Role of multilateral funding in Southeast Asia
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.
As of June 2019, the World Bank had financed 297 infrastructure projects in Southeast Asia. These projects together entail a commitment of close to $33 billion. The maximum number of projects have been sanctioned in Indonesia (104 projects), followed by Vietnam (46 projects) and the Philippines (44 projects). This trend is true for the amount sanctioned as well.
With regard to the sector-wise split, as of June 2019, the energy and transport sectors have attracted funds for the maximum number of projects, with a share of 37 per cent and 24 per cent respectively. Commitment-wise, around 43 per cent of the total funding went into financing energy projects. This was followed by the transportation, and water and sanitation sectors with a share of about 27 per cent and 14 per cent respectively.
Asian Development Bank
The Asian Development Bank (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 is playing 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 June 2019, ADB had financed about 493 infrastructure projects in Southeast Asia. These projects entail a loan commitment of over $40 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 the maximum funding (over 70 per cent).
The Japan International Cooperation Agency (JICA) has been an active lender for infrastructure projects in Southeast Asia, especially for the urban transport and urban infrastructure sectors. It provides long-term loans at concessional rates to the sector through its ODA facility. So far, the agency has provided JPY 9,061 billion worth of financial assistance to 878 infrastructure projects. The major beneficiaries of JICA funding include Indonesia, the Philippines, Thailand and Vietnam.
JICA’s loan exposure is skewed towards the transportation sector with a share of about 56 per cent in terms of number of projects and 65 per cent in terms of loan commitments. Within the transport segment, roads and railways have been the major recipients of JICA’s financial assistance. The energy sector accounts for the second highest share, both in terms of number of projects and loan commitments.
Asian Infrastructure Investment Bank
The China-led Asian Infrastructure Investment Bank (AIIB), which seeks to help plug Asia’s infrastructure funding gap, has begun shifting the economic balance of power and influence in Southeast Asia, a region in which Japan and the US have traditionally been the key external economic players. The AIIB is already cooperating with ADB and the World Bank, which will ensure the complementary role that each of these institutions play in development finance.
- ADB has approved a $7.6 million loan to Electricite du Cambodge (EDC) to construct a 100 MW solar power plant in Kampong Chhnang. ADB will also assist EDC in designing and leading a competitive bidding process to award the development of the National Solar Park Project to independent power producers.
- The EIB has agreed to provide a Euro 76.3 million loan to the Phnom Penh Water Supply Authority for the construction of the Bakheng water treatment plant in Cambodia. The project will be backed by an investment grant of Euro 13.5 million from the Asia Investment Facility of the European Union. It will also be supported by Agence Francaise de Developpement (AFD) under the Mutual Reliance Initiative.
- The Myanmar government has approved a loan worth Euro 35.7 million from AFD to upgrade five hydropower plants in the country. The funds will be used over the next five years to upgrade the Ye Nwe and Zaung Tu power plants in Bago, the Mone Chaung power plant in Magwe, the Kin Tar power plant in Mandalay and the Thapan Seik power plant in Sagaing.
- ADB has approved a funding of $2.75 billion for the construction of Phase II of the Philippine National Railways (PNR) Clark railway line, which will connect Malolos to the Clark economic zone and to Clark International Airport. The project is co-financed with loans of up to $2 billion from JICA, which will finance the rolling stock and the railway systems.
- The International Finance Corporation (IFC), a member of the World Bank Group, and Lao People’s Democratic Republic’s (PDR) Ministry of Energy and Mines (MEM) have signed an MoU to strengthen and extend the country’s power sector by channelising private investment into transmission infrastructure. As part of the MoU, IFC, in partnership with PDR’s state-owned power company Electricité du Laos (EDL), will also carry out a pre-feasibility study for a 500 kV line to export power from Lao PDR to Vietnam.
- JICA has signed an agreement with the Philippines government to provide ODA of $1.54 billion for the North and South extensions of the North-South Commuter Railway (NSCR) project. The funds will be used to procure rolling stock, railway systems, and consultancy services.
- ADB has signed a $227.7 million loan agreement with Gulf SRC Company Limited for the implementation of a 2,500 MW combined cycle power plant project in Chonburi, Thailand. The loan agreement for the project was signed with its co-financiers, including the Japan Bank for International Cooperation and 10 other international and local commercial banks.