Superficially Copying Trends: RO+Concession, EOI

The Magic of Trends

I want to do this with RO+Concession!

Recently (as an annual summer tradition), I have been lecturing at seminars and training sessions for the Ministry of Land, Infrastructure, Transport and Tourism. While the types of projects vary, the phrase I hear over and over is, 'I want to do this with RO+Concession.'
When I dig deeper and ask, 'Why isn't the Designated Administrator System sufficient?', 'Couldn't you do this by leasing ordinary property?', 'Why go out of your way to use a concession?', or 'Why is it necessary to establish operating rights?', I never get a clear answer.
Furthermore, it has become very common to receive backwards answers where the project is forced to fit the method, starting with a 'system-first' approach based on reasons like 'it's trendy,' 'the government is promoting it (and there is support available),' or 'it seems like it would be highly rated as a state-of-the-art PPP/PFI method.'

System Fundamentalism

This approach, which could be called 'system fundamentalism,' is extremely similar to the time when the government requested the formulation of priority consideration guidelines for PPP/PFI, based on PFI (Service Purchase BTO) under the PFI Act, which assumes a project method comparison table and VFM (Value for Money). At that time, too, desk-based calculations of whether VFM could be achieved were used as the basis for method selection, while the 'essence'—such as the content of the project, its original purpose, links to the region, and the returns the project would bring to the city—was left behind.

Now, as RO+Concession (and EOI, business partner models) are in the spotlight, the same mistakes are about to be repeated.

In this article, I would like to critically examine this system-first and method-first thinking, and get to the heart of why 'it's not about the method, but who you partner with that is everything,' and why 'you should re-examine the local landscape before being swept away by the system.'

The Concession Trend and Its Background

The Origin of 'Concession' as a System

The concession method is a technique that aims to reduce fiscal burdens and improve service levels while providing long-term, stable services by setting operating rights for public facilities to the private sector, while leaving the ownership of public facilities and infrastructure in the public domain.

Its institutional beginning lies in the 'Public Facility Operating Rights System' introduced by the 2011 amendment to the PFI Act. In particular, starting with the sale of operating rights for Kansai International Airport and Osaka International Airport (Itami) (the operating rights holder pays over 49 billion yen/year for 44 years to New Kansai International Airport as consideration for operating rights for both airports, and pays 3% of revenue as a revenue-linked payment if profits exceed 150 billion yen. In addition, they paid approximately 175 billion yen as a performance bond upon transfer), the introduction of concessions in Japan's infrastructure sector accelerated.

For large-scale, high-stock facilities like these airports and water and sewage systems, there was institutional significance because long-term operation and investment prospects were easy to forecast and the consideration for operating rights was high. In other words, a concession is a system that was 'created to resolve the deficits of Kansai International Airport and Itami Airport.'

Tsuyama City's 'Magic' Concession

In Tsuyama City, two 'magic' renovations of public facilities were carried out using RO+Concession: 'Kojiya,' a town house renovated into a luxury hotel, and the 'Globe Sports Dome,' an indoor heated pool.
Unlike the airport projects mentioned above, these two cases had operating rights consideration set at a very low price of several million yen per year, and if one wanted to, 'substantially the same thing' could be done using the Designated Administrator System or by leasing ordinary property.
However, because the direction of utilizing the town house was being reviewed at the time, the concession was explicitly mentioned in the mayor's campaign pledges, and the idea that 'maybe a concession would fit' emerged while staff were researching it independently, it was decided to commercialize it as a concession.

This is how a 'real' small concession, which the government probably never even anticipated, was born 'accidentally, yet inevitably and consequently.'

Why is a 'Small Concession' recommended?

In recent years, there has been a government-led movement to expand concessions beyond 'large-scale infrastructure' (i.e., small concessions). The Cabinet Office's 'Small Concession Promotion Model' claims that even relatively small, community-based facilities such as vacant spaces in public facilities, roadside stations, old school buildings, old community centers, and libraries can create new value through collaboration with private businesses.

https://www.mlit.go.jp/sogoseisaku/kanminrenkei/content/001732321.pdf

In 2024, the Ministry of Land, Infrastructure, Transport and Tourism announced the formulation of the 'Small Concession Practice Guidelines (tentative name),' and the FY2025 PPP/PFI Promotion Action Plan also strongly promotes small concessions, stating that it will establish project development support counters, horizontally deploy model cases, and introduce a support partner system.

