Multilateral banks have played a crucial role in funding infrastructure projects in Southeast Asia. They have been providing financial assistance for transport, energy and urban infrastructure projects for decades. The renewable energy sector has emerged as an area of interest for multilateral banks. Of late, they have also started looking at new segments such as data centres. When it comes to Southeast Asia, the role of the Asian Development Bank (ADB) requires mention.
The ASEAN region shows great promise in its preparedness for clean energy transition. ASEAN’s developing countries are also actively pursuing collective goals, aside from individual targets and policy improvement actions. ADB consistently finances and supports Southeast Asia’s private sector to invest in energy transition – from renewable energy capacity development, renewables-plus-storage projects, electric vehicles and battery charging infrastructure. Internationally, ADB is also inspiring multilateral cooperation.
The energy transition mechanism (ETM), first launched at COP26, is an example. Under the ETM, ADB plans to support Indonesia, the Philippines and Vietnam to hasten the retirement of coal-fired power plants. Under the mechanism, the bank is aiming to raise capital from multilateral banks, private institutional investors and philanthropic contributors to establish two multi-billion dollar funds. The first will be a carbon reduction fund, which will acquire and operate young coal power plants with low cost of capital provided by ADB partners. As owner, the fund will close those plants within 15 years.
The second is a clean energy fund that will develop renewable power projects, whose output will replace that of retiring coal plants. Recently, ADB won a $25 million grant from the Japanese government as seed financing for its ETM. Four partners have collectively pledged $665 million towards a new Green Recovery Platform managed by ADB that aims to mobilise an additional $7 billion for low-carbon and climate-resilient infrastructure projects in Southeast Asia and accelerate the region’s recovery from the coronavirus disease.
The funding, which was announced at COP26 in Glasgow, includes £110 million ($151 million) from the UK government, €132 million ($155 million) from Italian state lender Cassa Depositi e Prestiti (CDP), €50 million ($59 million) from the European Union, and $300 million from the Green Climate Fund (GCF). The ASEAN Green Recovery Platform forms part of ADB’s commitment to raising its ambition for 2019-30 cumulative climate financing to $100 billion, while ensuring that at least 75 per cent of projects will address climate change mitigation and adaptation by 2030.
In January 2022, ADB announced investment in two private equity (PE) funds that will provide growth capital to companies in Southeast Asia. Creador, the South and Southeast Asia focused PE firm, has roped in ADB as limited partner (LP) for its latest fund. The bank has committed to investing $60 million in the fifth vehicle of Creador. ADB also signed a $39.5 million equity investment in Northstar Equity Partners V Limited (NEP V), a PE fund managed by the Northstar Group. NEP V will provide growth capital to companies operating across the consumer, financial services, and digital economy sectors in Southeast Asia with a focus on Indonesia.
Recent multilateral financings Some of the key multilateral funding towards Southeast Asia’s infrastructure sector during the past few months is detailed below… In March 2022, ADB approved a $175 million loan package to finance the construction of three bridges in Metro Manila in the Philippines. Work on the bridges, located on the Marikina river, is scheduled to commence during 2022 with completion expected in 2026.
The bridges will link some of the arterial roads to the east of Metro Manila. The first bridge will span from the Marcos Highway to Saint Mary Avenue, the second bridge will connect Homeowners Drive to A. Bonifacio Avenue and the route of the third bridge will extend across Kabayani Street and Matandang Balara. All three bridges will be designed to be climate and disaster resilient, allowing them to withstand earthquakes and mitigate the risk of floods.
During the same month, the French Development Agency/Agence Française de Développement (AFD) partnered with PT Perusahaan Listrik Negara, a state-owned utility firm, to support the development a 200 MW wind farm in Banten, Indonesia. Construction work on the wind farm is scheduled to commence in 2022 with completion expected in 2025. AFD will provide technical assistance as well as undertake feasibility studies for the project. Once completed, the Banten wind farm is expected to be one of the largest renewable facilities in Southeast Asia.
The Asian Infrastructure Investment Bank (AIIB), in January 2022, committed $150 million for the development of data centres that mostly serve emerging Asia through the Keppel Data Centre Fund II (KDCF II), a closed-end PE vehicle managed by Alpha Investment Partners Limited. This is AIIB’s first data centre project. Multilateral development banks have been investing in digital infrastructure in the past, but such investments are becoming more essential nowadays with the acceleration of 5G technology and other high speed/supercomputing digital infrastructure due to the pandemic.
The World Bank has approved a $126.9 million loan to finance infrastructure, connectivity and flood-resistance projects in the city of Vinh Long,Vietnam.The financing will be provided to the Government of Vietnam under the World Bank’s International Development Association and will be co-financed by a $19.5 million grant from the Government of Amsterdam’s Development Related Infrastructure Investment Vehicle. The Vinh Long City Urban Development and Enhanced Climate Resilience Project will focus on the development of flood control systems, wastewater drainage and collection and treatment systems, and channel investment towards key urban road infrastructure projects in the city.
In December 2021, ADB approved a $332 million loan to support urban infrastructure development as well as expand the current road network in Cambodia. The loan and grant agreements include $180 million for the Liveable Cities Investment Project and $82 million for the Road Network Improvement Project Phase II, among other projects. The Liveable Cities Investment Project includes rehabilitation works on the existing wastewater and solid waste management network in the cities of Bavet, Kampot and Poipet. This project is expected to benefit around 140,000 residents across the three cities.
The second phase of the Road Network Improvement Project will renovate approximately 48 km of national and provincial roads in Prey Veng and Kandal. This project is expected to boost economic development around the GMS Southern Economic Corridor.
Summing it up
Southeast Asia is one of the regions hardest hit by extreme weather, rising sea level and other calamities related to climate change. The pandemic has prompted calls for countries to prioritise green financing to reduce GHG emissions and improve infrastructure to protect communities from flooding and other climate-related impacts. ADB’s recently approved new energy policy also envisions a transition to a low-carbon economy while providing universal access to reliable and affordable energy services