Promoting Emergency Measures toward Recovery from the Earthquake
- Tenth Recommendation: Promotion of Recovery Projects That Utilize Private Sector Finance and Expertise -

We offer our sincerest condolences to those affected by the massive earthquake and ensuing tsunami that struck northeast Japan on March 11. We extend our heartfelt prayers for a speedy recovery.

On March 15, 2011, Nomura Research Institute, Ltd. (NRI) launched the earthquake recovery assistance project team under the direct control of its president, Tadashi Shimamoto. Since March 30, it has announced recommendations and survey results about disaster recovery. For further information on the recommendations and results of research NRI group has released to date, see the following website (Japanese only): http://www.nri.co.jp/act311/index.html

The project now presents "Tenth Recommendation: Promotion of Recovery Projects That Utilize Private Sector Finance and Expertise" to aid the recovery of the Tohoku region and the rebuilding of its industry. It is summarized as follows.

■Recommendations

The Great East Japan Earthquake and resulting tsunami destroyed a wide range of social infrastructure, from social capital and housing to private sector equipment and facilities, with the total loss estimated at between 16 trillion and 25 trillion yen. The use of the private finance initiative (PFI: a method for developing social capital using private sector finance) represents an effective means to reconstructing destroyed infrastructure and implementing recovery projects under the following two conditions.

First is consideration toward Japan's increasingly dire public finances. This includes the active utilization of PFI in order to balance the promotion of recovery projects with maintaining public finance discipline, and for the national government to indicate to the financial and capital markets its maximum efforts to rein in the use of government money.

Second is the reduction of the administrative burden for local governments affected by the disaster. This includes reducing the burden from order placements for massive recovery-related projects expected to take place going forward, and the active utilization of private sector companies that retain the a wealth of human resources, technologies and expertise to help balance this with assistance projects for disaster victims.

Since it takes time to select private sector companies or applicable infrastructure projects, PFI is not considered an optimal solution for projects being implemented in the current emergency response stage. Therefore, it will be effective to mix and match methods, such as the "free-standing" type, "services sold to the public sector" or a "hybrid type" that combines the free-standing and services sold to the public sector project types, based on the existence of service charges for infrastructure, during the stage when infrastructure functions have been returned to minimum requirements and full-scale reconstruction begins, or the stage when operations are under way after the infrastructure and facilities have been completed.

The following six actions are considered to be required elements in order to utilize PFI on the ground.

• (1) Streamline projects through combined use of regionalization and PFI (see figure)
• (2) Establish a specialty PFI organization to advise on the review of legislation and budgets for restoration and recovery related projects led by the government
• (3) Establish an assistance organization to advise on the use of various project methods, including PFI, etc., that work on the ground
• (4) Provide financial assistance from the national government to local governments in the form of debt forgiveness
• (5) Establish a preferential taxation system that enables individuals with the "will" to invest money into an infrastructure fund
• (6) Utilize the draft amendment of the PFI Act

The framework built up from utilizing the recovery effort as an opportunity to use PFI will help expand future possibilities as an effective means that leverages the strengths of Japan. From this perspective, restoration and recovery plans, policy and budgets are expected to be formulated.