It must not be forgotten that the 'small concession' recommended by the government does not refer to 'projects with small business scales among those utilizing the right to operate public facilities, etc., positioned under the PFI Act,' but rather to 'anything that involves collaborating with the private sector to do something with existing public facilities,' such as the leasing of ordinary property or the designated administrator system.
(It is a cynical view, but since the government advocates for the promotion of PPP/PFI and sets the 'number of cases' as a KPI every year in the same action plan, could it be that they are using such a broad and ambiguous definition to increase this 'superficial number of cases'?)

Between 'Institutionalization' and 'Formalization'

Certainly, the government's development of various systems and support projects can become infrastructure that backs up the challenges of local governments. However, at the same time, there is a risk that the purpose becomes 'just using the system' because the system is in place.

What has been noticeable recently is the flow where the form of 'RO (Implementation Policy) + Concession' is proposed uniformly by consultants as if it were the 'latest PPP/PFI' method, deciding on the method first and then adding the content later. Also, for some reason, local government officials deify this and send inquiries trying to force their business (not project) into the RO + Concession mold. Even when I ask, 'Why a concession?', they often only return superficial reasons such as 'it is easy to become eligible for subsidies,' 'it has buzz,' or 'it aligns with government policy.' There is no perspective on regional issues, user viewpoints, or long-term self-sustainability, and it is not understood that the method should naturally converge once various things are decided.
Choosing the system (making it 'that') has become the goal itself.

Whether a system is used effectively or killed depends entirely on the project's vision, content, and above all, 'who you do it with.' The fact that such resolve, decision-making, and action are what is required has been forgotten somewhere.

The system is a tool, not the protagonist.
Frankly speaking, technical matters do not matter.

Pitfalls Lurking in Superficial Imitation ≒ Degraded Copies

Horizontal Deployment Without Reality

A system can be good or bad depending on 'how it is used.'
Nevertheless, small concessions are being developed as a system, and the Cabinet Office, the Ministry of Land, Infrastructure, Transport and Tourism, academic experts who do not work in the field, and even consultants who have calculated that they can make a killing if they create public offering-related materials centered on requirement specifications (≒ the composition of 'local governments being eaten') are beginning to introduce past cases as case studies and are eager to 'horizontally deploy' them.

Every project is, of course, custom-made, and since not only regionality but also 'human factors' are major components, there is no way that horizontal deployment can exist in the first place.

Atmospheric Introduction

The 'atmospheric introduction' of the combination of RO + Concession is being considered in various places.

In a certain local city where I am concurrently working as an advisor, a consultant selected (or rather, a project brought in by a consultant, who then received the order) to utilize the government's leading public-private partnership support project for the regeneration of an aging hot spring facility pushed for 'wanting to make a public offering with RO + Concession.' However, the facility itself had extremely low profitability, and since it was difficult for the administration to cut ties (due to the fact that they were trying to some extent and it was difficult to effectively cut ties), they had assumed the current designated administrator, so there was no incentive for a separate operator to be involved in a concession or to set up an operating right.
Therefore, I first advised them to consider how to change the profit structure on-site and how to maximize the independent projects of the designated administrator system, but in the end, the consultant's survey results ended with 'various methodologies can be considered,' wasting not only a year of time but also valuable national funds.

Also, in another local government I was supporting, they were thinking about utilizing historical buildings that exist in large numbers in the city center owned by the city, but here too, a consultant who had entered the local government as a 'strategist' diverted profits to their own company and tried to wrap it in an RO + Concession method, even though the content could be satisfied by simple lease agreements, fixed-term land lease rights, or the leasing of ordinary property. There was a perversion where 'using the system' itself had become the performance indicator, but this also utilized the aforementioned leading public-private partnership support project, and similarly, it remained at the level of 'having investigated.'

(In Kumejima Town, where I was involved, I also had them utilize the leading public-private partnership support project, but they properly carried out everything from the public offering of business partners to the decision within the period. It is natural to produce results as a responsibility for being selected by the government in this way. It should not be the case that only consultants get fees while 'the town does not change at all.'

Method Fundamentalism

Both of these cases ended up exploring the 'atmospheric introduction of RO + Concession' due to external pressure from consultants, etc., but the fact that they stalled in the world of desk theory may be a blessing in disguise (synonymous with not having started yet).
After all, it is meaningless without a process of 'thinking for ourselves,' and it is also a case that shows how wasteful and unrealistic it is to start from business methods or VFM.

Systems and methods are originally just auxiliary lines to embody the 'vision of the town.' However, now, the act of drawing auxiliary lines has become the goal itself, and the number of cases across the country where things are proceeding while the figure that should be drawn remains ambiguous is increasing.

