This note is the first structural analysis in the Public Asset Revitalization Lab (ISVD-LAB-005). It examines the adoption reality of PPP/PFI Priority Review Regulations through quantitative data, revealing the structural gap between "having a regulation" and "making it work."
What Is Happening
Priority Review Regulations — rules requiring local governments to consider PPP/PFI methods before defaulting to traditional procurement for public facility projects — form the backbone of Japan's public-private partnership framework. The Cabinet Office first requested their adoption in December 2015, targeting central ministries and municipalities with populations of 200,000 or more, and has since progressively expanded the scope.
As of March 2025, the adoption rate among cities with 200,000+ residents reached 82.1%. Among cities with 100,000–200,000 residents, the rate surged to 64.1%, tripling from 20.8% in just three years. On the surface, institutional adoption appears to be progressing smoothly.
However, adoption rates say nothing about whether these regulations actually function. A Ministry of Internal Affairs survey (March 2023) found that a significant number of municipalities that adopted the regulation reported zero PPP/PFI project outcomes, and that operational rates fall well below adoption rates. Furthermore, among municipalities with fewer than 50,000 residents — which comprise 1,227 of the total 1,788 entities — the adoption rate stands at just 3.4%.
This note analyzes the structure in which "rising adoption" and "institutional hollowing" proceed simultaneously, cross-referencing publicly available data from the Cabinet Office and Ministry of Internal Affairs with practitioner insights.
Background and Context
Institutional Design of Priority Review Regulations
Priority Review Regulations are based on guidelines issued by the Cabinet Office in December 2015. The mechanism is straightforward: when planning public facility development or operations, local governments must first consider PPP/PFI methods, with traditional procurement as the fallback option.
The population threshold for target municipalities has been progressively lowered:
| Date | Target Scope |
|---|---|
| December 2015 | Central ministries + municipalities with 200,000+ population |
| June 2021 | Expanded to 100,000+ population |
| June 2025 | Expanded to 50,000+ population (codified in revised guidelines) |
The 2025 revised guidelines explicitly state that municipalities with 50,000+ residents "are expected to establish regulations and conduct priority reviews." Municipalities below 50,000 are also encouraged to adopt them.
Population-Stratified Adoption Rates: Bifurcation Between Surge and Stagnation
The latest data as of March 2025 reveals a clear fault line in the adoption distribution:
| Category | Total Entities | Adopted | Adoption Rate | Operational | Op. Rate |
|---|---|---|---|---|---|
| National gov't | 13 | 13 | 100.0% | 7 | 53.8% |
| Prefectures | 47 | 47 | 100.0% | 42 | 89.4% |
| Designated cities | 20 | 20 | 100.0% | 20 | 100.0% |
| 200,000+ (cities) | 112 | 92 | 82.1% | 79 | 70.5% |
| 100–200K (cities) | 145 | 93 | 64.1% | 48 | 33.1% |
| 50–100K | 237 | 41 | 17.3% | 23 | 9.7% |
| Under 50K | 1,227 | 42 | 3.4% | 13 | 1.1% |
| Total | 1,788 | 335 | 18.7% | 225 | 12.6% |
Two observations stand out. First, the 100–200K bracket surged from 20.8% to 64.1%, suggesting that the 2021 threshold reduction and concentrated support measures were effective.
Second, the 50–100K bracket remains at 17.3% and under-50K at 3.4%. These two tiers contain 81.8% of all entities, meaning the aggregate "18.7% adoption rate" reflects the overwhelming non-adoption of small municipalities.
Reading the Structure
Structural Gap 1: Adoption Without Operation
The most critical column in the table above is "Operational Rate." Even among the 200,000+ bracket with 82.1% adoption, only 70.5% are actually operational. In the 100–200K bracket, adoption is 64.1% but operation is just 33.1% — only half of those who adopted actually use the regulation.
The Ministry's 2023 survey structurally analyzes this gap. Many municipalities with adopted regulations report zero PFI project outcomes, with regulation existing in a perpetual state of dormancy.
