ASEAN must step up efforts to attract private capital for infrastructure projects
SINGAPORE: A growing infrastructure development story in Southeast Asia will create significant financing needs and ASEAN must do more to attract private capital to plug the gap, said Finance Minister Heng Swee Keat on Thursday (Apr 5).
These “tremendous” infrastructure opportunities come as member states strive towards the ASEAN Economic Community (AEC) 2025 vision, which has infrastructure linkages as one of its primary goals, and amid rapid urbanisation within the region.
“We should step up our efforts to crowd in private capital on ASEAN infrastructure projects,” Mr Heng said in a keynote speech delivered at the 8th World Bank-Singapore Infrastructure Finance Summit. “The opportunity set is large, but much work is needed to mainstream ASEAN infrastructure financing as an asset class.”
Citing figures from the Asian Development Bank (ADB), Southeast Asia’s infrastructure investment needs will total US$2.8 trillion (S$3.68 trillion) between 2016 and 2030, or about US$184 billion annually.
Mr Heng noted that much of the responsibility for infrastructure spending has traditionally fallen on the shoulders of the governments. While ASEAN must continue to prioritise infrastructure spending to sustain growth, it needs to look beyond the public sector to finance these expenditures, he added.
“There is a genuine opportunity to attract long-term institutional investors into infrastructure financing,” he said.
BRINGING TOGETHER ASEAN POLICYMAKERS AND THE PRIVATE SECTOR
While there have been successful examples of ASEAN members tapping the private capital market for infrastructure financing, more of such collaboration can be fostered in three ways.
According to Mr Heng, these include increasing visibility, improving bankability and enhancing data availability of investment opportunities and projects in the region.
On the first point, Mr Heng described greater awareness of Southeast Asia’s investment opportunities as key to unlocking private sector participation.
He cited a PwC report released this year, which found “a number of good sector-related but geographically diversified opportunities in ASEAN”.
In the energy sector, for instance, there are about 77 renewable energy projects in hydro, solar, wind, geothermal and biomass that are geographically spread out across ASEAN. Meanwhile in the transport sector, 219 road and bridge projects are in the pipeline amid increasing demand.
“We can capitalise on investors’ specialised interest in a particular sector by promoting ASEAN as an investment bloc,” said Mr Heng.
When it comes to improving the bankability of ASEAN’s infrastructure projects, there are a number of ways to do so.
First, the goal is to draw in private sector participation on projects that provide reasonable returns with reduced project volatility.
“Where the project is appropriate for private financing, but where the expected revenue may not cover costs fully, governments can step in to increase the bankability, by providing co-funding, raising user charges, or extracting additional funding from value created from the project.
“Where there are sufficient revenues to cover cost but exposure to certain risks remain high, risk mitigating measures such as government guarantees and credit enhancements can come into play to reduce the risk premium,” Mr Heng elaborated.
For this, multilateral development banks (MDBs) can play a role, he added while raising the example of the World Bank’s International Finance Corporation (IFC) Managed Co-Lending Portfolio Program.
At the same time, in-country capabilities in the areas of project selection, preparation and implementation must be improved through capacity-building workshops for ASEAN officials and agencies.
Good project structuring and proper risk allocation, which can be done in collaboration with the MDBs and private sector professionals, will also help address investors’ key concerns, according to Mr Heng.
Another way to improve bankability is through the development and use of standardised documentation and appropriately drafted Public Private Partnership (PPP) contractual provisions.
“Standardisation of project documentation reduces costs and uncertainty, and helps identify common risks, issues and solutions,” he said. “This will provide investors with greater assurance and help drive bankability.”
As for enhancing data availability on ASEAN’s infrastructure investment opportunities so as to attract international investors, Mr Heng said: “We will continue to support the development of ASEAN infrastructure benchmarks and promote inclusion of ASEAN projects in global benchmarks and indices."
SINGAPORE’S INFRASTRUCTURE OFFICE TO BE NAMED INFRASTRUCTURE ASIA
On its own, Singapore has set up an Infrastructure Office called Infrastructure Asia, and is allowing its statutory boards and government-owned companies to explore issuing bonds to finance infrastructure building.
Mr Heng said these two efforts, announced in the recent
Budget, hope to support infrastructure development throughout ASEAN.
The former, which will commence operations from this month, is intended as a “platform to connect local and international stakeholders across the value chain, enable information exchange, facilitate infrastructure investments and connect infrastructure players with relevant professional services”.
One of Infrastructure Asia’s key initiatives will be to develop a multi-year capacity-building programme for regional government officials, noted Mr Heng.
Meanwhile, the new policy for statutory boards and government companies to issue bonds for the funding of infrastructure projects can spur more participation from the private sector and help to catalyse the development of a more vibrant long-term infrastructure bond market in ASEAN, he added.
Overall, Mr Heng said that sustaining infrastructure development is a challenge for every ASEAN member state. There is much to gain from the sharing of experiences and helping one another, he added.
“As a collective, ASEAN must remain committed and united to mainstreaming ASEAN infrastructure as a viable asset class and crowding in private capital. With these, infrastructure development will be able to fulfil its potential as a powerful engine for sustained growth, resilience and innovation in ASEAN.”
Mr Heng also attended panel discussions at Thursday’s event where he and other ASEAN finance ministers shared each country's infrastructure requirements.
Southeast Asia’s finance ministers are gathered in Singapore this week for the 4th ASEAN Finance Ministers’ and Central Bank Governors' meetings. Under Singapore’s chairmanship, the meetings will focus on
three areas, namely how to sustain growth, boost resiliency and foster innovation.