This kind of "methodological fundamentalism" is strikingly similar to the old faith in business method comparison tables and VFM. Just as the pursuit of VFM became an end in itself, resulting in the mass production of "The PPP/PFI" projects where "VFM was achieved but no one benefited," today's small concessions also carry the danger of becoming "short-sighted box-building projects in the guise of concessions."

If one focuses only on external consistency and misreads local realities, needs, and the sustainability of fiscal burdens, and ignores links to local content and local players, it is not just a misuse of the system, but a case of "using systems and methods" to drag the town into hell. Methods must not become a dark hold.

I repeat: if you organize systems and methods while linking visions, content, and various conditions with the market, they will inevitably converge somewhere (conversely, if there is no landing point where they fit, the project lacks marketability).

Misuse of the EOI System and the 'Deficit-is-Fine' Structure

The Original Significance of EOI

Alongside small concessions, EOI (Early Operator Involvement) has been attracting attention in recent years. Originally, as I noted in the aforementioned note regarding the Minoh City hall project, EOI was born as a methodology for "at least achieving independent profitability in operations" by having the operator involved from the design stage.

Subsequently, I was involved in the Joso City "Joso" Roadside Station and the Ishikawa Town Roadside Station project. Both were designed with the aim of "serious self-sustaining projects" that do not rely on taxes or deficit compensation, aiming for complete independent profitability including initial costs, as roadside stations are commercial and tourism facilities. The administration provided public space as a "stage for business" while presenting a clear vision and conditions, and searched for partners who would become partners in fate by conducting business through soundings. The private operator (designated manager candidate) selected through the proposal process would then contribute to the design and construction based on economic rationality, using their own know-how and business models to make the project viable.

Mass-Produced EOI Roadside Stations

However, recently, this EOI system is also being mass-produced as a degraded copy simply because "it's trendy" or "it seems flexible." It is truly a mass-produced Zaku. (My apologies to Zaku and the Zeon army.)

The particular problem is the case where EOI is introduced with a design that assumes deficits from the start, relies on subsidies and municipal bonds centered on the Ministry of Land, Infrastructure, Transport and Tourism, and assumes that an organization with vested interests (and little business sense) will be the operator. Moreover, it is quite malicious that consultants are doing this while receiving tens of millions of yen in advisory service fees.

Looking at the plans for roadside stations actually using these degraded-copy EOIs, they are nothing more than agricultural product direct sales stores (and mysterious museums or offices for vested interests) with poor profitability. However, the set conditions are very close to a service-purchase PFI where "the administration procures and develops the land," "the administration builds the building," and "the administration pays the designated management fee." In other words, it is merely replacing the "public offering process" with EOI to "legally" hand over the development and operation of formal, economically irrational box-like facilities to vested interests. Yet, both the local government and the consultants act smug, claiming it is a PPP/PFI that incorporates private-sector creativity. It is each local government's way of life, so I will not deny it, but who will be happy with a roadside station that repeatedly becomes a "devoured local government," creates tombstones, and continues to suck up precious tax money like a black hole?

An Indulgence for 'Deficits are Fine'?

Originally, the essence of EOI is to complement the economic rationality that administrations are not good at by teaming up with private operators who will actually manage the site from the conceptual stage, building the project as partners in fate, and ensuring that it can generate proper profits as a business for the private sector as well. In other words, it is not about covering up the administration's boring adherence to precedent, protection of vested interests, avoidance of trouble, and "we're doing something" administration with "flexible public offerings" and "EOI." Especially for tourism and commercial facilities like roadside stations, the balance sheet changes significantly depending on "who does it." Nevertheless, making the EOI system an "indulgence for administrative flow" is synonymous with allowing deficits to be fine.

Relying on Systems and Appearances Without Thinking About the Essence

A "fake EOI" set up by relying on the system is based on subsidies and municipal bond dependence from the basic concept stage, with sweet expectations of "it would be nice if it were like this" or "it will probably turn out like this." It uses superficial legislative facts such as outsourced consulting, play-house citizen workshops, and air-headed expert committees, and further uses the EOI method as a cover to favor vested interests and make things look good to the assembly and others. Because there is no factor of economic rationality in it, the administration continues to cover the deficits, and when even that becomes financially impossible, it becomes a "tombstone" (Kitami City has a similar structure).

Unless the true meaning and background of EOI are correctly understood, it will not only mass-produce "The Roadside Station" that assumes deficits, but will also accumulate serious damage to local government management. That is why, rather than being swept away by trends, the ability to master methods and systems through philosophy and conceptual power is being questioned.