Practitioner Hiroki Terasawa observes that many municipal regulations are "degraded copies of the national model" and paradoxically, regulations function as justification for not pursuing PPP/PFI. For instance, when municipalities adopt the national guideline's project cost threshold (construction over 1 billion yen, operations over 100 million yen) verbatim, small-scale projects are systematically excluded from consideration.
Structural Gap 2: Spatial Concentration of Expertise
The Ministry's 2021 survey identified "lack of know-how and knowledge" as the most frequent obstacle across all phases (36 cases), followed by "shortage of personnel" (33 cases). VFM calculation involves the structural contradiction of "estimating costs before knowing what designers and operators will participate," making it practically impossible without specialized expertise.
The result is a self-reinforcing loop: small municipalities depend on external consultants (29 cases), preventing internal capacity building. Major consultancies focus on projects worth 1 billion yen or more, creating a structural disincentive to support small municipalities.
Structural Gap 3: Threshold Design vs. Reality
The Small Concession Platform established by the Ministry of Land in December 2024 targets projects under 1 billion yen. These projects have been structurally excluded from Priority Review Regulations due to cost thresholds. Public R Estate has identified three barriers — image, partnership, and commercialization — all directly linked to this threshold problem.
Toyoake City, Aichi Prefecture (pop. 70,000) pioneered a solution by independently lowering its threshold to "construction over 100 million yen, operations over 30 million yen" — one-tenth of the national guideline. It also applies priority review to designated manager contract renewals.
Lessons from the UK PFI Abolition
Extending the structural analysis internationally, the UK's abolition of PFI in 2018 is instructive. The UK National Audit Office concluded that it found "no clear evidence" that PFI was effective or improved VFM. The very premise underlying Japan's Priority Review Regulations — that PPP/PFI methods are more efficient — has been rejected in the country that originated the system.
However, the UK and Japanese systems are not identical. While UK PFI concentrated on large-scale infrastructure, Japan has developed smaller, more flexible schemes such as Small Concessions and Park-PFI that have no UK equivalent. The UK lesson should be read not as a wholesale rejection of PPP/PFI, but as a warning about the risk of promoting systems whose fundamental objectives remain ambiguous.
Summary: Three Structural Gaps
This analysis confirms three structural gaps in the Priority Review Regulation system:
- Adoption–operation gap — Half of adopting municipalities do not operationally use the regulation
- Spatial expertise concentration — Specialized personnel are concentrated in large cities, leaving small municipalities with no path other than consultant dependency
- Threshold–reality mismatch — The 1 billion yen cost threshold systematically excludes small-scale projects
These three gaps are not independent but mutually reinforcing: without personnel, operation stalls; without operational track records, personnel don't develop; with high thresholds, small projects are never considered.
The June 2025 threshold reduction (to 50,000+ population) aims to break this cycle. However, as the 100–200K bracket's surge demonstrated, threshold reduction only works when accompanied by individual outreach, regional platforms, and expert dispatch. Whether this density of support can be deployed for 237 entities in the 50–100K bracket is the next critical question.
References
PPP/PFI Priority Review Regulation Adoption Status (as of March 2025) — Cabinet Office PPP/PFI Promotion Office (2025)
Revised Guidelines for Prioritizing Diverse PPP/PFI Methods (2025 revision) — Cabinet Office (2025)
Survey on Operational Status of PPP/PFI Priority Review Regulations in Local Governments — Ministry of Internal Affairs and Communications (2023)
Survey on PPP/PFI Adoption in Municipalities with Under 200,000 Population — Ministry of Internal Affairs and Communications (2021)
Manual for Formulating PPP/PFI Priority Review Regulations — Cabinet Office PPP/PFI Promotion Office (2022)
Priority Review Regulations 'Designed Not to Use' PPP/PFI — Hiroki Terasawa (Machi Mirai LLC) (2024)
Why Did the UK Abolish PFI? — Toyo University PPP Research Center (2023)
What Is a Small Concession? — Public R Estate (2024)
