Multilateral banks have played a crucial role in funding infrastructure projects in Southeast Asia. They have been providing financial assistance for transport (roads, railways, airports, ports), energy and urban infrastructure (water, sanitation, sewage treatment plants, and metro) projects for decades. The renewable energy sector has emerged as an area of interest for multilateral banks. The region shows great promise in its preparedness for clean energy transition. Of late, they have also started looking at new segments such as telecom, especially data centres.
Ongoing efforts
When it comes to Southeast Asia, the role of the Asian Development Bank (ADB) is unparalleled. ADB consistently finances and supports Southeast Asia’s private sector to invest in energy transition – renewable energy capacity development, storage projects, electric vehicles and battery charging infrastructure.
In March 2024, ADB launched a new country partnership strategy for Laos, a five-year plan from 2024 to 2028. The strategy aims to lay the foundation for a more inclusive, sustainable and resilient economy. Under this five-year strategy, ADB will closely collaborate with the government to promote sustainable public finance, enhance equitable access to services and advance climate actions. A similar five-year plan has been launched for Cambodia. The comprehensive strategy also incorporates cross-cutting priorities to address climate change and promote digitalisation, while deepening regional cooperation and integration. A key approach is enhancing high quality, climate-resilient infrastructure to attract private sector investments and fostering a healthy business environment that benefits micro, small and medium enterprises.
The Asian Infrastructure Investment Bank (AIIB) has surpassed its goal for financing climate change projects two years ahead of schedule and will continue to ramp up such lending, focusing on projects with private sector participation. Around 20 per cent of the more than $50 billion of financing AIIB has approved to date went to the Southeast Asia region.
Under the ASEAN Catalytic Green Finance Facility (ACGF) initiative, the ASEAN Infrastructure Fund and the Green Climate Fund are co-financing the Davao Public Transport Modernisation Project in the Philippines by extending $10 million and $50 million in loans.
A $50 million policy-based loan package and around $23 million in project investments have been approved to support the Cambodian Energy Transition Sector Development Programme. This includes a $10 million loan from the ACGF. Additionally, the Export-Import Bank of Thailand (EXIM Thailand) issued a THB 5 billion ($135 million) green bond with three- and four-year maturities under the initiative.
With energy consumption in the region expected to surge by 40 per cent this decade, climate-warming carbon dioxide emissions continue to rise as the region remains reliant on fossil fuels. Green investments grew by only 20 per cent in 2023, attributed to increased investments in renewables and green data centres.
Key recent multilateral financings
The AIIB has committed $5 billion in financing at preferential interest rates to support infrastructure development in the country. This programme focuses on large-scale projects that have short gestation periods and high effectiveness.
In June 2024, the AIIB entered into a $75 million contract to finance green and blue bonds to be issued by the Southeast Asia Commercial Joint Stock Bank. This initiative marks Vietnam’s first issuance of blue bonds and AIIB’s first investment in such financial instruments. The funding will expand the bank’s involvement in sustainable sectors, particularly new segments related to water and marine resources, and promote the development of green assets. Vietnam has long coastlines, which have significant potential for such investments.
The French Development Agency (AFD) has approved a concessional loan of $210 million for the Bakheng Water Treatment Plant Phase 3 in Cambodia. Construction for the project commenced in April 2024, with an estimated total cost of approximately $252 million. The remaining $42 million will be funded by the Phnom Penh Water Supply Authority. The European Union has also pledged a €12 million (around $13.4 million) grant for the initiative.
ADB approved a $500 million loan to support Indonesia’s national action plan for handling marine debris, which aims to reduce plastic waste flow into the ocean by 70 per cent by 2025. Indonesia’s coastal regions are home to 70 per cent of the population, and consequently, fisheries and tourism significantly contribute to the economy. Plastic pollution in the marine ecosystem causes annual damages of $450 million and endangers $3 billion in tourism revenue. The programme was launched in 2018; however, by 2022, only 30 per cent of the target had been met. To accelerate the progress, ADB will provide loan support for the programme. The action plan aims to address downstream waste management, implement upstream measures to reduce plastic waste production and support essential components needed for the overall reform to be successful.
In July 2023, ADB approved a $1 billion loan to support the deployment of 1,100 clean buses in Davao City, Philippines. Additionally, the Green Climate Fund (GCF) has provided a $50 million loan under the Green Recovery Programme.
In March 2023, ADB and Monsoon Wind Power Company Limited signed a $692.6 million project financing package to build the largest wind power plant in Southeast Asia and the first in Lao PDR. The 600 MW wind power plant in southern Laos will be built in Sekong and Attapeu provinces. This project aims to export electricity to Vietnam, contributing significantly to the country’s energy export, which is a key driver of its economy. ADB’s use of blended finance and grants helped overcome bankability hurdles in project financing.
ADB acted as the sole mandated lead arranger and book-runner for the largest syndicated renewable project financing in ASEAN to date. It comprises a $100 million A loan from ADB’s ordinary capital resources, a $150 million syndicated B loan from Siam Commercial Bank and Sumitomo Mitsui Banking Corporation, $50 million in concessional financing from ADB, $382.55 million in parallel loans from the Japan International Cooperation Agency, Kasikornbank, AIIB, EXIM Bank of Thailand and Hong Kong Mortgage Corporation Limited, and a $10 million grant from AIIB.
The financing from ADB and its partners will harness Laos’s untapped wind resources, enhancing energy diversification as wind patterns are countercyclical to the rainy season. This initiative will promote transition to clean energy and sustainable growth, generating long-term economic benefits through cross-border power exports, which have been the pillar of Laos’s economic growth.
In sum
Many of the regional development agencies and funds like ADB, AIIB, World Bank, ASEAN Infrastructure Fund, Global Environment Facility, Climate Investment Fund, GCF, etc. are key to infrastructure project funding. Through a collaborative approach and continued multilateral financing from the these sources, the Southeast Asia region has the opportunity to forge a resilient and prosperous future for all countries in the region.
