, be worth Y1000bn (£5bn). The hope is that the initiative will kick-start the economy by providing much-needed cash for infrastructure, hospitals and government buildings across the country.

The details of the bill are still being worked out, but so far the government has decided it will put up at least one-third of the capital for each project. It will borrow its share of the money from its own investment bank. The funds will be administered by a special purpose vehicle made up of contractors, designers, consultants and funders – much like PFI consortia in the UK. The SPV will be responsible for running projects and will manage the buildings or structures for the next 30 years.

Interest in the PFI has been growing in Japan for some time. Japanese delegations, many of them made up of officials from the construction and finance ministries, have been visiting UK companies with PFI experience with increasing frequency over the past two years to learn how the system works. They seem to have used some of this knowledge to shape Japan’s PFI legislation, although it is not yet known how much the Japanese system will resemble British PFI.

Foreign firms with PFI expertise that are prepared to work in Japan are likely to be some of the biggest winners in the country’s fledgeling PFI market. Facilities managers, QSs and other management consultants, as well as contractors and construction managers, will all find their knowledge in demand, particularly if they have an international reputation.

Japanese construction firms such as Kajima are poised to use the PFI experience they have gained in Britain on home territory. Civil engineer and contractor Kumagai-Gumi has already formed a joint venture with British partner WS Atkins – which is currently carrying out bio-remediation work – with the aim of being part of a PFI consortium.

British firms with long-established Japanese offices, such as Ove Arup & Partners and Bovis, are also well-placed to make the right contacts to win PFI work. Gleeds is discussing whether to set up an office in Japan and hopes to tie up with “a major PFI player” in the next three months. PricewaterhouseCoopers has appointed a PFI expert to work specifically on Japanese deals and is cashing in on its international reputation, offering Japanese construction professionals PFI training.

If there is one cloud on the horizon, it is that PFI deals are likely to be even slower getting off the ground in Japan than they have been in Britain. John Dickison, general manager of Bovis Japan, is sceptical about schemes getting under way in the near future. But the firm is manoeuvring into place, just in case.

Japan is a homogenous society and business depends on long-term relationships

Micheal Shears, Ove Arup, Japen

It is doing project management work on the initial planning phase for Chubu Airport in Nagoya, which is due to open in 2005 and could go down the PFI route. But Dickison believes the chances of it being Japan’s first PFI scheme are minimal: “I’ll believe it when I see it. Nothing in Japan works fast,” he says, wearily.

Dickison has lived in Japan for 20 years. He is attuned to the country’s culture and says the government may be reluctant to give control of major infrastructure projects to the private sector. There is no precedent for it taking this step. For most Japanese people, the nanny state is the norm in everything from education to construction.

“I think there are likely to be problems persuading the Japanese government it’s not their project any more. That’s a very big hurdle,” says Dickison.

Michael Shears, chairman of Ove Arup & Partners in Japan, agrees. He says Japanese PFI may be just another take on a form of procurement that already exists in Japan – “third sector projects”. In these public-private partnerships, local authorities – called prefectural governments – bring in private firms to help finance and build new roads, schools and government buildings but retain control of the process and assets from the word go. This is quite different to PFI projects in Britain, where a contractor or consortium runs the project and manages it for 25 years.

Shears says: “In Japan, public works department officials, or their prefectural government equivalents, run construction schemes. The government has been used to having very strong control, whereas in the UK, the government gives its support to a PFI project but hands it over to the private sector to implement.” Shears says foreign firms wanting to win work must play by the rules in Japan. Ove Arup, which has had an office in Japan for 12 years, had to set up a registered office to win business there. At first, it found it hard to employ local staff with relevant skills – all the best people were employed in what they thought were jobs for life. Since the recession hit, Ove Arup has found it easier, and Shears’ office now employs more Japanese staff.

According to Shears, firms that want a share of the Japanese PFI market would do well to do the same, or at least to ensure they employ staff who speak the language and understand the culture.