Vision and Partners

As we have seen so far, when systems and methods become the main characters, the fundamental questions of "who" is working on the project and for "what purpose" are left behind. Here, I will analyze cases that utilize RO+Concession and EOI as a result, with vision and partners as the axis, without relying on "method trends."

Tsuyama City_Kojiya Project/Globe Sports Dome

The case of Tsuyama City, considered the prototype of small concessions, is a classic example. It was not based on the existence of a system, but rather conceived from the perspective of 'Kojiya as a regional resource,' and as mentioned above, the RO+Concession simply happened to be a good fit as a result. The local government and private operators brought their respective values to the table; the townhouses were transformed into high-unit-price, high-value accommodation facilities, and the glass house was radically renovated into a sports club, creating a 'world that could only be achieved with that specific private operator.' This is a prime example where the system was truly an 'afterthought,' and the vision and the players held the initiative.

Joso City_Roadside Station Joso

At the Joso City Roadside Station, EOI was used as a method, but the underlying factor was not the system itself, but rather 'who to partner with to achieve independent profitability.' With the fiscal situation already tight and significant government investment required for the entire Agri-Science Valley, this was no time to be bleeding cash at a roadside station.
The local government set clear fiscal principles (independent profitability) and sought private players who could challenge this together based on that premise. The operator selected as a result fully understood Joso City's intentions and accepted the risks, and as a result, recorded more than double the expected number of visitors and sales.
Furthermore, for the entire Agri-Science Valley, property tax revenue, which had previously been stagnant at 500,000 yen/year for 31ha, has now exploded to 300,000,000 yen/year for 31ha.

Methods Derived from the Context and Reality of the Town

What these cases have in common is that they do not start by 'thinking from the system,' but rather from 'what is needed by the region' and 'what resources we have and can provide.' The entire project was examined at a layer beyond the system—not just the one-sided logic of the government, but also the economic rationality of private operators, the local climate and context, and market trends—and within that, the business methods naturally converged into RO+Concession and EOI, respectively.

By carefully examining these things, even if they are somewhat complex, one uses those systems and methods if necessary. If they are not necessary, one does not use them, or uses simpler and more familiar methodologies. That flexibility and decisiveness not only become the foundation for truly meaningful PPP/PFI projects, but at the same time, they lead to stronger projects on the ground.

Not Systems/Methods, but Resolve, Decision, and Action

RO+Concession, EOI (and business partner models)—these 'methods' should not inherently be the 'subject.' They are merely 'means to achieve an objective,' and the subject should be the resolve, decisions, and actions regarding 'what we want to do with the town' and 'who we want to walk with.'

Methods and systems should be used flexibly according to the various environments surrounding the project, as well as on-site ingenuity and creativity.
However, in reality, the opposite is rampant: the methods and systems of flashy leading cases become superficially trendy, and both private operators and local governments make 'doing it with that method' an end in itself (hyena consultants copy leading cases poorly and reduce them to short-sighted business models).
This is truly a structure of 'putting the cart before the horse,' and what is born from it is a 'vessel' without a soul—a box-like structure that naturally lacks economic rationality, is disconnected from the town's context, does not reflect regional needs, contributes nothing to social issues, only dumps tax money (which must be paid for), and becomes a 'tombstone' that causes surrounding area values to plummet.

To change this structure, the local government itself must first make 'resolve, decisions, and actions' in their own way, for themselves.

• What kind of future do you want to depict?

• What kind of private sector will you partner with to realize that future?

• Clarify how much resources will be invested.

• What will the government take on, and what will be entrusted to the private sector?

• Clearly distinguish between the government as a manager and citizens as consumers.

Carefully conceiving, verbalizing, and sharing these with stakeholders is the essence of the activity of 'creating a project.'

The same applies to the private sector. If they are only captivated by methods, systems, and schemes, and end up in 'conditional negotiations' such as 'will the government pay?', 'is the land free?', 'what is the business method/contract form?', and 'how much is the risk hedged?', the vision will disappear and the business will be hollowed out. Rather, they are required to have a stance of living together with the region and to perceive 'partnering with the government' as an opportunity rather than a risk.

In other words, 'resolve, decisions, and actions, not methods/systems' is the starting point for everything. Only with this can the 'methodologies and methods as a result,' such as the naturally converged RO+Concession and EOI, demonstrate their true power. Systems are tools, and the entity that masters them determines the quality of the public.

RO+concessions, small concessions, EOIs, and business partner models only function effectively when they are driven by a clear purpose—'this is what we want to achieve for this region'—and the necessary processes and considerations to reach that goal, rather than simply because they are 'trending as a system'.

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