Multilateral organisations have played a pivotal role in financing infrastructure projects in Southeast Asia. Their well-defined guidelines and stringent criteria for infrastructure projects instil confidence among various stakeholders and acts as a catalyst for investment in such projects. Apart from government funding, official development assistance (ODA) loans have provided the bulk of infrastructure financing in the ASEAN region. According to estimates by the Asian Development Bank (ADB), the total infrastructure investment needs in ASEAN from 2016 to 2030 will be $2.8 trillion (baseline estimate) and $3.1 trillion (climate-adjusted estimate).

Against this backdrop, ADB has played a crucial role in providing finance to infrastructure projects across Southeast Asian countries. A growing proportion of ADB finance is now going to private sector infrastructure projects. Beyond finance, ADB plays an important role in Southeast Asia by sharing expertise and knowledge to identify, design and implement good projects. ADB is scaling up operations, integrating more advanced and cleaner technology into projects, and streamlining procedures.

As of April 11, 2018, ADB has financed about 477 infrastructure projects in Southeast Asia. These projects entail a loan commitment of over $36 billion. Country-wise, Indonesia, Vietnam and the Philippines have attracted funding for the maximum number of projects and the highest loan commitments. Sector-wise, the energy and transport sectors have received a large part (over 70 per cent) of the funds in terms of value and volume.

A total of 29 projects have been proposed for funding by ADB. The majority of the projects are expected to receive the bank’s approval in 2018. Vietnam and Myanmar are actively seeking the bank’s funding for their infrastructure projects.

Recent funding

  • ADB has signed a loan agreement of $235 million with Thailand’s B. Grimm Power Public Company Limited to develop renewable energy capacity in a number of Southeast Asian countries. The proceeds have been earmarked to fund the company’s solar power projects with a total capacity of 114 MW and wind power projects with a total capacity of 16 MW in Thailand as well as renewable energy projects in Cambodia, Indonesia, Laos, Myanmar, the Philippines, Thailand and Vietnam.
  • ADB has approved a $50 million loan to help expand and improve urban water supply and sanitation services in four cities in Cambodia. ADB will also administer a $10 million grant from the Japan Fund for the Joint Crediting Mechanism, funded by the Government of Japan, to help finance a new energy efficient wastewater treatment plant in Battambang. It will also administer a co-financing loan of $43.54 million from Agence Francaise de Developpement (AFD), which will jointly finance the project in all four cities. The total cost of the project is about $119.17 million. The Provincial Water Supply and Sanitation Project will improve piped water supply in Battambang and Kampong Cham to cover about 90 per cent of the population in the project cities.
  • The board of directors of ADB has approved a $380 million loan for the Improving Growth Corridors in Mindanao Road Sector Project in the Philippines. The project seeks to improve about 280 km of national roads and bridges in Mindanao. The total project cost is estimated to be $503 million, with the Philippines government contributing $123 million. Additionally, the assistance will help finance the detailed design of 300 km of national highways in Mindanao, which will be constructed through other projects.
  • ADB will fund the construction of new highways in the north-eastern region of Thailand. In November 2017, the Thailand government approved a borrowing plan of about $94.4 million from the bank. The amount will be used in the construction of three new four-lane highways including Phase II of Highway No. 22 linking Nong Han district of Udon Thani province with Phang Khon district of Sakon Nakhon Province, Highway No. 22 linking Sakon Nakhon and Nakhon Phanom provinces, and Highway No.23 linking Roi Et and Yasothon provinces. The Thailand government has earmarked THB 6.81 billion for the construction of the three highways, about 50 per cent of which will come from the ADB soft loan to be repaid over a period of 13 years.
  • ADB and the Gulf Chana Green Company (Chana Green) have achieved financial closure for the development of a biomass power plant in Chana, Songkhla province, southern Thailand. ADB has provided a loan of up to THB 1.109 billion for the project. The plant will convert waste from rubber trees into renewable electricity.
  • ADB has signed a loan agreement of approximately $175.3 million with PT Supreme Energy Rantau Dedap to help finance the second phase of the company’s geothermal power project in South Sumatra province, Indonesia. As part of the financing, ADB will also administer an additional loan provided by the Clean Technology Fund (CTF), which is a rollover amount from an existing CTF facility for the first phase of the project.

Conclusion

With the economic centre of gravity shifting to Asia and the Pacific, ADB is committed to reinventing the bank to meet the challenges of a transforming Asia. To this end, the bank plans to complete the process of formulating the “Strategy 2030” by mid-2018. It is important that ADB plays a pivotal role to help identify bankable projects and provide transaction advisory services for public-private partnerships. Finally, ADB, with experience in regional co-operation and integration, can facilitate cross-border and regional infrastructure projects. However, China’s bid to increasingly assert itself as the regional powerhouse with its One Belt, One Road (OBOR) initiative has raised questions about the future role and relevance of ADB. Many OBOR projects are supported by China’s state-owned banks and its fledgling regional lender, the Asian Infrastructure Investment Bank (AIIB), could become a potential rival of ADB. Given Asia’s vast infrastructure finance needs, there is scope for ADB and the AIIB to cooperate with each other.